When Does Leasing Make Sense

published 2 January 2015

The world of new-car shoppers is divided into two camps: those who buy and those who lease. Buyers like the peace of mind of owning their vehicle and knowing that if they pay cash or keep the car past the loan payoff date, they’ll likely come out ahead financially. Yes, you’re on the hook for repairs after the warranty expires, but repairs are likely to cost less each year than car payments.

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The case for leasing. If you always have a car payment—because you trade in your cars often or you tend to finance with long-term loans—then leasing is a good choice. Because you’re paying for a car’s depreciation only over the term of the lease, your payments are lower than if you financed the entire cost. The majority of leases are written for three years, so a leased vehicle is almost always under warranty.

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Suppose you buy a 2015 Chevrolet Malibu 1LT for $24,560 with a five-year loan and 10% down. With Chevy’s 2.9% financing offer, your payments will be $396 a month. Now suppose you get the itch to buy a new car after three years. If you trade in the Malibu, you will likely get about 50% of the sticker price, or $12,280, according to Kelley Blue Book’s estimated resale value. After you pay off the loan, your total out-of-pocket cost will be about $13,290.

However, you can lease the same Malibu for $179 a month for three years with $1,209 down. Your cost will be about $8,650 over three years, including the fees leasing companies impose—a front-end acquisition fee ($600 to $800) and a back-end disposition fee (about $350). Leasing leaves you more than $4,600 richer. The scales tip back in favor of buying when a vehicle has higher-than-average resale values, because you’ll get more when you trade it in.

Leasing does come with strings attached. Excess wear and tear will cost you, although leasing companies usually don’t charge for scratches or a less-than-pristine interior. Plus, mileage is typically capped at 12,000 to 15,000 miles per year, and you’ll pay about 20 cents per extra mile at the end of the lease. You can negotiate a high-mileage lease—up to 30,000 miles per year—but you’ll pay extra for the increased depreciation.

If you want to get out of a lease, there are ways to do it without paying an early-termination fee. A dealer may contact you for a “pull-ahead program,” which lets you return your car to the dealer and lease a new car, often at more-favorable terms. (Dealers sell your previous car as a certified pre-owned vehicle.) Or you could sell the car yourself and walk away from your lease with a check in your hand if your vehicle is worth more than the purchase price written into the lease (see our story Cash Out Your Lease on Your Car).

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Drive Time Buying & Leasing A Car

Anderson has been with Kiplinger since January 2004, when she joined the staff as a reporter. Since then, she's covered the gamut of personal finance issues—from mortgages and credit to spending wisely—and she heads up Kiplinger's annual automotive rankings. She holds a BA in journalism and mass communication from the University of North Carolina at Chapel Hill. She was the 2012 president of the Washington Automotive Press Association and serves on its board of directors. In 2014, she was selected for the North American Car and Truck Of the Year jury. The awards, presented at the Detroit Auto Show, have come to be regarded as the most prestigious of their kind in the U.S. because they involve no commercial tie-ins. The jury is composed of nationally recognized journalists from across the U.S. and Canada, who are selected on the basis of audience reach, experience, expertise, product knowledge, and reputation in the automotive community.