Leasing vs. Buying

It's all about position...
The decision about whether to lease or buy a vehicle isn't always an easy one. There are many factors to consider when deciding whether it is better for you or your family to lease or purchase a vehicle. Below are a list of topics with the benefits for both leasing and buying. Please click on any or all of the topics to make sure you are making an educated and informed decision on whether to lease or buy.


 




Ownership

 Leasing
 Buying
      Who owns the vehicle? You do...if it's in your best interest. When your leasing term ends, you are in a position to decide if you want to pay or finance the residual, which was set in place when the lease began, or to turn in the vehicle and "walk away".  

* See end of term for full details on how to "walk away"

    Who owns the vehicle? You do...if you didn't finance. If you did finance, the bank owns it. When financing a vehicle, you know what your monthly payment is and know that you'll be making that payment for the entire length of the loan if you don't pay ahead or pay the loan off early. You don't have the benefit of being in the position to "walk away". 

Leasing Benefit: Leasing puts YOU in the position to decide if you want to keep the vehicle, lease a different vehicle, or "walk away". You know exactly what the residual is and you get to decide what's best for you and your family.

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Market Risk

 Leasing
 Buying
One benefit of leasing is that you are protected from the ever changing vehicle market. Let's say at the time your lease term ends, the vehicle you have is not in high demand or the market isn't seeking that type of vehicle. You are in a position to not own that vehicle.

   For example, if you own a large SUV or truck and at the time your lease term ends gas prices are high, the market dictated that your vehicle is not as valuable as when gas prices are lower. Instead of having to pay a few more years of payments on a Finance/cash purchase, or trading the vehicle and it being worth less than you owe on it, you can just turn in the vehicle and start at 0, no matter what the previous vehicle was worth at lease end.
















When you purchase a vehicle, you own the vehicle outright if you pay cash or if you finance the vehicle, you own it when your payments are completed to the bank. This means that if you still owe money on the vehicle when you're looking to trade it in, you run the risk of being in a negative equity situation.

    Conversely, if the vehicle you have leased is worth more than what your residual is at lease end, you are in a positive situation. You have the option to trade the vehicle in and have equity to put as money down on your next lease, which lowers your monthly payment.

    To explain this negative equity situation- if you owe $14,000 on your vehicle and it's value at the time you are trying to trade it in is $12,000, you would either have to pay the difference or add the additional $2,000 to your next loan on the vehicle you are purchasing. If the new vehicle is $25,000 and you have to finance the additional $2,000, you're now borrowing $27,000 on a $25,000 vehicle.

    However, if your vehicle is worth more than you owe, or if you owe nothing on the vehicle, you will have equity to apply to the purchase of your next vehicle. This will lower your monthly payment or you could use the equity towards a lower term(length of contract) on your next purchase.


Leasing Benefit: Leasing removes market risk from your purchase and you are responsible for factors you control like payment, miles, and wear and damage. If the market changes to where your vehicle is worth less than the set residual, you are not responsible for the difference.
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Monthly Payments

 Leasing
 Buying
    Typically, monthly payments on a lease are lower than monthly loan payments because you are paying only for the depreciation of the vehicle, which is the part you use. For instance- if the MSRP of a new vehicle is $25,000, and the lease end residual is $13,500, your monthly payment would be based on the $11,500 of depreciation(the part you used) and the lease factor rate.
    You have agreed to make payments on the entire price of the vehicle, all $25,000. Your payment may be higher or lower depending on how many months you spread those payments out across.  





Leasing Benefit: Whether your payment is higher or lower, leasing puts you in a better position to make a well informed decision after driving the vehicle for the length of the lease.
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Taxes

 Leasing
 Buying
    Taxes on a lease are paid each month on the depreciation of the vehicle for that month. If you decide to purchase the vehicle when your lease is over, you then pay the remaining tax on the residual, the part you have not used yet.
    When you purchase a vehicle, you pay taxes on the entire price of the vehicle. If you trade the vehicle in 3 years into your 5 year loan, you do not get a refund back for those 2 unused years. This is money lost. 


Leasing Benefit: You only pay tax on the portion you use each month, which can potentially save you thousands of dollars in sales tax at the point of sale.
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Up-Front Costs

 Leasing
 Buying
    Up-front costs include registration and other fees, and other charges such as sales tax. They could also include a refundable security deposit or a capitalized cost reduction (or money down). Your first month's payment needs to be made at the time the lease starts. '



    Up-front costs include registration and other fees, and other charges such as sales tax. Up-front costs could include the cash price of the vehicle if you are paying cash. If you are financing the vehicle, up-front costs include money down, taxes, registration and other fees, and other charges. When you finance, your first payment will more than likely not have to be paid for at least 30 days. 


Leasing Benefit: Generally the up-front costs are less expensive when a vehicle is leased as opposed to purchased. Taxes are paid on the depreciation of the lease so typically what is paid in taxes up front is more affordable.
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Future Value

 Leasing
 Buying
    The leasing company, or lessor, is the one at risk when it comes to market value of the vehicle based on their set residual when you started the lease.

    You are the one at risk when it comes to the market value of the vehicle when you look to trade-in or sell the vehicle. Those market conditions can constantly change and you are responsible.

Leasing Benefit: The risk of the vehicle's future value is placed on the lessor, so you aren't responsible for it. If the value of the vehicle decreases, you are in the position of "walking away".
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Mileage

 Leasing
 Buying
    Typical leases limit the number of miles you can drive. You can pay for a higher mileage limit up front, which would increase your monthly payment, or you can attempt to stay in the mileage limit and if you go over, would likely have to pay charges for exceeding those limits, but only in the case you return the vehicle. If you exceed the mileage limit but trade the vehicle in or pay off or finance the residual, you will not be charged for exceeding the mileage.
    You can drive as many miles as you please with no limit. Keep in mind, the higher the mileage on your vehicle, the lower the vehicle's trade-in or resale value will be.








Leasing Benefit: Leasing is best for all drivers. Based on your driving habits, you can apply the mileage parameter to buy more miles cheaply as you are responsible for excess wear.

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Accidents

 Leasing
 Buying
Another benefit to leasing can occur if you are in an accident with your vehicle. Following the lease contract you are responsible for having the vehicle fixed and at the end of your lease term, you have the option to turn the vehicle in. You are not responsible for any change in value versus the residual due to the accident damage. Also, in the state of South Dakota, if your vehicle had an accident with damage of $5,000 or more, a damage disclosure would be placed on the vehicle. If you are leasing the vehicle and would have more than $5,000 worth of damage, you would get the vehicle fixed but could turn the vehicle in at the end of your lease term.
If you purchase or finance the vehicle and get in an accident with the vehicle, it will affect your vehicle's trade-in or resale value. You are responsible for the change in value. Once more, if you have an accident with damage exceeding $5,000, you will have to try to trade or sell that vehicle with a damage disclosure attached to it, which would drastically impact the vehicle's resale value.







Leasing Benefit: You have the option not to own the repaired damaged vehicle from the accident at the end of your term and are not responsible for any change in value.
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 Excessive Wear

 Leasing
 Buying
    Typical leases limit wear to the vehicle during the lease term. Most dealerships offer an "Excessive Wear & Use" warranty that you could purchase. This warranty will help you avoid potentially having to pay any extra charges for exceeding the wear limits if you return the vehicle. Again, the excess wear would only impact you if you plan on turning the lease vehicle in and would not affect you if you trade the vehicle in or pay off or finance the residual. 



    There are no charges or limits for excessive wear, but excessive wear is realized in the vehicle's trade-in or resale value. This causes your value to decrease and leads to negative equity.









Leasing Benefit: When leasing, you are in the position to not own a vehicle with excess wear and use. Even though you think that you won't ever let something bad damage or hurt your vehicle's interior or exterior, life happens, that's why Toyota offers the peace of mind that comes with the "Excessive Wear & Use" warranty.
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End of the Term

 Leasing 
 Buying
    Typical leases are 24-48 months in length. When the lease term ends, you have options of what you can do. You can trade the vehicle in toward the purchase or lease of another new vehicle, you can sell the vehicle on your own and pay off the residual, you can pay off or finance the residual, or you can turn the vehicle in and "walk away."

* At the end of the lease term you will be required to pay Toyota Financial a disposition fee if you choose not to lease or buy a new vehicle.  



 Typical finance terms are between 48-72 months in length. Once all the payments are made in the loan's term you own the vehicle. 













Leasing Benefit: With leasing, you are in a position at the end of your term to make an informed, educated decision on that vehicle. You have the option, not the obligation, to own it or to walk away and start with a brand new vehicle.
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