Toyota Buy vs. Lease — Find Your Best Financial Fit

You’ve considered all your options and know a new Toyota is right for you. They’re safe and reliable, with quality designs that hold their value and last for years. But you’ve got one more decision to make. Will you buy your next Toyota, or will you lease it? We’ll guide you through your financing options to help you decide whether to buy or lease a new car.

Introduction to Your Toyota Buy vs. Lease Decision

When you buy a Toyota, you own the vehicle. You can either pay the seller the total amount or finance your purchase. Financing is the most popular option, with 85% of new vehicles and 53% of used vehicles purchased with car loans. When you take out a car loan, you pay off the purchase price in small monthly installments over time with interest rather than paying a lump sum at the time of sale.

Around a fifth of Americans lease new vehicles rather than purchasing them. When you lease a vehicle, you have exclusive access to it for the lease term. Your monthly payments are like rental payments for an apartment. You’re paying to drive the vehicle, not to own it. At the end of the lease term, you simply return the car to the dealership. You may be able to purchase it if you wish or lease another vehicle.

Your Comprehensive Guide To Buying a Toyota

Many people prefer buying a Toyota to leasing, because the vehicle is theirs to use exactly as they wish. If your budget allows, you can purchase the car outright using cash. If your budget’s a little tighter or you want a better vehicle than you can afford right now, you may prefer a car loan.

Financial institutions and dealerships can issue car loans. Dealer loans are often more convenient, as you can find a car and get your loan approved in the same place. Financial institutions often have strict lending criteria, so applying through a dealership may be easier.

When you apply for a car loan, the lender will discuss your finances and preferred loan terms. Your loan period may be as short as 48 months or as long as 84 months. You may prefer a short-term loan to reduce your interest or a longer period for lower payments. The lender will also assess your finances and run a credit check to determine whether you’re likely to make your repayments. Once they determine your risk, they can provide an interest rate for your loan. The better your credit score, the lower your interest rate should be.

Upfront Costs

Upfront loan costs can vary depending on their terms and any promotions. Most people make a down payment when securing a car loan. This is a percentage of the vehicle’s price paid upfront. Financial experts recommend down payments of 20% for new vehicles. Down payments aren’t always required, but you can always make one to reduce the interest you’ll pay over the loan period.

Experts also recommend paying any fees, including the tax, title, and license fees, upfront to reduce your interest burden. Dealers can roll these fees into your car loan if money’s tight, but this will increase the overall loan cost. In Texas, the motor vehicle sales tax is 6.25%. Expect to pay around $30 for the title transfer fee, depending on the Texas county, and roughly between $60 and $90 for the license fee, depending on whether you’re buying a new or used Toyota.

An In-Depth Look at Leasing a Toyota

If you care more about driving the latest Toyota than owning one, leasing may be a better option. When you lease a vehicle, you mainly pay for its depreciation, rather than the vehicle itself, which reduces your monthly payments. You also won’t pay interest on a lease. Leases are typically shorter than car loans, usually between 24 and 48 months, so they’re appealing if you don’t want a long-term financial commitment. As Toyota leases tend to be shorter, they make it easy to upgrade your vehicle regularly.

Dealers lease vehicles to people with good credit scores and valid driver’s licenses. You’ll need proof of insurance and steady income to apply for a car lease. If you’re approved for leasing a car, Toyota draws up a lease agreement stating the lease period, the monthly payments, and the allowable mileage. You’ll pay more for extra miles, so make sure your agreement suits your lifestyle.

Your lease agreement also states whether maintenance is your responsibility and whether you have an open-ended or closed-end lease. In an open-ended lease, the dealer calculates the residual value of the Toyota when you return it. You might get a refund if you maintain it well and its value exceeds the market price. If you return the car in poor condition and it has a low market value, expect to pay wear and tear fees. The car’s value doesn’t matter with a closed-end lease. You’ll only pay extra if you exceed the mileage allowance.

You’ll make your first payment when you sign the lease agreement. Other upfront costs include a security deposit, which you’ll get back if you return the car in good condition, an acquisition fee, taxes, and a capitalized cost reduction, which is like a down payment.

Calculating Future Value and Cost Effectiveness

To make the best financial decision, consider your choice’s impact now and in the future. New cars depreciate quickly in the first few years of ownership, so if you want to drive the latest models, leasing may be more cost-effective.

Buying a car can be safer if you prefer driving the same car for many years. You won’t have monthly payments once you pay off your loan. Depreciation also slows down over time. If you maintain your Toyota well, you can sell it for a fair price and put the money toward another vehicle.

Making the Decision: Which Is Right for You?

Considering your budget, financial goals, and lifestyle can help you decide whether to buy or lease a Toyota. If you’re still unsure, chat with our friendly finance experts at Classic Toyota of Tyler. We can answer any questions about these financing options so you can make the most informed choice.