Lease new or buy used?
October 17, 2010 8:41 AM   Subscribe

Buy a used car or lease a new car? Key consideration: significant uncertainly as to whether we will want/need a car in about 2 years.

We are looking to get a new (to us) car for occasional city driving and even more occasional weekend trips. The car will be used at most 2X per week. (And we have looked into zipcar, thanks, there aren't any close enough to us.) We are currently thinking about either leasing a new car (something along the lines of a Ford Fiesta or Nissan Versa) or buying a 2-4 year old car that is maybe slightly bigger than the Fiesta or Versa (maybe an Outback or Fusion?). If we bought the used car, we would pay 100% cash upfront.

The trick is, in two years there is a possibility that our circumstances will change such that we don't want a car at all. AND, to complicate things even more, if we owned a car at that time we would likely give it away instead of selling it again. Of course, we don't know for sure what will happen, and if we were in dire financial straits we could sell the car instead of gifting it away.

So, which option makes more sense? We like the idea of being able to give the leased car back to the dealer, and my guess is that over a two year period we will actually pay out less cash on a lease than on buying a similar used car upfront. However, everyone always says that leasing is a raw deal.

If the consensus is to buy a used car, what are good options that are similar to the cars I mentioned above?
posted by ohio to Travel & Transportation (16 answers total) 5 users marked this as a favorite
When people say (sometimes incorrectly) that leasing is a "raw deal," they say that because at the end of the lease, you're left with less money and no car. If you're planning to give the car away anyway (I'm curious as to why), leasing seems like it could be a much better deal.
posted by SuperNova at 8:57 AM on October 17, 2010 [1 favorite]

One thing to consider: any chance that you'll me moving out of state during the lease term? Some auto leases preclude you from doing so.

And I agree with what SuperNova said.
posted by amro at 8:59 AM on October 17, 2010

In your circumstances, leasing is a good deal if you can stay under the typical 12,000-mile a year limit. As you say, less cash over the two years, a much smaller upfront cash outlay, and no disposal issue, just do a two-year lease and walk away from it. If it turns out you do need a car beyond the two years you can extend, or buy the car.
posted by beagle at 9:00 AM on October 17, 2010

A third alternative would be to lease a used car. Many dealers who take back leased cars are willing to lease them a second time at a lower monthly rate. This would mean having the benefit of a used car at a lower cost than either purchase of a used car or lease of a new car. You can "give it away" to the dealer at the end of the term or pay a small amount to keep it.
posted by Old Geezer at 10:01 AM on October 17, 2010

If you really only plan on using it a couple of times a week, I would pay cash for the first used late-model Japanese vehicle I found with an up-to-date inspection sticker on it. Probably run you about two or three grand. Even a lease on a cheap POS is going to be more than two or three grand after two years of use. But this way you don't have to feel bad if you end up selling your car for a loss or just giving your car away when you're done with it. Look on Craigslist for cars for sale by owner.
posted by Civil_Disobedient at 10:06 AM on October 17, 2010

It depends on whether you'd rather drive a new car with a warranty or a used car without. If you're pretty sure you'll have no use for a car two years from now and you have the income to make a lease viable, it would be a fine option and would get you a new car with a warranty.

If you're going to keep a car for a good long while, leasing is almost always a sucker's deal. Not always, mind you, but usually. In that case, it's almost always better to buy a 2-3 year old used car. Most or all manufacturers have a reasonably priced extended warranty program. The one my SO got was about $1000 for a 0 deductible 7 year/100k mile transferable warranty on her 2008 RAV4 that she bought earlier this month, so she'll be covered for all non-maintenance items until 2015, unless she suddenly starts driving a lot more than usual.

If you don't have your heart set on literally giving the car away when you're done with it, buying used would probably be better financially, so long as you buy one that holds its value reasonably well, but in your case finding a cheap car with a subsidized lease wouldn't be much worse.

Do keep in mind that with the lease, you will be required to have comprehensive and collision coverage on the car. That can be a fairly significant expense.
posted by wierdo at 11:10 AM on October 17, 2010

And being slow this fine Sunday, I earlier failed to link Edmund's incentives page, which includes current lease specials.
posted by wierdo at 11:14 AM on October 17, 2010 [1 favorite]

Civil_Disobedient or someone else could you say more about why buying a cheap suspect used car from CL is better than leasing a new one? It seems like a lot of trouble, worry, and upfront expense without much of a payoff over immediately getting a new car with a full warranty for 200$ a month? (I'm in the same situation as the OP, got about 4k and need transport immediately). Final leasing noob question: what happens if you want to give a car back before the 1 or 2 year lease is up? Typically do you have to pay off remainder or a penalty or what?

(Thanks ohio for asking this!)
posted by Potomac Avenue at 11:21 AM on October 17, 2010

You sound like perfect candidates for leasing to me. One thing you might consider is what rate of interest the cash used to buy a used car would earn if you lease instead.

12,000 mile/year and 15,000 mile/year leases are typical but you may be able to find a lease with a lower mileage allowance that would still be well within your anticipated usage. It has been a while since I sold cars for a living and I don't really remember the details behind this and I never had a customer in a similar situation so you might have to ask a dealer to be certain but it is worth asking the question.

I'd also 2nd the idea of leasing a used car. Whether you lease a new or used car, you'll still have the option to buy the car at the end of the lease.
posted by VTX at 11:33 AM on October 17, 2010

It's all about the total number of dollars escaping your pocket over the period of time that you have the car. If that number is less when buying a car, buy a car. If that number is less when leasing a car, lease it. IMO, the only real downside to leasing a car is that if you don't have a spare car and your lease is up, you may find yourself in need of another car at an inopportune time.

Well, that and they make it difficult to understand exactly how the lease payment is calculated, so it's a lot easier to get ripped off. Edmunds has a series of articles on leasing that are essential reading to understand exactly how a lease works and what all the terms mean.

The basic concept is really simple, though. You're paying for the difference between the negotiated price of the car and its residual value. So if the leasing company estimates that the car you're interested in will be worth $15,000 in two years and you're "paying" $20,000 for it, you pay for the $5000 worth of value you're using up plus interest on the whole amount. (but they don't call it interest)

Note that the price of the car is always negotiable, no matter whether you're leasing or buying. Getting the price of the car down reduces the amount of depreciation you're on the hook for, which will reduce your monthly payments.
posted by wierdo at 11:37 AM on October 17, 2010 [2 favorites]

Response by poster: These are all great answers! Thanks for your help.
posted by ohio at 3:15 PM on October 17, 2010

Echoing some of the sentiments that leasing isn't a bad idea in this case. If you don't need or want a car at the end of the two years, you can turn the car in to the dealer. And if you do want it, you can finance the residual value.

Also, depending on the manufacturer, this is the end of the model year; 2011 inventory is just rolling out, and you can probably get a good deal on a 2010 if you're so inclined.

If you do decide to go with a lease, roll as much into the monthly payments as you're comfortable with.
posted by andrewcilento at 4:41 PM on October 17, 2010

Yes, the idea with a lease is to pay as little up front as possible, because even with full coverage insurance with loan/lease payoff, you'll be out anything you've paid them. So that big $3000 capitalized cost reduction (down payment) you paid to take your monthly down from $249 to $179 or whatever won't mean squat if the car ends up totaled a week later.
posted by wierdo at 5:01 PM on October 17, 2010 [1 favorite]

It seems like a lot of trouble, worry, and upfront expense without much of a payoff over immediately getting a new car with a full warranty for 200$ a month?

I think this depends heavily on how often you're planning on using it. If you need day-to-day commuting reliability, I would say lease without a second thought. But if you're just talking about the random weekend jaunt and maybe groceries and laundry one a week then the answer isn't as clear-cut. Most (good) late-model Japanese cars (Toyota, Honda, Mazda in roughly that order) will last well past their recommended service dates on most of their parts, plus the parts are ubiquitous and just about anyone can work on a Toyota (they should, after all, most Camrys are built here!) My Mazda's timing belt was replaced at 150,000 miles and probably would have lasted longer (maintenance schedule is supposed to be ~80,000 miles). Don't beat on them and change the oil and you can otherwise weld the hood shut on most of them.

If the car has already got an up-to-date inspection sticker, no matter what happens to the car, at least you're legal. What you don't want to do is buy a used car with an outdated inspection sticker. Because that means any problems with the car have to be addressed right after shelling out a bunch of cash to buy it.

The ideal candidate would be about 10 years old and have 80,000-120,000 miles on it. Service history would be nice but I wouldn't count on it. Bring a gearhead friend to check out any candidates if you don't trust yourself. For New England cars I'd concentrate on inspecting the front suspension, brakes & wheels. Make sure there isn't too much play in the steering (find a long stretch of road take your hands off the wheel to test for drift). Garaged cars are the absolute best… try to avoid cars sold from people living in apartments (I know that sounds bad, but as someone who fits that description I can tell you, apartment-dweller usually means street-parking for some part of the car's existence).
posted by Civil_Disobedient at 3:52 PM on October 18, 2010

One thing that just occurred to me. Since you can pay 100% cash for a used car, you should also consider a single payment lease rather than monthly. Some lease companies give you a discount for paying the lease in full up front and then you won't any monthly payments. Again, you'll need to consider what else that money would be doing (IE earning interest) if you paid monthly and compare that to the discount that you get paying it all up front.
posted by VTX at 10:24 AM on October 19, 2010

VTX: "One thing that just occurred to me. Since you can pay 100% cash for a used car, you should also consider a single payment lease rather than monthly. Some lease companies give you a discount for paying the lease in full up front and then you won't any monthly payments. Again, you'll need to consider what else that money would be doing (IE earning interest) if you paid monthly and compare that to the discount that you get paying it all up front"

The problem with this, of course, is what happens if you total the car. Not that that's necessarily likely to happen, but it's a bigger headache than it should be versus paying month-by-month.
posted by andrewcilento at 11:57 AM on October 22, 2010

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