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Leasing vs. Buying a Vehicle

Loanor Lease

  LEASING BUYING
Ownership You do not own the vehicle. You may use it, but must return it at the end of the lease unless you choose to buy it. You can own the vehicle and obtain clear title to it at the end of the financing period.
Upfront Costs Upfront costs may include the first month's payment, a refundable security deposit, a captialized cost reduction (like a down payment), taxes, registration and other fees, and other charges. Upfront costs include the cash price or a down payment, taxes, registration and other fees, and other charges.
Monthly Payments Monthly lease payments usually are lower than monthly loan payments because the you pay only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes and fees.  Monthly loan payments usually are higher than monthly lease payments because you pay for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.
Early Termination You are responsible for early termination charges if the lease ends early.  You are responsible for any pay-off charge if the loan is paid off early with your bank or credit union.
Vehicle Return You may return the vehicle at lease end, pay any end-of-lease costs, and walk away. The vehicle may have to be sold or traded when you want a different vehicle.
Future Value You have the risk of the future market value of the vehicle. You have the risk of the vehicle's market value when it is traded or sold.
Mileage Most leases limit the number of miles a consumer may drive, such as 12,000 to 15,000 miles per year. You can negotiate a higher mileage limit and pay a higher monthly payment. You may have to pay charges for exceeding those limits if the vehicle is returned. You may drive unlimited miles, but higher mileage will lower the vehicle's trade-in or resale value.
Excess Wear Most leases limit wear to the vehicle during the lease term. Consumers will likely have to pay extra charges for exceeding those limits if the vehicle is returned.  There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value.
End of Term At the end of the lease, typically 2 to 4 years, you may have to make a new payment either to finance the purchase of the current vehicle or to lease another vehicle. At the end of the loan term, typically 4 to 6 years, you have no further loan payments.

Source: www.federalreserve.gov/pubs/leasing (2011)


To see how these differences may impact a monthly car payment, see below.

  Lease 6% Loan 0% Loan 3.5% Loan 6%
Car Price $23,000 $23,000 $23,000 $23,000
Down Payment $1000 $1000 $1000 $1000
Interest Rate 6% 0% 3.5% 6%
Residual $11,000 N/A N/A N/A
Months 36 36 72 36
Payments

$388.06

$611.11 $399.00 $669.28

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