Leasing began as a way for corporations to track transportation costs while saving money over purchasing a vehicle outright. Now, almost any vehicle can be leased, offering buyers from all walks of life access to high-quality vehicles with low monthly lease payments that make fitting it into the monthly budget easier.
How Does Leasing Work?
When purchasing a new vehicle, your monthly payment is based on the total value of the car, plus any additional fees, such as taxes, title, and licensing. Unlike buying, however, a lease is based on the vehicle’s depreciation, divided over the term of the lease.
Let’s look at an example of how a lease is calculated:
- Initial Value: When purchasing a vehicle, the initial value is the total purchase price of the car. In this scenario, we’ll assume the value of your vehicle is $30,000.
- Lease Term: Leases can be as short as a few months and as long as a few years. We’ll assume a term of 36 months for this example.
- Depreciated Value: This is your vehicle’s value at the end of the lease term. For this scenario, we’ll assume the vehicle is worth $20,000 at the end of the lease term.
- Lease Value: Based on the above scenario, the depreciation on the vehicle is $10,000 — that’s the amount the vehicle has lost over the course of the lease and the amount your lease payment will be based on.
Because you’re only financing $10,000 plus interest and fees, rather than $30,000 plus interest and fees, your monthly lease payment could be significantly lower than a purchase payment for the same vehicle.
Leasing vs. Buying
“Which is better, leasing or buying,” is the age-old question asked by car shoppers. There’s no right or wrong answer; it depends on you. For some shoppers, buying is the only way to go. But for others, the benefits of leasing are considerable:
- Short-Term Commitment
- Lower Payment
- No Trade-In Hassle
- Upgrade More Frequently
- More Vehicle for the Money
For drivers who have short daily drives or like to trade-up frequently, leasing can be a very appealing option.
Get More Advice from Public Service Credit Union!
Does leasing a car sound like a viable option for you? Learn more about the benefits of joining a credit union from Public Service Credit Union, and how you’ll enjoy higher savings rates, lower fees, and more. Contact us to speak to a representative, and we’ll help you decide whether leasing or buying your next car makes more sense.