Is Car Leasing Always a Bad Choice? Pros, Cons, and Myths Explained

The Expert Podcast

Is Leasing Always a Worse Deal Than Buying?

• Common advice often warns against leasing, but let’s explore how leasing compares to financing.
• Using a $50,000 car as an example, we’ll look at the differences in total costs and flexibility.

Financing: What to Expect

• Example calculation with no money down and no sales tax, using an 8.5% interest rate for a 5-year loan.
• Monthly payment: $1,025, totaling $61,500 over 5 years.
• At the end of 5 years, you own the car but may have depreciated value below what you owe.

Leasing: A Different Structure

• A 3-year lease with a “money factor” (similar to an 8% interest rate) results in a monthly payment of just over $1,000.
• At the end of the lease, you don’t own the car, but you have options:
  • Walk away with no further obligation.
  • Pay a residual value of $24,000 to own the car or continue financing it.

Key Benefits of Leasing

• Flexibility at the end of 3 years: walk away or buy if the car’s value exceeds the residual.
• Potential to benefit from rebates or hidden discounts that manufacturers often apply only to leases.
• Manufacturers can offer lower monthly payments on leases without impacting the car’s perceived value.

Why Leasing Could Be a Smart Choice

• Leasing gives you an “out” without negative equity, which can be beneficial if you want to switch cars or your circumstances change.
• Sometimes, total leasing costs may be comparable or even lower than financing, especially with dealer incentives.
• Leasing may allow you to drive a new car every few years without the hassle of resale or depreciation concerns.

Smart Tips Before Committing

• Always compare total lease and financing costs side by side.
• Ensure calculations are based on equal terms: same down payment, same vehicle, and all fees.
• Take time to review the numbers before making a decision—avoid impulsive commitments at the dealership.

Final Thought

• Leasing isn’t inherently “bad”; it’s an option that can provide financial flexibility. Weigh your options carefully, do the math, and choose what works best for you.