Lease vs Buy

While some people lease cars and other people buy cars there is a long term trend toward more and more people leasing new cars than buying them.  There is all sorts of complex financial analysis for some people in the lease vs. buy a new car decision, but in our experience these other factors are more important:

  • People like to drive new cars.  With a leased car, every 24-36 months you are turning it in for a new one.  You aren’t stuck with a car you don’t like for very long.
  • Leasing simplifies car “ownership”.  It simplifies your choices.  There is no thinking about resale value.  You just make payments. There is no thinking about whether a model change will hurt resale value.
  • People don’t want to tie up their investment capital.  Buying a car ties up the down payment and the payments are higher than lease payments.  This ties up money that could be better spent on other things, retirement savings, investments or just going on vacation.
  • Your payments in leasing vs. buying with a loan get you a lot more car for the money.  If you are like many people with a regular salary, if you can afford a certain amount per month you can afford a nicer car than you could afford to make car loan payments for that money.
  • Risk is passed to the leasing company.  Is the car a lemon?  Were you in an accident?  Will it get a bad reputation?  All these things that will affect a car’s resale value are not your concern when you are leasing a car.  When the lease is up, you just drop the car off at a dealer and you walk away.
  • Discounts apply to just the the capitalized amount, not the residual. In other words a rebate is not applied not to the whole price of the car but rather the price less the residual.  For cars with a 60% residual, this means that rebates have more than double the affect. Rebates are applied to the amount being consumed in the lease, not the whole price of the car including both the part consumed and the residual.
  • Oftentimes the lease term falls completely within the term of the car warranty.  No one wants the surprise of unexpected car repairs and, certainly, no one wants the monthly expense of a extended service contract.  Most cars have most of the car covered under warranty for 3 years or more so the warranty will cover any major (and most minor) repairs.  Make a lease payment and know what your monthly transportation costs will be with no or little worry!
  • Leasing a car for 3 years is better than buying and selling a car for that time period because buying and selling means you will pay more in sales tax and incur a risk about what the car will be worth at the end of three years.  When you buy a car, you pay sales tax on the whole purchase price of the car and when you sell it, you don’t get the taxes credited back to you.  In most states, on a lease you only pay sales tax on the amount of the car that is being financed (the purchase price less the residual).

Call us to discuss the pros and cons of leasing vs. buying.  We are the experts and we can help you in either case.  We get great deals on cars for either purchase or lease.