When does leasing make more sense than buying a car?

2 x Around wrote:

You might want to mention the upfront money due on signing. I would guess at least 2500. You are fooling yourself if you think you only pay 270. for a new car.

If you want to save money buy a used car for 5,000.

I think I put down the $3000 from the trade in vehicle. But it's still a better deal for me than owning the previous car was. When I get a new car next year, I don't have to put anything down at all. And my monthly payment will come down a bit as I build a bit of equity.

Anyhow, I think it all depends on how many miles you drive. Since I am way under 12,000 miles per year, I never go over the limit and get charged extra. If you drive more than 12,000 per year, it might make more sense to just buy a car.

When you want to try to fool others (or yourself) into thinking you can afford a nicer car than you really can.

leasing makes sense in some situations. buying a car makes more sense if you are a typical consumer though.

for example, many of my friends in the silicon valley lease electric cars like a nissan leaf or something similarly cheap. the reason is, because it costs like $200 a month to lease those cars. however, pretty much every tech company in that area has free electric charging stations. Therefore, they pay $0 for gas and $0 for electricity and $0 for maintainance/repairs since it is a new car under warranty. It is literally cheaper to own a car + lease an electric, than it is to just own a car (which costs them over $200 a month in various expenses, like gas)

another example is if you plan to move frequently. examples include H1Bs who plan to return to their home country after a few years.

another example is if you can write off the car as a business expense.

another example is if you need a new car every 2 years and have enough disposable income, to the point where it is not worth your time to sell your own cars.

My cousin who has worked as a finance manager at 3 different dealerships says, in general, that there's not much difference between buying a new car and leasing a new car. It sucks to turn in the leased car after your term ends because you feel the impact of having to replace it with something else. What most people don't realize or feel is the huge depreciation in value that happens when you drive a new car off the lot.

Don't be fooled into thinking that you are building or have equity in your new car that you purchased. Your lucky to break even with the depreciation after 3-4 years of payments assuming a 5-6 year loan and little down payment. In fact, the dealership will try to sell you gap insurance in case you wreck/total the new car that you bought and you still owe more than it is worth (a common occurrence). This probably becomes more likely with the more expensive the car is.

I've done both. Depending upon the market for used cars, the bank or dealership that you are leasing the car through may practically beg you to keep leasing the car or buy it out. Our bank made us three different offers to get us to keep the car instead of turning it in. I should've thought more about negotiating the buy out amount on it. We had a 2008 Volvo s60 and the buyout after 4 years was about $14,500. At the time, it was a $35k car new. We kept it in such good shape and with low miles that we may have been able to buy it out and make a profit by reselling it. Of course, what was the hassle factor going to cost us in dealing with all that?

In the end, I didn't want to take out another loan to pay off the buy out amount and we bought a nice used car from a friend who gave us a great deal. Still have that car today. Also Volvo seems to have a poor reputation for service costs once they get several years old.

My cousin's point was most likely that after 3-4 years of leasing you may have to turn your car in and have nothing to show for it but after 3-4 years of making payments on a new car that you purchased, you may be lucky to have any equity in it given the huge depreciation hit that you take.

It is never a good idea to lease a car. It is the most expensive way ever to operate a vehicle. This and "whole life" insurance have become the "pay day lender" of the middle class.

Personally, I wouldn't lease again; however, if you wait till August/September when the new models role out (2016s), dealers offer some pretty attractive lease options on the 2015s just to get rid of them.

I think the main problem with leasing is that you get locked into the leasing cycle because once the lease is up, you are more likely to lease another. You have no car at the end of the lease term.

New York Times has a good article comparing buying new with leasing and buying used. They determine that leasing is most expensive.