Book Opener

Figure 16.2Leasing or Buying a New VehicleOwnershipUp-front costsMonthly paymentsEarly terminationVehicle returnFuture valueMileageExcess wearEnd of termLeasingYou must return the vehicle at the endof the lease, unless you choose to buy it.Up-front costs may include the firstmonth’s payment, a refundable securitydeposit, a capitalized cost reduction(like a down payment), taxes, registrationfees, and other charges.Monthly lease payments are usuallylower than monthly loan paymentsbecause you are paying for the vehicle’sdepreciation during the lease term, plusrent charges (like interest), taxes, andfees.You are responsible for any earlytermination charges if you end thelease early.You may return the vehicle at leaseend, pay any end-of-lease costs, and“walk away.”The lessor has the risk of the futuremarket value of the vehicle.Most leases limit the number of milesyou may drive (often 12,000–15,000per year). You will likely have to paycharges if you exceed those limits.Most leases limit wear to the vehicle.You will likely have to pay extra chargesif you exceed those limits.At the end of the lease (typically 2–4years), you may have a new paymentto finance the purchase of the existingvehicle or to lease another vehicle.BuyingYou own the vehicle and get to keep itat the end of the financing term.Up-front costs include the cash price ora down payment, taxes, registrationfees, and other charges.Monthly loan payments are usuallyhigher than monthly lease paymentsbecause you are paying for the entirepurchase price of the vehicle, plusinterest and other finance charges,taxes, and fees.You are responsible for any pay-offamount if you end the loan early.You may have to sell or trade thevehicle when you decide you want adifferent vehicle.You have the risk of the vehicle’s futuremarket value.You may drive as many miles as youwant, but higher mileage will lower thevehicle’s trade-in or resale value.There are no limits or charges for excessivewear to the vehicle, but excessivewear will lower the vehicle’s value.At the end of the loan term (typically4–6 years), you have no further loanpayments.LEASE OR BUY?There are advantages and disadvantages toleasing and buying a vehicle. Why are monthlypayments usually higher when you buy avehicle than when you lease a vehicle?Chapter 16: Owning a Vehicle 343