Although 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.