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Leasing vs. Buying: The Facts
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Leasing vs. Buying: The Facts

How does leasing a new car differ from buying one outright? It’s important to think in the long-term and how driving habits and credit should also factor into the decision. Here are some key differences between financing a leased car and financing a car loan.

Monthly Payments

Let’s take a look at just how different the basic monthly payments for buying and leasing can be. For a car listed at $23,000, we want to compare what it would cost to lease at 6% or take out a loan at 6%. In this scenario, what we see is that the lease offers our driver the chance to pay 42% less in monthly payments than the driver with a loan. That’s a pretty serious opportunity to save!

Lease vs. Loan Payment Comparison

 

Lease, 6%

Loan, 6%

Car price

$23,000

$23,000

Down payment

$1,000

$1,000

Interest rate

6%

6%

Residual

$11,000

N/A

Months

36

36

Payment/Month

$388.06

$669.28

Upfront Cost

Another key difference in leasing versus buying, outside of monthly payments, is the upfront cost. If signing away a large chunk of money is difficult to do, leasing will probably seem like a more manageable option. Usually with a car loan, 10-to-20% of the price is required upfront. For a $25,000 car, that cost would be $2,500 to $5,000. Similarly, when dealers advertise very low monthly payments for leasing vehicles, they’re usually anticipating a large down payment which often is not the case for buyers.

Your first payment can vary greatly depending on what your lender requires up front, so it’s important to be direct and clear with your lender when considering either a lease or a loan.

Sales Tax

Likewise, sales tax will be a big factor before you are able to drive your new car off the lot. This is where leasing could save you a bundle, depending on which state you lease in. When purchasing a car, you must pay the full sales tax on the price of the car, which is could easily a few thousand dollars.

Since the cost of a leased vehicle is considered a fixed asset, taxes tend to be significantly lower. This relies heavily on state laws, however. For example, in Illinois, Georgia, Texas and others, you must pay sales tax on the full price of the vehicle you lease, just like you would if you were buying it. Sometimes personal property tax also comes into play. Other state policies spread taxes throughout monthly payments. Check with your lender to see if you have options of how you pay taxes on your leased vehicle.


 
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