Leasing vs. Buying a New Car: How Lease Payments are Calculated

October 14th, 2019 by

Leasing vs. Buying a New Car

Is it better to lease or buy a new vehicle? The most important thing to consider when leasing vs. buying a new car is the number of miles you drive. Most low prices leases are advertised for 10,000 miles per year maximum. However, leases can customized to each customer’s unique needs, including an increase in the number of miles you drive annually.

How is a lease payment calculated?

When you’re leasing a car, think of it as buying half the car. For example, if a vehicle’s sticker price is $40,000 and the residual is 50%, you’ll pay $20,000 during the lease term and then $20,000 afterwards if you’d like to purchase the car. A lease is typically short term, usually 24 or 36 months, whereas purchasing a car requires you to finance it for 60 or 72 months.

There are a few important factors that go into calculating a lease’s monthly payment. First we take into account the residual price, in this case $20,000, and divide it by the term of the lease (36 months) which gives us a monthly payment of $555. Putting money down towards your lease will decrease the monthly payment amount, as will monthly incentives issues by Chrysler, Dodge, Jeep, Ram. Additionally, dealers will usually offer additional discounts on top of the manufacturer’s discounts. For this example, let’s say the manufacturer offered a $2,000 discount, the dealer offered a $2,000 discount, and you want to put down $2,000 towards the lease. That brings the total lease price down to $12,000 and when you divide that by 36 months, your new monthly payment would be $333. Do remember that with leases, sales tax (7%) and the first payment are due at signing, so do take that into account before making your decision when leasing vs. buying a new car.

Is leasing vs. buying a new car right for you? Check out this informative video from our Sales Manager who breaks down leases in even more details:

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