I’ve leased before. My suggestion is to buy if at all possible.
You have to understand all the factors that go into a vehicle lease:
1. Price of the vehicle.
2. Residual amount– the % of MSRP that the vehicle is worth at the end of the lease.
3. the money factor– the interest rate at which you’re borrowing the lease $$.
4. the allowed mileage.
When you see those ads for something like a Honda Civic for $149 a month, those are usually super low mileage leases- 10k or 12k miles a year, and they usually require about $3000 down.
A few words of advice:
When leasing, don’t get your heart set on one make and model of car, or even trim level of a particular car. For example, in June, these were the lease rates for a Honda Civic:
2013 Civic Sedan 15k miles 55% 0.00074 LX MT
2013 Civic Sedan 15k miles 60% 0.00074 LX AT
2013 Civic Sedan 15k miles 60% 0.00074 EX AT
2013 Civic Sedan 15k miles 58% 0.00074 EX AT w/ NAV
2013 Civic Sedan 15k miles 58% 0.00074 EX-L AT
2013 Civic Sedan 15k miles 56% 0.00074 EX-L AT w/ NAV
In this case you’d want an LX or an EX, and would pay more $$ to lease the other trim levels because the residual is lower. You want to lease the car that has the highest possible residual with the lowest possible money factor.
by the way, on a Civic Sedan EX, these numbers translate to:
MSRP: 21605, residual 60% = 12963 MF = 1.76%
Let’s say you negotiate $600 off the price (pretty reasonable for a Civic right now), and your sales tax in your state is 5% (no idea what it actually is), then your numbers come out as follows:
$281.61 per month. This is obviously not the same number as the ad on TV, because that assumes you pay roughly $2500 of your total $8042 payments up front, which would obviously reduce the payments.
A few things about leasing:
1. You never want to put money down on a lease. You will probably not be able to do a $0 drive off lease, because you will have to pay the first month’s payment on the spot. Any funds over the first month’s payment plus any required security deposits, should not be put down. The reason for this is that if you were to crash the car tomorrow, you do not get any of your down payment back– the GAP insurance pays off the difference to the leasing company, and you just made sure that they had to pay less. Don’t put money down on a lease.
2. Mileage and damage cost money. There is an expected amount of wear and tear, anything above that you will be charged for when you turn in the lease. The same issue with the miles– if you turn in a car that is over miles (more than 45000 miles on a 15k/36 mo lease, for example) you will be charged a per-mile fee usually .15-.25 per mile.
3. you will be required to carry full coverage insurance and it will have to have a particular deductible (I think Honda doesn’t allow more than a $500 deductible). If the vehicle is damaged, you won’t have the option not to fix it before turning it in.
4. Leasing is the most expensive way to own a car, generally speaking. There are some exceptions, for particularly good-deal leases where the car ends up being worth even more than the residual at the end and you can buy it out, trade it in, and make back some of your lease payments. Don’t expect this to happen.
5. Think of leasing as a long-term rental.
Generally, if you can live with it, buying an inexpensive, reliable vehicle new and driving it until the wheels fall off is your best way to own a vehicle affordably. For example, if you were to buy a Honda Fit for $17105 and finance that with just the taxes and fees down (assume $1500) for 60 months, your payment would be $307. At the end of 36 months, you will have a car with 45k miles on it that you only owe $6800 roughly, that will probably be worth more like $9500. As opposed to paying all that money and just giving it back to Honda and going to lease another one.