Why Buying a Car beats Leasing a Car

If you go out looking for a car you are going to have to make the decision as to whether you should buy or lease the car. This is a big decision and in reality most people really have no idea how to make it. In reality is not all that complicated and in almost all cases you will be better off buying your car.

It used to just be a given that you were better off leasing a car than buying one so this is what almost everybody did. However over the last few years this situation has changed, to the point where for the vast majority of people leasing really no longer makes sense. The biggest reason for the change is that over the last few years the car makers have lost a lot of money as the result of giving out leases. Obviously they weren't going to continue to do this so the result is that lease terms have changed to make them very unattractive.

The reason for this change is the way that leases are structured. When you lease a car the payment that make is broken down into two parts the depreciation on the car and the leasing fees. The idea behind the depreciation is that as you use the car its value decreases and you need to pay for that. When your lease is up the car can be bought for the difference between the initial cost of the car and the depreciation or it can be returned to the dealer who will then sell the used car which you can buy.

The problem is that in order to attract customers dealers needed to offer competitive lease rates, this led to them offering leases in which the depreciation was too low. The result is that nobody wanted to buy the car at the end of the lease since the price they would have to pay would exceed the cars value. That meant the dealer had to sell the car which of course had to be done at market price. The difference between this and the amount still owing on the car was then passed on to the manufacturer.

Because of this lease terms have changed to the point that they make sense for very few people. The car dealers have realized that they are better off just selling the car outright which is what they are now doing. In order to do this they usually offer very low interest financing to encourage people to buy. This gets rid of the problem of figuring out what to do with the car at the end of the lease. For the consumer the combination of the low interest rates and the fact that they own the car and can sell it means that it makes more sense for them as well since they don't have to take a lease with bad terms.