Buying a car V.S. Leasing

Other than the cars I have flipped I have been leasing cars, based on the upfront cost are low on a lease ( $0 down) and high on buying a car. Other than Oil Changes, wipers, and cleaning I do nothing else to my leased car. I also consider the depreciation model of after 3 years my car will be worth 58% less, according to most experts (Edmunds.com, KBB.com). I put very few miles on my leased cars typically under 10,000 miles a year, and in some circumstance, I have equity usually enough for a down payment for a lower payment for the next lease. A professional Financial Advisor told me that it is better to buy a new car and keep it for 10 years. I found that strange since I only know of one person in my family and because of PA inspection, they never leave the Inspection station without sinking a couple grand to keep it on the road and it is only worth $1500, probably less because it is in NWPA rust belt. So my question is why buy new?

The critical piece of advice wasn't "buy new" but "keep it at least 10 years".

If you're leasing new cars, you're basically repeatedly paying for the depreciation, which is highest in the first three years. You also permanently have a payment.

If you buy new or used with 10 years life left, you'll spread out both the depreciation and the cost of the upkeep over a much longer period of time and the total cost is normally (Biturbos excepted) less than leasing cars for the same amount of time.

Basically, the way I read your post is that you're going for the low upfront cost, but don't necessarily consider that the math works against you over time.

Kinda like "buying" a $200 iPhone on Verizon when a schmuck like me pays full retail on another carrier. But my plan is only about 1/2 the cost of the Verizon plan, so over two years I'm actually ahead financially.

A lease is only cheaper if you compare it to financing a car for 3 years and then immediately trade it in for a new one. If that describes you, then yes, you're much better off leasing.

Something else to consider - it's a lot easier to get out of a car purchase than out of a car lease.

When I couldn't drive my Evo for more than 100-200 miles a day anymore, I could sell it without an issue even though it wasn't paid off at that point. If I had leased it (as I actually considered initially), I would have had to park it in my garage for 18 months until the lease was up because the cost of getting out would've been prohibitively high.

For the record, I ran the numbers on my 2000 Jetta that I bought in 2008 and drove for 7 years.

$62 a month to run including depreciation, taxes and maintenance. 22 cents a mile if you include the price of fuel and insurance.

THAT was a money saver....even with the maintenance headaches.

Leasing is basically paying for the depreciation of the car, plus some profit for the manufacturer / dealer / lessor, without the benefit of any equity remaining in the car. Buying is a capital investment in a depreciating asset.

There are a couple points where leasing makes real sense:

1. If you own a business that you can lease the car through, because the business can write off 100% of the car lease as an expense.

2. If you are the kind of person who absolutely, positively has to have a new car every 2-3 years.

Other than that, as I said, you're basically paying for the depreciation, and then giving the residual value of the car back to the dealer when you turn the lease in. That's a sucker's bet unless you are Type 2 above, in which case you were going to do that anyway.

The best bet is to buy new (if you can afford it) or slightly used (nice lease returns are excellent for those of us who prefer to buy used) and then keep it for 10 years. If you're putting under 10k a year on the car, you're going to get 10 years out of it before you hit any major maintenance milestones that cost real money.

The real sweet spot in car ownership is when it's fully paid for and doesn't need any serious repairs. Your goal is to maximize that length of time.

Cases in point: my wife and I. In fall 2004 we bought her a brand new Acura TSX with a decent down payment and 4 years of reasonable payments at a good interest rate. In spring 2006, I bought a CPO BMW 325i returned from a 30-month lease with a decent down payment and 3 years of reasonable payments at a negligible interest rate. It was a 2003 with under 25k on the clock.

We still drive them every day and don't plan to replace them for at least 3 years, barring major calamity.

That means for about $700 a month (combined) for a couple years, we were both driving perfectly nice, enjoyable dailies. Her car was paid off in 2008 and mine in 2009. Which means that for at least the last 6 years we haven't had either a car payment or major repair costs. So that's what, $700 x 72 months or a whopping $50,400 we're not spending on vehicle payments (either loans or leases), yet we both still have decent (if aging) daily drivers. And, like I said, we expect to get another 3 years out of these cars.

Note: the above assumes you don't want to follow the GRM-approved path of buying a disposable $1300 hooptie every year while pouring new-car money into a marginal project that may or may not ever run right.

Duke wrote: Note: the above assumes you don't want to follow the GRM-approved path of buying a disposable $1300 hooptie every year while pouring new-car money into a marginal project that may or may not ever run right.

YOU SHUT YOUR WHORE MOUTH (I spent an extra $1000 above and beyond that THANK YOU VERY MUCH )

I am not very smart, but I can tell you that when you lease a car, the dealer, the bank and the lease company all have to somehow eat out of your pocket.

When you buy for cash, only the dealer gets a taste.

You don't need a financial advisor. Just do some basic math.

(Sum of payments + down payment - equity @ time of same/trade-in)/years = cost per year

Or break out excel if you want to get a little more granular. But it doesn't take granular detail to figure out buying a car and keeping it 10 years is going result in a lower cost of ownership than leasing in 3 year cycles.

The simple math on my car:

Purchase: $3000.00
Maintenance, Upgrades: $2085.61
Gas: $6179.55

Current value (est): $2500

TCO at this point: $8765.16

55,093 miles. Cost = $0.16/mile.

Or 44 months, not including fuel = $58/month

Would you guys quit comparing buying a used car and the running costs to buying a new car and the running costs?

It's not even close to the same.

The big deal is to honestly run the numbers.

Cash vs. loan is a big deal

how long the loan is a big deal

how long you REALLY hold onto a car is a big deal.

How much it costs for all of the ownership costs.

Most spreadsheets have calculations to run all of those, as well as honest rates for leases.

Buy = You pay a lot of money and you own the car.

Lease = You pay a lot of money and the dealer owns the car.

I had car payments once, I'll never do that again.

z31maniac wrote: Would you guys quit comparing buying a used car and the running costs to buying a new car and the running costs? It's not even close to the same.

I gave an example of buying a brand new car! My wife's 2004 TSX. Bought new from the dealer with less than 200 miles on it when we took delivery.

It's the KEEPING IT long after it's paid for part that's most important, not whether it was new or nearly-new. You're eating depreciation no matter what. If you're not going to buy at the bottom of the curve, at least ride it down past the steep part and well into the plateau. That way you spread the loss out over many years, rather than taking it in the marble bag every 3 years.

BoxheadTim wrote: Something else to consider - it's a lot easier to get out of a car purchase than out of a car lease. When I couldn't drive my Evo for more than 100-200 miles a day anymore, I could sell it without an issue even though it wasn't paid off at that point. If I had leased it (as I actually considered initially), I would have had to park it in my garage for 18 months until the lease was up because the cost of getting out would've been prohibitively high.

When a deal on an older Volvo I wanted came up I sold my Fit with a year still left on the three year lease. I sold it to the dealer, which probably helped, but I could also have sold it private party. You pay off the residual ($14.5k in my case) and keep the rest. The dealer resold it in two days for $15.7k, which was almost as much as the window sticker when new. It also helps to lease cars that hold their value very well.

http://automobiles.honda.com/current-offers.aspx#~pjoUzBbnEykKw7

Civic is ($149/mo *36) + $1999 due at signing = $7363 = $2454/year

If you buy and hold for 10 years, what is your residual value of the car? If it is $0 and it burns a fiery death at exactly 10 years of age (it should be much more than that, especially at < 10k miles/year), then $19,290/10 years = $1929/year.

Then factor in that the entire time of your ownership your insurance will decrease (slightly) and your taxes will decrease (slightly).

Then factor in that a more realistic value of that car is $5000. ($19,290 - $5000) / 10 = $1429/year

So, its like 41% cheaper.

If you want to get crazy granular, yes you need to factor in loan rates and the time value of any equity you have locked up in your car as well as the changes in insurance/taxes... but you get the idea.

How does anyone drive under 10k miles a year? We have two cars that average 25-40k/yr and still put 15k on my truck last year.

Leasing isn't even an option for people who drive a lot.

oldopelguy wrote: How does anyone drive under 10k miles a year? We have two cars that average 25-40k/yr and still put 15k on my truck last year. Leasing isn't even an option for people who drive a lot.

As someone who once put 30k/year on for several years, once you drop to 10k (or less), its an amazing feeling. Makes you reconsider how much of your life you waste with your ass in the driver's seat. Next time I move I'll work to lower that number more.

To me, leasing makes sense ONLY if you can write it off as a business expense. There's just too many pitfalls for an individual leasing a car... someone mentioned not being able to sell it and that's a big one.

I knew a guy who leased a NICE pickup, six months later the company he was working for reorganized and they shut down his branch. So here he is, no job, no severance package, only his wife's income and unemployment, stuck with the truck lease. And let's not forget the property taxes, insurance etc which can be astronomical when dealing with a very new late model vehicle. Due to depreciation, he couldn't sell it for enough to pay off the residual on the lease, meaning he'd have to sell it then pull money out of his pocket to cover the deficit. The bad part for him was that he had a mortgage on his house, his dirt bike was financed, his wife's car was leased, you name it he didn't really 'own' any of the stuff they had. He took a lower paying job temporarily but wound up having to sell the dirt bike at a loss and let the truck go back, it was either that or lose the house. Problem was, letting the truck go back left him with no way to ride and killed his credit rating. That will follow you for seven years, in fact he's probably just now seeing that drop off his credit report.

The takeaway for me was overextending yourself for transportation will bite in a big way if things go sideways. I personally refuse to buy new cars, the closest I would get would be maybe a 4-5 year old car which, if I had to finance part of it, I could pay it off quick. Not trying to brag; this strategy saved my ass when I got sick and had to quit work. All my rolling stock is paid for, no one can come haul it off and leave me with no way to ride.

^ That guy was obviously way overextended and would've been equally berkeleyed if he had financed new his truck instead of leasing it.

I think leasing makes a ton of sense in the EV world. Depreciation is terrible, new tech will be out by lease end, and long term reliability is totally unknown. I did the numbers when I leased and it came out to about the same as keeping my paid-off Mazda5 for 3 years. A little cheaper actually.

I've thought of leasing a new VW. Their reliability out of warranty scares me. A big repair can easily tip the balance of economy between buying and leasing.

Taxes are also an important consideration.

Some states collect more up front and others collect over the years.

In Georgia, for example, if you lease a new car, you pay the same "sales" tax up front as if you bought it. Term of lease doesn't matter. (It's a crafty revenue change made in the last year or two, and it blows goats in my opinion)

Leases are great for nitrous, just dont have it dealer serviced lol

Leasing is essentially buying and selling the car in one transaction. The trick to leasing is to only do it when there are heavy factory subsidies involved.

If your annual mileage is below the lease limit, and you want to be in a position of always having a car under warranty (e.g. your regular commuter), leasing can make great sense if you're very judicious. The caveats of being relatively locked in absolutely apply.

We have leased quite a few times, and the numbers always penciled out for us (we've even made money at the end of the term twice). That said, you have to be willing to go with models that have the heavily subsidized leases. It doesn't generally work in reverse - you can't say "I absolutely want model xyz" and expect to make it work. The way we've worked it is to start watching for subsidized offers 2-3 months ahead of the lease end. If you're flexible you can get some really great lease deals at model year end. We've done a WRX at $228/mo, a 328i X-Drive at $399/mo, a Mazda Millenia at $289/mo, and several others for comparable payments, all with no money out of pocket to drive the car off the lot. Our M.O. is to go into the dealer with the ad, say "we want this deal", and if they don't have the car or won't do the deal we walk. To be fair, this does require sterling credit to make work.

All of that said, we currently own all of our vehicles outright.

OHSCrifle wrote: Taxes are also an important consideration. Some states collect more up front and others collect over the years. In Georgia, for example, if you lease a new car, you pay the same "sales" tax up front as if you bought it. Term of lease doesn't matter. (It's a crafty revenue change made in the last year or two, and it blows goats in my opinion)

This too. In most states (Washington is one of them) you only pay sales tax on each payment made, not on the full purchase amount. It was that way in GA as well when we lived there, but we left in '05.

All that is mentioned is financial and while certainly the major factor, it is not the only factor. I know people that lease so they will always have a newer car and don't have to worry about services as that is usually included in the lease. For some that is the major factor. Those people don't work on cars, actually all they know is where to put the gas. Works for them.

Certainly not putting anyone down for their opinion but people here generally know a little about cars. And can work on them so not a factor. Remember, you are the minority when it comes to vehicles. I'm not a fan of leasing myself but certainly see some advantage. I have bought with payments and will again. Have also bought cheap outright. All I could afford at the time. Used to drive $500 specials that I was always working on and concerned with reliability. New(ish) with payments and I didn't worry about reliability or spent my spare time working on it. Couldn't afford to buy outright but could afford payments and generally ended up being cheaper than the beaters I was constantly pouring money into. I do generally keep them long after they are paid off and not worth much. Generally trade them in on a new(ish) vehicle and don't get much trade-in for it but worth it to me just because I don't have to mess with selling it myself. Currently every vehicle I own is paid for and the newest one is SWMBO's 2010 Hyundai Sonata. Getting ready to put new shocks on my 2004 RX8, KYB's just delivered today. I'll be doing that myself but generally don't work on the DD's myself. Usually pay for someone else to fix those and if it gets recurring then they get traded in on something else. I do like to tinker so I have "toys" that I do work on. Don't have to rely on them working.