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Lease vs Buy: The $299/Month Trap
That "$299/month" ad you saw? It's real. But it's also missing about $200/month in fees, taxes, and fine print. Leasing can be smart, but only if you know what you're actually paying for.
The Math: You're renting a car for 3 years. You pay for the depreciation (how much value the car loses) plus interest (called "money factor"). At the end, you return the car and own nothing.
Dealers quote "money factor" instead of APR because 0.0025 sounds way better than 6%. Always multiply money factor by 2,400 to get the real interest rate. If they won't tell you the money factor, walk away.
$299/month ad + $595 acquisition fee + $350 disposition fee + $50/month tax + $2,000 down = $430/month real cost. Plus, go over 12,000 miles/year? That's $0.25/mile ($500 for 2,000 extra miles). Scratch the bumper? $300-$800 wear-and-tear charge.
Real-World Example: Lease vs Buy
Monthly: $350 + tax = $378
Total paid: $13,608 + $3,000 down = $16,608
What you own: $0
Monthly: $550 + tax = $594
Total paid: $21,384 + $3,000 down = $24,384
What you own: Car worth ~$19,250 (55% of $35k)
When Leasing Makes Sense
- You want a new car every 3 years: Always under warranty, latest tech.
- You drive under 12k miles/year: Excess mileage fees kill the deal.
- Business use: Lease payments are often tax-deductible.
- You hate maintenance: Leases are usually covered under warranty.
When to Buy Instead
- You drive over 15k miles/year: Mileage fees add up fast.
- You keep cars 5+ years: Buying is way cheaper long-term.
- You want to customize: Can't modify a leased car.
- You have kids/pets: Wear-and-tear charges are brutal.
Key Lease Terms Explained
- MSRP: Manufacturer's Suggested Retail Price (negotiate this down)
- Residual Value: What the car is worth at lease end (higher = lower payment)
- Money Factor: Interest rate in disguise (multiply by 2,400 for APR)
- Capitalized Cost: The "price" you're leasing (MSRP minus down payment/trade-in)
- Acquisition Fee: $500-$1,000 upfront fee (non-negotiable, usually)
- Disposition Fee: $300-$500 when you return the car (yes, really)
Frequently Asked Questions
Is leasing a car cheaper than buying?
Leasing has lower monthly payments ($350 vs $550 for the same car), but you own nothing at the end. Buying costs more monthly but builds equity. After 3 years: Lease = $12,600 spent, $0 owned. Buy = $19,800 spent, car worth $18,000. Leasing makes sense if you want a new car every 3 years and drive under 12k miles/year.
What is money factor in a car lease?
Money factor is the lease version of interest rate. To convert to APR: Money Factor × 2400 = APR. Example: Money Factor 0.0025 = 6% APR. Dealers love quoting money factor because 0.0025 sounds tiny, but 6% APR sounds expensive. Always ask for the APR equivalent.
What fees are hidden in a car lease?
Watch for: Acquisition fee ($500-$1,000 upfront), Disposition fee ($300-$500 when you return the car), Excess mileage ($0.25/mile over limit), Wear and tear charges (scratches, dents), Early termination fee (can be $5,000+). These aren't in the advertised monthly payment.
What is residual value and why does it matter?
Residual value is what the car will be worth at lease end (usually 50-60% of MSRP for 36 months). Higher residual = lower monthly payment because you're only paying for the depreciation. A $40k car with 60% residual ($24k) costs less to lease than one with 50% residual ($20k).