Is Car Leasing Always A Bad Choice?

The perennial debate between leasing and buying a vehicle has left many car enthusiasts and prospective buyers in a quandary. Common financial advice often leans towards the cautionary, suggesting that leasing is a bad financial decision. However, is it always the worse deal, or are there scenarios where leasing might actually be advantageous? Let’s delve into the intricacies of leasing and financing, comparing the two and exploring the advantages that leasing can offer.

Crunching the Numbers

To illustrate the comparison, let’s consider a $50,000 car, a figure not far from the current average price of new cars. We’ll examine two scenarios: buying with financing and leasing. Both calculations assume no money down, providing an apples-to-apples comparison. Additionally, sales tax is excluded from the calculations.

Buying with Financing

For a 5-year loan at the current average interest rate of 8.5%, the monthly payment would be around $1,025.55. Over the 60-month term, the total cost, including interest, amounts to $61,500.


Leasing involves a three-year term with a calculated money factor equivalent to an 8% interest rate. The monthly payment is slightly above $1,000. At the end of the lease, there’s a residual value of $24,000. This means you can either walk away or choose to own the car by paying the residual value.

The Advantage of Options

One key advantage of leasing becomes evident at the end of the term. If you decide to walk away, you’re not tied down, offering flexibility that financing doesn’t provide. In contrast, financing leaves you with ongoing payments and a potential mismatch between the car’s value and what you owe.

Residual Value Calculations

Considering the residual value of $24,000 after three years, you can choose to own the car by paying this amount. Even if you extend the ownership term to match a 5-year financing plan, the total payout over two additional years is roughly the same as the financing option.

Hidden Discounts in Leases

Leasing also introduces the possibility of hidden discounts. Manufacturers and dealers can embed discounts into lease deals, a tactic not as visible as upfront rebates. This helps maintain the perceived value of the car in the market, making it a more attractive option for buyers.

The Importance of Calculations

When considering leasing, it’s crucial to add up all payments, including the residual, to get a comprehensive view of the financial commitment. In some cases, leasing might be more cost-effective, with thousands of dollars in hidden discounts.

Be an Informed Consumer

Leasing may not always be the superior choice, but it’s a viable option worth exploring. Don’t dismiss it outright based on hearsay; instead, compare the numbers diligently. Ensure all aspects are equal in comparisons, such as down payment, vehicle model, and other details. Making an informed decision requires due diligence, so take your time, calculate the numbers, and weigh the pros and cons based on your unique situation.

In the perpetual debate of leasing versus buying, there’s no one-size-fits-all answer. Leasing can offer flexibility, hidden discounts, and the ability to walk away at the end of the term. However, careful consideration and a thorough examination of the numbers are essential. Whether you’re at the dealership planning to pay cash or finance, don’t rule out leasing without a comprehensive analysis. Be a smart and educated consumer, and let the numbers guide you towards the best decision for your financial well-being.

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