Is It Better to Lease or Buy a Car?

better to lease or buyAlthough we’ve discussed this topic previously (see Lease vs Buy), there is one aspect that we haven’t discussed and continue to hear questions about.

The question is essentially this: “If a car dealer is offering a special promotional lease deal, a purchase rebate, and a low interest loan on the car I want, which one is the best deal?”

The short answer to this question is that the lease deal will nearly always be better — and it’s not simply because monthly payments are less. If the lease deal is one that is being offered by the car manufacturer, the company has usually applied a price discount, a low money factor (finance rate), and a high lease-end residual value. The combination of all these things makes for an attractive low monthly payment. Customers are not able to negotiate these kinds of deals for themselves  because a dealer only controls one of those three things — price.

By contrast, a manufacturer-to-customer rebate is essentially a price discount but doesn’t affect loan interest rate (assuming the customer is not paying cash). In fact, if a manufacturer is offer both a rebate and a low-interest (or 0%) loan rate, customers must select one or the other, but not both. A rebate is the best of the two if the rebate is large (over $2000) or the customer is short on down payment cash. A rebate acts as a down payment and reduces monthly payment amount.

A low-interest loan — or zero percent APR loan — is usually the least attractive of all the three options we’ve mentioned. Although it promises to create low monthly payments, a large rebate can do it better. And a special lease deal can do it even better yet.

Therefore, the next time you are confronted with a decision about whether it is better to lease or buy, and dealers are offering special manufacturer incentives, leasing will nearly always be the best choice — assuming you understand how leasing works and how to know if you are a good leasing candidate. See LeaseGuide.com for more details.

For information about current car company incentives, see Best Car Deals.

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