Leasing vs. Zero-Percent (0%) Loans

Below is a comparison of a typical lease compared to a 0% loan and a conventional loan. Does this mean leasing is always better? Not necessarily, because monthly payments are not the only factor that should influence your decision.


  Lease 0% Loan 6% Loan
Car Price $23000 $23000 $23000
Down Payment $1000 $1000 $1000
Interest Rate 6% 0% 6%
Residual $11000 n/a n/a
Months 36 36 36
Payment $388.06 $611.11 $669.28

Leasing can be a little more complicated

Because leasing is somewhat more complicated; with residuals, money factors, etc.; it shouldn’t be undertaken quite as casually as you might with a simple loan. There are more opportunities to misunderstand and make mistakes. Therefore, leasing requires that you be more careful and more informed.

Just a comment on lease-to-buy plans

Some folks lease with the intention of buying their vehicle at the end of the lease, or before the end of the lease. This is nearly always more expensive than simply buying outright. However, you may have a good reason for this tactic. Just be aware that it costs you more in the long term.

One other thing

Most car leases have automatic built-in gap coverage, while car purchase loans almost always do not. Gap coverage, or gap insurance, pays the difference between what you owe on your loan or lease, and what your vehicle is actually worth if your vehicle is stolen or destroyed.

Why is this important? Because it’s very common with car leases and loans, in these days of 0% interest, no down payment, and delayed payments, to owe more than your car is worth for most of the life of the financing. This can mean you’ll still owe hundreds or thousands of dollars to the finance company even after your insurance has paid off — for a car you no longer have. This turns out to be a shocking surprise for most people caught in this unfortunate situation.

So, nearly all leases have gap protection, but most purchase loans do not. You’re better protected with a lease, unless you purchase the gap insurance separately at extra cost for the loan — if you can find somewhere to buy it.

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