 Leasing
VS Buying Car
You, the consumer, have a right to
information about the costs and terms of a
vehicle lease.
This
information will help you compare car
lease offers and negotiate a
car lease that best fits your needs, budget, and
driving patterns.
This quick consumer guide is for a
closed-end lease, the most common type of vehicle
lease. With a closed-end lease, you may return the vehicle at the
end of the lease term, pay any end-of-lease costs, and walk away.
The sample leasing form shows the types of information the dealer
or leasing company must give you before you sign a lease.
Ownership
- LEASING: You do not own the
vehicle. You get to use it but must return it at the end of the
lease unless you choose to buy it.
- BUYING: You own the vehicle and
get to keep it at the end of the financing term.
Up-front costs
- LEASING: Up-front costs 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, taxes, registration and other
fees, and other charges.
Monthly payments
- LEASING: Monthly lease payments
are usually lower than monthly loan payments because you are
paying only for the vehicle's depreciation during the lease
term, plus rent charges (like interest), taxes, and fees.
- BUYING: Monthly loan payments
are usually higher than monthly lease payments because you are
paying for the entire purchase price of the vehicle, plus
interest and other finance charges, taxes, and fees.
Early termination
- LEASING: You are responsible for
any early termination charges if you end the lease early.
- BUYING: You are responsible for
any pay-off amount if you end the loan early.
Vehicle return
- LEASING: You may return the
vehicle at lease-end, pay any end-of-lease costs, and "walk
away."
- BUYING: You may have to sell or
trade the vehicle when you decide you want a different vehicle.
Future value
- LEASING: The lessor has the risk
of the future market value of the vehicle.
- BUYING: You have 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).
You can negotiate a higher mileage limit and pay a higher
monthly payment. You will likely have to pay charges for
exceeding those limits 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 limit wear
to the vehicle during the lease term. You will likely 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 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 loan
term (typically 4-6 years), you have no further loan payments.
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Consider beginning, middle, and end-of-lease costs
At the beginning of the lease, you may have to pay your first
monthly payment; a refundable security deposit or your last
monthly payment; other fees for licenses, registration, and
title; a capitalized cost reduction (like a down payment); an
acquisition fee (also called a processing or assignment fee);
freight or destination charges; and state or local taxes.
During the lease, you will have to pay your monthly payment; any
additional taxes not included in the payment such as sales, use,
and personal property taxes; insurance premiums; ongoing
maintenance costs; and any fees for late payment. You'll also
have to pay for safety and emissions inspections and any traffic
tickets. If you end your lease early, you may have to pay
substantial early termination charges.
At the end of the lease, if you don't buy the vehicle, you may
have to pay a disposition fee and charges for excess miles and
excessive wear.
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You can compare different lease offers and negotiate some terms.
Consider . . .
The agreed-upon value of the vehicle--a lower value can reduce
your monthly payment
Up-front payments, including the capitalized cost reduction
The length of the lease
The monthly lease payment
Any end-of-lease fees and charges
The mileage allowed and per-mile charges for excess miles
The option to purchase either at lease-end or earlier
Whether your lease includes "gap" coverage, which protects you
if the vehicle is stolen or totaled in an accident.
Ask for alternatives to advertised specials and other lease
offerings.
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Know your rights and responsibilities
When you lease a vehicle, you have the right to
Use it for an agreed-upon number of months and miles
Turn it in at lease-end, pay any end-of-lease fees and charges,
and "walk away"
Buy the vehicle if you have a purchase option
Take advantage of any warranties, recalls, or other services
that apply to the vehicle.
You may be responsible for
Excess mileage charges when you return the vehicle. Your lease
agreement will tell you how many miles you can drive before you
must pay for extra miles and how much the per-mile charge will
be.
Excessive wear charges when you return the vehicle. The
standards for excessive wear, such as for body damage or worn
tires, are in your lease agreement.
Substantial payments if you end the lease early. The earlier you
end the lease, the greater these charges are likely to be.
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