By Leslie Silverman

Your Budget and Lifestyle Hold the Answers

Monthly lease payments are always lower (sometimes less than half!) than financing a new auto purchase. This is because new car loans finance the entire purchase price of the car, while leases finance your use of the car during the time you drive it. An attractive financing option, leasing is chosen by a little over 20% of people looking for a new car. Beyond your monthly payment target, here’s the skinny on how to choose the right financing for you.

A Quick Overview of Car Financing Choices

Loan for Car Purchase:  You’ll probably make a down payment on the car and finance the balance. You’re responsible for sales tax on the full purchase price. Financing is available from local banks, credit unions, and many manufacturers’ programs, with interest rates set by the lender. Your first payment is made one month after signing your financing contract. The lender holds the car’s title until the loan is paid off. Then you can keep the car, sell it, or trade it in.

Financing for Auto Lease:  You don’t have to make a down payment, and sales tax is based on your monthly payment amount. Businesses can deduct monthly payments as an expense, a big advantage over purchasing a company car. You pay a “money factor,” which is roughly the same thing as an interest rate, and maybe a security deposit. You’re allotted a certain number of miles per year, and owe a fee if you exceed that limit. Your first payment is due on signing, so you pay for the month ahead. At the end of the lease, you can return the car or buy it at its resale (“residual”) value.

Factor Lifestyle into the Decision

How long will you keep the car? “I used to purchase all my cars, thinking I’d keep them for a long time,” says Kris Dahl, sales manager at Hoffman Honda. A new convert to leasing, he found that the rapid changes in technology, safety features, fuel economy, and ergonomics led him to start wanting the newer features. “Now I lease because I found I wasn’t keeping my cars more than five years.” Lou Joseph, general sales manager at Hoffman Honda, sees more customers opting for leasing for the same reasons.

Lou Joseph at Hoffman Honda sees a growing trend in leasing.

“Technology doubles in cars every year now. And then there’s styling. Like the new Accord for 2013, which is being completely redesigned from the tires on up! A lot of people just want to have the latest features so they lease,” Lou finds.

How much do you drive? Whether you want the latest, greatest features or not, you also have to consider mileage. Right now you can lease a 2012 Honda Civic $219/month for 36 months with zero down on through the end of January. Joe estimates that purchase financing would be around $360/month. While saving $140 each month is appealing, Lou counsels that “if you drive more than the average of 12,000 miles per year, it’s probably not for you.”

What else should you consider? Beyond car payments and mileage, there’s also “hassle factor” to consider, according to Marc Hallas, sales manager with Hoffman Audi.

Marc Hallas sees leasing's benefits for Hoffman Audi customers

“At the end of the lease, if you want to turn the car in, you don’t have any negotiating to do. If you owned the car and were trading it in, you’d have to negotiate its value. Some people would just rather not have that hassle,” he says. He also makes a good point about the money you save every month with leasing: “With a purchase, you lose money in depreciation, plus your money is tied up. With leasing, you pay only for the depreciation of the car over the term that you lease it for. You can be investing the difference every month. It makes it easier to get into a brand new car.” New Audi A4s can be leased now for 36 months and 10,000 miles a year with $5,000 down, for $399/month plus fees, according to Marc Hallas. With leasing deals like that (available until the end of February), Marc thinks “you really get a lot of car for that level of payment. If you drive a lot of miles, though, leasing is not the way to go.”

The bottom line, according to Hallas: “Leasing is really for people that just don’t mind having a car payment, who like to take advantage of new technology and safety advances, and want a new car every three years. It makes getting a new car much more affordable.”