Should I Buy or Lease in 2022?

Since our community is called Leasehackr, you might expect that most of us prefer leasing, rather than buying, a vehicle.

After all, leasing comes with certain inherent advantages, such as the lender taking on the risk of depreciation instead of the vehicle owner. In the past, a good lease could cost significantly less than owning an equivalent vehicle over the same period.

However, the current global semiconductor shortage has greatly changed the equation. Without enough chips, car makers aren’t able to produce the same volume of vehicles as before, affecting inventory and driving up prices on lease deals.

If you’re deciding between buying or leasing your next vehicle, here’s one tip that may help you with this important decision.

Know the Money Factor

When leasing a car or a truck, you’re paying for the estimated depreciation of the vehicle over the course of the lease, plus finance charges.

Those finance charges can be quite costly if the money factor on your lease is high. The money factor is essentially the interest rate but expressed differently for a lease.

To find out the equivalent Annual Percentage Rate (APR) of a money factor, simply multiply the money factor by 2400. For example, a money factor of .00180 is equivalent to 4.32% APR.

The lender, typically the captive finance arm of the automaker, will set the money factor for each vehicle model they lease. Often, captive lenders will offer supported money factors with special rates to make certain models more attractive to lease. At the same time, dealers can mark-up the money factor from the buy rate set by the lender in order to make more profit.

Compare the Lease Money Factor to the Finance APR

Once you’ve found the money factor for a vehicle, compare it against the APR you could get if you were to conventionally finance the vehicle instead.

For example, if the money factor is .00180 (equivalent to 4.32% APR) but the automaker is offering a promotional finance rate of 2.49% APR, then the finance deal will save you a considerable amount in interest or rent charges.

You can use the Leasehackr Calculator to estimate the lease rent charge based on the inputs you provide (for example, the money factor). The Leasehackr Calculator provides a breakdown of the monthly lease payment into three components—depreciation, rent charge, and taxes—to help with your decision.