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To lease or not to lease? If you’re in the market for a new car, that is the question. And while conventional wisdom dictates that buying a car and driving it into the ground should clearly the better bet, the reality is never that simple, nor the logic that clear.
Let’s be clear: No doubt, no matter how you do the math, buying a car is going to be the better choice from a purely financial perspective. Buying means you will eventually own an asset — something you could sell if you needed cash, or bet in a poker game if you were feeling lucky. Sure, you’ll have to maintain it, but even a $2500 transmission replacement after eight years is modest compared to perpetual $600-a-month bills.
The asset that you’ll acquire, though, is a terrible one. Cars lose 25 percent of their value the moment they’re driven off the lot — and they keep depreciating from there. By the time you’re ready for a new ride, your “asset” may become a token trade-in at the dealer, equal in value to the Bluetooth headset that you bought because, of course, your 20th century ride didn’t have that technology.
With a leased vehicle, you’re often covered by warranty, which means no major unexpected repairs costs. There’s value — both monetary and psychological — in that predictability.
Finally, when do pure, theoretical economics guide your decision-making, anyway? In leasing a car, you may pay about 60 percent of the car’s retail price for four years. Still, let’s be clear: These are by far the best years of a car’s life. And after four years, you’ll get a new, shiny replacement. It’s like dating a series of young, fun and beautiful women for four years at a time. Can you put a price on that?
Image courtesy of Bogdan Suditu.
Geeks lease cars. You can’t customize a leased car. Only geeks drive stock. Please shoot me if I were to ever drive a stock car. I might as well grow a pot belly, move back in with mommy, or buy a minivan!
Nicely done on the edit between the time that the article was emailed out and when it was posted on here…Proofreading should probably be done before sending out the emails. In case you were wondering, I’m refering to the incorrect “you’re”
Wow. Poor advice. I can see why the car makers pay to advertise here. If you must wear your car like a suit, why not choose a 1 year old ‘latest model year’ car every three years. You end up driving almost the same thing, have a year to see if it’s a lemon and skip the super heavy first year depreciation. With the $3000+ you’ll save hire someone to find exactly the car you want while you’re enjoying the other fruits of your savings.
Wow, without a doubt, the single worst “article” I’ve seen on this site. One guy’s poorly conceived opinion passed off as worthwhile insight? Try harder, please.
Since you brought it up, let’s do a basic lesson in asset management, Bank Guy. We’ll use your base figure out “60 percent of the car’s retail value” after four years. To compare, let’s say an owned vehicle loses 40% of its value after 4 years. Unlike the 60% you just spent, the guy who bought actually owns something for his 60%, which he could sell (after 4 years) before it’s a “token trade-in”. What do you have? Oh right, your new lease — but wait. Sure, you get what looks like a new car, but *you still don’t own jack*. You can’t give that lease to your kids as a first car after, or customize it like someone else pointed out.
And to use your analogy, guess where the guy dating a series of young, fun and beautiful women four years at a time ends up in his mid to late 30s when everyone else who invested in finding a quality mate has a wife and wonderful family? He’s that creepy guy at the bar still sadly trying to pick up young, fun, beautiful women. Ya, that’s you in 10 years, buddy.
Enjoy your “best years” ! You’re right, yours will only last 4 years. Sucker.
One must remember the leasing company is making money. Who are they making money off of? Well, you of course! If they are making money off you, then you are paying for something that arguably you are never getting a value from.
A friend once complained she need snow tires (does not live in a big city). When asked why she does not “do the right thing” and buy them, her reply – it’s a leased car and I don’t want to be stuck with tires I can’t use in a couple of years. Safety compromised because of a lease. One conclusion? Leasing is unsafe 😉
Interestingly written! Breakfast at Tiffany’s
Lets be clear – a car is not an asset! It goes down in value and takes cash flow out of your pocket monthly (repair, gas, ins, ownership, etc).
You missed out a few points like cash-flow and financing. If you buy a new car (or even a nearly new car) you’ll probably have to finance it. You will pay interest on that financing and it will probably take longer to pay off than the warranty on the car will last. There will come a time when you are still paying the loan and will also have to pay for some repairs. I’ve looked at leasing and financing on the same car; to get the monthly payments to be around the same amount I would need to finance a car for 50% longer than with leasing (roughly, varies with interest rates, incentives, etc). 4 years appears to be the optimum period for leasing, some models come with 5 year warranties. I’ve noticed that leasing hybrid cars is very expensive; this is due to the batteries deteriorating over time and needing to be replaced ($000’s), make sure you calculate the cost of owning a car for the full duration that you’re likely drive it for. I’d find it much easier on the wallet to be paying about $500/month for a leased car for 4 years, than $525/month to finance the same car for 6 years. Remember you pay tax on the amount you lease (about 60% of the value) or finance (100% of the value).
If you buy a car and drive it into the ground you also have to factor in the various repairs that you will need to do more and more frequently as the car ages. You will also need to factor into your equations the fuel economy and performance; a car that was made 10-15 years ago is pathetic compared to similar cars made today which, in turn, will be pathetic to cars made in 10-15 years from now. Technology and safety also evolve over time, it wasn’t that long ago that GPS was reserved for the military, now I can get a car with it built in to a 7″ screen that is also hooked up to a media player and reversing camera’s.
Whether you’re leasing, financing, or paying in cash don’t forget to negotiate some of the extra’s, like snow tires, servicing, gas cards, accessories, etc. If you’re returning a leased car, you’re in a great position to negotiate with the dealer that you’re returning it to; they REALLY want you to drive away in another of their cars rather than shop around. Dealers love selling new cars, I imagine that they get great incentives from the manufacturer, and you can take advantage of that. Dealers don’t make much profit on smaller cars, but they do get the benefit of you returning the car for servicing. Servicing usually doesn’t cost much in the first year or so, but it soon starts to climb. You don’t have to take the car to a main dealer for servicing – it does nothing for the value of the car.
Compare the options and make the right choice for you – this is not a one-size-fits-all problem.