Do I Buy or Lease?
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Weighing the Choice of Buying versus Leasing
Consider Buying If...
You expect to drive your new car for a long time.
Once you pay off your auto loan, you'll have transportation without writing regular monthly checks.
You are a low mileage driver, or a really high mileage driver. Honda's standard leases are either 12 or 15 thousand miles per year. Choose the figure closest to what you typically drive. You don't want to pay for mileage you won't use, and you don't get credit for mileage not used at the lease end.
While it's true that leases can be structured for almost any mileage, it's generally in the 18 to 20k mileage range that the efficiencies of a lease start to disappear, and it might make more sense to buy instead.
You want to save money in the long run, and you are looking only at your cash costs. In theory, you could lease your car and invest the difference between the low lease payments and the higher payments you'd owe on an auto loan. In that case, leasing would be cheaper. But if you don't invest the difference, then buying is cheaper.
You're in the market for a used car. Thanks to the popularity of leasing, dealers are flush with cream-puff cars that were driven for two years and then turned in. Look for one that's "manufacturer-certified" as being in top shape.
Consider Leasing If...
You want a more expensive car than you could otherwise afford. Monthly payments on leases are generally lower than on comparable auto loans. Also, leases don't require big down payments.
You want to drive a new car every two to three years and don't mind having permanent monthly payments.
Understanding a Lease
Leases are not complex, but they do have their own vocabulary. Here we’ll guide you through the basic concepts and vocabulary. After reading this, you may have questions. We’ll be happy to answer those questions, just call (724) 941-9100.
A lease is not a purchase; it is a contract granting you the use of the vehicle for a fixed time and a certain amount of mileage.
A consumer leases a car on a “closed-end” lease, under which you have the right to purchase the car at its’ lease end value, the residual value.This “residual value” that it depreciates to was set at the beginning of the lease, and was used in calculating your monthly payment.
Your lease payment is based on two factors. It’s partly on the car’s expected depreciation during the lease period and partly on the cost of money that paid for the car, the fee that is the closest equivalent but not equal to, the interest rate charged on a loan. The car depreciates to a “residual value”, the estimated value of the car at lease end. If you honor your obligations during the lease, you’ll gain the right to purchase the car at that amount even if the car’s value is significantly higher than that residual. On the other hand, if you don’t make your payments on time, that default means that they may revoke your right to purchase.
You are expected to maintain the car as if you own it, and you are expected to return the car to the lessor (equivalent to a lender, if you were buying) in a condition such that there is no more than “normal wear and tear” on the vehicle.
If the market value of the car is more than the preset residual value, you can purchase that car at the lower residual value as agreed at lease inception. If the car is worth less than the residual value, you are not responsible for the difference, assuming you return it with normal wear and tear and the agreed mileage, not more.
You can drive more than the agreed mileage; you’ll just be asked to pay for the extra miles that you drive. In fact, if you exercise your right to purchase the car, the lessor doesn’t not care if the car has 2000, or 20,000 or 200,000 miles. When you buy the car at the residual value, they don’t have to deal with the car’s disposal (at auction, or a dealer sale, or pick it up and figure out then what to do!) They don’t have any concern of what happens next. The transaction is finished.
If you drive less than the agreed mileage, you won’t receive a credit for the unused miles, but there’s a likelihood that the car might then be worth more than the residual value, because of its’ low mileage.
Source material from American Honda.
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