Leasing has made driving a new car affordable for many who would otherwise be unable to get behind the wheel of a new vehicle. Lower monthly payments with little or no money down look attractive when compared to the conventional car purchase, but who comes out ahead in the end? Before we run the numbers a few words about price and residual value. The price of the leased vehicle should be negotiated just as it would be with a purchase. Remember, your lease payments are based on the difference between the agreed upon price of the car when new and its residual, or resale value at the end of the lease. In essence, you are paying for the depreciation of the vehicle.

In our example, the $25,750 car has a residual value of $14,500 at the end of the 36 month lease. The buyer has 36 month financing at 8.5% - the payment plus tax is $767.00 per month, $341.00 dollars more than the $426.00 lease payment. Over the 36 month term the buyer is laying out an additional $12,276 (341 x 36) plus the extra $1,100 in additional downpayment. The buyer is shelling out alot more money but remember this - he or she will own a car worth $14,500, and the person who leased will own nothing.

Now that we have all the numbers lets do some quick math. Let's begin by figuring the amount spent to lease.

Multiply lease payments by term of lease: 426 x 36 = 15,336
Add downpayment: 1,500
Total cost to lease car for 36 months: 16,836

Now lets do the same for a purchase

Multiply purchase payments by term of loan: 767 x 36 = 27,612
Add down payment: 2,600
Total cost to buy a car over 36 months: 30,212
Subtract the value of the car residual values: -14,500
Total cost to purchase a car for 36 months: 15,712

In this example, the buyer comes out $1,124.00 ahead. This figure does not include differences in sales tax. Ask your dealer or county.

Other considerations:

Keep your lease term short - 3 years or less is best.

Don't violate mileage restrictions. You will pay a hefty penalty for each mile over the limit.

Compare residual values and financing among dealers.

Lease a vehicle that holds its value well - its higher residual value will earn a lower lease payment.

See "Buying a New Car" for tips on negotiating your best deal.