Lease or Buy

General Discussion
41

The lease vs buy debate goes on, and on. But this is not a one fits all world. Buying is cheaper if you keep the same car for a long time, buying older used cars and keeping them is cheaper still. As any car ages the repair costs rise year by year and repairs get more frequent as more old parts wear out. Still these repair costs can be reasonable when you make no monthly bank or lease payments.

Leasing is a good option for people who want to drive a new(er) dependable, reliable car because they don’t like repair bills or being stuck on the road. If these drivers do 12K miles a year or less, and replace cars every 2-3 years leasing provides a lower monthly payment. As soon as you drive more than 12K miles per year, or want to trade a car earlier than the lease terms you get hit with fee’s and penalties making a lease even more expensive. And there are tax advantages to leasing for drivers using their cars for business use.

Each buyer has to weigh their own situation and decide what works best for them. I don’t drive any leased cars now. But I did drive company cars for 30 years that were leased by my employer for my use. I had to reimburse the company for personal use miles. This was a major company with 3,000+ cars in the field and they knew all the numbers that determined whether to buy or lease for benefit of the company.

The main factors for a buyer looking at a lease vs buy are: number of miles they drive per year, down payment vs cost of lease inception, monthly payment for either loan or lease, number of years until next car is bought or leased.

Owning the car (equity) isn’t really an issue. A loan builds equity in a rapidly depreciating asset. Hence, sometimes with a loan you have no equity as the car depreciates faster than you build up equity with your monthly payments. This is how people get “upside down” in a car when they make a low down payment on a new car, finance 80-90% of the deal with a loan and in 2 years find the car is not worth the amount they still owe. Meaning for the 1st, 2nd, and 3rd year you really don’t have much equity (value of car over the amount still owed) anyway. The lease residual amount is figured into the monthly lease payment, meaning that much of the lease is really paying off the depreciation of the new car plus a profit for the financing company. If you trade every 3 years it is a wash.

The biggest downside of leasing is the “miles allowed” per year and the high costs per mile of exceeding the miles allowed. The OP is a sixty year old guy who doesn’t seem to drive goobs of miles per year so a lease might work out fine for him.

42
If these drivers do 12K miles a year or less, and replace cars every 2-3 years leasing provides a lower monthly payment.

But does it provide a lower overall cost? You seem to be ignoring the initial cost of the lease, you know, the money you put down to get the car, which is usually between $1,500 and $3,000.

I get your point that for some people, leasing is actually the better financial decision, but the only people I’ve seen lease a car privately (not through through a business), are people who make enough money that they don’t care about the cost.

Businesses also sometimes lease in order to protect themselves from litigation. If a car is a lease, and not owned, it’s not an asset that can be seized if someone sues you and wins.

43

I’m not ignoring the initial cost of the lease.

The main factors for a buyer looking at a lease vs buy are: number of miles they drive per year, down payment vs cost of lease inception, monthly payment for either loan or lease, number of years until next car is bought or leased.

I said a factor is the “cost of lease inception”. A person with an calculator adds the costs of lease inception, the monthly payment X number of months of the lease, plus other fees and can get the total lease costs pretty easily.

$2,500 at the start of a lease and $250 a month payment will get you a pretty nice car for 3 years. That is $9,000 in monthly payments + $2,500 = $11,500. Or, $320 a month, or $0.32 per mile if you drive 36K miles.

So, buy the same car for $30K. If you finance 80% that is a $6,000 down payment. Monthly payments for 48 months on $24,000 is what? With no interest charges that is a $500 a month payment. At 3 years the buyer has spent $6,000 + $18,000 in payments = $24,000. So what is that 3 year old $30K vehicle worth after 3 years? About 50% of the value is gone to depreciation so $15,000 is sitting in the driveway. There is still another $6,000 in more payments so at 4 years you own a car worth $13,000 and you’ve spent $30,000 (that’s with a 0% interest loan). If the buyer, now owner, put 48K miles on the car that’s $0.62 per mile. Then we start talking about things like new brakes, tires, yadda yadda.

Basically, whether you lease or buy getting a new car every 3 years is very costly. The guy that wins is the guy who buys the car at 4 years old for 13K and keeps it for the next 10 years. The owner for the 1st 3 to 4 years did not spend much for repairs, perhaps the warranty covered most or all needed repairs. The initial owner perhaps put on a set of new tires and a brake job. The 2nd buyer will have to pay for any repairs plus tires, and brakes, etc. Many cars really don’t require much in repairs in the 1st ten years and 100K miles they are on the road. Keeping a car from year 10 to 20 and miles 100K to 200K will involve some significant repairs. These buyers often do repairs themselves and can tolerate some downtime while their old cars are in the shop. Once you get past the big monthly payments the costs per mile goes down considerably even if you have some big repair bills. $4,000 in repairs per year for an old beater is just $0.33 per mile if you drive 12K miles a year.

44

Thanks for explaining it further. Now even I understand!

Personally, I think the guy who wins is the guy who buys a reasonably priced but very reliable and fuel efficient* new car for $13,000 and keeps it for 15-20 years, but that’s because I worry about how a used car was treated before I bought it. I suppose if I bought a two-year-old car, the chances for long term neglect would be lower, and doing that would mean I could still benefit from the steepest part of the depreciation curve.

*I say “fuel efficient” because large gas hog vehicles seem to drop in value when the price of fuel increases, and when gas hits $4/gallon, demand for used fuel efficient vehicles seems to increase drastically.

45

Buying or leasing a car every 3-years is NOT financially wise (for an individual). Businesses have other priorities
so lets not even include them.

“User” thinks that any car over 3-years old is a beater and is extremely expensive to maintain. That - I think has been the main argument here for leasing. It’s really an argument against keeping a car for over 3 years (buying OR leasing). I think is the real argument. I also think its a bogus argument. There are many people in this forum who have cars well past 3 years and are extremely reliable (myself included). Doesn’t matter if you lease or buy
it’s going to cost you a LOT more if you get another vehicle every 3 years
then to buy something decent (i.e. reliable) and keep it for 8+ years.

46

I have seen lease specials for $99/mo and $0 down.
I guess you need to shop around and/or wait for a sale.

For me, I LOVE to spend money on cars.
I even replace lots of parts that are working fine.
I might even get my perfectly working tranny rebuilt for $3000
 just because!

BUT, IF I wanted to minimize the amount of money spent,
then leasing @ $99/mo with $0 down is the cheapest way to go.

It is literally more expensive to own a jalopy at $500/pop per repair.
If you DIY, clearly the math changes,

But, for people who actually want to save money, if you can do math, you can see that $1200/year (with $0 repairs) is the CHEAPEST way to drive a car, period.

47

The “sweet spot” for getting a car for least ownership cost over time; buy a 4-5 year old car with a good reliability track record and keep it for another 5-10 years. You are buying after the biggest hit for depreciation and own the car during years 4-15 when really expensive repairs are rare and frequency of repairs is relatively low. Leasing isn’t a factor here, because leasing involves new cars or cars less than 3 years old.

48

In your case do a 12 month or 24 month lease. Your estate will be on the hook for the lease balance, so if you figure your time is almost up, do a short lease on any car that strikes your fancy-any car.

49

The problem with @UncleTurbo 's post is that right now, just about most vehicles are holding their value longer. So that $30k car might only depreciate $7k in 3 years. How many vehicles are 3 years old with even 50k miles and are selling for near the cost of new?

50

In this case, by OP’s own words, minor cost differences are not relevant. OP, enjoy yourself! Either one is not excessive for your assets. Do the one you prefer, period.

51

I have never seen a $99/month, zero down lease special. A few months ago, I did see one being advertised for zero down and something like $179/month for a Kia Soul, but you had to have excellent credit to get those terms. That is the cheapest lease deal I have seen, and the only one I have seen with zero down ($999 down for a small car is common). I’m sure if anyone could get into a desirable car like a Camry or Accord, or even a minivan or SUV of some kind for zero down and $99/month, and they didn’t drive more than 10k miles a year, and get a new one every three years, then nobody would even bother to buy a car. I know of a real life example of a lease of a car that someone would realistically want or need to own. I know someone who is currently leasing a 2011 Toyota Camry. They didn’t want to lease, they wanted to buy, but it’s a long story I don’t even know all the details to as to how it happened that way. They are allowed 15k miles a year and are in danger of exceeding that, so they will likely try to buy out the lease once their term is up to avoid paying mileage overages. They had to put down a little over two grand up front and their payments are in the low $300s per month if I remember correctly, so it’s not like you can just get any car you want for $99/month. The ultra-low payments will undoubtedly get you a compact or subcompact car, like the Kia Soul I mentioned, with a really low mileage limit. On the other hand, if you want a real car that appeals to people rather than hamsters, and drive more than 150 miles a week, you aren’t going to find those ultra-low cost terms in a lease.

52

I have seen lease specials for $99/mo and $0 down.

Show me!! If there is such a thing
it’ll on the net somewhere.

Here are the BEST deals I’ve found


http://www.forbes.com/sites/jimgorzelany/2012/03/09/unbeatable-new-car-lease-deals/

And that’s a GREAT car for a single person with no kids. Not a good car to buy or lease for a family of 4 or 5.

I suggest you re-do the math. Let us know if you need help.

53

Where on earth are you finding a $99/month lease, UsedEconobox2UsedBMW?

The only places I’ve seen offering those rates require a significant upfront payment. Case in point: The Chevrolet dealer I pass on my commute. Cruze leases at $99/mo for 27 months, 10k/yr mileage limit, with $3300 down. Your monthly cost ends up being $221.22, not $99, plus any overages if you exceed that mileage limit. That’s $2654.64 per year. Most cars nowadays will go 10 years with minimal repairs, and that would total up to $26,546.40 in lease costs for a car you could buy for $16,500. $10,000 pays for a LOT of repairs.

FWIW, a Honda Civic LX here will lease for $169/mo for 36 months with $2000 down, or $220/mo with $0 down for 35 months. That’s $15,840 in lease payments over 6 years (assuming lease rates are no higher when you turn the first one in) if you put $0 down, signficantly more than the $11000 you quote.

And after that 6 years, you own nothing
 Meanwhile for $17,863, I could buy the EXACT same Civic through my insurance company. That’s $2,003 more than leasing. So do you think a 6 year old Civic is worth $2,003 or more? You tell me. I hereby challenge you to find me ONE 6 year old Civic with 72,000 miles or less (the mileage limit total on those leases) for $2,003 or less. I doubt you could even get an bashed in salvage title one for that price.

54

He’s pulling numbers out of his hat so it’ll make his argument look good.

Same as the THOUSANDS a year a person spends FIXING a 3-year old vehicle every year.

55

I agree, Mike. Way back in the mid '70s when leasing first began to be available to private individuals (rather than corporations) $99/mo leases were available. So technically yes, I too have seen $99/mo leases
35 years ago. I also used to be able to see my belt buckle 35 years ago.

56

they might have a $99/mo. lease on a barebones Yaris or Aveo

57

Well you guys certainly have convinced me,I would be concientious and probaly over maintain the leased vehicle,but I dont have time to be going to the Dealership every whipstitch to get the mandated service calls.I’ll probaly never lease,I like mark 9207’s ideas-Kevin

58

One option is to lease and buy at the end-if one likes the car. It is still more expensive than buying outright, but could be less expensive than trading in at 3 years. This is a better option if you are not sure the car would meet your needs for the next 10-15 years.

59

It sounds like the OP’s primary concern isn’t the cheapest way to get around but rather the smartest way to enjoy his life (we are beyond necessity at this point). If you find a special car that you’ll want to keep for a long time then buy it. If you want to be perpetually driving a new car then leasing makes a lot of sense. Maybe while you’re leasing you’ll find that awesome car that you want to keep forever and then you can buy.

60

18-month lease for 2012 Infiniti G37x nav $0 down $259/month

For those who don’t put on a lot of miles, You can lease a loaded G37 for 5k total over 18 months.
Do two of those back to back, and that is 36 months.

Roll it over, in perpetuity, and you’re paying $259/month ($3000 a year) to drive a perpetually brand new sports car, and never make a single repair. In contrast, you can easily spend $3000 a year to drive a rusted out 1998 Camry.