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Originally Posted by Msmall143
not necessarily. it could actually be cheaper to lease then buy, than just buy.
1) calculate what the money factor gives you in terms of interest rate..it may be lower than the buying finance rate
2) you may be making higher payment over the first 3 years which means you are reducing principal quicker and in turn means you are paying less interest over the life of the loan.
over the course of 5 years it can absolutely be cheaper to lease for 3 and finance for 2, rather than finance for 5 from the start.
havent run the numbers on this but its absolutely a possibility.
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I've run the numbers. I run them every time I buy/lease a car.
1) It is extremely rare to see a lease interest rate that is lower than a financing rate, unless you're financing for a longer term.
2) The amount you pay over the term of the lease is the depreciation. The depreciation is cap cost (final purchase price) minus the residual. The key is that the residual is calculated from the MSRP. Whether or not you're paying down the principle faster than traditional financing depends on the residual and the term used for traditional financing. It's very uncommon for the effective pay down rate to exceed traditional financing. That's the entire reason lease payments are typically lower.
In a lease transaction, the finance company is guaranteeing the residual, which represents risk. This is why interest rates on leases are higher. In a traditional financing scenario, the only risk being taken by the finance company is whether or not you'll make the payments. More risk = higher rates.