Finance or Lease: Choosing One
It's like buying a new pair of shoes. Everyone has an opinion on the topic, but the best advice is to scope out which is the right fit for you.
Ownership
Leasing: You do not own the vehicle. You get to use it but you have to return it when your lease ends. If your lease vehicle has a purchase option, you may be able to purchase your vehicle during the term of the lease or at lease end.
Buying: You own the vehicle and you get to keep it when you pay off the amount owed under the financing contract.
Up-front costs
Leasing: The money you pay before you take possession of the car may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges.
Buying: Up-front costs include the cash price or a down payment (if you finance), taxes, registration and other fees, and other charges.
Monthly payments
Leasing: When you lease a car, you are paying only for the vehicle's depreciation during the lease term plus rent charges (like interest), taxes, and fees and charges that may be owed during the lease. This usually makes monthly lease payments lower than monthly loan or other finance contract payments.
Buying: When you finance your purchase, you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees. This means that you're probably going to end up spending more on a finance monthly payment than on a lease monthly payment.
Early termination
Leasing: You are responsible for any early termination charges if you end the lease early.
Buying: You are responsible for the remaining balance (plus prepayment penalties, if applicable) if you end the finance contract early.
Vehicle return
Leasing: You may return the vehicle at lease-end and pay any end-of-lease costs.
Buying: When you've made all your payments, the car is yours. What you do with it is entirely up to you.
Future value
Leasing: The lessor takes the risk of how much the vehicle will be worth when the lease ends. You will have to pay charges for exceeding the limits on mileage and wear and use as stated in your contract.
Buying: You take the risk of the vehicle's market value when you trade or sell it.
Mileage
Leasing: Most leases limit the number of miles you may drive (often 12,000-15,000 per year). Some lessors allow you to negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding the mileage limit in your contract if you return the vehicle.
Buying: You may drive as many miles as you want, but higher mileage will lower the vehicle's trade-in or resale value.
Excessive wear
Leasing: Most leases define normal wear and use to the vehicle during the lease term. You may have to pay extra charges for exceeding those limits if you return the vehicle.
Buying: There are no limits or charges for excessive wear to the vehicle. But keep in mind that excessive wear will lower the vehicle's trade-in or resale value.
End of term
Leasing: At the end of the lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle.
Buying: At the end of the finance term (typically 4-6 years), you have no more monthly payments.
Reprinted with permission from Toyota Financial Services (ToyotaFinancial.com ).
