When looking for a new car I found the vehicle I wanted and there was a deal with a low lease rate 2.9% for 4 years while the 5 year financing rate was 5.9%. The vehicle price was $28000 making the lease payment $470 while the finance payment was $604 for a $134 difference. My intention all along was to keep the car not return it at the end of 4 years so i crunched the numbers. To finance the vehicle over 5 years would cost 604×60= $36240 – 3360(taxes)=32880 total cost of financing $4880 over 5 years.
One of the advantages of leasing is you only pay tax on your monthly payment so you don’t pay interest on the taxes for the entire car when you finance. Back to the lease…payment is $470 because you are only financing part of the total value of the car in this case $19000 as the lease end value was $9000 and of course the tax difference mentioned above. so over the four years I paid 470×48=$22560 – taxes of 2448= $20112 making the cost of borrowing only $1112. However, I still don’t own the car but since that was my intention all along I took the difference in the lease vs buy payment of $134 and put it in a savings account for 4 years so when my lease was up I had $6432 in that account I owed $9000 +tax= $10080-$6432 = $3648 i then used my line of credit to pay this remaining balance and then continued to make $470 monthly payments to my line of credit. The result was I paid the car off in 4yrs 8mths and my total cost of borrowing was the $1112 from the lease and approximately $100 from the line of credit for a total of just over $1200.

End result was the car was paid off 4 months sooner and I saved over $3500 in interest.

Leasing isn’t always bad, and it’s not always the better way to go either the point is you need to crunch ALL of the numbers and scenarios if you really want to get the best deal.

What you’re really doing with a lease is signing on for a debt for an asset that you don’t own. A 2-3 year old car is a better deal than that.
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