In general, leasing is a tremendously poor economic proposition when compared to buying.
First and foremost: when you buy a new car, even the most inept of buyers knows to negotiate downwards from the “full boat” MSRP - the Manufacturer’s Suggested Retail Price.
When you lease, that step is almost universally buried behind the leasing figures. Next time you consider leasing, ask the leasing/sales manager, “At what percent of MSRP was the capitalized cost figured?”
After he drops his jaw, because customers aren’t supposed to know such things, he may weasel or he may give you an answer. The answer will range, in all likelihood, from 100% to 125%. That is, in most cases, the capitalized cost (the base cost of the car that is used to figure the cost of the lease) is at least the full MSRP - and in many cases more!
This is the trap that people fall into, though, who are “payment” shoppers. “I don’t care about all those complicated figures. It changes every time I go to a different dealer. That’s why I stick to something simple, like my payment.”
Even payment buyers give up huge concessions when they buy a car that way. Leasing adds another layer of confusion to to mix – and confusion is the car dealer’s friend, and your enemy.
That said, I will allow that there may be certain rare circumstances in which a lease makes sense for an individual. But for the vast majority of individuals, it is not a good choice.
[slight hijack]
The way to buy a car is simple. It just requires doing homework ahead of time. Figure out what your available cash is. This is the sum of three things: your equity in your current car, if any; the downpayment you can make, if any; and the “loan cash” you can buy.
“Loan cash” refers to the amount of money that a payment will buy you. At home, away from the dealer, you figure out what payment you are comfortable with making. Check on the interest rate you will be getting. Then dig out your middle school math book. The monthly payment and the interest rate will let you figure out what the loan amount would be. THIS is what you take into the dealer, along with the other two figures. As far as the dealer is concerned, you are paying cash. If you let the dealer “help” you with the payment plan, you will lose.
You should discover the equity in your current car by cleaning it thoroughly and shopping it around. Go to three or four used car places and try to sell it. Don’t actually sell it - but try hard. The highest figure you leave with is your car’s fair wholesale value.
Figure out what new car you like. Then check Edmund’s New Car Prices. This lists every new car, the MSRP, and the dealer’s true cost.
Figure out if the dealer’s true cost, plus a reasonable (2%-3%) profit is within the bounds of your available cash. If it isn’t… STOP. You can’t afford this car.
If it is… go in and negotiate. Offer him a 1% profit. See what happens. Be willing to get up and leave.
Disclaimers: I have never leased a car, although I have studied the process thoroughly. I have bought two new cars, one with a loan (a 1987 Nissan Sentra) and one for cash (1996 BMW 328i).
I bought the new car for cash because after I finished making my car payments for the Nissan… I KEPT MAKING PAYMENTS, to myself. I set up a separate account, and paid into it every month. I kept the Nissan for nine years, while my friends drive new cars every three years.
Now I have a snazzy (but four-year-old) car. I will keep it at least another six years.
And I’m still making car payments to myself, every month.
[/sligh hijack]