At what point is it appropriate to lease a car vs. own?


#1

A friend of mine and I were discussing this the other day as he was considering leasing a new car while he finishes up college. He has a note on a maybe 2 year old Scion, not upside down in debt.

My understanding is that leasing is appropriate if you have a business that requires impressing/entertaining clients, in which case it is necessary to have a new-ish car. Also the expense can be written off on the business.

My mental hurdle with leasing is that at the end of the 24 months or whatever, there is no equity in the car so owning seems like a better option for the average end user. Pay for the car outright or pay it off as soon as possible, and then have one less check to write and an asset (even though it is depreciating). Again, I am not considering this but just curious about the ins and outs.

Thoughts?
Accordion


#2

Leasing makes sense for a business because of the accounting. A business can write the cost of the lease off as an operating expense. And yes, your perception of the importance of a business to look successful is absolutely 100% correct.
It never makes sense for an individual.

Your “mental hurdle” is your very good sense. Your thinking is “spot-on”, as my friends in England would say.

Your friend’s thinking does not build equity, and will keep him/her in debt forever. And it’ll be far more expensive in the long run. And your friend will HAVE to repair any minor dings, no matter what, or pay to the nose when he/she turns the car in. And he/she had better not decide to take a roadtrip to some other state… the mileage charges will bankrupt him/her.

People often lease cars so they can have a fancier car than they can afford. Your friend has a 2 year old Scion. It sounds like that is what he/she is doing.


#3

I would generally never recommend leasing a car nor would I recommend buying a new car, either. The most cost effective is to buy a 2-3 year old car and drive it until it drops. It frees up cash for interesting older cars you might want to own.

That said, leasing for business is simpler tax-wise and is easier to trade up as needed. I had a job that gave me a car allowance and required I drive a 3 year old or newer car. Leasing eliminated the hassle of trading every 3 years. After leaving that job, I bought and still own my last lease car. I wouldn’t recommend it any other way. Leasing a car ties your hands to THAT car for the lease period, even if you find you HATE it or your situation changes. It also locks you into an unending car payment. I personally find neither of these acceptable.


#4

Leasing never makes sense financially for an individual. Although there’s ONE person who contributes to this forum thinks differently.


#5

Now now, let’s let others speak for themselves. {:slight_smile:


#6

Agree with Mustangman. The greatest depreciation in a new car’s value occurs in the first 2-3 years, so buying a car after that age means you aren’t the one suffering that loss, the original owner is.

If you get in the habit of buying cars this way, and driving them until they drop, you’ll end up way ahead of your friend who leases cars and ends up owning nothing.


#7
Now now, let's let others speak for themselves. {:-)

That’s why I didn’t mention him by name.


#8

I agree with you.

Your friend should keep his current car until it’s paid off and then some. I suspect it might not be easy to convince him of that, however.


#9

I agree with accordion and especially mountainbike’s explanation.


#10

I’ve got to agree. There are financial and other down sides to leasing. One other one may be the servicing requirements at the dealer and any non-warranty repairs that need to be done. I was burned on some company leases at turn-in time where we got dinged for tire wear, upholstery wear etc. We went to court on it and I lost so I’m a little leary of the whole thing. OTOH, I noticed an ad in the paper for a new Jeep for $99 and $3000 down for 24 months for 12K a year. Makes it a little tempting if it wasn’t such a problematic vehicle.


#11

Leasing could make sense for an individual. You’d have to pencil it out to know for sure. The situation for which leasing might make economic sense for an individual is if – without exception – you exchange your old car for a new car every 2 years say.

I don’t know enough about leasing to do the math myself, but I imagine – provided there are no tax ramifications, just talking about a car used by an individual for personal purposes – it should be a fairly simple calculation.


#12

Actually even for business use with tax deductions, it doesn’t always make sense. You can only write off the percentage you use the car for business. And then it depends on your marginal tax rate on how much you get back. You can still buy a new car and depreciate it over a 5 year period for business use and get the tax benefit at a lower cost. One has to consult an accountant.

As to impressing clients, that math is all fuzzy. Most of the time it is a perception and nobody pays attention as much as the driver/owner.


#13

Leasing does make sense according my neighbor with a plow and nursery business. He leases trucks because of they need repair frequently and according to him, it is well worth it. They are outfitted by the dealer and set up for plowing. Surprising to me, they are not high mileage vehicles. He also leases his private vehicle.

My other neighbor, also plows a lot privately, but he owns his truck. It definitely depends on whether it’s business or private use. His wife leases as she was not sure of the vehicle, a Jeep grand Cherokee and did not want to committ herself long term to the car. It’s a relatively new vehicle on the market and unproven so she seems to have a point.

Everyone has their own reasons and even though financially, leasing may not be the best way, IMHO, people can rationalize it in their own mind to make sense. It’s the same as me saying a more reliable car is cheaper longer term but some may sacrifice that idea for many other reasons including personal preference. Some just want to live on payments they can depend up regardless of the total amount they pay.

Just like at one time everyone thought it was smarter to buy then to rent…some are just "renters and leasers " and just want a hassle free new car every few years. WTH.


#14
I don't know enough about leasing to do the math myself, but I imagine -- provided there are no tax ramifications, just talking about a car used by an individual for personal purposes -- it should be a fairly simple calculation.

It is a very simple calculation…and leasing is ALWAYS more expensive then buying a car. Without the tax deduction leasing makes no sense financially. I’d LOVE to see the case where leasing makes sense financially for individuals. Maybe some lease agency can fudge the numbers so it looks more appealing…but it’s NOT.


#15

It is never financially worth it to lease over buying for private use. But neither is it financially worth buying some Mercedes over a comparable Lexus with similar options, or Volvos or another car we normally diss over more reliable brands. Neither is it financially sound to trade a car in too early. There are lots of people out there who want a new car always under warranty and don’t want the hassle of disposing of it. . Leasing a car to me is like financing a car instead of saving up and paying cash. Car. Ownership seldom makes sense financially regardless of what you do if you don’t buy the most reliable car, maintain it perfectly and drive it into the ground. Some want a convenient way of owning a new car every few years with as little hassle as possible and some times the only reason they can come up with is…I don’t like the color anymore or I want Bluetooth or what ever. To listen to almost any of us, you would think we all got the best deal in the world. In fact, few do and that includes leasers.
So, you need to come up with another reason to lease other then it being financially better.


#16

Nobody’s mentioned insurance . . .

If you lease and/or finance, you’ll always be paying comprehensive insurance, which can get to be quite pricey


#17

IF I was somebody who had to have a new car every 2-3 years, then I’d probably lease. The added ‘cut’ going to the leasing company would probably be worth it to simplify the frequent car changes.

But that only because I’d be spending a HUGE amount of money on depreciation, compared to ‘buy and keep for 10+ years’.


#18

Exactly @dagosa money is not always the major concern.


#19

Clark Howard has discussed leasing cars several times and he generally provides the wisdom already presented in this thread. He makes one point that no one has yet made here.

Upscale car manufacturers don’t like to discount prices or give rebates because it cheapens the brand. Therefore, when they have a lot of cars that they need to move off the lots, they may run a lease special. The reduced effective price is not obvious.

If you are in the market for an upscale car, say $60k and up (not a problem I will ever face) a lease promotion may be your best deal.


#20

Everyone talks about leasing being good only for a business because you can write off the lease payment as a business expense, but that’s true whether your leasing or buying. The monthly payment for a company vehicle used in the course of doing business can be used as a business expense whether your leasing or buying.

One thing to consider in leasing vs. buying–whether personal or business–is the asset vs. liability. If you buy a $30,000 car and finance it you now have a $30,000 liability on your books. If you buy it outright you’re out $30,000 but don’t have a car that’s worth $30,000. Sign a lease for 2 years at $350/month and you’ve only got a $8400 liability on your books. Which of these would be most ideal for your situation?

Personally, generally speaking, if you trade cars every 2-3 years I think leasing makes sense. Keeps your financial committments lower