What’s the appeal of leasing? First off, leasing generally requires a lower monthly payment than a car loan. For example, a $21,000 car loan at 2.79% interest for 60 months will cost about $375 per month. In contrast, a three-year lease payment for the same vehicle could cost as little as $180 per month.¹ In a lease, the dealership also assumes the risk for depreciation, so you don’t have to worry about the car’s trade-in value.
Although leasing has its benefits, the hidden fees can be costly. For instance, leasing contracts include about $1,000 in acquisition and disposition fees. Dealerships can also charge exorbitant penalties for extra mileage and “excess wear and tear.” Additionally, dealerships often sell leaseholders marked-up maintenance programs that far exceed the average cost of a new vehicle’s upkeep.²
The biggest downside to leasing however, is that once your lease ends, you don’t own the vehicle. Yet, when you take out a loan to buy a car, after you pay off the loan, you own the car. Although the car’s value will have depreciated, you can trade in the car or sell it to a private party, reducing the cost of ownership for your next vehicle purchase.
The next time you walk into a dealer’s showroom, remember that leasing may cost you less initially, but over a span of 40 years, buying could save you well over the cost of a new car.³
Source: Kelley Blue Book
