Myths About Leasing - Part 1 of 5

Myth 1: Leasing a new car costs far more than buying it.

A hard look at the numbers reveals that leasing can be as good a deal as buying. Just as the lower monthly payments don't automatically make a lease vastly cheaper, neither does the fact that you own nothing at the end of a lease mean you're throwing your money away.

To compare buying and leasing fairly, don't forget to take into account the economic power of money you don't put into a down payment or sky-high monthly payments on a purchase deal.

For example, consider a recent deal on a $35,320 car: a 48-month lease for $359 a month and $2,646 down. At the end of the lease you could buy the car for $13,775. That brings your total out-of-pocket costs to about $33,650, assuming you pay cash at lease-end rather than finance the purchase.

Buy the car for a haggled-down price of $33,900, put the same $2,646 down and finance the car for four years with a 6% car loan, and your monthly payments jump to $734. After four years, your total cost is $37,880 -- in this case, about $4,200 more than the lease cost.

This manufacturer happened to be offering a superlow interest rate on the lease, and more often the numbers favor buyers. But what if you leased the car and saved the extra $375 (or whatever the difference comes to) you would have made on purchase payments? Invest that money, or
pay down expensive debt and you're even further ahead with the lease.

Other factors give a lease a leg up on a purchase. For example, most leases include free gap insurance, which covers the difference between the lease payoff and an insurance settlement if your car is totaled or stolen. It's unlikely you'll find that kind of protection when you buy an automobile. If it's totaled, the difference between the balance due and the insurance settlement comes out of your pocket.