Gary Yeomans Ford Explains:
Lease vs Buy
Is it better to lease a Ford car ? or buy a Ford ? Why?
It's a common dilemma with automotive consumers: lease a Ford versus buy a Ford ? to lease a car or buy a car ? which is better?
So what is the answer?
Lease versus Buy Ford Cars and Trucks
The answer is ? it depends. It's not possible to simply say that one is always better than the other because the answer depends on the specifics of each individual situation.
Leases and purchase loans are simply two different methods of automobile financing ? leasing is not renting as many people seem to think. Leasing finances the use of a vehicle; buying with a loan finances the purchase of a vehicle. Each has its own benefits and drawbacks.
When making a 'lease or buy' decision you must look not only at financial comparisons but also at your own personal priorities ? what's important to you.
Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment? Is it important to you to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years?
So we find out that making a lease-or-buy decision is not quite cut and dry. There are trade-offs, pluses and minuses, pros and cons to consider.
Buying a Ford and Leasing a Ford are Different
When you buy a Ford, you pay for the entire cost of a vehicle, regardless of how many miles you drive it or how long you keep it. Monthly payments are higher than for leasing. You typically make a down payment, pay sales taxes in cash or roll them into your Ford Auto loan, and pay an interest rate determined by your loan company based on your credit score. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade the vehicle for its depreciated resale or trade value.
When you lease a Ford, you pay only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. Leasing is a form of financing and is not the same as renting. You have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called money factor, that is similar to the interest on a loan. You may also be required to pay fees and possibly a security deposit that you don't pay when you buy. You make your first payment at the time you sign your contract ? for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value. You may be charged a lease-end disposition fee.
As an example, if you LEASE a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you only pay for the $7000 difference (this is called depreciation), plus finance charges, plus possible fees. You return the car at lease-end, or buy it to own it.
When you BUY, you pay the entire $20,000, plus finance charges, plus possible fees. You own the car at the end of your loan, although its value is less than the $20,000 you initially paid.
This difference is fundamentally why leasing offers significantly lower monthly payments than buying.
How are Lease and Loan Payments Different?
Ford Lease payments are made up of two parts: a depreciation charge and a finance charge. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle's value that is lost during your lease. The finance part is interest on the money the lease company has tied up in the car while you're driving it. In effect, you are borrowing the money that the lease company used to buy the car from the dealer. You repay part of that money in monthly payments, and repay the remainder when you either buy or return the vehicle at lease-end.
Ford Loan payments also have two parts: a principal charge and a finance charge, similar to lease payments. A loan company or bank issues money directly to you or a dealer, and you agree to repay that money, with interest, over time. The principal charge pays off the full vehicle purchase price over the length of the loan, while finance charge is loan interest on monthly unpaid balance. The finance company or bank will hold the vehicle's legal title until the loan has been completely repaid.