Lease vs buy

Maintenance/Repairs
21

I’m one of the people who said it costs more to lease than buy. Let’s look at your 03 Infiniti QX4 and your 05 Cadillac CTS. Let’s say you already owned the BMW (maybe you’d saved your money in the past instead of leasing cars you said yourself you can’t afford to buy by getting a less expensive used car), so you trade it in and buy the QX4, which you trade in and buy the CTS.

If you had bought it outright, the Infiniti would have cost about $35,000, and your BMW would have gotten you a trade-in of maybe $22,000 (Edmunds doesn’t show a 525 for 2000, so I went with the 528 and estimated depreciation), so you would have been making payments of $700 a month with taxes and interest on a 2-year loan and you would have owned the car when you got your CTS. On the CTS purchase of about $31,000, your QX4 would have netted you maybe $23,000 on your trade in. Plus taxes and interest, that 3-year loan would have only have cost you $320 a month.

I used a lease calculator to estimate your lease costs on the Infiniti, which were about $700 a month. Okay, so you were even there because keeping the car for only two years means you lose a lot to depreciation initially. But with no equity in the car, you start over from scratch with the CTS. The monthly payment on that lease? About $530, which amounts to about $8,000 more you paid over the last three years than if you’d bought your cars.

I don’t see how high monthly costs from a lease put you ahead, and with my way you still get the same new cars each time. But hey, if you’ve got money to burn, who am I to tell you not to?

22

I’ve given up arguing with folks who think leasing is a good idea. It’s sorta like the lotto; a tax on people who can’t do math. (-;

23

Craig, that is completely my sentiment also. My high school math teacher used to call the lottery a tax for stupid people! I’ve only bought lotto tickets once in my life, and it was for my younger brother’s 18th birthday since he was old enough to cash them in himself. The other perks for 18 aren’t too exciting, at least not from an older sister’s perspective. :slight_smile:

24

At the very least you should have enough money in the bank somewhere to pay off the remainder of the lease in case something happens and you lose your job or get incapacitated for 6 months due to accident or illness. If you have that sort of cushion, then it’s just you paying for having a new car every 2 to 3 years and not really a problem. Not financially the best move, but not everything is about the best financial move. I prefer to spend more on other things, but that’s your choice.

25

The company (manufacturing plant) that I work for leased a 1997 Ford Windstar for about $680 per month. The company leases and owns various vehicles for many uses. The Windstar has been used to transport visitors around the plant and to take company folks on a business trips, etc. It’s still here, and being used daily for people to use to get around the plant.

It has about 85k miles, so there has never been an issue of upcharges for extra miles. The company could probably have bought that thing 2 or 3 times, except that the accountants think it is better to lease than to buy. Do the math on a $680 per month lease for over 10 years.

26

I have a friend who bought a Corvette after wanting one for many years. Three months later he decided the ride was just too harsh. He wished he had leased one–or rented one!

27

I think you have that backwards, if he had leased it he would have had a very difficult time getting out of the lease without significant costs. If he bought a new one, he would take a loss on the initial depreciation. If he didn’t pay cash, he might have been upside-down on a loan and had to kick in some extra cash to get rid of it.

28

Hoff, I appreciate the calculations. Had a hard time following them, but I appreciate the effort. Just a couple changes – yes, it was a 528 (I forgot, so many cars ago); the Infiniti sticker was about right but the CTS sticker was $45K (sport plus luxury w/nav); Infiniti lease was 5-something not 7; recent leases have all been 36 mos.; nothing was ever 2 years and all leases have been under 600/mo. Sure, if you go back 8 years or 5 cars or whatever and figure it all out, I’m sure buying works out more favorably, but my impression was that you were saying leasing on a monthly basis costs more than a regular car payment.

29

I just went through this. Don’t make it complicated, just do the simple math. A 36 month lease with the $3000 initial payment would have cost me $15,000 for 10K miles a year. That’s 50 cents a mile. After 3 years you can either start over at 50 cents a mile or pay for the car a second time and buy it. By buying the car over a reasonable life span, minus the ending value, the cost per mile is closer to 25-30 cents per mile. Case closed.

If you are a business, then the cost is written off so there is a cost break due to taxes, but not individuals. All a lease does is allow you to pay less per month but more per mile forever.

30

Hmmm, per-mile cost…that’s an interesting way to do the analysis. I’ve never gotten all that complicated. I do know that I would never put $3K down on a lease though. In fact, I don’t put anything down, that’s one of the reasons I lease. Inception fees for my last lease with Cadillac were $37 for my tag, that was it. And I never buy out the vehicle at the end – that IS crazy. Yes, we’ve already established I’ll have car payments forever … and I’m OK with that for now.

So let’s just say that the answer to the original question is that, financially, it’s ALWAYS better to buy rather than lease – but just because you lease does not mean you’re a broke-a** and does not mean you’re an idiot.

31

“So let’s just say that the answer to the original question is that, financially, it’s ALWAYS better to buy rather than lease – but just because you lease does not mean you’re a broke-a** and does not mean you’re an idiot.”

No, it probably just means you got some poor financial advice.

32

There are mny web sites that you can find through a Google search that explains all the trade-offs of leasing vs. buying. The bottom line is that, overall, buying and keeping a vehicle for ~10 years is the least expensive overall. BUT, if you are willing to take the risks of a lease (back end surrender fees, charges for excessive wear, mileage, etc.) and want the better, newer car every few years, and can’t afford the higher payments of a purchase (which increase your chances of having something of value to use as a trade-in on the next car, thus maybe lowering your next purchase cost), then at least go into it with your eyes open and know the potential downside of what you are getting into. My daughter leased a car when she graduated from college, and because of the high mileage, found she had to buy the car at the end of the lease or pay a foolish amount of high mileage fees. The lease just added two years to the time it took to buy the car.

For me, I prefer to buy a new car or when a car is just coming off a two year lease and keep the vehicle for a long time.

If you want a better car for a lower amount of money, you should consider buying a car that is just coming off a two year lease. The first guy to lease pays for the most costly first two years of depreciation, and you get the car when the depreciation starts to slow down, and yet it is still under warranty and in good shape. I have purchased cars like this before, and have had good luck with the condition of the car.

33

My point wasn?t that you simply spend more on a monthly basis but that you spend THOUSANDS more on each car you continue to lease. When you buy cars, you build equity that you can use in future purchases, reducing their costs. You are spending much more money than you need to.

In 20 years of leasing at $500 a month (I reduced it to help account for inflation, but you can redo the math with whatever number you want), you?ve paid $120,000 for your cars. I?d say the average person is on their third car in that time, so they?ve probably paid half that (if they bought new cars for $15,000, $20,000, and $25,000). Even if they bought fancier cars and traded them in more often than that, they?re probably still $30,000 or $40,000 ahead of you. What else could you have done with $30,000 in the last 20 years? Gone on some pretty awesome vacations, bought a nicer house, etc.

I?m sorry I couldn?t read your mind and guess your exact terms on your leases. If anyone else wants to give it a shot, here?s the online calculator I used (the basic lease tab). There?s also a lease vs. buy calculator, but I don?t know how accurate it is. http://www.edmunds.com/apps/calc/CalculatorController

Just for the record, if you plug your next car in with no down payment and no trade in, it?s quite possibly going to tell you to lease. If you have no down payment or trade-in, it may not ?cost more than a regular car payment? to lease. But if you do that, you?re stuck in a perpetual cycle of leasing, and if and when you decide you want to buy, you will have to come up with thousands of dollars for a down payment or pay ridiculous interest fees. You?re better off to start out buying and then your next car will be much cheaper to buy than lease, because you will have saved money after the car was paid off and get money for your trade-in.

Anyway, I?m done arguing. We clearly have different views on the value on money.

34

Or, like you Craig, Avalon chooses to spend money on his car that he doesn’t have to if he bought a cheaper vehicle. You spend more on your old crock Mercedes because it’s what you want and you can afford it. Avalon is doing the same, except he wants the newest he can get. As long as he/she is not living paycheck to paycheck it’s a valid choice. Not the one I would make, or the one you would make.

I do agree with you that a lot of people lease because they really can’t afford to buy, and that’s a dangerous game.

35

It’s sorta like the lotto; a tax on people who can’t do math.

Lottery - Tax for the Mathematically challenged.

36

psanzone, how long have you kept your previously-leased cars? I’m looking to pass on my 12-year-old car to my brother when he starts college, and I’m definitely looking for a used car to purchase.

I’ve been thinking of getting a former leased car, but I’m curious about the lifespan of the car in that case. The driver had to keep the car looking good, but were oil changes done regularly and other things maintained well? Have you had early engine or transmission trouble with your cars?

37

The cars that I bought off a lease were both Cadillacs. I had the first one only about a year when a tree fell on it. The next one was still going strong at 140,000+ miles when a dear collision on the Interstate totaled it.
By buying cars off leases that do not appeal to the younger crowd, I feel that you lessen the changes of getting a car that has been abused. I don’t think the lifespan is seriously affected by the fact that it was leased, but as with any other used car, you can never be sure.

38

I understand that lots of people like to drive new cars, but my advice would be to buy those new vehicles with cash (like I buy my vehicles). IMHO, the cost per mile is the only number that’s really important. I estimate that I spend about $0.30 per mile to drive my old cars, compared to about $.50 per mile for a new high-end car (bought with cash), or about $.15 per mile for a late model used econo-box (also bought with cash). I believe that you will end up with less car for more money (on a cost/mile basis) if you lease, even compared to a typical car loan. I do think a lot of folks are more concerned with their short term “cash flow” than the total long term cost, and I do not think that is the best way to look at major financial decisions.

I believe that if most of these folks were willing to spend 3-5 years driving an “affordable” car and saving the equivalent of a lease payment, they would be in a position to pay cash for their cars indefinitely with the same (or less) cash flow. At a minimum, they would be in a position to put down a very healthy down payment on a loan (enough to eliminate the risk of being upside-down in a car loan).

If someone understands the numbers and still wants to lease (and can afford the financial risk), that’s their decision. I simply do not think it’s the best long term financial decision. Personally, debt scares me (debt = risk) and I see leasing as unnecessary debt.

39

I agree with psanzone, if you want to drive a late model car, the “sweet spot” is probably around 3-5 years and 50-75K miles.

For example, lets assume a new car costs $60K and the operating cost is around $0.15 mile for fuel and maintenance. If some one buys/leases that car new and keeps it for 3 years (assume 60K miles) it will probably only be worth $25K (if that). The initial owner paid $35K for 60K miles worth of depreciation ($0.58/mile) plus his operating cost of $0.15 means he paid $0.73/mile for his ownership (not counting any finance/lease charges).

Lets say you buy this used car for $25K and keep it for 7 years (another 140K miles). We will assume it’s worth nothing when you get rid of it, so you spent $25K for 140K miles of depreciation ($0.18/mile). Even if you assume your operating cost increases to $.25/mile (that’s $5000/year for fuel and maintenance), the total is $0.43/mile (about 60% the cost of driving the car when it was new). Also, you only had to “tie up” $25K of cash instead of $60K (alternatively, you had to borrow less).

The actual numbers will vary significantly, but it is clearly a better deal to let someone else pay for the initial depreciation. Just make sure you pick a good solid used car, because you have to hold onto it for a while to make these numbers work.

40

Then again the lottery is a simple hope/dreams for all of $1 or so per week.