Is Car Leasing Always a Bad Choice? Pros, Cons, and Myths Explained

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Is Leasing Always a Worse Deal Than Buying?
  • Common advice often warns against leasing, but let’s explore how leasing compares to financing.
  • Using a $50,000 car as an example, we’ll look at the differences in total costs and flexibility.
Financing: What to Expect
  • Example calculation with no money down and no sales tax, using an 8.5% interest rate for a 5-year loan.
  • Monthly payment: $1,025, totaling $61,500 over 5 years.
  • At the end of 5 years, you own the car but may have depreciated value below what you owe.
Leasing: A Different Structure
  • A 3-year lease with a “money factor” (similar to an 8% interest rate) results in a monthly payment of just over $1,000.
  • At the end of the lease, you don’t own the car, but you have options:
    • Walk away with no further obligation.
    • Pay a residual value of $24,000 to own the car or continue financing it.
Key Benefits of Leasing
  • Flexibility at the end of 3 years: walk away or buy if the car’s value exceeds the residual.
  • Potential to benefit from rebates or hidden discounts that manufacturers often apply only to leases.
  • Manufacturers can offer lower monthly payments on leases without impacting the car’s perceived value.
Why Leasing Could Be a Smart Choice
  • Leasing gives you an “out” without negative equity, which can be beneficial if you want to switch cars or your circumstances change.
  • Sometimes, total leasing costs may be comparable or even lower than financing, especially with dealer incentives.
  • Leasing may allow you to drive a new car every few years without the hassle of resale or depreciation concerns.
Smart Tips Before Committing
  • Always compare total lease and financing costs side by side.
  • Ensure calculations are based on equal terms: same down payment, same vehicle, and all fees.
  • Take time to review the numbers before making a decision—avoid impulsive commitments at the dealership.
Final Thought
  • Leasing isn’t inherently “bad”; it’s an option that can provide financial flexibility. Weigh your options carefully, do the math, and choose what works best for you.
Is Car Leasing Always a Bad Choice? Pros, Cons, and Myths Explained
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