DailyXY’s MoneyGuy blog is sponsored by RBC
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.