Forced into the car market: Lease or Buy?
March 23, 2009 6:00 PM   Subscribe

We just lost our car in a garage fire, should we now lease or buy? We live in a condo, and a bunch of us homeowners lost our cars (and other belongings) in a garage fire. My wife and I want to know the hive-mind's opinion on whether we should lease or buy now that we're forced into the market for a new car. Some information: we're "tree-huggers" so we appreciate good gas mileage (and we're enamored with the upcoming 3rd gen Honda Insight). But we also drive the cars a ton, we drive everywhere. We live in Indianapolis, but our parents and families are on the east coast, so we drive to NYC and the D.C. area multiple times a year; not to mention the Chicago area, too. So that would also be a consideration whether we lease or buy... Thanks for anyone's opinion.
posted by lonemantis to Shopping (14 answers total) 1 user marked this as a favorite
If you're making those trips east several times a year, as well as do everyday driving a "ton" then you're going to lapse that magic number miles-per-year that a lease gives you.

Without knowing any of your financial situation at the time, it's a pretty good time to buy.
posted by jerseygirl at 6:03 PM on March 23, 2009

I went through this awhile back, here's what I found:

- I found leasing really targeting people who want to hit a magic cash flow number per month, and wanted the most car for that number.
- This generally meant stay at home moms, second sports car or other low mileage vehicle.
- Without any sort of business lease deduction, it didn't really make sense.

I could find any car with mileage to get me back and forth to work everyday, as a main car. Well, it probably could have, but I wouldn't have a lot of miles to to do other things in. Take in account the fees they charge for dings and blemishes, it didn't work out.

I highly recommend looking at entry-level luxury cars. Normally I'd say financing a depreciating asset like a car is going to always be bad unless they were giving you the money, and some financing deals I'm seeing are literally giving you the money. I'd look at 3-series BMWs if you can afford it, they're practically asking you take them off the lot. High MPG vehicles are also, especially in the secondary market, really selling cheaply.

In fact if I got a big insurance check, I'd look at a Mercedes C-Class or a BMW 3-series and see if I could get it below invoice. If the markets turn around, you could probably sell it in 24 mos. and break even, which would really be a miraculous thing.
posted by geoff. at 6:19 PM on March 23, 2009

i've never leased a car but looked into it a few years back, when i was taking what i thought would be a temporary break from my carless existence in new york. at the time it seemed like most leases had mileage limits, so if you travel a lot, you may have to pay a penalty or something.
posted by thinkingwoman at 7:15 PM on March 23, 2009

I agree with the previous poster- go with something more comfortable and quieter.

Sitting in a high-revving Japanese econobox for long hauls like that will drive you crazy.

The new C-Class is an absolutely wonderful entry-level car.

If that is not an option, then go with something Swedish - like a SAAB 9-3 or the Volvo S series. Both are comfortable, quiet, safe and good on gas.
posted by Zambrano at 7:26 PM on March 23, 2009

Actually, leasing (and returning the car at the end of the lease) only typically becomes worthwhile if you actually drive the car to the number of miles/kilometers that you're allowed; that's because the depreciated value on which the lease payments are based is determined by assuming that you will use up all of your mileage.

That being said, leasing sucks. I did it for my first car, and never again. Since the car doesn't really belong to you -- you're only renting it, after all -- no matter what happens to the car (ie: dings, scratches, etc.), you're always wondering if you are going to have to fix that before returning it. Also, you're always keeping an eye on your mileage to make sure that you don't exceed the magic number. For me, it was very constraining. Now, I've got a car that I actually own, and it's liberating.

If you can afford it, buy/finance your car.

As for model suggestions (I'm not sure if that's part of your question) I would recommend a Toyota Corolla. It's great on gas, and very comfortable (and I've got one). Actually, you probably don't want a hybrid, since you will be doing a lot of highway; hybrids are much more expensive to buy, and aren't much more efficient on the highway than a good conventional car (ie: Honda Civic vs. Insight: 36mpg hwy vs. 43 mpg hwy).
posted by Simon Barclay at 7:30 PM on March 23, 2009

I'd buy a newer used car. There are good deals right now and if you're the kind of person that keeps a car forever you'll come out ahead.

Personally for a good combination of reasonably price, availability, long haul comfort and gas mileage I recommend you look at VWs. My Jetta got 34 mpg+ (stick) and was approximately 100x more comfortable and fun to drive than the much newer Subaru I have now. And it held more and the radio was better. Used Toyotas and Hondas are insanely overpriced around here for what you get.
posted by fshgrl at 8:20 PM on March 23, 2009

Response by poster: Thanks for all the comments thus far, keep 'em coming. Just some more information: We haven't had car payments for a while now, and a very low insurance premium on a pretty old (but low mileage) and fantastically running car. We're probably not going to get much money in the way of an insurance claim because of the age of the car. We're really not the type to drive anything flashy, nor were we really even considering a Beemer or Mercedes (maybe, until now). My wife insisted I clarify that I should not have stated that we drive a "ton." We merely drive to the East Coast several times a year, but we're good about consolidating long trips.It is interesting the everyone thus far has commented that leasing is a bad idea, but when I was out with a few neighbors, they all seemed to think that leasing was the way to go because one can "try and not buy," and the car will be under warranty for basically the life of ownership. We've never even considered leasing before this catastrophe happened and we both have only owned cars in the past.
posted by lonemantis at 8:26 PM on March 23, 2009

I've heard there are three months' worth of Toyota Priuses sitting on dealers' lots right now, and the new 2010s coming in soon. I'd bet you could get a good deal on a 2009 model.
posted by Joleta at 8:53 PM on March 23, 2009

When in doubt, drive lotsa cars. So many people have been interested in a particular car, liked what they've read about it, heard great things from people they've come across who have one, driven the car and found they couldn't get comfortable in it or there was something about it that rendered it a not-good choice for them.

In general, is your friend. Probably worth buying short-term access to Consumer Reports online content or at least buying one of their books (from a locally owned bookstore).

As per that and other references, I wouldn't buy a Saab or a Volvo S if they were half off. Those cars, the 3 and the Merc don't come close to tree-huger MPG's, either. Lotsa people have had lotsa problems with Jettas, too.

Short of something like the base-model Nissan Versa, the days of the high-revving, uncomfortable econobox are long over. People have related decent long-trip comfort in things as small as the Honda Fit, which sounds like it's worth checking out.

My brother-in-law recently was recently in the market for an economy car, bought a Focus with a good measure of options (for cheeeeeeeeeeeap), promptly drove it from Calif. to DC, said it was entirely comfortable (he's 6'3", 48) and he got about 37 mpg at 75 mph cruising speed.

I'm a little wary of Ford over the long haul (though it would have taken nuclear war to stop my '97 Crown Vic cop car. I had to sell it when I moved overseas and the buyer reports it rolls on happily at 155k), dunno if I'd go with a Focus.

Given your location and destinations, potential for bad weather, a Subaru with all-wheel drive could be a good choice. Too, they seem to be a cut above their competitors in terms of being rugged.

My sister fell asleep while driving an older one, managed to roll it a few times at highway speed and it apparently flipped end-over-end once or twice. She was fine, her husband was fine, their 3-year-old daughter was fine, the baby she was carrying at 7 months was fine. The damn rabbit in the back of the car was fine.

With buying vs. leasing, if the thinking is along the lines of what y'all did with the now-burned car, to maintain it well, keep it for a long time--no reason you can't go to 200k miles--then buying seems to make sense.

As someone noted, often a great money-saver to buy something 2-3 years old--in great shape and appreciably cheaper than new. If you consider that, a British friend in the "motor trade" says nobody in the motor trade buys off-lease cars, because people generally do not pay attention to maintenance.

Dunno the total miles you drive in a year, but the normal offers for leases, especially the "screaming deals" advertised involve relatively low miles for the lease term. I've seen the fine print relate as low as 9,500/yr. The per-mile-over costs can stack up fast, though I've heard that people can essentially buy more miles as part of the contract and it's much less per mile than if you go over to any significant extent.

I lose track of the buy vs. lease details (but there are things out there w. a series of questions people answer that ultimately give a buy vs. lease recommendation), but leasing's always seemed questionable.

Sure, more car to drive for lower payments, but a low-end four-year lease for $210/mo, four years later, you've spent $10k and have, as above-mentioned British friend would say, sweet f.a.--the "a" being "all," though I guess you'd have the option to buy what you've been leasing.

One thing about leasing I've heard more times than I can count, scrutinize the contract in a huge way. As someone noted, potentially all sortsa questions about whether any little dings, wear, etc., are normal and acceptable or something that the lessee is charged for. Far from unprecedented that the dealer toes a hard line, aka "tries to get more money from you for things that are questionable at best."
posted by ambient2 at 9:32 PM on March 23, 2009

If you have the cash sitting around, its an *excellent* time to buy. A vehicle will be a depreciating asset but (assuming its insured) its not nearly as volatile of an asset to sink your cash into, given the current economic outlook, as many other choices for investment. Devote some time to shopping around and finding the best deals - with all the dealerships closing up of late and all the cars piling up in the ports, prices are bound to continue dropping in the near-term.
posted by allkindsoftime at 11:07 PM on March 23, 2009

Lease vs. Buy (Assuming you have cash for a downpayment and you can find a lease with the right number of miles allowed on it) is just a math problem. However if you aren't the sort to want a new car every three years or so it is pretty much inevitable that buying is a better deal.

The way a lease works is there is an assumed residual value at the end of the lease term, so the total payments for the lease are (Sale Price-Residual Value +Fees+ Carrying Cost of the car during the lease)/term of the lease. The first three items should be totally transparent to you so you can back into the implied carrying cost (i think the term the industry uses is discount rate). Compare this rate to the rate car companies are willing to give you on a purchase. If this discount rate is lower leasing is a better deal for you (Assuming you would want a new car at the end of three years). I doubt that is the case. In the past leasing was a better deal only because the companies were way too optimistic about residual values but they have sort of learned their lesson and you don't see that happen very much these days.

This comparison only works if you would buy a new car in three years no matter what. Because the depreciation on a vehicle flattens out substantially after the first year or two, a car declines much less in value in the 4th year then it does in the first. This means it will without question be a better deal to own a car for 6 years then lease 2 cars for 3 years each.

There are tax benefits to leasing tho if you use your car for work.

I would buy something that's 2-3 years old and absolutely drive it in to the ground.
posted by JPD at 5:08 AM on March 24, 2009

If you haven't tried the Prius, it's surprisingly roomy. Given that most of your driving will be around the city, it'll probably save the most on gas in the long run.
posted by electroboy at 6:41 AM on March 24, 2009

Response by poster: Thanks everyone, we're going to begin to test drive cars this afternoon, and definitely going to consider all of these comments.... Thanks! And keep'em coming.
posted by lonemantis at 9:30 AM on March 24, 2009

Don't buy a VW. Maybe lease one, but do not buy one. After six years or so, it will break down over and over and over again. I finally donated my 2001 Cabrio (bought slightly used, I was the second owner) this past December, after it had broken down four times in the past year. Each time it broke down, it was a repair that cost over $1,000. The final time it just stopped on the freeway with no warning. Even the minor things had to be taken to the dealer: you can't change a headlight without it costing over $70.

I bought a Honda Fit to replace the Cabrio. I love it. It gets about 35 MPG (well, 34.7 MPG, to be exact), and I find it really comfortable to drive in. However, I could see it getting a bit cramped for backseat passengers.
posted by JustKeepSwimming at 6:22 PM on March 24, 2009

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