I am about to purchase another vehicle. I was just wondering if it is better to lease or buy a vehicle right now? I bought my last one.
I like the idea of being able to trade the vehicle after three years, but I also know that “every company does it” no matter how loyal you are to them, they will raise the monthly fee on the trade in.
It is also cheaper for me to lease and get a better vehicle.
Buying cost more monthly and by the time your done paying for the car, it’s time for a new car.
I’d just like to hear from others which you prefer to do and why?
Also, I live in Houston and if anyone has anything good to say about any dealerships here, I’d appreciate some feedback on that as well.
From a purely financial (what’s least expensive in the long run) perspective, purchasing is best. After all, when you lease a vehicle the company from which you lease has to profit from the transaction.
This is not to say that purchasing is best for every situation. Lots of other issues, not the least of which could be cash flow, can come into play.
“I like the idea of being able to trade the vehicle after three years”
“Buying cost more monthly and by the time your done paying for the car, it’s time for a new car”
“It is also cheaper for me to lease and get a better vehicle”
Leasing is a reasonable alternative based on your priorities and preferences, but don’t fool yourself into thinking it’s a wise financial decision. Anytime you change cars every three years (or less), it’s costing you money. The most rapid depreciation is in the first two years, meaning the vehicle is quickly losing value. Leasing a vehicle doesn’t change this. When you lease, you are paying for the loss in value over (typically) three years, plus interest on the use of the leasing company’s money during that time. The reason it costs less on a monthly basis to lease is because you are only paying for this depreciation and interest, and not the initial cost of the vehicle. But when the lease is up, you own nothing. If you buy the car and sell it after three years, the sales proceeds are yours to keep or apply to a new vehicle. Leasing a more expensive vehicle (for the same monthly payment as buying) ignores the value of the car at the end of the lease, and is a false comparison.
I’m not necessarily trying to talk you into buying or holding a vehicle for longer than three years, though buying and keeping a car for at least six to ten years is is the least expensive method. One other word of warning: needing a car loan longer than three years means you really can’t afford that particular vehicle. This is what I learned when I was younger: buy a car with a three-year loan, pay it off in three years, but keep it another three years while banking the monthly payments. At the end of six years, you will have a significant sum of money in the bank for a downpayment, plus whatever the old car is worth. At that point, you will need only a small car loan. Do the same thing again, and by the end of another six years, you probably won’t need a car loan at all for your next car.
OK, advice/warning over/
In the end, if you choose to lease, then look for manufacturer-supported lease specials that come and go. These are the specials you see advertised in the newspaper for a specific model and trim level for $xxx per month. You can find them online at edmunds.com and other sources. But you have to take the exact model and trim offered in the special. For example, Honda currently has lease specials on a CRV EX and LX, but not the EX-L.
Can’t really add anything to the excellent advice given by the three previous posters. But since you did ask for opinions (I’ve asked the moderators to move this to our “In My Humble Opinion” (IMHO) forum for you, as this question doesn’t really have a factual answer - no biggie), I will say that I always prefer to buy used cars outright. It’s what I can afford (as the capital outlay is so much lower), I don’t need finance to do it (so no interest/finance costs), and as has been said the depreciation on brand new cars is horrendous. What many people don’t realise is that it is the single biggest “running cost” of having a brand new car, by a long way (yes, even with fuel and insurance prices as they are).
My current car I bought for just under £7,000 earlier this year, it’s 6 years old, and I intend to keep it for at least 3-4 years. Prior to that I bought a 7-year-old car for £3,000 and drove it for 4 years, trading it in for £500. Of course, neither car is as smart or new as those driven by my peers, but fortunately that’s not really important to me. I’m sure I could easily get a lease on a £30,000 new car if I wanted (I could afford the monthly payments), but I have plenty of other things I’d rather spend my money on.
ETA: and I see the moderator has been super-efficient and moved the thread before I even finished composing this post!
I looked into leasing last year and found that it GREATLY depends on your credit rating.
The dealership may advertise “Lease the Sport LX model for only $199/mo with no money down!” and then you read the fine print and find out that your credit score has to be in the top 10% to qualify for that offer. If you’re between the 50 and 89 percentile, they’ll charge you $299/mo plus $2,000 down, and if you’re between 25 and 49 percentile, they’ll charge you $399/mo plus $4,000 down, and if you’re below 25 percentile they won’t lease to you at all.
Meanwhile, take the cash price of that same vehicle over to your bank and ask them what it will cost for you to finance it. If you’re 90-99%ile, they say 4% APR, which translates to $319/mo with no money down, and if you’re 50-89%ile, they say 5% APR, which translates to $344/mo with no money down, and if you’re 25-49%ile, they say 6% APR, which translates to $339/mo with $3,000 down.
And if you’re below 25 percentile, you’ll have to go to Crazy Larry’s Car Emporium and put $900 down on a 20-year-old Japanese car with 200,000 miles on it and make payments of $150/ week for six months. If you miss two payments, Larry’s cousin repossesses the car. Of you could have bought the exact same car off craigslist for $1300 cash.
Full Disclosure here, I just made up these numbers as I went along. But I tried hard to pick numbers that are realistic.
Bottom line, if you have an excellent credit score then leasing a new car will probably be cheaper than buying a new car. If your score is mediocre, you’ll probably save money by financing the car and then selling it on craigslist when you’re ready to get another one.
In the UK, a leasing deal typically assumes that the car is returned with less than a pre-agreed mileage, and in near perfect condition. If the mileage is higher, and there are some scuffs, dents and dings on the bodywork, the leasing Co will charge a penalty. Of course this is no difference to the hit you would take on the resale value for the same miles and damage but it can come as a shock.
The big advantage of owning is the flexibility. If you like the car and it has proved reliable, why swap it after three years when you have paid off the loan? Better to pay that money into savings somewhere to build up a better deposit for the next car.
Correction;
1a) Buy two used cars, do all the maintenance yourself and accumulate tools to do basic repairs. My second used car is a pickup w/ >200K.
1b) Buy two used cars. Do all the maintenance yourself.
1c) Buy two used cars. Have all maintenance done by a trusted mechanic.
Buying a two-year old car with +/- 20-25k miles that has some original factory warranty left seems to be a sweet spot. You are getting a relatively new car with few miles that is still under warranty, but the rapid depreciation of the first two years has been incurred by someone else. I’ve bought two such vehicles (a Nissan and a Hyundai) and made out well both times. I would do the same with many other brands, such as Ford, Mazda and others. I’ve seldom found a compelling reason to buy a used Honda, Toyota or Subaru, though, because they hold their value too well. There is not enough discount on a used one that is one to three years old, compared to a new one. While buying used can save money, if one wants and can afford a new car it doesn’t always make sense to buy used.
My household purchases new cars and keeps them until it becomes more costly for repair/maintenance than acquiring a new car.
First car I bought we had for 14 years. Paid for in 5, so 9 years of no additional monthly payments.
Second “car” was actually a pickup truck, which I still had. Because we had not had a vehicle loan payment for 9 years we put 20% down for a low monthly payment, paid it all off in slightly less than 5 years. I still have it, it’s 15 years old, cost me all of $400 in repairs and maintenance over the past 12 months which is still a heck of a lot cheaper than a year’s worth of vehicle loan payments, and it could well last another 5 years.
The third car became our second vehicle, we put 40% down (the two vehicle loans overlapped for 2 years, but because we had been able to put money in the bank every month instead of paying a loan we had sufficient reserves for that), paid it off in 5 years. Cost about $160 in repairs and maintenance over the past 12 months. The car is 12 years old. No reason it can’t go for 20 years if we take care of it.
It’s been nice not having car payments all the time - it’s been 7 years without one again. We get lower insurance rates because we drive older vehicles. Our licensing and taxes are lower in this state because we have older vehicles.
Is this going to work for everyone? No, of course not. I’m just saying, stop assuming you will always have a car payment because no, you don’t have to. There are trade-offs, of course, and there’s nothing wrong with choosing to update your vehicle more often than we do, or in a different manner. I’m just saying that you should re-examine your assumptions to make sure you aren’t overlooking alternatives.
Exactly right. I haven’t had a car loan in over 20 years. I buy new or slightly used cars I can afford with my savings, and drive more modest cars than I could “afford” given my income and credit score. I owned my last two cars six and seven years, and am currently almost four years into my current one, and don’t plan to buy another one anytime soon. I have a good friend, however, who buys or leases a new vehicle every three to five years, always with a loan, and he says “I’m always going to have a car payment”.
There is no right and wrong, and it’s a matter of interests, lifestyle, miles driven per year, and, yes, economics. It’s almost always cheaper to keep a car than buy another. Personally, I don’t want to drive an old heap, so I buy a new one every six years or so. That costs me more than if I’d keep mine for, say, 10 or 12 years, but much less than if I only kept them three or four years. It’s worth giving some thought to one’s priorities and financial situation, and not just look at monthly payments.
People agonize over MPG, for example, but depreciation is often the largest vehicle “expense”. And don’t forget sales tax. The state takes a percentage every time you buy a car, often a substantial number.
I know the financial advantages of buying vs. leasing, but I’m still for leasing. I like driving a new car every three years and having all the latest bells and whistles. And I feel safer driving a newer car. All I have to do is bring it in for oil changes and regular maintenance. I used to own a car that was constantly breaking down and going in for repairs, so it’s nice not to have to worry about that.
The argument that financial advisor types seem to favour is the fact that when you purchase a car, new or used, you acquire an asset. When you lease, you acquire an ongoing debt you will never clear, effectively, and will never become an asset.
If you can afford it, have at it. But if you’re looking for which is cheaper/better I’m not sure leasing is it.
I’m also chiming in to dispute the “by the time you’ve paid it off, you have to buy a new car” line of thinking. That may have been the case in the past, but these days cars tend to last much longer. It used to be, once your car approached 100,000 miles, you better think about getting a replacement because that sucker was bound to strand you somewhere. But today, it’s not uncommon for a car to go 200,000 miles or farther.
I have a 2008 Nissan Altima I bought new, and it was paid off in 3 years. I have 127,000 miles on it and it still drives like the day I took it off the lot. I expect to keep it two more years, at which point I’ll probably hang onto it a couple more til it passes 200k just for funsies. At my current rate of 20,000+ miles a year, that will be 10 years of driving it after paying for it for 3. Not bad, and not uncommon.
If you’re the sort of person who simply must have a brand new car every three years, leasing can be an okay deal, but you really need to crunch the numbers for the specific car you’re looking at.
In general, the total cost of the lease will usually be in the same ballpark as what it would cost you to buy the car outright and then trade it in three years down the line, but given the different rates at which cars depreciate it does vary. With something like a Honda or Toyota that doesn’t depreciate much, it’ll cost you a lot less to buy and trade in. With something like a BMW or other fast-depreciating prestige car, though, leasing is way more attractive.
One other option if for some bizarre reason you feel the need to have a new Honda or something like that every three years is that there are some ridiculously long car loan terms out there these days. Actually carrying through a 6+ year car loan would be pure insanity, but they do get your monthly payments down to lease-like levels and with something that doesn’t depreciate too quickly you should still be able to pay most of the note off when you trade in 3 years down the line.
But, yeah, like everyone else has said, buying or leasing a new car every three years is a really, really unnecessarily expensive approach towards car ownership.
I don’t think there is an optimal, it depends how much you want to spend and what your needs are. As **Orwell **said, buying a 2-3 year old car gets you a relatively new car, but you let someone else take the “drive it off the lot” depreciation. I’ve had great luck with 100,000 mile cars, but I trust myself to find a “good” used car and I’m not frightened by the occasional repair.
I’m glad I saw this post. I just read an article yesterday (that I can’t seem to find now, but it won’t matter in this case) that actually came up with one reason where leasing a car is a better option.
If you want to drive an electric car, you’re probably better off leasing because the technology is still developing and in two years most today’s electric cars will depreciate a lot faster as newer technology makes electric cars more efficient. All other articles tend to agree that leasing in the long run will likely cost you more; however leases can be had for a lower monthly amount and a lower down payment.