Questions to Ask Yourself:
Is having a new vehicle every three or four years with no
major repair risks more important than long-term cost?
How long do you drive a vehicle before you get that "new car itch"?
Or are long term cost savings more important than lower
Is having some ownership in your vehicle more important
than low up-front costs and no down payment?
Is it important that you pay off your vehicle and be
debt-free for a while, even if it means higher monthly payments for the first
few years and higher maintenance costs in the car's older years?
So we find out that making a lease-or-buy decision is not quite cut and dry. There
are some things you need to consider. Let's take a look at some of these things
Buying and Leasing Are Different
When you buy, you pay for the entire cost of a vehicle, regardless of how many
miles you drive it. You typically make a down payment, pay sales taxes in cash
or roll them into your loan, and pay an interest rate determined by your loan
company, based on your credit history. You make your first payment a month
after you sign your contract. Later, you may decide to sell or trade the
vehicle for its depreciated resale value. In reality, at the end of the typical
five-six year loan period you may well own the car, but chances are you really
wanted to trade it in a year ago or earlier. Since this is a depreciating
asset, it loses value over time with some makes and models depreciating faster
than others. So, the car you now own and don't really want isn't worth very
much when you try to trade it in. However, pride of ownership is important to
many consumers; others just want to drive a vehicle till it falls apart!
When you lease, you pay only a portion of a vehicle's
cost, which is the part that you "use up" during the time you're
driving it. You have the option of not making a down payment, you pay sales tax
only on your monthly payments (in most states), and you pay a financial rate,
called money factor, that is similar to the interest on a loan. You may also be
required to pay bank fees (Acquisition Fee) that you don't pay when you buy. Note: Subaru does not require a security
deposit. You make your first payment at the time you sign your contract - for
the month ahead.
At lease-end, you have three options regarding the
disposition of the car:
1. Keep the car because you are in love with it. You pay
based on the guaranteed future value (GFV), or Residual Value (RV) established when you originally
leased the car. Residual Values are a percentage of the vehicles MSRP and are set by the leasing bank. You can finance the purchase of your leased vehicle, and any of the Finance Managers at Ganley Westside Imports can provide you with finance and warranty options.
2. Sell or trade the car. If the value of the car is actually HIGHER than the
GFV (or RV), you can sell it or trade it and keep the equity (profit) in your pocket.
3. Walk away with no negative equity and turn your vehicle into any Subaru dealership. Why keep a car that has a value lower
than the GFV (RV)? At that point you can lease or purchase another vehicle.
Buy vs lease summary
To summarize, leasing typically does not build ownership equity, while buying
does. The reason that a buyer has equity at the end of his loan is that he
purchases that equity by making higher monthly payments. Part of each payment
funds the equity. Leasing = lower payments, no equity.Buying
= higher payments, partial (and declining) equity.
Subaru leases are typically 10,000,
12,000, or 15,000 miles per year but can be customized up to 30,000 miles to
meet your particular needs. If you have a predictable lifestyle and driving
habits where you can "guesstimate" that your annual mileage will fall
within these parameters, then leasing is a viable option. However, if you exceed
the allowed miles at the end of a lease, expect to pay .15 per mile overage
fee (which is charged by the leasing bank and not the dealership) if you turn your vehicle back into the leasing bank at the end of the lease. If you trade your vehicle in towards a new Subaru, or purchase it at the end of your lease, you will not be charged for over mileage.
If you want an early termination of your purchased vehicle, you would have
to either sell it privately or trade it in. This often results in negative
equity (owing more than the value of the car), although we can often get you out of your lease early and into a new Subaru by using Owner Loyalty incentives.
Subaru leases have automatic built-in GAP
coverage. Car purchase loans almost always do not. Gap coverage, or gap
insurance, pays the difference between what you owe on your loan or lease, and
what your vehicle is actually worth if your vehicle is stolen or destroyed in
Why is gap insurance important?
- Because it's very common, in these days of
long-term loans to be "upside down" and owe more on your loan or
lease than your car is actually worth. This can mean you'll still owe
hundreds or thousands of dollars to the finance company even after your
insurance has paid for your car that has been totaled or stolen. This
turns out to be a huge shocking surprise for most people caught in this
So, Subaru leases have built-in gap protection, but loans
do not. You're better protected with a lease, unless you purchase the gap
insurance separately at extra cost for the loan. Ganley Westside Subaru offers GAP
insurance as an option on all purchase plans.
Comparing the Two
So, is it better to lease, or to
buy? As with any question of this type, there are always pros and cons, pluses
and minuses, advantages and disadvantages.
LEASE if you:
- Enjoy driving a new car every
three or four years
- Want lower monthly payments
- Like having a car that has
the latest safety & technology features
- Like knowing your vehicle is
always under warranties
- Are looking for more flexibility and shorter terms (36-48 months vs 60-72 months)
- Don't care about building
- Have a stable predictable
- Drive an average number of
- Properly maintain your cars
BUY if you:
- Don't mind higher
- Prefer to build up some
trade-in or resale value (equity)
- Like the idea of having
ownership of your car,
- Prefer paying off your loan
and being Debt-Free for a while
- Don't mind paying cost of
repairs after warranty has expired
- Drive more than average miles
- Prefer to drive your cars for
years to spread out the cost
- Like to customize your cars
- Expect lifestyle changes in
the near future
- Don't like the risk of
possible lease-end charge
If you are a two car family where at
least one car does not exceed 15,000 miles per year, a clear option would be to
lease at least one of your vehicles. Purchasing a car can be more risky than
leasing. We all know how much cars depreciate. The best option is the one where
you put down the least amount of money. The less out of your pocket, the less investment you have to lose. Please ask your
Ganley Westside Subaru Sales Professional or Finance Manager to show you BOTH
lease and finance payments so you can make an informed decision.