Lease or Buy Our Next Car?
December 15, 2014 7:48 AM Subscribe
We are staring down a new car -- both of our 12/13 year old cars are on their way out. We have no clue what to do, because we put very low mileage on our cars. I know conventional wisdom is that leasing is not as smart as buying, but I'd like to understand why. Here is where we stand:
- we live in Virginia and pay (nominal) personal property tax
- we have excellent credit
- I commute 14 miles rt every day
- my husband commutes 3 miles rt every day, to a bus stop. It could change, but it's unlikely
- my 2002 Volkswagen Passat is fully loaded and has 116k miles on it.
- his 2001 Corolla has 130k miles on it.
- we have paid easily $2500/year in repairs for my car the past few years
- my car seems to be developing the infamous B5.5 VW oil sludge issue (Merry Christmas! Take your car to be fixed!)
- we are finally out of the small child with lots of crap phase (she is almost five and the baby factory is closed).
- we are looking to put our daughter in private school next year
- I'm looking at Volvos, Subarus, or VWs for the next family car and a Kia or Hyundai for my husband's next commuter.
- we live in Virginia and pay (nominal) personal property tax
- we have excellent credit
- I commute 14 miles rt every day
- my husband commutes 3 miles rt every day, to a bus stop. It could change, but it's unlikely
- my 2002 Volkswagen Passat is fully loaded and has 116k miles on it.
- his 2001 Corolla has 130k miles on it.
- we have paid easily $2500/year in repairs for my car the past few years
- my car seems to be developing the infamous B5.5 VW oil sludge issue (Merry Christmas! Take your car to be fixed!)
- we are finally out of the small child with lots of crap phase (she is almost five and the baby factory is closed).
- we are looking to put our daughter in private school next year
- I'm looking at Volvos, Subarus, or VWs for the next family car and a Kia or Hyundai for my husband's next commuter.
Why would you want another VW when the one you have has not done well? Your Corolla may well have another 100k miles in it, don't replace it until you have to. And just buy one car, leasing is for people who think they need a new car every few years.
I know some people love their VWs and Subarus but friends with new ones have had plenty of trouble with them. Volvos are good, but pricy to fix.
posted by mareli at 7:58 AM on December 15, 2014 [3 favorites]
I know some people love their VWs and Subarus but friends with new ones have had plenty of trouble with them. Volvos are good, but pricy to fix.
posted by mareli at 7:58 AM on December 15, 2014 [3 favorites]
Leasing can make sense in some situations. It really depends on whether the downsides are less important to you than the upsides.
The main advantage to leasing is that you can get into a newer or nicer car for the same payment every month. Since the car is typically new, there will be warranty coverage and your risk is limited.
The disadvantage is that you won't own the car and at two/three years need to find a new one - and you basically never get out from under the payments.
It seems like you like to keep your cars a very long time - in that case, a lease might not be a good option for you. It would be better to buy it outright.
posted by Pogo_Fuzzybutt at 8:02 AM on December 15, 2014
The main advantage to leasing is that you can get into a newer or nicer car for the same payment every month. Since the car is typically new, there will be warranty coverage and your risk is limited.
The disadvantage is that you won't own the car and at two/three years need to find a new one - and you basically never get out from under the payments.
It seems like you like to keep your cars a very long time - in that case, a lease might not be a good option for you. It would be better to buy it outright.
posted by Pogo_Fuzzybutt at 8:02 AM on December 15, 2014
A lease is structured to have you paying for the difference in value between the time you get the car and the time you return it, assuming a certain amount of expected wear. Cars depreciate more in their first few years of life than they do in subsequent years, so with a lease you're paying for the most expensive time in a car's life, and then giving the car up. If you drive fewer miles than the limits specified in the contract then the car will depreciate less, but that will benefit the dealer instead of you.
posted by jon1270 at 8:06 AM on December 15, 2014 [1 favorite]
posted by jon1270 at 8:06 AM on December 15, 2014 [1 favorite]
Best answer: Here was my experience.
We bought our first two Hondas. Husbunny puts about 5000 miles per year on a vehicle. I do about 8000. We kept our last cars 7 and 6 years respectively and sold them for a total of $17,500. I put about $5,000 into my car in repairs in that time, so I figure that I spent about $35,000 on it totally. About $350 per month all in. Ditto Husbunny. (give or take.)
This time around we leased for 36 months, Hondas again. We spend about $250 per month, per car, and we'll get new cars in June of 2016.
For us, on a monthly basis, we're coming out ahead by leasing. Neither of us puts tons of miles on a car.
We needed cash to buy our way out of our house, so it was a needs-must situation, but what we've discovered is that we're happy leasers. Our cars won't need new tires, or any major repairs. We get to have the most technologically updated vehicles and they're covered under a warranty for the time we'll possess them.
I have a Civic, he has a Fit. So no big luxurious cars, but good, solid grocery-getters. Either would work with a five-year old because they're four doors. You have to pick cars that have a high residual value. Edmunds.com tells you how to calculate 'factors' involved in leasing.
So run the math. The only way leasing works is if you can stay under the mileage allotment, and for us, it's a piece of cake.
I used to be in the 'drive it til the wheels fall off camp,' but now, I get a cheap, reliable, fun to drive car, and it fits in my budget. I'm as happy as a clam at high tide!
posted by Ruthless Bunny at 8:32 AM on December 15, 2014 [5 favorites]
We bought our first two Hondas. Husbunny puts about 5000 miles per year on a vehicle. I do about 8000. We kept our last cars 7 and 6 years respectively and sold them for a total of $17,500. I put about $5,000 into my car in repairs in that time, so I figure that I spent about $35,000 on it totally. About $350 per month all in. Ditto Husbunny. (give or take.)
This time around we leased for 36 months, Hondas again. We spend about $250 per month, per car, and we'll get new cars in June of 2016.
For us, on a monthly basis, we're coming out ahead by leasing. Neither of us puts tons of miles on a car.
We needed cash to buy our way out of our house, so it was a needs-must situation, but what we've discovered is that we're happy leasers. Our cars won't need new tires, or any major repairs. We get to have the most technologically updated vehicles and they're covered under a warranty for the time we'll possess them.
I have a Civic, he has a Fit. So no big luxurious cars, but good, solid grocery-getters. Either would work with a five-year old because they're four doors. You have to pick cars that have a high residual value. Edmunds.com tells you how to calculate 'factors' involved in leasing.
So run the math. The only way leasing works is if you can stay under the mileage allotment, and for us, it's a piece of cake.
I used to be in the 'drive it til the wheels fall off camp,' but now, I get a cheap, reliable, fun to drive car, and it fits in my budget. I'm as happy as a clam at high tide!
posted by Ruthless Bunny at 8:32 AM on December 15, 2014 [5 favorites]
If you really want to make the financially smart decision buy a relatively new used car. Like one driven by someone on a lease!
posted by srboisvert at 8:34 AM on December 15, 2014 [5 favorites]
posted by srboisvert at 8:34 AM on December 15, 2014 [5 favorites]
Best answer: I leased the car I now drive (Volvo C70 ) - in Virginia. Never again.
Okay, part of the problem was that I moved to Maryland partway through the lease - and then back! - but even so. Every interaction with DMV was orders of magnitude more complex because I was leasing. I literally never managed to accomplish a task in a single visit to DMV. Every single time I had to go back home, usually spend a couple weeks getting just the right piece of paper from US Bank, who Volvo uses for their leasing, and then go back to DMV at least once. Can't speak to other banks, but US Bank struck me as not really ready for prime time.
Also, I may have been able to get around this if I'd known what to do, but you get a pretty massive car tax break if your vehicle is personally owned and not owned by a business. If you lease, your car is owned by a business. The bank will get taxed at full freight and will pass that along.
Also, your daily mileage may be fine now (14 miles a day, should be no problem) but that could change over the course of the lease. This is why I ended up following my job to Maryland, because suddenly I was doing 50 miles a day instead of about 8, and that was quickly sending my mileage way, way over the included miles.
It was generally just a huge pain in the ass. I bought my car out when the lease expired, and I'm not sure it was even that great a deal financially. Basically, just can't recommend leasing at all.
posted by Naberius at 8:40 AM on December 15, 2014 [1 favorite]
Okay, part of the problem was that I moved to Maryland partway through the lease - and then back! - but even so. Every interaction with DMV was orders of magnitude more complex because I was leasing. I literally never managed to accomplish a task in a single visit to DMV. Every single time I had to go back home, usually spend a couple weeks getting just the right piece of paper from US Bank, who Volvo uses for their leasing, and then go back to DMV at least once. Can't speak to other banks, but US Bank struck me as not really ready for prime time.
Also, I may have been able to get around this if I'd known what to do, but you get a pretty massive car tax break if your vehicle is personally owned and not owned by a business. If you lease, your car is owned by a business. The bank will get taxed at full freight and will pass that along.
Also, your daily mileage may be fine now (14 miles a day, should be no problem) but that could change over the course of the lease. This is why I ended up following my job to Maryland, because suddenly I was doing 50 miles a day instead of about 8, and that was quickly sending my mileage way, way over the included miles.
It was generally just a huge pain in the ass. I bought my car out when the lease expired, and I'm not sure it was even that great a deal financially. Basically, just can't recommend leasing at all.
posted by Naberius at 8:40 AM on December 15, 2014 [1 favorite]
my advice: buy late-model, high mileage cars and keep them roughly ten years. That seems to be the sweet spot for reliability/cost. Buying a 2-3 year old car with 100,000+ miles on it is relatively inexpensive, and you're not going put very many miles on it the 10 years you own it. There are 2 kinds of wear on a vehicle: mileage and time. Since you're not putting much mileage on your vehicles, buy cars with minimal time wear and maximum mileage wear to keep costs down.
posted by cosmicbandito at 8:44 AM on December 15, 2014 [1 favorite]
posted by cosmicbandito at 8:44 AM on December 15, 2014 [1 favorite]
Response by poster: This is such helpful feedback. Mareli, I guess I don't see the VW as having been much of a PITA? It's only been expensive the last two years and the oil sludge issue is actually something that I have avoided for the past 12. I know others would disagree, but I actually love that car; I just think it's getting too expensive.
I do admit that having someone else pay for all of my maintenance and provide a loaner is highly attractive about leasing to me.
ETA: we don't have a garage, so the wear and tear on any car, for us, is also environmental.
posted by michellew at 8:47 AM on December 15, 2014
I do admit that having someone else pay for all of my maintenance and provide a loaner is highly attractive about leasing to me.
ETA: we don't have a garage, so the wear and tear on any car, for us, is also environmental.
posted by michellew at 8:47 AM on December 15, 2014
I recently had to get a new car for my kids, who are both in college now. I leased a Honda and so far it's been working out well. In general, you can get "more" car for less money down (and per month) with a lease - but you're moving away from the 'old reliable' system of paying a car off in several years, then living with the luxury of no car payments. If you buy into leasing as a 'way of life', it's kinda like a subscription service - but for your car.
But for our situation, I really wanted the kids to have a safe car (it's got all of the latest safety features, rear-view camera, etc) and a reliable car (given what college costs, I don't want them spending lots of time dealing with "the car won't work"). Given that it is highly unlikely that the kids will exceed the mileage limits, when I worked the numbers it seemed like buying a car and keeping it for 6 years was a bit cheaper than leasing two cars for successive 3-year periods. But it's worth it to me to keep the kids in safest / most reliable.
On preview: this went down in Texas. And one other aspect is that none of us are really 'car people'. Some folks are very confident about buying a used vehicle, that they can check it out and make sure it's not going to fall apart as you drive it home. Not us. We've had average experiences buying used - but again, reliability was something I was willing to pay for in this case.
posted by doctor tough love at 8:59 AM on December 15, 2014 [1 favorite]
But for our situation, I really wanted the kids to have a safe car (it's got all of the latest safety features, rear-view camera, etc) and a reliable car (given what college costs, I don't want them spending lots of time dealing with "the car won't work"). Given that it is highly unlikely that the kids will exceed the mileage limits, when I worked the numbers it seemed like buying a car and keeping it for 6 years was a bit cheaper than leasing two cars for successive 3-year periods. But it's worth it to me to keep the kids in safest / most reliable.
On preview: this went down in Texas. And one other aspect is that none of us are really 'car people'. Some folks are very confident about buying a used vehicle, that they can check it out and make sure it's not going to fall apart as you drive it home. Not us. We've had average experiences buying used - but again, reliability was something I was willing to pay for in this case.
posted by doctor tough love at 8:59 AM on December 15, 2014 [1 favorite]
One thing no one has brought up is sales tax. In many states when you buy your car you owe sales tax on the whole purchase (9.5% of $20,000 is a lot of money). However, if you lease you only pay sales tax on the depreciation and (I think) you pay it with each payment instead of up front.
Now, to be clear, I've never leased a car (I'd much rather know that in three years I own it outright) so I'm not advocating for leasing, but it is something to consider.
posted by lucasks at 9:24 AM on December 15, 2014
Now, to be clear, I've never leased a car (I'd much rather know that in three years I own it outright) so I'm not advocating for leasing, but it is something to consider.
posted by lucasks at 9:24 AM on December 15, 2014
Best answer: I think for your car usage habit, you'd be better off buying a car that's been returned from a lease than leasing a car. Half the price of a new car, and since you've been driving your cars for 10+ years, you still have 70% of the life you're going to get out of it, at least.
posted by empath at 10:44 AM on December 15, 2014 [1 favorite]
posted by empath at 10:44 AM on December 15, 2014 [1 favorite]
A (new) volvo or a VW is a car to lease because they break all the time and are expensive to work on.
Similarly, a several year old or off lease subaru will cost not all that much less than a new one because they hold their value way less than a lot of cars.
Is there any specific reason it has to be those as your personal car? What's wrong with just getting two hyundais? Or something like a toyota venza/matrix, or a scion, etc.
Used subarus are expensive because they're good cars, but they're not really better cars than say, a toyota or a honda. They just have a strong used market. Is there something specific that drove you to that brand?(not even engaging on the volvo or VW thing, since those are money pits. volvo hasn't made a good car since they discontinued the real s/v70, and VWs are a nightmare and that regularly comes up on the green). Also, if you're considering spending volvo/VW money(and i'm sure you're not looking at the absolute most basic model) what's wrong with something like a prius or a lexus ct200h?
Also, why dump the corolla? 130k on a corolla is not that much, people buy used corollas with >230k on them. My friend just inherited one with 130k on it and has made multiple length-of-the-coast road trips in it. Is something specifically dead, or is it just "old". Because a subaru or other pricier could make more sense if you really want it if you're only replacing one car.
posted by emptythought at 3:36 PM on December 15, 2014
Similarly, a several year old or off lease subaru will cost not all that much less than a new one because they hold their value way less than a lot of cars.
Is there any specific reason it has to be those as your personal car? What's wrong with just getting two hyundais? Or something like a toyota venza/matrix, or a scion, etc.
Used subarus are expensive because they're good cars, but they're not really better cars than say, a toyota or a honda. They just have a strong used market. Is there something specific that drove you to that brand?(not even engaging on the volvo or VW thing, since those are money pits. volvo hasn't made a good car since they discontinued the real s/v70, and VWs are a nightmare and that regularly comes up on the green). Also, if you're considering spending volvo/VW money(and i'm sure you're not looking at the absolute most basic model) what's wrong with something like a prius or a lexus ct200h?
Also, why dump the corolla? 130k on a corolla is not that much, people buy used corollas with >230k on them. My friend just inherited one with 130k on it and has made multiple length-of-the-coast road trips in it. Is something specifically dead, or is it just "old". Because a subaru or other pricier could make more sense if you really want it if you're only replacing one car.
posted by emptythought at 3:36 PM on December 15, 2014
Response by poster: Also, why dump the corolla? 130k on a corolla is not that much, people buy used corollas with >230k on them.
Yeah, I should have specified that there are no immediate plans to get rid of the Corolla. It is a sturdy little car and it doesn't go far anyhow. It's actually been totaled out by the insurance company (no salvage title though) for body damage when my husband hit a young buck about 6 years ago. The insurance is cheap, the property tax is sub-minimal, and it is perfect for our purposes. We really just need a family car.
posted by michellew at 7:04 PM on December 15, 2014
Yeah, I should have specified that there are no immediate plans to get rid of the Corolla. It is a sturdy little car and it doesn't go far anyhow. It's actually been totaled out by the insurance company (no salvage title though) for body damage when my husband hit a young buck about 6 years ago. The insurance is cheap, the property tax is sub-minimal, and it is perfect for our purposes. We really just need a family car.
posted by michellew at 7:04 PM on December 15, 2014
The only difference between a lease and owning a car is the implied interest rate on the lease versus a loan and what the implied residual value is compared to what you think it might be. Because depreciation is non-linear if you are happy driving the same car for five years plus owning will always be a better deal. If you prefer a new car every 3 to 5 years the math is less clear but you are usually better off buying and trading the residual value risk yourself. Leases really are only absolute winners for people who can deduct the cost of their lease from their income at a higher rate than they can deduct depreciation.
posted by JPD at 1:38 AM on December 16, 2014
posted by JPD at 1:38 AM on December 16, 2014
This thread is closed to new comments.
posted by Tomorrowful at 7:53 AM on December 15, 2014 [1 favorite]