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Auto 
Buy vs. Lease
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Why Buy |
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Why Lease | |||||||||||||||||||||
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Comparison | |||||||||||||||||||||
1. |
If you purchase your car with an auto loan, there are no mileage restrictions or limitations placed on you. In addition, you might be able to get bank financing for 90% or more of the purchase price. Finally, at the end of your loan you'll have ownership and some equity. |
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2. |
If you choose to lease your car, your out-of-pocket cash down-payment will be as little as the first month's lease cost. And since your lease term is usually shorter than with retail financing, the automobile can be returned before your warranty expires — this can turn out to be a real savings. |
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3. |
Compare the stated interest rate on a loan with the implied interest rate on a lease. For example, a $20,000 car might lease for $300/month over a three-year term with a termination value of $11,500 — the implied rate is 4.8%.* If an auto loan has a lower interest rate, or if you are uncomfortable with the details of a lease or the termination value, you might prefer to buy. If the auto loan is the same rate or higher, or if you want to avoid the logistics of getting a bank loan, you might opt for the lease. (Currently, the rate on auto loans is approximately 8%). * If you think the car would be worth more than $11,500 after three years, the implied rate is higher than 4.8%; if you think less, the interest rate on the lease is less expensive. |
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 Return to Loans |
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