Should You Buy or Lease a New Car?
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What is the main topic discussed in this episode?
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Here's your money briefing for Monday, November 27th. I'm J.R. Whelan for The Wall Street Journal. It's a lot easier to find a new car you like on the dealer lot, as most inventories have recovered since the pandemic. Now comes the hard part, paying for it. And that leaves many people wondering, should I buy or lease?
What is the basic difference between leasing a car and taking out a loan?
Given how much the prices of cars have increased in the past few years and given how much interest rates have risen, there's actually a significant number of car loans that have people paying $1,000 or more for their monthly payments. So this can take a significant chunk out of people's budgets.
We'll talk to Wall Street Journal personal finance reporter Joe Pinsker after the break.
Listen at schwab.com slash washingtonwise.
When you're ready to drive a new car off the lot, should you buy or lease? Wall Street Journal personal finance reporter Joe Pinsker joins me. So Joe, first of all, what's the difference between leasing a car and taking out a loan?
The idea of a loan is that you are borrowing money in order to buy a car and then paying that money back over time with interest payments. And once the loan term is over, you own the car. You've bought it.
What personal factors should I ask myself before choosing to buy or lease?
A lease, though, is basically a way of saying that you're renting the car for an extended period of time. At the end of the lease term, you don't own the car. You usually have the option to buy it, though, if you want.
Yeah, I want to get into some details about buying and leasing in a moment. But what kinds of questions should people ask themselves before deciding to buy or lease?
One of them is the question of how long you're going to have the car. If you're going to have it for quite a while, it's generally a better decision to buy instead of leasing. Leasing though definitely has some benefits that people might want to consider. One of them is that some people tend to prefer having the latest technology and safety features. Other people just really dread dealing with the maintenance issues that come up when a car is really old. There are some things that you might want to ask yourself, how much do I care about those things? And that may steer you towards leasing because with a lease, you might be able to get a new car every couple years or three years once the lease is up.
The last big thing to really think about is just how much you drive, how many miles you put on your car each year. That's because leases come with mileage limits that are established up front. And if you're going to exceed them, it can be costly in terms of the penalties you pay.
How have lease costs and automaker subsidies changed in recent years?
So you want to make sure that you aren't signing up for a lease that allows a lot fewer miles per year than you would put on a car.
And whether you buy or lease, it can wind up being a lot of money. How has the math changed in terms of leasing versus buying over the years?
One thing that might surprise people if they're coming back to the car market after a few years of not shopping for a car is that leases are now quite a bit pricier than they were even a few years ago. That's because automakers used to subsidize them more heavily, which lowered the monthly payments. But nowadays, leasing is not quite as cheap as it used to be. So that's a shift that people might want to be aware of now.
All right, so let's go through some of the nuts and bolts of both methods. What are some basic details about leasing that people should be aware of?
One of the main things you want to pay attention to in a lease is just how long the lease is going to last.
What are the key lease terms to watch (length, down payment, residual value)?
It's typically two or three years that you'd probably have the car.
Does leasing require a down payment?
Not always. Many leases do, but it's not always a requirement.
And what should people keep in mind if they want to buy the car at the end of their lease?
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:39
2
What is the basic difference between leasing a car and taking out a loan?
0:39–2:10
3
What personal factors should I ask myself before choosing to buy or lease?
2:10–3:24
4
How have lease costs and automaker subsidies changed in recent years?
3:24–4:16
5
What are the key lease terms to watch (length, down payment, residual value)?
4:16–5:39
6
What penalties or costs come with returning a leased car early?
5:39–6:28
7
How should I compare loan offers to understand total cost versus monthly payment?
6:28–7:15
8
What negotiation strategies can reduce the price or monthly payments when buying or leasing?
7:15–8:05
Speakers
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