Buy Vs Lease

Is It Better to Buy or Lease a Car? Ask Hewlett VW

There are differences between buying and leasing, but some people really prefer to lease. Compare the two here.

BUYING VS. LEASING

With all the new technology that’s changing rapidly in the way automobiles are built these days, finding new ways to pay for cars and keep up with that ever changing technology has many customers asking, “Should I buy or lease?” Not an easy question to answer and the scenario is certainly different for each individual person, driving habits or circumstance.

BUYING

The definition of “buying” is simple, you pay the vehicle’s cost, tax, title, license, etc. either in cash all at one time or finance it over a period of time. That period of time usually consists of 60, 72 or even 84 months just to get the payment within budget and little thought goes into what you will be doing 84 months from now, even less thought usually goes into your driving habits. If you’re a 25,000 mile per year driver, you will rack up some 175,000 on your vehicle before it’s paid off. If you’re the type that always drives your vehicles a quarter million miles before you trade or sell, that may be okay. If you’ve never kept a car past 100,000 miles or less, you may want to consider other options.

LEASING

The definition of “leasing” is a little more complex but still not hard to understand and/or plan for. Leasing companies (for us at Hewlett it would be GM Financial or Volkswagen Credit) will impose what’s called a “residual value”. That is the “guaranteed” amount or value they are willing to guarantee you at the end of your term. It’s always a percentage of the MSRP and that percentage changes as you decide on your term and mileage limits.

For example: If the normal starting point from the leasing company is 60% for 36 months with 15,000 miles per year allocated, you’ll make payments for three years on the difference, or in this example, 40% of the car. (Assuming you stay within your total 45,000 miles for that three year period). So, with a $30,000 MSRP, 60% of that is $18,000 (the residual or amount they’ll guarantee at the end). You make payments on the remaining $12,000 over that three year period. That payment is typically cheaper than that same car financed over the course of five years.

Ok, that sounds simple enough but what if you drive 30,000 miles per year? Contrary to what you’ve heard, you need to lease more than anyone! Let’s say you purchased your car, financed it for 60 or 72 months. After two years you’ve racked up 60,000 miles. You’ve now paid that car down to $23,000-$25,000. Using the $30,000 car example above, what is that $30,000 car worth two years later with 60,000 miles on it? I’m going to guess somewhere around half of what you paid for it, maybe less. It may be clean inside and out because all you’ve done is drive it up and down the highway but seriously, ask yourself; just how big is the market for a 60,000 mile two year old car? (A 60k mile 10 year old car is totally different). While the two year old, high mileage car market does exist, it is not going to bring a premium by any means and it may not even bring “normal” values. If you still owe $25,000 and it’s worth half or $15,000, you’ll have to come up with $10,000 just to sell or trade it at that time.

If you leased that same car for those same 30,000 miles per year, (yes, you could factor in that many miles per year) over the course of the same two years – your payments may be $100 or $150 per month higher than your regular 60 or 72 month loan but I’m guessing $100 extra per month will not change your lifestyle as much as paying $10,000 all at once if you did a conventional loan. We all have to pay for our miles, might as well make it as easy as possible.

Most common objection we hear: “I don’t own anything at the end”. While that’s true on a lease, if you financed your vehicle for 60 or 72 months, you don’t own anything three years into your conventional loan either (your lender does). Normally it’s because you’re at or near a “breakeven” amount on the vehicle value vs. the payoff of the loan.

Second most common objection: “They’ll charge me for damage, tires, broken windshield, etc.” Yes they will but guess what, if you were to sell your car or trade it in, the future buyer will deduct for that type of damage too.

Most common question: “What happens if I wreck it?” Nothing different than if you financed it on a conventional loan, call your insurance company and get it fixed. Leasing companies do not deduct for proper repairs.

Second most common question: “What if I want to keep it?” Fine, that residual or guarantee they told you about is the amount you have to pay at the end of your term to own it if you want to keep it. If the market changed and the car is worth more, pay their amount and do what you wish. If your car is worth less than that residual value, give it back and let them take the hit.

In conclusion, there is not a “best” way that fits everyone. You have to assess your situation, driving habits, wants and needs, etc. and ask questions. Dealers usually do not care how you choose to pay for your cars. We do, however, want to give you all the options available to help you make the best choice that works for you. Many customers drive normal miles, take care of their vehicles in a normal fashion but just want to keep up with the newest and latest technology or body style that comes with new vehicles and somewhat accepted the fact that they’ll always have a car payment. If this is you, leasing is perfect.

I would say this, don’t “not” lease simply because you do not understand it. It is my belief that is the sole reason many people don’t do it. We understand this has not been the conventional way to purchase a vehicle forever. Ask questions, get quotes on both conventional loans and leasing side-by-side. Once you see all of your options, you’ll be in a better place to make an informed decision that works for you.

Happy Motoring!
John Chauvin
Hewlett Management Team
GM, Hewlett Volkswagen