Deciding whether to lease or buy a new car is a significant financial decision. Many consumers are drawn to leasing due to lower monthly payments and the allure of driving a new vehicle more frequently. When considering a lease, a common question arises: Which Car Company Has The Best Lease Program? To answer this, we need to delve into the financial mechanics of leasing and understand what truly constitutes a “good” lease deal.
The initial financial sting of owning a new vehicle, whether through leasing or buying, comes from depreciation. New cars depreciate most dramatically in their first few years. Whether you lease or buy, this depreciation is the most significant cost you’ll bear during your time with a new vehicle. The real question isn’t necessarily lease versus buy in a vacuum, but rather how to navigate this depreciation effectively.
Many perceive “savings” by opting for older, used vehicles. These cars have already undergone the steepest part of the depreciation curve. Similarly, at the end of a lease term, the option to purchase the vehicle at its residual value can appear to be a way to “save money” compared to entering into a new lease. Continuing to drive a vehicle, whether purchased after a lease or financed initially, beyond the typical new car ownership cycle is generally the most financially prudent approach in the long run.
When evaluating lease programs versus financing, a critical comparison point is the money factor (MF) in a lease versus the annual percentage rate (APR) of a loan. In situations where the MF is significantly subsidized – meaning it’s very low (for example, 0.0015 or less in the current market) – and loan rates are not similarly reduced, leasing often emerges as the more financially sensible option due to the lower implied interest rate.
If the money factor and loan APR are comparable, leasing can still be advantageous. This is primarily because lease payments are typically lower than loan payments for a comparable vehicle. Leases do not require you to pay down the principal vehicle value, focusing instead on the expected depreciation during the lease term and the associated interest (money factor). While financing builds “equity” in the vehicle, this equity comes with an opportunity cost. The capital tied up in a depreciating asset could potentially be used for investments or other opportunities.
A key advantage of leasing is optionality. At the end of the lease, you have choices. You can purchase the vehicle at the predetermined residual value, effectively converting the lease into a financed purchase if the vehicle’s market value is higher. Conversely, you can return the vehicle and avoid further depreciation risk if the residual value is higher than the actual market value. Those who finance a purchase don’t have this flexibility and are always directly exposed to the vehicle’s depreciation.
The attractiveness of leasing diminishes when the money factor is excessively high, making it a costly financing method. Conversely, exceptionally low money factors make leasing highly appealing.
Electric vehicles (EVs) add another layer of complexity. Government incentives, like the $7,500 tax credit in the US, are often passed through to the consumer more readily through leases. However, some EV lease programs compensate for these incentives with inflated money factors (as seen with some Mazda and Volvo programs). In these cases, a strategy of leasing to capture the initial incentive and then buying out the lease with a loan can be optimal.
Furthermore, the unpredictable residual values of some EVs, which have seen rapid depreciation (as illustrated by the Mercedes-Benz EQS), make leasing a potentially safer option. Automakers may subsidize residuals on leases for vehicles with uncertain depreciation, shielding the leasee from this risk. In such scenarios, bearing the full brunt of depreciation through purchasing might be considerably more financially risky than leasing.
In conclusion, the lease-versus-buy decision hinges on a comparison of the money factor and loan APR, and how residual values impact your specific vehicle and usage scenario. To maximize financial benefit over the long term, extending the ownership or usage period of a vehicle well beyond the typical lease term, regardless of initial purchase method, remains a sound strategy. Therefore, when asking “which car company has the best lease program?”, focus on understanding the money factor, residual values, and incentives offered, rather than seeking a single “best” brand, as program attractiveness varies by model, market conditions, and individual financial goals.
