Question 1

Is it cheaper to lease or buy a car?

Accepted Answer

It depends on your situation. Leasing typically has lower monthly payments and lets you drive a newer car every few years, but you build no equity and pay fees at the end of each term. Buying costs more upfront but you own the car outright and keep the residual value. Over 5 years, buying is usually cheaper for most drivers -- especially those who keep the car long-term. This calculator shows the exact dollar difference for your specific numbers.

Question 2

What fees should I expect when leasing a car?

Accepted Answer

Typical lease fees include an acquisition fee ($500-$1,000) charged by the lender at lease start, a disposition fee ($300-$500) at lease end if you don't buy the car or re-lease, and a documentation fee. You may also owe excess mileage charges (typically $0.15-$0.30 per mile over your allowance) and excess wear-and-tear fees. These fees add up and should be factored into your total cost comparison.

Question 3

What is a good money factor for a car lease?

Accepted Answer

The money factor is the lease equivalent of an interest rate. To convert it to an APR, multiply by 2,400. A money factor of 0.00125 equals a 3% APR, which is competitive. Anything below 0.002 (4.8% APR) is generally considered good. Dealers sometimes mark up the money factor -- always ask for the buy rate (the lender's base rate) and compare it to what you're being offered.

Question 4

What is residual value and why does it matter?

Accepted Answer

Residual value is the estimated worth of the vehicle at the end of the lease term, expressed as a percentage of MSRP. A higher residual value means lower monthly payments because you're only financing the depreciation. When buying, the residual value represents equity you keep -- a car that holds its value well (like Toyota or Honda) makes buying more financially attractive relative to leasing.

Question 5

How much does a car depreciate per year?

Accepted Answer

Most new cars depreciate 15-25% in the first year and 10-15% per year after that. By year 5, a typical car is worth 40-60% of its original purchase price. Luxury vehicles and some domestic brands depreciate faster; trucks, SUVs, and Japanese brands tend to hold value better. Depreciation is the single largest cost of car ownership and is why buying a 2-3 year old used car is often the most economical choice.

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