No matter what a salesman tells you, the total cost of a long-term purchase will always be a lot lower than the cost of multiple short-term leases. The reason: depreciation. Most new cars lose about 40% of their value in the first two years, so if you get three 2-year leases in a row, you’ll be paying for 120% of a car—plus interest—and you’ll have nothing but canceled checks at the end of the
third lease.
Since most people keep their cars for at least 6 years (7.8 to be exact), we’ll use that term of ownership in a comparison with two consecutive 3-year leases on the same car. The terms are the same as before: $20,000 car, 3-year lease and 5-year loan, 8% APR for both. Here’s how the comparison works:
On the purchase side, you would make 60 payments of $406 which totals $24,360. At the end of 6 years, you would own a car that’s worth around $5,000 to $6,000. If you sold it for $5,000 at that point, your net cost of ownership would only be $19,360 for 6 years.
On the 3-year lease, you would be paying $378 for 36 months, which totals $13,608. Since you need a car for another 3 years, you lease again at the same terms, spending another $13,608. At the end of 6 years, you’ve spent $27,216 to “rent” two cars (and maybe another $900 in acquisition fees).
Now, the “leasing specialists” would argue that you would have to pay a lot of repair bills if you kept that car for 3 more years. (Are they implying that their cars aren’t built very well? If that’s a valid point, maybe you should find a better car—at another dealer.) Nice try, guys, but the increased insurance and registration costs from leasing a new car every two or three years will usually cancel out any “savings” from not having to pay for repairs.
As you can see from our example, it’s about $8,000 cheaper to buy a car and keep it than it is to continue leasing. But it won’t have that “new car smell,” and only you can decide how much that’s worth.

In fact, inflating residuals is a common practice in the leasing business to make monthly payments more attractive, and Ford does this on a regular basis (without disclosure, of course). I did a Study of residual values set by Ford o a number of vehicles that were involved in lawsuits against the company and I found many residuals that were inflated by over $1,000 per car.
While I was out “spying” recently, 1 asked salesmen at several Ford dealers why they didn’t have very many off-lease Tauruses or Escorts for sale. (Several hundred thousand of them had just been leased and turned back in, so the dealers’ lots should have been covered with those models.) The salesmen said that they usually don’t keep those cars because they’re not worth the residual amount at the end of the lease. They said the dealers usually turn them in to Ford and the cars end up at auction, Where they can buy them for less than the residual amount.

When looked at long-term, leasing costs more than buying. However, when comparing two short-term periods, leasing may not look too bad (because the huge depreciation expense of the first two years makes both expensive). And in some cases, mostly those with large manufacturer subsidies, leasing might even be cheaper. Here’s how to do a short-term comparison using a “typical” price, residual, interest rate, and wholesale value:
We’ll compare lease and loan payments on a $20,000 car, no down payment, both at 8% APR. The terms will be 3 years on the lease and 5 years on the loan, with the loan terminated—and the car sold—at the end of 3 years. (Why use a 5-year term on the loan? Because that’s the term that most people choose when they’re buying. Plus, on a 3-year lease, you’ll pay almost as much interest as you would on a 5-year loan, so the two are very similar in total costs.)
In our example, monthly lease payments would be $378 and loan payments would be $406, a difference of only $28. On the loan, you would owe $8,966 at the end of 3 years, and the car
would be worth at least $10,000 to $11,000 wholesale— more if you sold it yourself.
The extra $28 per month that the loan costs over the lease adds up to $1,008 over 3 years, which would cancel out most (or all) of the profit if you sold the car at the end o 3 years. (If you got more than $10,000 for the car, the purchase would come out ahead of the lease, otherwise I L’s about even.) Factor in lease expenses of $450-800 for acquisition/disposition fees, and the scales might tip in favor of the conventional purchase.
How can you get a short-term lease that’s cheaper than a purchase? Find one with a subsidized residual and interest rate: Looking at Table 8, notice that a four-point residual increase saves $20 per month on the 3-year lease example, and Table 3 shows a savings of $25 per month I rom a two-point APR discount. The combined savings 1mm those subsidies would be $1,620 over 3 years, making the lease a lot more attractive.

All of those terms and promises were nothing but smoke. Very few people who lease (from Ford or anyone else) ever have “equity” at the end of a lease, because residuals are usually set higher than the actual wholesale values. Over 75% of all new-car leases end with the customer giving the car back to the dealer and not receiving any real money or credit towards another vehicle. Even in cases where a “credit” is given, it’s usually just “funny money” that disappears in another lease containing overcharges.
The few exceptions involve leases that are a bad deal to begin with because the monthly payments are set outrageously high using a low residual. And in a few rare cases, some customers have ended up with a vehicle that’s worth more than the residual because the lender accidentally set the residual too low. But that doesn’t happen very often, and Ford knows it.
Customers are not told that the “Guaranteed Future Value” used in most Ford leases is based on an unrealistic estimate of future wholesale values, which means that there won’t be any real equity at the end of a lease.
A recent article in Automotive News contained a good illustration of Ford’s “inflated residuals.” The article told of a pilot program at Ford’s Lincoln-Mercury Division that allows dealers to purchase off-lease Lincolns for less than the residual amounts. According to Automotive News , late-model Lincolns were selling at auction for $1,000 to $5,000 below anticipated residual values, and the company wanted to keep the cars out of the auctions.
However, the article said that dealers weren’t interested in buying off-lease vehicles from Lincoln because they could buy the same cars at auction for as much as $1,500 below the company’s discounted price. A company official confirmed that their dealers preferred to buy through auctions.

Monthly payments on a lease should be a lot lower than payments on a loan, since less principal (equity) is being paid off during the whole term. However, Ford salespeople were taught to quote Plan payments that were only a little lower than 48-month loan payments. This was done to secretly raise the effective price of the car to a higher amount than the one shown on the worksheet— and no one would ever notice.
According to salesmen who attended the training, they were taught how to use the “Comparison Example” worksheets to secretly inflate prices and steal customers’ down payments. Notes taken during a training seminar show exactly how this was done.
The instructor told them to use the same selling price, down payment, and balance on both sides of the worksheet—under “Conventional” and “Half-A-Car Way.” Then they were told to write down the conventional loan payment on the left, showing a payment on the right for the Half-A-Car Plan that was about $50 lower. However, the payment on the Plan side was actually the proper payment for a “zero-down” lease, so the cap cost was being secretly increased to cancel out the effect of the down payment.
What they had been taught was a perfect example of the “disappearing down payment” trick. And since they were being taught to lie about the selling price, they were teaching salespeople to commit fraud.