Lease terms are typically shorter than traditional loans. So to arrive at a rough comparison over six years, Mr. Drury ran the lease calculation as if the shopper had taken out two consecutive 36-month leases on the same terms, with a down payment of $1,729 and $33,390 (roughly the amount the car is expected to depreciate in value plus taxes, fees and any add-ons) financed at 7.4 percent. The final cost in this scenario, which leaves the driver with no equity in the car after six years, would be $5,908 higher than traditional loan financing when factoring in equity earned with the loan option.
But monthly payments for the lease would be $528, compared with $650 for the loan. Ben Preston, an automotive writer with Consumer Reports, said that can make a difference to shoppers on a strict budget — say, a young couple needing a bigger car to accommodate a growing family. But if you’re choosing a lease just to get a fancy car that you couldn’t otherwise afford, he said, you may want to reconsider. “Think about what you need versus what you want,” he said.
Buying a used Camry is the overall cheapest option, Mr. Drury’s analysis shows. The interest rate on a loan for a 2021 Camry is higher but the amount financed is lower and you build equity in the car, so the total cost is under $32,000. The downside? You’ll have potentially higher maintenance and repair costs as the car ages, and you won’t have the most up-to-date safety features. And that’s something to think about, particularly if a teenager new to driving will be behind the wheel.
Also, leases have requirements that can add to your costs if you’re not careful, said Charlie Chesbrough, a senior economist at Cox Automotive. A lease may not be ideal if you drive long distances, for instance, because they have mileage caps — say, 15,000 miles per year. If you exceed the limit, you may owe fees of 15 to 30 cents for each extra mile. You could also be charged fees for excess “wear and tear,” he said, so you must be careful about how you use the vehicle, particularly if it’s a pickup truck. A couple of minor dings probably won’t cost you. “But if it looks like you’ve been throwing cinder blocks into the back, that’s a different story,” Mr. Chesbrough said.
If you’re considering leasing an electric vehicle or a plug-in hybrid, you could make lower payments because of a quirk in the “clean vehicle” tax breaks created by the Inflation Reduction Act. The law created a tax credit of up to $7,500 for the purchase of a new electric vehicle, but it can be hard to qualify because of income limits and other complex criteria, like where the car was manufactured and the source of components used in the car’s battery. Leases, however, are considered “commercial” transactions, so most of those restrictions don’t apply, Mr. Chesbrough said. Carmakers receive the $7,500 credit and can pass the savings along to buyers by lowering their monthly lease payments.
