On the surface people see the lower payments of a lease and get excited but it ends up hurting people more than it helps.

First of all, you are paying financing costs on your lease of about 7-10% versus what you can get for financing (0%-3%). These costs are on TOP of what you pay for the depreciation cost for using the car. Perhaps if you are figuring only on the depreciation expense it may work out for the best as it is a pretty simple formula; (lease cost [net of any fees/trade in/etc]- residual value)/term. So, say you have a car that you "buy" for $15,000, a residual cost of $7,500 and a term of 36 months. Right there is a depreciation payment of $208.33 just for the depreciation expense.

Now, the financing charges are based on the net lease cost + the residual value (which is the total amount of funds being tied up by using the car) X the money factor. Now this may show up on a lease as a "lease charge" which is basically the sum of this figure for the entire lease, divided by the term. Now, a money factor is not an interest rate. The interest rate is the money factor X 2400 (why I am not sure). So, lets use our example. $15,000+$7,500 = $22,500. Say we are going to have an interest rate of 7%, the money factor would be 7% (the whole number not the decimal) divided by 2400 = .00291. So to calculate our finance charge we use the multiply the $22,500 by .00291 = $65.48. We add this on top of the $208.33 and our payment is now $273.81

Lastly, we have to add sales tax. That is just your sales tax rate (lets say 5%) multiplied by the lease payment and that amount is added to the lease payment. So on our theoretical lease payment of $273.81, a 5% sales tax would be $13.69 which brings our lease to $287.50 per month.

So for arguments sake lets say that there were two options; leasing the car as was shown above and purchasing at the residual value at the end of the lease or purchasing it outright at the beginning for the same price at a 2.9% interest rate over 3 years.

For the lease over 36 months you pay $10,350 ($287.50X36) + $7,500 for a residual value for a grand total of $17,850.

For the purchase lets say you finance the car ($15,000) plus the sales tax (since I added it to the lease payments), which is 5% ($750) your purchase price is $15,750. If you finance this for 36 months at a rate of 2.9% to be conservative your monthly payment is $457.34 for 36 months for a grand total of $16,464.24. That includes the principal of $15,750 and interest for the three years of $714.24. For this scenario that is a difference of $1,386 for where the lease costs more money.

Yes, the monthy payment is high for the 36 month car loan but it was meant as a demonstration to how you pay more money for a leased vehicle versus buying it outright. I did nto include fees as they are going to be very similar for each option. Also, I used a low money factor for the lease and a high interest rate for the car payment so actual results may be a larger margin.

Give me another scenario and I can show you how it is cheaper to finance versus lease.