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When is Leasing a Car the Better Choice?
Gabriel_Pitt
Stepped in itRegistered User regular
Stepped in itRegistered User regular
So typically, I drive cars until they've hit the end of their life and then buy a sensible used one to replace it. My current one is a 12 y/o Focus that has had no major failures, but midwest living is starting to eat through the body and I figure two more years is the farthest it will go before it will need major investments.
However, as I started putting a plan together, I realized that at most I drive 6-7,000 miles a year, so wouldn't have to worry about mileage limits and that it might be a sensible alternative to lease. Given that the alternative is buy a 2-3 y/o used car and drive that for 10-15 years, how does one go about figuring the cost-to-own vs leasing in such a situation?
However, as I started putting a plan together, I realized that at most I drive 6-7,000 miles a year, so wouldn't have to worry about mileage limits and that it might be a sensible alternative to lease. Given that the alternative is buy a 2-3 y/o used car and drive that for 10-15 years, how does one go about figuring the cost-to-own vs leasing in such a situation?
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A 2019 Honda Civic is estimated to lease for $261. Over ten years that'd come out to $31,320 with no resale, which doesn't include that you'd likely be paying higher monthly payments every couple years for a new lease. Meanwhile its price to be purchased is only $23,970, and even with an exorbitant interest rate of 5% comes out to $27,141.
Arbitrary source for pricing: https://www.edmunds.com/honda/civic/2019/vin/SHHFK7H45KU221410/?paymenttype=lease
In purely financial terms, it's almost never better to lease a car than buy. You're pretty much already doing the most financially sound thing by buying used and driving until the end of its life. The reasons for leasing are generally convenience or a desire to always be driving something new without paying as much. Which is fine if that's what a person wants, but I suspect that sort of person isn't driving a 12 year old Focus.
Also, personal recommendation, Toyota and Honda make unkillable beasts of cars. My Yaris wasn't nice but it was pretty much indestructable.
From my perspective you are basically paying a premium to always be driving a new vehicle that you have very little commitment to since if you don't love it you will have a new one in a year or two.
If you do regular maintenance and stuff? Owning that car will definitely be cheaper once you pay it off.
Unless you just need the latest hotness every year and don't care about price there's not a great reason to lease.
One note, because I've been thinking about this myself. A ten year old Honda Civic is going to be worth $500-2000 (checked numbers just now on a used Honda Civic driven 12,000 miles a year, so 120k miles on it), so you aren't building up a significant amount of value.
So if you lease a brand new Honda Civic every year for $261, you spent $31,320 to drive a brand new civic, getting the new model every year.
If you buy a new Honda Civic and drive it 12k miles a year for ten years, taking into account the $2k value you get back from keeping it in perfect condition, you spent $25,141 to drive a 1-10 year old Civic.
So it depends on whether it's worth ~$6000 to you over the course of ten years to always be driving a one year or less old car.
Most leases have a mileage limit.
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Low annual mileage meaning an owned car generally will last longer too. I'd probably hit 20 years long before I hit 200k miles.
With nothing guranteed of course, but the results I was getting with expected wear and CoO coming in lower for buying and keeping.
You get no benefit, either when the lease ends or if you decide to purchase before the lease ends.
Like, always.
Leasing can make sense under certain circumstances but "I need a car to drive" will never be one of them.
So, we didn't lose much if we ended up buying it, long term, but it cost us less short term when we needed that. Our old car had unexpectedly died, and we had little savings at the time. And our old car was very old and worthless
In the end, my husband convinced me to keep the car. We both commute to work via the subway, but it's nice for the weekend.
It's not the most common circumstance, but it worked best for us.
I also would like to switch to an electric in 5 years assuming it's feasible and didn't want to have the hassle of maintenance or unanticipated repair costs
It's worth considering other things - lifestyle and your long-term goals - when you make that decision, not just cash value, if you're able to afford it
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Other than that, you're better off buying. If you keep the car, you end up paying far more in the end than if you had bought in the first place. If you lease again, you find yourself continuing to make payments on a vehicle forever, always a drain on your resources.
Signed, a person who worked for a while at a leasing company.
24 months @ $120/mo, for 18,000 miles: 16 cents per mile
2002 Corvette Z06: Purchased for $15,000, sold for $13,500, $1000 in maintenance (tires mostly), 20,000 miles driven: 12.5 cents per mile
I spent less money overall daily driving a Corvette than leasing a new economy car. I come up with similar figures for virtually every car I've owned.
You can't give someone a pirate ship in one game, and then take it back in the next game. It's rude.
My question of if anything has significantly changed in the calculations for the last ten years have definitely been answered. Now I'm just bummed that both the Taurus and Focus are gone, although maybe there will be good deals on the last model year when I'm looking at used again.
One of the most tangential benefits of buying new or leasing is you really don't pay for anything aside from tires, brakes, and oil changes (if they didn't throw them in) for the first 4-8 years. You can get an extended warranty for cheap if you do it at purchase. I used to do the pre-owned thing but so far my total cost of ownership because I drive shit into the ground, new has been cheaper over the long run. New cars aren't even significantly more expensive than pre-owned, they just devalue much quicker.
And if you're not going to resell it ever, then who cares how fast it devalued.
I definitely wouldn't recommend leasing unless you have a specific need for leasing.
Large fleets, like rental companies, or firms with large numbers of pool cars, keep brand new cars for very short periods. It practically guarantees no unexpected maintenance costs and avoids the catastrophic depreciation that comes with putting big miles on a car in the first couple of years of its life. Plus the quick turnover gives a business options if it sees peaks and troughs in need.
You can negotiate huge discounts off list if you're buying at fleet scales, and often a guaranteed residual value at six months. Those go straight into the manufacturer's "approved used" pool and frequently make a decent margin.
In the UK the previous owner is listed on the paperwork, so you can identify an approved used that was formerly a fleet purchase, and they tend to be decent buys.
In the US rental companies sell their cars direct, usually 2-3 years old, but I’m with Jeff Foxworthy on that. You don’t want something that’s been ridden that hard by that many people.
Most of the companies I’ve worked for that maintain sizable fleets, have 5 year replacement windows because that’s when they’ve been fully written down.
It is my understanding that most of those fleet vehicles have been surprisingly well maintained. It makes sense to me since it's a professional staying on top of maintenance and working to make sure there isn't an sudden breakdown while driving. It makes a ton of business sense to keep them in really good condition.
This is relevant when discussing consistency of service and maintenance.
Ex-fleet, sure, as long as the car has a documented service history and has clearly been well-maintained.
Ex-rental?
You may as well set your money on fire and put the flames out with your genitals.