Proctor Car Tips: Leasing vs. Purchasing

Last time we took a look at the history of leasing. Today we're going to go a little more in depth with leasing an automobile, and we'll also compare leasing vs. purchasing.

What is Leasing?

This is one of the most frequently asked questions that we get. In its most basic form, leasing is just paying for the amount of time that you use the vehicle. 

How Does Leasing Work?

It's actually a very simple way of financing a vehicle. First you need to find the sales price of the vehicle, and then find out what it will be worth in three years. That's called residual value. The difference between those two numbers is your depreciation. With a lease, you're simply paying for the usage of the vehicle over the time that you've leased it, plus a nominal interest rate. To see how that compares against a purchase, we'll take a look at a side by side scenario of both options so that you can make an informed decision for whatever turns out to be best way to finance your new vehicle.

Purchasing a Car

Purchasing a car is the second biggest investment that most people will make in their lives. To compare purchasing vs. leasing we've broken down two scenarios for you. Both scenarios use the average sales price of a sedan in the United States, along with average interest rates, and average values on the cars. As you can see in the video, to purchase a vehicle (including all of your tax and finance charges over the course of a six year loan) you're going to pay $37,688. That gives you a payment of $539 per month, over the next 72 months.

Keep in mind, that's just the car. That doesn't count everything you need to do keep your car in working condition. Maintenance, repairs, and tires are all auxiliary expenses. If you take the average expenses of all those things, you're going to be in the range of $44,764 over those 72 months. According to Manheim, Edmunds, and Kelley Blue Book, your car is worth $10,200. Subtract that out and you have spent $34,564, in real money, to purchase and take care of your car over 6 years.
Leasing a Car

Now let's take a look at leasing the same vehicle. Your payment would be $400 over 36 months. The reason this number is less is because you are only paying for the usage of the car over the amount of time that it's leased. As a result, your tax and finance charges will be less as well. You will have paid $14,400 over the life of your 26 month lease. At the end of the lease you will pay $300 to turn the vehicle back in which bumps you up to $14,700. When we factor end maintenance charges, you're up to $15,572.
You will not have any repair charges because you'll be under factory warranty for the life of the lease. So for 3 years your total is $15,572. After that lease is over, you get to pick a new car and do it all over again. Your total will become $31,144 to lease the vehicle over the same 6 year period.

Thanks for watching! Next time time we'll be going over some of the major questions customers have when leasing a vehicle.We hope you found this to be a helpful episode of Proctor Car Tips. Stay tuned for part 3 of our leasing series!   

Categories: Finance


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