In normal years, we would tell you that the best time to buy a car is when sales are slow at the end of the month, end or the year, or during vacation season. We would tell you that you might still have to negotiate your prices because dealers aren’t just going to give you a good deal because they like you.

BUT……..things are much different now. Sales have been slow for over a year and are still slow right now. As a result, we are now seeing some of the biggest and best car incentives on new cars that we’ve seen in years. Nearly every car manufacturer is now offering a combination of large factory-to-customer rebates, low-interest loan deals, 0% APR loans (even on long 72 month loans), special lease deals, free maintenance, and “secret” factory-to-dealer rebates that dealers usually give to customers.

Why has 2010 become such a good time to buy a car?

For a number of reasons.

First, the economy seems to be improving, if every so slowly, and car makers and dealers are anxious to give things a little push. They are offering attractive incentives as a way of convincing potential buyers to take action.

Second, even though there are people buying new cars, the market is smaller than a few years ago. This means there’s fewer cars to be sold and the competition among dealers and car makers is tremendous — to the benefit of automobile consumers.

This is a good time to buy because many of the deals are the about as good as they can possibly be. You can’t get lower than zero percent interest on a loan. You can’t get lower than a manufacturer’s cost to build a car and expect them to stay in business. You can’t much better on special car lease deals that give you a deeply discounted price, combined with a low money factor and high residual. Some even kick in free scheduled maintenance for a couple of years.

Another factor creating the outstanding car-buying opportunities right now is the “Toyota Situation.” Toyota’s unfortunate highly-publicized problems have caused a big slowdown in Toyota car sales. Most other car makers have tried to capitalize on the situation by offering some very attractive incentives. It’s like a feeding frenzy. Now Totoya, who is solving their problems, is offering some of the best incentives in their entire history in attempting to restore customer confidence and recover sales.

If you are looking for 0% APR loan deals, nearly every manufacturer has them on at least some of their models and styles. Even if 0% is not available, other very low-interest loans are being offered.  Furthermore, the deals are being offered even on long-term loans, which has been rare until now.

If you’re looking for great lease deals, Honda and Toyota come to mind. In fact, nearly all non-American brands have special car lease deals now. American brands (Chrysler, Ford, GM) haven’t quite come back to leasing after losing so much money on leases in the last few years.

Big rebates, however, are available on many brands, including American brands, and especially on leftover 2009 vehicles. Chrysler, Ford, and GM rebates are very attractive, as are those from Hyundai/Kia, Mazda, Nissan, and Mitsubishi.

So if you are in the market for a new car, NOW is a good time to buy. It might get a little better later in the year — and maybe not.

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One of the best ways to decide between car leasing and buying with a loan is to directly compare the attributes of each, which we will show you in this article. We’ll tell you about how payments compare, about how fees are different, about advantages, and disadvantages.

Another way to help make a decision between leasing and buying is to compare the cost of each for a specific lease vs. buy situation. For this, you’ll need a special Lease vs. Buy Calculator.

Now, let’s take a look at how car leasing compares with buying with a loan.

How is car leasing different from car buying with a loan?

MONTHLY PAYMENTS
> Leasing – Monthly lease payments are roughly 30%-50% less than loan payments for the same car, same term because you only pay for the vehicle’s predicted depreciated value, not the entire value. The average vehicle will depreciate approximately 50% in three years.
> Buying – Monthly loan payments are higher because you pay for the entire cost of the vehicle, which includes the depreciated value. The average vehicle will depreciate approximately 50% in three years.

PAYMENT DUE DATE
> Leasing – Payments are due at the beginning of the month. Your first lease payment is due at the time you sign your lease contract.
> Buying – Payments are due at the end of the month. Your first payment is due one month after you sign your loan contract.

DOWN PAYMENT
> Leasing – Leasing does not require a down payment (“cap cost reduction”). However, some special lease deals may require a down payment in order to get the deal. Making a down payment lowers the monthly payment.
> Buying – Buying with a loan usually requires a down payment, as much as 20%. Making a down payment lowers the monthly payment.

UP-FRONT COSTS
> Leasing – Typically includes:  down payment (if any), first month’s payment, taxes, registration fees, and possibly a security deposit.
> Buying – Typically includes:   down payment, taxes, and registration fees. No security deposit is required.

SALES TAX
> Leasing – Sales tax is based on and paid with monthly payments (in most states), instead of all up front on the entire value of the vehicle. This saves money for the leasing customer.
> Buying – Customers pay sales tax on the entire purchase cost of the vehicle up front, but is usually rolled into the loan as an extra cost. If the customer sells the vehicle later, there is no partial sales tax refund. If he trades, there may be a tax refund — in some states.

SECURITY DEPOSIT
> Leasing – Leases sometime require a security deposit, which is returned at lease-end. The amount of the deposit is typically about the same as one month’s payment. Customers with good credit often don’t have to leave a security deposit.
> Buying – Security deposits are not required, although down payments are usually required, unlike leasing.

OWNERSHIP
> Leasing – Since leasing is designed to only pay for depreciation (with lower payments), you don’t build ownership equity. You return the vehicle to the lease company at lease-end, or purchase your vehicle for it’s depreciated value.
> Buying – By making higher payments, you not only pay for depreciation but also build up ownership equity. At the end of your loan, you receive the title and own the vehicle. It’s value, however, has depreciated and your ownership equity is significantly reduced.

INSURANCE
> Leasing – Laws in most states require you to have insurance. Lease companies require that you pay for insurance on your leased vehicle. The level of required coverage may be higher than is required by state laws.
> Buying – Laws in most states require you to have insurance. Loan companies may require you to have a minimum level of insurance to protect their interest in the vehicle. The level of required coverage may be higher than is required by state laws.

MAINTENANCE
> Leasing – Lease companies require that you keep your vehicle in good condition and maintain it properly. You are not required to have your maintenance done by a dealer.
> Buying – You are free to maintain, or not maintain, your vehicle as you like. However, if you expect to possibly sell or trade your vehicle in the future, the buyer may be interested in how the vehicle was maintained.

GAP INSURANCE
> Leasing – Most leases come with automatic GAP coverage, or a waiver, that pays off your lease if your car is stolen or totaled in an accident. It makes up the difference (gap) between what your insurance pays and the amount still owed on the lease.
> Buying – Loans do not come with GAP insurance. It must be purchased separately. If you will be upside down on your loan, which is very common, and should have GAP insurance to protect yourself in case of insurance shortfall if your car is stolen or totaled.

EARLY TERMINATION
> Leasing – The cost of early lease termination can be expensive due to the fact that your low monthly payments do not keep up with the rapid depeciation of your vehicle. You nearly always owe more on the lease than the vehicle is worth, until near the end.
> Buying – Ending a loan early by selling or trading can be expensive because payments may not have kept up with the rapid depreciation of your vehicle. You may be upside down, which means your still owe more on your loan than the vehicle is worth. This can happen if you rolled another loan balance into your current loan, made little or no down payment, or have a long-term loan.

END OF TERM
> Leasing – You can return your vehicle to the lease company, or purchase it for the price specified in your lease contract. Some fees may apply (see below).
> Buying – You own the vehicle and may choose to 1) keep driving it, 2) sell it for its depreciated retail value, or 3) trade it for its depreciated wholesale value. No fees are required at end of loan.

END CHARGES
> Leasing – Most leases require a “disposition” fee at lease-end as a kind of administrative fee for handling the return of the vehicle. The amount is typically about $350. The fee is not required, usually, if you choose to buy the vehicle at lease-end.
> Buying – There are no fees or charges at the end of loan.

MILEAGE FEES
> Leasing – Typical leases allow 10,000 to 15,000 miles per year. Additional miles may be purchased up front. Excess miles are charged at a rate of 15-25 cents per mile to compensate the lease company for the extra depreciation.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by high mileage is reflected in reduced resale or trade value for your vehicle. Miles aren’t free, regardless of whether you buy or lease.

WEAR AND TEAR FEES
> Leasing – If you have damages or excessive wear and tear at lease-end, you will be charged by the lease company for the repairs to restore the car to a good resellable condition. It’s better and less expensive to have the damages repaired yourself before returning your vehicle to the lease company.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by damages or excessive wear and tear are reflected in a reduced resale or trade value for your vehicle.

DEALER PROFIT
> Leasing – Dealer profit comes primarily from the negotiated sale price of a vehicle. Many customers don’t realize that lease prices can be negotiated and therefore give the dealer more profit than necessary.
> Buying – Most customers know that prices can be negotiated when buying, but often don’t. Fundamentally, buying and leasing offer a dealer the same profit potential.

BUSINESS / PERSONAL USE
> Leasing – Leasing offers similar benefits for both personal and business vehicle use. Business users can deduct lease expenses from taxes. Personal users cannot deduct.
> Buying – Buying is not as convenient for business users, who can deduct vehicle expenses, but not quite as easily as with leasing. Personal users cannot deduct.

FINANCING SOURCE
> Leasing – Dealers don’t finance leases. They hand off lease financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent lease sources are difficult to find.
> Buying – Dealers don’t finance loans. They hand off loan financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent loan sources are easy to find.

INTEREST RATES
> Leasing – Interest rates are about the same as for loans, and depend on your credit score. Lease rate is called “money factor” and can be converted to APR by multiplying lease rate by 2400.
> Buying – Interest rates are about the same as for leases, and depend on your credit score.

CREDIT REQUIREMENTS
> Leasing – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher lease rate, and possibly a down payment and security deposit.
> Buying – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher interest rate and higher down payment.

FINANCE COSTS
> Leasing – Total finance charges are usually higher for a lease than for a purchase with a loan. Low payments are slow at paying down the lease.
> Buying – Total finance charges are usually lower for a loan, assuming the same term. However, most loans have longer terms (in months) than most leases, which evens out total cost.

CALCULATING MONTHLY PAYMENTS
> Leasing – You can use an online lease calculator such as the one at LeaseGuide.com/calc.htm
> Buying – You can use an online loan calculator such as the one at AutoLoanCalculatorOnline.com

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Car leasing has it’s advantages and disadvantages. Here is a summary:

Pros:
- Get new car every 2-4 years, with latest features and safety equipment
- Lower monthly payments
- Usually no down payment
- Car is always under warranty
- Lower sales tax (in most states)
- Avoids used car selling/trading hassles
- Automatic GAP insurance included (most leases)

Cons:
- Low payments doesn’t build owership equity
- Difficult to get out early – best if completed as scheduled
- Must keep car is good condition, or pay at end
- Must drive only average miles (about 15K/year) or pay at end
- Extra fees at beginning and end
- Not allowed to make modifications to car
- More complex, hard to get good deal if you don’t understand how it works

Car leasing is great for some people, particularly for those who take the time to understand how it works and learn how payments are calculated. If you normally trade cars every 2-3 years, drive average miles, and take good care of your cars, you can benefit from leasing.
Leasing is not so great for people who don’t understand it, have an unstable lifestyle, are likely to want to end the lease early, don’t take good care of their cars, and can’t predict the number of miles they will drive.

Car leasing might be the right answer for first time car buyers — but maybe not.

See LeaseGuide.com for additional information, advice, leasing kit, and lease calculators.

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Car leasing is extremely popular because it offers a more affordable method of auto financing. It allows you to have lower monthly payments than with traditional auto loans. About one out of every five vehicles driven by automotive consumers in the United States are leased.

But car leasing is not for everyone. Is leasing good for a teen’s first car? What are the pros and cons of leasing?

Leasing is a little more complicated than buying with a loan, so you should take the time to learn about leasing, and be sure it’s right for you before making a decision.

What is a Lease?

Both leasing and buying a car with a loan are simply two different methods of financing. Where a purchase loan is a method of financing the ownership of a vehicle, leasing is financing the use of a vehicle for a specified number of months, similar to renting but not quite the same thing.

A lease is a formal contract with a bank or leasing company that allows you to drive a car and only pay for the portion of the vehicle’s value that you use up during the time you’re driving it. You agree to pay for insurance, licenses, taxes, repairs, and maintenance.

Contrary to some misguided opinion, car leasing is not renting, and is not a dealer scam. It’s a form of financing that is a bit more complicated than buying with a loan, and therefore easier to make mistakes for those who don’t understand it well.

The leasing provider retains ownership and title to the vehicle throughout the lease. At lease-end you can simply return your vehicle to the provider, or purchase the vehicle and continue driving it.

Leasing Benefits

A car lease offers the following benefits when compared to purchase loans:

- Lower monthly payments
- More car, more often
- Minimum or no down payment
- Smaller sales tax bite in most states
- No used-car headaches at end

Who Provides Leases?

Contrary to popular belief, car dealers do not lease cars. Banks, credit unions, and financial divisions of major car manufacturers lease cars. Dealers simply act as agents of a leasing provider, such as Ford Motor Credit or GMAC, to arrange the lease on a customer’s behalf. Dealers typically work with more than one provider.

Should You Lease?

Car leasing makes sense for many people, but not for others. Here’s how to determine if you are a good leasing candidate:

• Are you willing to trade ownership of your vehicle for lower monthly payments? Leasing is a great way to lower your payments or drive a better car for your money, but you must be comfortable with having no ownership of your vehicle, unless you purchase at lease-end.
• Can you stick with your lease until the end? Leases require you to commit to driving your vehicle for a specific number of months — typically 24, 36, 48, or 60 months. If you feel your lifestyle, your finances, or simply your taste in cars may change significantly in future months, you may not be a good lease candidate. To end a lease early is usually troublesome and costly.
• Do you drive more than 15,000 miles annually? If your answer is yes, you may not be a good candidate because lease contracts are typically written with an annual mileage limit, typically 10,000-15,000 miles. If you drive more that the specified number of miles you will pay a fee for every mile over the limit.
• Do you typically keep your vehicles in good condition and change vehicles every few years? If so, you may be right for leasing. Car lease providers require you to keep their vehicle maintained and repaired, with no more than normal wear and tear. If you don’t, you’ll be charged at the end of your lease.
• How is your credit rating? If you have a history of paying your bills on time and don’t have excessive debt, you are a good lease candidate. Otherwise, you may be required to make a large down payment and pay higher finance charges or, worse, be refused the opportunity to lease.

Lease Price

The most important element of a good car lease deal is the price of the vehicle. Regardless of whether you buy or lease, you should always get the best possible price first. When leasing, this price becomes the capital cost, or “cap cost.” Prior loan balances and fees may be added. Rebates, discounts, down payments, and trade-in credit are subtracted. The lower the capital cost, the lower your monthly payment. This is the only element of a lease deal that a dealer directly controls.

The remaining elements of a lease — money factor, residual value, and related fees — are controlled by the lease provider.

Money Factor

Since a lease is simply another form of car financing, interest charges apply. These interest charges are known as money factor. Money factor is expressed as a very small number such as .00375, which is equivalent to 9% annual interest rate. Again, a small money factor results in lower monthly lease payments.

Residual Value

Residual value is an estimate of a vehicle’s wholesale value at the end of a lease term. The longer the lease, the smaller the residual value. Your lease payment is primarily determined by the difference between cap cost and residual value, which is the amount that the value of the vehicle depreciates during the lease. Finance charges and sales tax will also be included in your monthly payment.

When you get lease offers from a dealer, you should be able to use a lease calculator to verify the accuracy of the dealer’s figures.

Fees

There may be certain fees associated with your lease. The fees that lease providers charge vary both in kind and amount. One of the most common is an acquisition fee, which is an administrative charge for the work in initiating a lease. Another common fee is a disposition fee, usually charged at the end of your lease when you return your vehicle.

Due at Signing

At the beginning of your car lease, you will be asked to pay the first month’s payment, a security deposit, your down payment, if any, and applicable miscellaneous fees associated with licensing a vehicle in your state. You will also be asked to show proof of insurance.

Leasing might be right for a teen who is 18 years old, has established credit, and has a steady income. However, many younger teens who might want to lease their first car must rely on their parents until they are old enough to lease on their own.

More information

For more details about car leasing, which cars make the best lease vehicles, how to find leasing deals, and how to calculate monthly lease payments, see LeaseGuide.com.

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When you use a Lease vs Buy Calculator such as the one at LeaseGuide.com, you should understand how it works and how to get the results you want.

Car leasing is a little different than buying a car with a loan. The language is different, the process is different, and the way that payments are calculated is different. Let’s take a look at how you would use an online lease vs buy calculator to better understand the differences.

What you need in order to use a Lease vs Buy Calculator

 For the lease side of the calculator, you’ll need to know the MSRP (sticker price) of the car, the negotiated price of the car (yes, you negotiate prices when leasing, just as if you were buying), the lease money factor (a form of interest rate), the number of months (lease term) you want to lease, the lease-end residual value (estimated lease-end resale value), and the sales tax rate where you live.

You’ll be asked to provide those figures when you use the calculator. If you don’t know some of the figures, you can guess. However, for best results, you should have the exact figures, most of which you can get from the dealer with whom you are working on a lease deal.

For the loan side of the calculator, it’s a little more simple. You need the negotiated selling price for your car, the loan interest rate (APR), the number of loan months (term), the amount of any down payment, and the sales tax rate where you live. You’ll be asked to input these figures at the appropriate time as you use the calculator. Again, if you don’t know the exact figures, or want to play around with different figures, you can guess or estimate.

Understanding the Results

The results of the Lease vs Buy Calculator will show you a comparison of monthly payments, financing costs, and total costs, including taxes.

Generally you’ll notice that leasing provides lower payments than buying with a loan. You also notice that total costs are lower, even though financing costs are higher for leasing. That’s because, with lower payments, you don’t pay down the original cost as fast with leasing. Because the average outstanding balance is higher with leasing, finance charges are higher.

Also notice that total sales tax is less with leasing. That’s because, in most states, you only pay sales tax on the monthly payment amount rather than the entire value of the vehicle, as you do when you buy.

Lease vs Buy Calculator

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