Question 1

When should I lease instead of buy a vehicle?

Accepted Answer

Leasing makes sense when you want lower monthly payments, prefer driving newer cars with latest features, don't drive many miles per year (under 12,000-15,000), want warranty coverage throughout the lease, or frequently change vehicles. It's also good for business use due to potential tax deductions.

Question 2

When is buying better than leasing?

Accepted Answer

Buying is better when you drive many miles per year, want to build equity, plan to keep the vehicle long-term, want freedom to modify the vehicle, or want to avoid ongoing monthly payments. It's also more cost-effective if you keep vehicles for many years.

Question 3

What costs should I consider beyond monthly payments?

Accepted Answer

For leasing: down payment, monthly payments, excess mileage fees, wear-and-tear charges, acquisition fees, and disposition fees. For buying: down payment, monthly loan payments, maintenance after warranty, repairs, insurance (often higher), registration, and depreciation.

Question 4

How do mileage restrictions affect lease costs?

Accepted Answer

Standard leases allow 10,000-15,000 miles per year. Excess mileage typically costs $0.15-$0.30 per mile. If you drive 20,000+ miles annually, buying is usually more economical. You can purchase additional miles upfront at a lower rate than paying excess mileage fees.

Question 5

What is residual value and why does it matter?

Accepted Answer

Residual value is the predicted worth of the vehicle at lease end, typically 45-65% of MSRP. Higher residual values mean lower lease payments because you're only paying for the depreciation. Vehicles with strong resale values (like Toyotas, Hondas) often have better lease deals.

Question 6

Can I negotiate lease terms like I can purchase prices?

Accepted Answer

Yes, you can negotiate the vehicle's selling price (called 'cap cost'), down payment, trade-in value, and sometimes the interest rate ('money factor'). However, residual value is typically set by the leasing company. Always negotiate the sale price before discussing lease terms.

Question 7

What happens at the end of a lease?

Accepted Answer

You have three options: return the vehicle (pay any excess wear/mileage fees), purchase it for the residual value, or trade it for a new lease. If the vehicle is worth more than the residual value, you can purchase and immediately sell it for profit.

Question 8

How does insurance differ between leasing and buying?

Accepted Answer

Leased vehicles typically require higher insurance coverage (comprehensive and collision) and lower deductibles, making insurance more expensive. You'll also need gap insurance, which is often included in lease deals but costs extra when buying with a loan.

Lease vs Buy Calculator

Vehicle Information

Buying Options

Leasing Options

Recommendation: Lease

Buying Total Cost

Leasing Total Cost

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How This Calculator Works

The Analysis Framework

Buying Costs

Leasing Costs

Key Calculation Components

Depreciation & Equity

Mileage Considerations

Financial Formulas Used

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Example Calculation

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