In the automotive finance world, the term lease is shrouded in mystery. To many buyers, it conjures up images of grandfathers cautioning to buy instead of lease with the mentality that owning the vehicle is a more important and “trustworthy” way of acquiring it. In the late 20th century, that may have been true. However, the decision of leasing vs buying in today’s world is much different than what your grandfather experienced. New regulations, more consumer-centric laws, slower depreciation, and more expensive, technologically advanced cars must all be considered before deciding whether to lease or buy.

How Does Leasing a Car Work?

When you lease a car, you pay a portion of the cost. The portion you pay is for the amount you’ll “use” over the lease term. A car depreciates, and nothing can stop that. A lease finances that depreciation, interest (money factor), and taxes. The “use” of the vehicle is based on your yearly driving habits, which creates the residual value backed by the leasing bank. 

Your monthly payments consist of buying the vehicle’s sale price, minus any down payment and/or incentives, to that residual value at the end of the contracted term. At the end of the term, you can buy, sell, trade, or return the vehicle to the bank. Leasing provides a broader array of options when compared to buying the car outright.

Comparing Buying vs Leasing

Consider the following example: You have your eye on a $40,000 vehicle. In two years, that car will have an estimated (in this example) value of $26,000. This value loss is depreciation, and it factors into your lease arrangement.

Leasing: Depreciation considerations, finance charges, possible fees, and taxes determine monthly payments.

Buying: You pay the entire $40,000 of the vehicle’s value, plus fees, taxes, and finance charges, over the contracted repayment term.

Is Leasing the Better Option for You?

The short answer: It depends.  

The longer, and more helpful, answer is that there are many factors to weigh in as a consumer in today’s market. The vehicle’s market depreciation is based on make, model, body style, trim and equipment, and many other factors that a leasing bank uses to set its residual. You should also include the following considerations before deciding:

• The use of the vehicle
• Your annual driving habits
• Technological desires
• Manufacturer-backed incentives
• Concerns about mechanical repairs, either under factory warranty or out-of-pocket

How Can Centennial Leasing Help?

At Centennial Leasing & Sales, we don’t assume what is right for you. Instead, we provide all the information you need to make a wise, informed financial decision. We don’t want you to feel pressured into a transaction you aren’t sure of, and our professional consultants will guide you through the decision-making process to ensure you have your best automotive buying experience.

Contact us today if you are in the market for a new or used vehicle. One of our professional consultants will happily provide you with multiple cost comparisons for various vehicles to help you determine whether leasing or buying is the better fit for you.