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Leasing Lowers Monthly Payments: That’s A Very Good Thing!

July 6, 2017

Having much lower monthly payments when you lease a vehicle is one of the best-known advantages of the leasing process. A lower payment means that a new car takes a much smaller bite out of your budget. This leaves you more money for the other things, both essentials and luxuries, that you need to live your life. In the best-case scenario, it may also let you save some money. Whatever you choose to do with this windfall, it is a very nice thing to have!

But most people do not fully understand why leasing costs less per month. Let us explain:

You Only Pay For The Part You Use

Leasing separates the cost of using the vehicle while it is in your possession from what its value will be after you are done with it, a few years down the road. You are responsible only for the use cost while you have it. This cost of use includes mileage, depreciation over time, and some finance-related charges that are similar to an interest rate. That’s it, unless you go over your allotted mileage or return it with chargeable body damage. Just divide this cost into the number of monthly payments, and there you have it.

Because you are not paying for the vehicle’s value past the point of return, that large component of the vehicle’s cost (which can be half or more) is not figured into the lease payment. The leasing company owns the car, and receives whatever value it can get after you return it. If the vehicle has lost value during the lease, that’s on them, not you. You walk away clean!

Another economic benefit of leasing is that, in most states, you pay taxes only on the part of the car that you lease, not on the entire amount. When you finance, you have to pay all the taxes for the entire value of the vehicle as part of the purchase deal.

A Big Difference Between Leasing And Financing

Let’s take a typical manufacturer’s lease deal and break it down. Here’s a recent deal from Honda on a 2017 Civic LX Sedan:

Honda’s lease deal is $169 per month for 36 months, with $1,999 total due at signing. This includes the down payment, but excludes taxes, title and other fees. The total of your monthly payments is $6,084, plus the $1,999 due at signing, for a total of $8,083 you will be out of pocket at the end of the lease (plus those pesky taxes, fees, etc.)

Now let’s finance that same 2017 Civic LX Sedan over the same period of 36 months. Honda’s comparable finance offer is 0.9% APR for 36 months. Assuming no money down, let’s use the same capitalized cost of $17,669.40 that Honda used in the lease deal. Your monthly payment to finance the same Civic will be $497.57 per month, for a total outlay of $17,913 including finance charges. Taxes and fees are additional.

No Contest – Leasing Wins!

There you have it: you can drive the Civic on a lease for three years for a little over $8,000, or pay about $18,000 to own it. Because you leased, you can now lease a brand new car with a brand new warranty. If you financed, you are now the owner of a car that is three years old and out of warranty.

And think of what you could do with that extra $10,000 you didn’t have to spend!