COST COMPARISON: LEASE VS. BUY
Someone told me that if I’m getting a low-payment long-term loan, it’s more worth it to finance a car than to lease a car
When comparing leasing to buying over the same amount of time, a lease is significantly less than a loan because with a lease, you’re only paying for what you use out of a car whereas a loan is paying off the entirety of a vehicle. So, obviously, if your end cost is less with a lease and you divide both a loan and a lease over the same amount of months (let’s say 24 months), the lease will come out to be cheaper.
But what happens if your loan is long term (let’s say 60 months), making your payments lower per month, and you end your term with an owned vehicle? Do we still think it’s worth it to lease?
Yes. Here’s why:
Let’s compare a lease 2017 Jeep Grand Cherokee to varied loan terms for the same car. We rounded the MSRP to $30,000, $0 down payment in order to not distort the lease payments, 5.5% interest rate, and 6% tax rate. Residual would be estimated at 55%.
So, what does this mean?
We’re glad you asked! Through this table, we can conclude that:
- Even with an 84 month loan, you you’re still paying roughly $10,000 more than you would if you leased
- Banks charge higher interest for a longer-termed loan à making the cost even greater
- States will often give substantially more tax savings for leasers than buyers, since you’re only paying tax on your use of the vehicle – not the vehicle itself.
- You could hypothetically lease 2 cars at 36 months for less than the total cost of buying one car with a 84 month loan
Other things to keep in mind
- A lot of people don’t realize that with longer loan terms, they are often put in an “upside down” situation with their vehicle – meaning that they owe more than they own on the car.
- If the car gets totaled or stolen, the insurance company will only pay for the car’s market replacement value, not the remainder left on your loan – this could sometimes be a difference of a couple thousand dollars. GAP insurance comes free with most leases and covers this cost.
- Insurance is just as expensive with a loan but you’re paying for it over the course of *84* months instead of the standard 24 or 36. Lenders still require you to get full coverage.
- Keep in mind that at 60-84 months, the manufacturer’s warranty will have definitely expired and you’re on your own for repairs. No one wants to STILL be making payments on a 7 year old car, especially one that requires expensive repairs.
Check out our exclusive lease deals here.