Buying a car can be overwhelming. In fact, the pleasure of getting a new car can be quickly clouded during the financing decision-making process and price negotiations. Besides price haggling, many car shoppers are plagued with the decision to lease or buy. Which financing decision is right and why? This article will focus on rationalizing that choice.


For those who have never leased a car, leases can seem confusing, complicated and geared more toward business owners (who might deduct the expense) or individuals who simply can’t afford car payments. But these perceptions may be outdated. Before eliminating leasing as a financing option, car buyers need a solid understanding of the different purchasing processes.


The Benefit

By far, the greatest benefit of buying a car is that you actually own it once purchase is made. Implied in this benefit is that you are completely free of monthly car payments. The car is yours to sell at any time, and you are not locked into any type of temporary ownership period.

The Drawback

The most obvious downside of buying against leasing is having to part with the whole money all at once. Although one-off, the initial out-of-pocket cost is higher when buying a car.


The Benefits

Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment, and there are no upfront sales tax payments. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years.

With a lease, you are essentially renting the car for a fixed number of months (typically 36 to 48 months). Therefore, you pay only for the use (depreciation) of the car for that period, and you are not forced to absorb the full depreciation cost of the vehicle. Leasing a car will never put you in an upside-down position, trust me!

Leasing also provides an alternative when buying a car is not an option. Averagely, a brand new car cost up to N4,000,000. Sometimes or most times, we aren’t ready to let go off that N4million all at once, that’s if at all we have it.

Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes.

The Drawback

By leasing a car, you always have a car payment, and if you don’t like that prospect, then leasing is probably not right for you. As long as you lease, you will never really own it. However, depending on your type of lease, when your lease term is up, you either hand the keys over to the car dealership and look for another vehicle, or finance the remaining value of the vehicle and go from making lease payments to loan payments.

Vehicle Leasing FAQs

[toggle_content title=”Should I lease or buy my next car?”]

Will you save money leasing instead of buying? It depends on three things: (1) how good a deal you can strike with the dealership, (2) how many miles you put on a car, (3) how much wear and tear you put on a car, and (4) what the car will be used for.

To decide whether to lease or buy, compare the costs and other factors involved with both leasing and buying. Consider the following factors:

  • Your initial costs
  • Your ongoing costs
  • Your final costs and option rights
  • Whether you will be able to deduct any of the costs of the car because it will be used in a business
  • Whether having an ownership interest in the car is of overriding importance


[toggle_content title=”Should I negotiate a car lease the same way as I purchase a car?”]

Similar to a loan, the monthly lease payment depends on the lease terms, the initial “purchase price” of the vehicle, and the interest rate. Unlike a loan, another important factor is the “lease-end” or “residual” value. This is the expected value of the car at the end of the lease term.

In a lease you are effectively paying for the difference between initial purchase price and residual value. You should negotiate the best possible (i.e. lowest) purchase price because this will lower your cost of leasing. If it is a closed-end lease and you do not intend to purchase the car at the end of the lease term, you should also try to negotiate a higher residual value.


[toggle_content title=”What are the differences between Leasing and Renting?”]

  • Leasing vehicles will be purchased, according to your configuration
  • Duration of contract is usually 36 to 48 months.
  • Leasing contracts have to be fulfilled
  • Payment of leasing rates are due in advance
  • Vehicles will not be changed during the contract duration[/toggle_content]

[toggle_content title=”Which is Better, Leasing or Buying?”]The answer depends on a number of factors that are different for everyone. Your driving “personality”, your vehicle choices, and your financial objectives are important factors.[/toggle_content]

[toggle_content title=”What is the difference between a down payment and amount due at signing?”]This often causes misunderstandings. Lease inception amount (same as “due at signing” or “drive out” cost) includes all charges that require up-front payment in cash, such as taxes, official fees, deposits, first month’s payment, and down payment. Notice that “down payment” (cap cost reduction) is only part of the total “due at signing” amount. The down payment amount is the only part that reduces  capitalized cost (amount financed), which reduces  monthly payment amount.[/toggle_content]

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