Lease or Buy a Car? Compare the Full Cost

0:00A $28,000 car for 3 years: should you lease it or buy it? Compare the full cost: everything you pay, minus anything you get back.

0:11A lease is a long rental. This one costs $399 a month, plus a $2,000 down payment at the start.

0:2036 payments of $399 make $14,364. With the $2,000 down, the lease costs $16,364 in full.

0:34Then the car goes back. You pay extra past the distance limit, or for more than normal wear.

0:42Or buy with a loan: borrow $28,000 at 6 percent a year for 3 years. Interest is the price of borrowing. That is about $852 a month.

0:55A common mistake is to compare only monthly payments. $399 against $852 makes the lease look far cheaper.

1:06But you own this car, so after 3 years you can sell it for $17,000. It lost $11,000 in value, which is called depreciation.

1:1736 payments of $852 make $30,672. Minus the $28,000 borrowed, that is $2,672 of interest.

1:31So buying costs $11,000 plus $2,672, which is $13,672 in full.

1:42Full costs: $16,364 to lease and $13,672 to buy. Here, buying costs $2,692 less.

1:56Insurance, fuel and repairs are paid either way, so both totals leave them out.

2:03Leasing usually means lower monthly payments and a newer car more often. Buying means you own something worth money.

2:11So compare the full cost, not just the monthly payment.