To lease or buy my next car?
October 15, 2014 11:56 AM Subscribe
I've looked all over the internet for a lease/buy calculator that fits my situation, but they all seem to compare leasing versus a car loan. I am wondering whether to lease or buy a new car with cash. Is there ever a valid argument for leasing over a cash purchase if you can afford to pay for the car outright?
Pertinent facts (I think):
- I've never leased before, always bought and drove my cars for about 7-8 years
- I put about 15000 miles a year on my car
- I do not have a valid excuse to write a lease off as a business expense
- Using the cash for the car purchase does not hurt other areas of my life and the money is not currently needed for anything else. It's in a savings account earning .80% because I knew I needed a car soon.
- The car I really want is a higher end vehicle that likely won't hold its value as well as a lower cost car would
- I like the idea of a new car every three years with a lease, but can temper that desire if leasing is a bad idea
I was considering leasing because it sounds good on the surface: no big cash outlay upfront, new car every few years, no old car maintenance expenses. But I'd like to understand how much I'm hurting my finances over the long run if I go that route. What would you do in my shoes?
Pertinent facts (I think):
- I've never leased before, always bought and drove my cars for about 7-8 years
- I put about 15000 miles a year on my car
- I do not have a valid excuse to write a lease off as a business expense
- Using the cash for the car purchase does not hurt other areas of my life and the money is not currently needed for anything else. It's in a savings account earning .80% because I knew I needed a car soon.
- The car I really want is a higher end vehicle that likely won't hold its value as well as a lower cost car would
- I like the idea of a new car every three years with a lease, but can temper that desire if leasing is a bad idea
I was considering leasing because it sounds good on the surface: no big cash outlay upfront, new car every few years, no old car maintenance expenses. But I'd like to understand how much I'm hurting my finances over the long run if I go that route. What would you do in my shoes?
I think it really depends on your goals. If you want to always be driving a new, nicer car it makes sense to lease. If you want the maximum value, buy a lightly used car. Leasing costs more in the long run, but how much more is going to vary depending on the lease terms, the type of car, etc.
Here's a nice comparison; you can just use the value of the car listed rather than the calculated loan price. For a 24K car, that article suggests that your total output of cash after 6 years is roughly equivalent buying new in cash vs. leasing, but at the end of the 6 years, the buyer of the new car has a car worth 11K (to sell or keep).
It sounds like you have enough savings / income that you can comfortably do either. If I was making the decision, I'd buy, because I don't really care about how nice a car is as long as it's safe & reliable. Someone who cares more about cars (and has more extra $$$ than I do) might choose to lease.
posted by insectosaurus at 12:29 PM on October 15, 2014
Here's a nice comparison; you can just use the value of the car listed rather than the calculated loan price. For a 24K car, that article suggests that your total output of cash after 6 years is roughly equivalent buying new in cash vs. leasing, but at the end of the 6 years, the buyer of the new car has a car worth 11K (to sell or keep).
It sounds like you have enough savings / income that you can comfortably do either. If I was making the decision, I'd buy, because I don't really care about how nice a car is as long as it's safe & reliable. Someone who cares more about cars (and has more extra $$$ than I do) might choose to lease.
posted by insectosaurus at 12:29 PM on October 15, 2014
I leased my last car, and my current one. It was definitely the right choice for me because I got a new car, which I love, and I didn't know where my life was going to be in a few years when I leased the previous one so I didn't want to commit to purchasing a vehicle. And then I liked leasing so much that I did it again.
For the record, I didn't get remotely screwed over at the end by the wear and tear fees. Grand total of what they wanted from me was $155.84, on a car I'd been leasing for over 3 1/2 years and definitely had some noticeable scratches and dings.
posted by dithmer at 12:55 PM on October 15, 2014
For the record, I didn't get remotely screwed over at the end by the wear and tear fees. Grand total of what they wanted from me was $155.84, on a car I'd been leasing for over 3 1/2 years and definitely had some noticeable scratches and dings.
posted by dithmer at 12:55 PM on October 15, 2014
Check your lease agreements very carefully. You'll want to make sure that you have adequate cushion in terms of mileage. Otherwise you could get hit with a big fee at the end.
What might make sense for you, if you have good credit, is to get a car loan with really good financing terms and then sell it after two or three years. The dealer makes money off of you financing with them, so you can negotiate with that in mind. If you say you're paying cash up front they have no incentive to nudge down the price.
posted by Night_owl at 12:59 PM on October 15, 2014 [1 favorite]
What might make sense for you, if you have good credit, is to get a car loan with really good financing terms and then sell it after two or three years. The dealer makes money off of you financing with them, so you can negotiate with that in mind. If you say you're paying cash up front they have no incentive to nudge down the price.
posted by Night_owl at 12:59 PM on October 15, 2014 [1 favorite]
Best answer: Consumer Reports has a nice write-up of the trade-offs here..
For me this is the takeaway:
"The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan."
So leasing will definitely be more expensive. You seem to have a handle on the upsides of leasing; it's up to you whether that is a good trade for you. FWIW in a similar position I bought a 3-year-old car, and have been very happy with the results.
posted by contrarian at 1:47 PM on October 15, 2014 [1 favorite]
For me this is the takeaway:
"The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan."
So leasing will definitely be more expensive. You seem to have a handle on the upsides of leasing; it's up to you whether that is a good trade for you. FWIW in a similar position I bought a 3-year-old car, and have been very happy with the results.
posted by contrarian at 1:47 PM on October 15, 2014 [1 favorite]
Best answer: buy. in the KISS rule, KISS stands for keep it simple, stupid.
posted by bruce at 2:19 PM on October 15, 2014
posted by bruce at 2:19 PM on October 15, 2014
Pretty much the only advantage of leasing, in some states, is that you're only taxed on the portion of the price that you pay.
Leasing is more or less paying for the depreciation of a car (plus "interest"), and at the end of the term, you've got nothing to show for it. You turn it in, and pay for the depreciation of another car for another 3 years, in perpetuity. If you're looking at high-depreciation cars, it's going to cost you more.
Buying outright certainly has more cash paid out up front, but you own a tangible asset that eventually stops depreciating (or at least slows markedly after the first few years).
posted by hwyengr at 2:45 PM on October 15, 2014 [1 favorite]
Leasing is more or less paying for the depreciation of a car (plus "interest"), and at the end of the term, you've got nothing to show for it. You turn it in, and pay for the depreciation of another car for another 3 years, in perpetuity. If you're looking at high-depreciation cars, it's going to cost you more.
Buying outright certainly has more cash paid out up front, but you own a tangible asset that eventually stops depreciating (or at least slows markedly after the first few years).
posted by hwyengr at 2:45 PM on October 15, 2014 [1 favorite]
If you lease, don't pay cash and put down as little as possible. Here's why:
When you lease, the dealer factors in depreciation into the lease. So you get the car for about $300 per month, and you drive it. If you get in an accident and the car is totaled, you have two insurances that pay off, your regular insurance which reimburses the value of the car (significantly less than what's owed) and Gap insurance, which covers the gap between what's still owed and what regular insurance pays.
If you put money down, or pay outright YOU'RE the one financing that risk, not the Gap insurance. You'll only get what the car is worth, and YOU'RE the one who paid depreciation.
posted by Ruthless Bunny at 5:39 PM on October 15, 2014 [1 favorite]
When you lease, the dealer factors in depreciation into the lease. So you get the car for about $300 per month, and you drive it. If you get in an accident and the car is totaled, you have two insurances that pay off, your regular insurance which reimburses the value of the car (significantly less than what's owed) and Gap insurance, which covers the gap between what's still owed and what regular insurance pays.
If you put money down, or pay outright YOU'RE the one financing that risk, not the Gap insurance. You'll only get what the car is worth, and YOU'RE the one who paid depreciation.
posted by Ruthless Bunny at 5:39 PM on October 15, 2014 [1 favorite]
I fit all of these categories:
- I've never leased before, always bought and drove my cars for about 7-8 years
- I put about 15000 miles a year on my car
- I do not have a valid excuse to write a lease off as a business expense
- Using the cash for the car purchase does not hurt other areas of my life and the money is not currently needed for anything else. It's in a savings account earning .80% because I knew I needed a car soon.
- The car I really want is a higher end vehicle [that likely won't hold its value as well as a lower cost car would]
The one thing I was sure about was that I will never buy another brand new car. There's just too much loss in value.
So last February, ready for something newer than my 2006 VW CC 4-Motion, which has been a joy to own, I shopped around and found a pre-owned 2014 version of the same car, with 12,000 miles on it, which means it's still under factory warranty and didn't come with the sticker shock of a new car. It was exactly what I wanted, and, seven months later, I couldn't be happier.
(I would never lease a car, just because I like deducting the trade-in value from the purchase price of my next car.)
posted by Short Attention Sp at 5:52 PM on October 15, 2014
- I've never leased before, always bought and drove my cars for about 7-8 years
- I put about 15000 miles a year on my car
- I do not have a valid excuse to write a lease off as a business expense
- Using the cash for the car purchase does not hurt other areas of my life and the money is not currently needed for anything else. It's in a savings account earning .80% because I knew I needed a car soon.
- The car I really want is a higher end vehicle [that likely won't hold its value as well as a lower cost car would]
The one thing I was sure about was that I will never buy another brand new car. There's just too much loss in value.
So last February, ready for something newer than my 2006 VW CC 4-Motion, which has been a joy to own, I shopped around and found a pre-owned 2014 version of the same car, with 12,000 miles on it, which means it's still under factory warranty and didn't come with the sticker shock of a new car. It was exactly what I wanted, and, seven months later, I couldn't be happier.
(I would never lease a car, just because I like deducting the trade-in value from the purchase price of my next car.)
posted by Short Attention Sp at 5:52 PM on October 15, 2014
Anecdotally, I always took leasing to only be good on luxury cars that are lemons and after the end of the lease become obscenely expensive to repair.
posted by wcfields at 6:45 PM on October 15, 2014 [1 favorite]
posted by wcfields at 6:45 PM on October 15, 2014 [1 favorite]
In theory, leasing a car for three years vs. buying and selling it in three years comes out in a wash. It's because a lease is really just paying for the depreciation plus interest (though it's called a "money factor"). The advantage of a lease is that it insulates from the risk of some adverse event killing your resale value. With a lease, that's the lease company's problem but if you buy, it's your problem.
So, if you might decide to keep the car longer, don't lease. If you're not 100% certain that you're going to come in under your mileage cap, don't lease. If you don't want to have to worry about getting too many dings and scratches, don't lease.
The problem I have with every article about buying vs. leasing is that it assumes you're only going to buy a brand new car. Buying a used car is WAY less expensive and it's a much better value (and I used to sell new cars for a living). A lot of the entry level luxury cars are crazy good deals if you look for one that is two years old or so because so many people get them on 24 month leases that the market is flooded with lease returns. Not all of them have outrageous maintenance costs and many of them are is REALLY good condition because the people who leased them were paranoid about fees when they turned the cars in.
posted by VTX at 7:27 PM on October 15, 2014 [2 favorites]
So, if you might decide to keep the car longer, don't lease. If you're not 100% certain that you're going to come in under your mileage cap, don't lease. If you don't want to have to worry about getting too many dings and scratches, don't lease.
The problem I have with every article about buying vs. leasing is that it assumes you're only going to buy a brand new car. Buying a used car is WAY less expensive and it's a much better value (and I used to sell new cars for a living). A lot of the entry level luxury cars are crazy good deals if you look for one that is two years old or so because so many people get them on 24 month leases that the market is flooded with lease returns. Not all of them have outrageous maintenance costs and many of them are is REALLY good condition because the people who leased them were paranoid about fees when they turned the cars in.
posted by VTX at 7:27 PM on October 15, 2014 [2 favorites]
What would you do in my shoes?
Find a used version of the car similar to what Short Attention Sp mentioned, with very low miles and under factory warranty, and buy that. Plow the rest of the money in to something with a higher return than that savings account, and in several years use that money for the big 60 or 80k maintenance(or whatever it is for that brand/model, which is always a big punch to the genitalia on a higher end car) or the first out of warranty major maintenance. By your mileage estimate that should be 4-5 years or so.
People have outlined the caveats with leasing, but with my plan you've bypassed the big caveat of owning which is paying out of warranty maintenance.
The price drop between new and used is likely more than that maintenance will cost. It would probably even cover stuff like tires, which once again on higher end cars now are usually expensive low profiles that wear more quickly than "regular" tires. On my friends Infiniti G for instance, a set of tires is like $1400. At costco.
If i had cash on hand to pay outright for a higher end car, i'd never do it unless i was doing it like this. Barring randomly coming in to a scrooge mcduck, oil baron amount of money.
posted by emptythought at 7:28 PM on October 15, 2014
Find a used version of the car similar to what Short Attention Sp mentioned, with very low miles and under factory warranty, and buy that. Plow the rest of the money in to something with a higher return than that savings account, and in several years use that money for the big 60 or 80k maintenance(or whatever it is for that brand/model, which is always a big punch to the genitalia on a higher end car) or the first out of warranty major maintenance. By your mileage estimate that should be 4-5 years or so.
People have outlined the caveats with leasing, but with my plan you've bypassed the big caveat of owning which is paying out of warranty maintenance.
The price drop between new and used is likely more than that maintenance will cost. It would probably even cover stuff like tires, which once again on higher end cars now are usually expensive low profiles that wear more quickly than "regular" tires. On my friends Infiniti G for instance, a set of tires is like $1400. At costco.
If i had cash on hand to pay outright for a higher end car, i'd never do it unless i was doing it like this. Barring randomly coming in to a scrooge mcduck, oil baron amount of money.
posted by emptythought at 7:28 PM on October 15, 2014
I hate leasing with a passion because you don't own the car in the end. It should be called renting.
That said, look into financing. Perhaps you'll get an interest rate good enough to make it worth the effort. If they offer you something like 3% that's pretty close to free money. You could use your funds and even with an low-fee index fund would be in a very good position to have it make more for you over the life of the loan.
posted by krautland at 12:40 AM on October 16, 2014
That said, look into financing. Perhaps you'll get an interest rate good enough to make it worth the effort. If they offer you something like 3% that's pretty close to free money. You could use your funds and even with an low-fee index fund would be in a very good position to have it make more for you over the life of the loan.
posted by krautland at 12:40 AM on October 16, 2014
I needed to get a car for my kids, who just started at college. When I'd work the numbers, it always seemed like buying cost approx the same as two 3 year leases.
For my purposes: leasing gave me a new, reliable car with really good gas mileage and all of the latest safety features, plus free maintenance for 3 years, and I could get it for a minimal amount of money down and the monthly payment is like $200. Gap insurance was included. And I have the option to buy at the end for about what I'll have laid out for the car in the preceding 3 years. Surprisingly, my auto insurance rate increased by something like $5/month.
Just my datapoint. I can see how some people would hate leasing. In my situation, it made sense. I wanted something safe and reliable: I'm paying enough money on college that I don't want the kids wasting time at the auto shop getting their car fixed when they could be studying or otherwise 'engaging in the college experience'.
posted by doctor tough love at 10:52 AM on October 16, 2014
For my purposes: leasing gave me a new, reliable car with really good gas mileage and all of the latest safety features, plus free maintenance for 3 years, and I could get it for a minimal amount of money down and the monthly payment is like $200. Gap insurance was included. And I have the option to buy at the end for about what I'll have laid out for the car in the preceding 3 years. Surprisingly, my auto insurance rate increased by something like $5/month.
Just my datapoint. I can see how some people would hate leasing. In my situation, it made sense. I wanted something safe and reliable: I'm paying enough money on college that I don't want the kids wasting time at the auto shop getting their car fixed when they could be studying or otherwise 'engaging in the college experience'.
posted by doctor tough love at 10:52 AM on October 16, 2014
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Leases are useful to a small minority of drivers, in my opinion (which doesn't include me) and they almost always get you on the wear and tear fees at the end. It's trivially easy to get screwed on a lease deal.
If I could have afforded to buy outright, I would have. Failing that, I went with as good a loan as I could get. Leasing was a loss for me by every calculation I could think of.
posted by emjaybee at 12:08 PM on October 15, 2014 [2 favorites]