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Leasing vs. Buying

End of Term

Leasing Buying
At the end of the lease (typically after 2–4 years), you may have a new payment, either to finance or re-lease the existing vehicle or to finance or lease another vehicle.
At the end of the finance term (typically after 4–6 years), you have no more loan payments.
Options at end of term. At the end of the lease, you do not own the vehicle, so you must return the vehicle unless
  1. You buy it
  2. You re-lease it
  3. If the lessor agrees, you arrange for a dealership or another third party to buy it from the lessor.
Options at end of term. At the end of the term, you own the vehicle. You can sell it, trade it, or keep it.
Cash needs. Unless you have the cash to buy the leased vehicle outright or to buy a different vehicle, you will have a new monthly payment either to re-lease or buy the existing vehicle or to lease or buy another vehicle. Your new lease or loan may also require that you have some cash. Cash needs. At the end of the finance term, you own the vehicle and do not make any further monthly payments. However, if you trade the vehicle for a different vehicle and finance the purchase of the different vehicle, you will have new monthly payments.
Monthly payments. Monthly lease payments are usually lower than monthly finance payments because you are not paying for the entire value of the vehicle. See the section Monthly Payments. Also, the manufacturer or lessor may provide a subsidy on the lease. In addition, if you finance the purchase of the vehicle at the end of the lease, the lease and finance agreements together offer a way to pay for a vehicle over a longer period than allowed under most finance agreements (for example, a 3-year lease followed by a 5-year loan). However, you will pay a rent charge during the lease term and finance charges during the loan term. Monthly payments. Monthly finance payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, plus interest, other finance charges, and taxes. Lenders may offer special rates that can lower your monthly cost.
Achieving full ownership. Alternatively, if you lease for a short term (for example, 2 years) and then purchase the vehicle through a short-term finance agreement, (for example, 2 years), you can achieve full ownership in a period comparable to financing the vehicle for the combined terms (that is, 4 years).

Comparison to buying. In the lease-loan combination, the lease payment is likely to be lower (depending on the residual value), and the loan payment is likely to be higher, than the payment if you were to purchase the vehicle with a 4-year loan only. You will have to pay a rent charge for the lease term and finance charges for the loan term, compared with paying finance charges for the full 4-year loan-only term. With the lease-loan combination, you can wait until the end of the lease term to decide whether you want to buy the vehicle and gain full ownership. However, if you want to finance your end-of-lease purchase, you will have to obtain used-car financing, which usually has a higher interest rate than new-car financing.

Achieving full ownership. When buying a vehicle with cash, you receive immediate ownership of the vehicle. When purchasing a vehicle with an installment sales contract or loan, you pay down the loan balance, eventually building equity in the vehicle. You receive full ownership of the vehicle after you make your final payment.

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Last update: May 5, 2003