FYI: Q. I lease my car rather than buy. Every three years I get a new vehicle. Depending on how much I put down and the condition of the old vehicle, that determines my lease price. Am I better off leasing than buying? ---E.R., by email
A. A few people will be better off leasing than buying. This will happen because they shop very carefully and lease a car from a manufacturer who is underestimating depreciation in an effort to “move metal,” boosting car sales by offering great lease deals.
But deals like that are rare. They tend to be in the luxury brands. For most people leasing almost guarantees high costs because it commits them to paying for the high depreciation years of a new car and regular payments of a sales tax.
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/its-almost-always-better-to-buy-a-car-than-lease
Comments
I’ve bought & held a car for an extended period. (17 years). Did I save money? Sure. The absence of a monthly payment during the 14 years after my note was paid off was a plus. OTOH, most folks won’t hold a car for that long. In the real world, folks’ personal circumstances change, which affect the type of vehicle that a household needs. Kids arrive; later, kids leave the nest. Maybe a driver decides they want a “higher ride” or a more fuel-efficient car or a more spacious ride.
Moreover, holding a car for a long period, while it saves money on the monthly note to the financing company, does mean that inevitably repair/maintenance costs will cost more. My 17-year “marriage” to my Honda (a generally reliable ride) still began to incur an uptrend in maintenance costs in the later years ( and MORE repair outlays were on the horizon). Most vehicles have a recommended “full maintenance” calendared for every 30K miles; lessees may be able to skip that entirely if they are light drivers. Replacing tires, not usually needed on leases, can run $150 or more per tire on brand-name tires, depending on the wheel size. Batteries need to be replaced; and brakes, etc. etc. all the ordinary “wear and tear” stuff. Then too, every trip to the mechanic, besides the explicit outlay, requires your time. Maybe others consider their time as worthless or a “free good”; my time is not without value.
Interestingly, the higher the MSRP of a model, the greater percentage of that model that is leased vs. bought. So that most of the NEW Lexus (pl Lexii ?) or Infinitis that are on the road are being leased. The reason, is that lease payments are significantly LESS than “buy” payments – even when the manufacturer is offering sweetheart interest rates. Its strange that Burns’ comment doesn’t mention that rather salient fact. In my case, the non-luxury car I am leasing, my lease payment is 60% of what my “buy” payment would have been, even at 0.9% financing/interest rate. For folks who are looking to minimize cash outgo in the here and now, that is probably the most relevant point.
I suspect that buying a car and holding it for 6 years vs leasing 2 x cars sequentially over that time, the cost differential is trivial.
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PS: Edmond is right. Having now read the article, the author pays no attention to the increasingly high cost of maintaining a car beyond 4 years. I happen to be in that situation now. My 4 year old car is in need of brakes and tires. Likely some expensive cooling system service soon. And who knows what else will come up? It's still cheaper to keep an older car running - but not as cheap as the author seems to imply.
I carry $1000 deductible on the collision portion of insurance (on primary vehicle). While dropping that at 4 years would save money, my insurer would no longer be able to extend coverage to the rental vehicles I use when travelling. And buying separate rental insurance is pricy.
Keep in mind too, for car OWNERS (ie those who bought, rather than leased), any owner who wishes to change cars after a few months is also at an economic disadvantage -- the depreciation when ANY car drives off the dealer lot is significant. So an owner may find he is "upside down" on the note he is carrying. So while the owner is "free" to sell, selling after a few months won't be "free" in an economic sense.
Basically, whether leasing or buying, deciding to initiate a new transaction after a few months means you, the consumer will have to eat a big chunk of the depreciation. After all, the dealer won't.
Derf
If by "mileage" you mean fuel economy, that wouldn't seem to matter if you were comparing buying or leasing the same car. Regardless of the mileage (or the price of gas), the fuel expenses would add the same cost to both choices.
Though I could see that if one had a preference for, say leasing, one might be willing to spend a little more to lease but only if the total cost wasn't too high. In that case, lousy mileage might affect one's decision to lease.
Derf
- been driving small pick-ups for 20 years. if I don't like the sedan-Camry I was leasing, I can change again after 3 years. Buying and trading after 3 years of purchase loan payments would be hazardous to the bank account.
- for the entire lease, the car is under warranty. No big unexpected bills.
- I negotiated a 3 year lease from a starting point of $238/month down to $180. Again lots of room for negotiation. 'Buying' loan payments would have been $350-$550 at 1% depending on 5 or 3 year loan. That was important consideration to budget cash flow.
- cars with higher resale values after 3 years are much better lease deals. Meaning, it is likely better to lease that Toyota versus a Chevy.
- There is just as much room to negotiate the MSRP when leasing as if buying. In fact it is exactly the same negotiation.
- Interest rates and other dealer or manufacturer incentives were exactly the same for leasing versus buying.
- I have the option to buy the car after 3 years anyway, albeit at probably about 10% more than if I negotiate a comparable used car off the Used Car Lot.
Different reasons for different people. These were some of my considerations.
Thanks. Good stuff. I'm wondering whether there's any difference in how one insures a leased vehicle. Can you still choose a high deductible? Any difference in cost and how the policy is written?
For the money, you've made a good choice. I like my Camry a lot ! I run 20k miles / year & decided to buy instead of lease many years ago.
Enjoy the ride,
Derf
P.S. What was the down payment ?
After I got the MSRP, which was around $26,800, to the vicinity of my Edmunds.com best deal quote, we squabbled over the trade for quite a while because that was my down payment, plus $495 to cover (I think) a transportation fee. Ended up getting $2900 for a 2003 Ford Edge-Ranger if I remember correctly, up from their initial "this is the best we can do" offer of $2000. Toyota also had a $1000 buyers incentive at the time. All in all, the Camry is a very nice ride with more bells and whistles than I've ever had before (love the navigation), but I must say I do miss the convenience of my pick-up truck. I'll have to decide what to do next in about 2 1/2 years I guess.
hank, I can't say for sure because I never asked my insurance company that question, but I believe the insurance was no different for a lease than for a purchase. I have a $1000 deductible.
Derf
BTW - Preparing to mail in the last payment on a 4-year old '13 model. Could have paid cash at the time. But the 2% loan from local credit union was too good to pass-up. However, still feels good to have her paid off.
I'm going to buy a new truck before Christmas. I have a 2011 Toyota Tacoma to trade in that I bought new; it has 29,000 miles on it. I have never leased before and according to what friends have told me, it might be the way to go.
I will probably buy a new Toyota or Nissan pickup. Given that I put about 5,000 miles per on my trucks, and I keep them for 5-6 years, am I better off leasing?
Enjoy your Thanksgiving,
Derf
My question is, all things considered, am I better off leasing or buying?
Thanks for your reply.
I've never leased. But if you want to upgrade every 3-4 years it's worth a look. If there's sales tax where you live you might get a break. Many states, I've read, tax only the dollars you actually pay in lease payments (including down payment). That should be a nice savings.
I'm with Derf. A truck to me is a second vehicle and I beat up on it pretty hard - so they wouldn't want it back even after 3 or 4 years. I'd get killed on that. But only put about 3000-4000 miles a year on one - almost all local. The last F150 lasted over 15 years and I'm almost 12 years into the current '05 Silverado. Ain't cheap. But every time I've spent $$ on it it prevented me trading it in on a better one. So looking back I'm glad I've just fixed her up.
- 2 sets of brakes $1,000
- Upgraded rims $1,000
- Better larger mud & snows $1,000
- New rear step-bumper $500
- New tire rack underneath $400
- New upgraded stereo & speakers $600
- Spray-on bed liner $750
- New cab corners & rockers $2500
- Replace rusted coolant and hydraulic lines $1000
Initial price in 2005: $16,500
Mich sales tax (6%) : $990
Repairs and upgrades: $8,750
Cost to operate 12 years (excluding normal maintenance): $26,240
KBB puts the current trade-in value (42K miles) at about $5000.
Subtracting the current trade value ($5000) from the 12-year operational cost ($26,240) leaves a net 12-year cost of ownership of $21,240. Dividing that figure by 144 (months of ownership) leaves a net monthly operating expense of $147.50 per month.* I suspect that's far better than I would have done leasing. Further savings have been achieved by not carrying collision/comprehensive insurance for the past 7 years (once the value of the vehicle fell below $10,000).
*I omitted finance charges because vehicle was purchased with cash & trade. However, at 6% in 2005 a 4 year loan would have added an additional $2100 to cost of ownership, increasing the average cost over 12 years to $162.00 per month.
Anyway, long story short, there is just as much, if not more, negotiating room on a lease as there is with a buy. Leasing can be confusing, but there are web sites that explain it well.
A glut of used vehicles. The industry has seen this coming for a while. It works on a schedule: a wave of vehicles from lease turn-ins and rental car companies is flooding the market and is putting pressure on used car prices, and thus trade-in values and lease residuals. High trade-in values and residuals since the cash-for-clunker program have made a lot of deals possible that wouldn’t otherwise have happened.
Hope this helps you decide.
Derf