Is it better to lease or buy a car?
Lease is better when: you want a new vehicle every 2–3 years, you drive under 15,000 miles/year, you don't want to worry about selling the car, and low monthly payments are the priority. Buy is better when: you plan to keep the car 5+ years, you drive over 15,000 miles/year, you want to build equity, you want no mileage limits or modification restrictions, and you want total cost of ownership to be lower long-term.
What is a money factor and how do I know if it's good?
The money factor is the financing rate in a lease. Multiply by 2,400 to get the APR equivalent (e.g., 0.00175 × 2,400 = 4.2%). Compare this to current auto loan rates — if the money factor equivalent APR is higher than what you'd get on a loan, the lease financing is expensive. The manufacturer-subsidized money factor on a promoted lease deal is often lower than bank rates, which is why some leases are genuinely a good deal.
What is residual value and why does it matter?
Residual value is what the leasing company predicts the car will be worth at the end of the lease (as a % of MSRP). You only pay for the depreciation from MSRP to residual value, so higher residual = lower monthly payment. Brands with strong resale (Toyota, Honda, Subaru, BMW M models) tend to have higher residuals. Brands with weak resale (many domestic trucks outside their peak market, some luxury brands after initial years) have lower residuals and therefore higher lease payments.
What happens at the end of a car lease?
Three options: (1) Return the car — walk away, no equity. Pay any excess mileage charges ($0.15–$0.25 per mile over limit) and excess wear fees. (2) Buy the car — purchase at the residual price set in the lease. This can be a good deal if the car is worth more than the residual. (3) Lease a new car — start the cycle again. Always get a pre-purchase inspection if buying the lease car, and check its current market value against the residual price.
What are the hidden costs of leasing?
Leasing costs beyond the payment: acquisition fee ($500–$1,500 upfront), disposition fee ($300–$500 at end), excess mileage charges ($0.15–$0.25/mile over limit), excess wear and tear fees, gap insurance (required by most lenders), and the fact that you own nothing at the end. Many leases are marketed with low monthly payments that hide a high cap cost reduction (down payment) and fees.
How do I negotiate a car lease?
Three numbers determine your lease payment: capitalized cost (negotiate like a purchase price — get it down), money factor (ask the dealer to reveal it, compare to current market), and residual value (set by the manufacturer — not negotiable). Focus on negotiating the cap cost down just like buying. Never negotiate starting from the monthly payment — always start from the vehicle price, then discuss the lease structure.