FRB: Vehicle Leasing: Leasing vs. Buying: Monthly Payments

Leasing	Buying
Monthly lease payments are usually lower than monthly finance payments because you are paying for only the vehicle�s depreciation during the lease term, plus rent charges (like interest) and other fees.	Monthly finance payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, including interest, other finance charges, and taxes.
Payment components. The monthly lease payment consists of five items: Vehicle depreciation Amortization (payment) of any other amounts included in the gross capitalized cost, such as service contracts, insurance, or outstanding prior credit or lease balance Rent charge for the lessor Sales or use tax Any other fees associated with the lease.	Payment components. The monthly loan payment consists of four items: Amount you choose to finance (the purchase price of the vehicle plus up-front sales tax and other amounts you choose to finance, minus any down payment) Interest charged by the creditor on the amount financed Other finance charges, which together with interest determine the annual percentage rate (APR) Any other fees associated with the purchase.
Vehicle depreciation. The vehicle depreciation is generally the amount by which a vehicle is expected to decline in value over a specific period. In vehicle leasing, depreciation is the difference between (1) the original agreed-upon value of the vehicle minus any capitalized cost reduction and (2) the residual value of the vehicle at lease-end. Amortization of other amounts. The payment of items such as taxes, fees, service contracts, insurance, and any outstanding prior credit balance or lease balance included in the gross capitalized cost of the lease. These items are fully paid for over the term of the lease.	Amount financed. The amount financed is the total purchase price of the vehicle Plus any additional items purchased, such as service contracts, insurance, or maintenance agreements Plus any outstanding prior loan or lease balance Plus sales tax on the purchase price, or in some states, the net trade-in difference if a vehicle is traded Plus luxury tax, if applicable, minus any down payment.
Rent charge. The rent charge is a primary cost of leasing (in addition to vehicle depreciation). This charge is similar to interest on a loan. Sales or use tax. The sales or use tax included in the lease payment is determined by the state or county in which the vehicle is registered. In most states, this monthly tax replaces the initial sales tax on the purchase price of a vehicle.	Interest. Interest is a primary cost of financing (in addition to the purchase price of the vehicle). Interest charged by the creditor is included in the monthly loan payment. Other finance charges. Other finance charges, such as payments for credit report fees or required credit life insurance, may be included in the loan payment.
Other fees. Other fees may include items paid monthly over the term that are not subject to the monthly sales/use tax, such as Vehicle or credit insurance, if you choose Taxes that are not due at the beginning of the lease but that are due periodically over the term, such as personal property taxes.	Other fees. Other fees may include items paid monthly over the term that are not subject to the monthly sales/use tax, such as Vehicle or credit insurance, if you choose Taxes that are not due at purchase but that are due periodically over the term, such as personal property taxes.

Leasing

Buying

Monthly lease payments are usually lower than monthly finance payments because you are paying for only the vehicle�s depreciation during the lease term, plus rent charges (like interest) and other fees.

Monthly finance payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, including interest, other finance charges, and taxes.

Payment components. The monthly lease payment consists of five items:

Vehicle depreciation
Amortization (payment) of any other amounts included in the gross capitalized cost, such as service contracts, insurance, or outstanding prior credit or lease balance
Rent charge for the lessor
Sales or use tax
Any other fees associated with the lease.

Payment components. The monthly loan payment consists of four items:

Amount you choose to finance (the purchase price of the vehicle plus up-front sales tax and other amounts you choose to finance, minus any down payment)
Interest charged by the creditor on the amount financed
Other finance charges, which together with interest determine the annual percentage rate (APR)
Any other fees associated with the purchase.

Vehicle depreciation. The vehicle depreciation is generally the amount by which a vehicle is expected to decline in value over a specific period. In vehicle leasing, depreciation is the difference between (1) the original agreed-upon value of the vehicle minus any capitalized cost reduction and (2) the residual value of the vehicle at lease-end.

Amortization of other amounts. The payment of items such as taxes, fees, service contracts, insurance, and any outstanding prior credit balance or lease balance included in the gross capitalized cost of the lease. These items are fully paid for over the term of the lease.

Amount financed. The amount financed is the total purchase price of the vehicle

Plus any additional items purchased, such as service contracts, insurance, or maintenance agreements
Plus any outstanding prior loan or lease balance
Plus sales tax on the purchase price, or in some states, the net trade-in difference if a vehicle is traded
Plus luxury tax, if applicable, minus any down payment.

Rent charge. The rent charge is a primary cost of leasing (in addition to vehicle depreciation). This charge is similar to interest on a loan.

Sales or use tax. The sales or use tax included in the lease payment is determined by the state or county in which the vehicle is registered. In most states, this monthly tax replaces the initial sales tax on the purchase price of a vehicle.

Interest. Interest is a primary cost of financing (in addition to the purchase price of the vehicle). Interest charged by the creditor is included in the monthly loan payment.

Other finance charges. Other finance charges, such as payments for credit report fees or required credit life insurance, may be included in the loan payment.

Other fees. Other fees may include items paid monthly over the term that are not subject to the monthly sales/use tax, such as

Vehicle or credit insurance, if you choose
Taxes that are not due at the beginning of the lease but that are due periodically over the term, such as personal property taxes.

Other fees. Other fees may include items paid monthly over the term that are not subject to the monthly sales/use tax, such as

Vehicle or credit insurance, if you choose
Taxes that are not due at purchase but that are due periodically over the term, such as personal property taxes.