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batsona
Maryland
join:2004-04-17
Ellicott City, MD

batsona

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New car: Lease vs. Buy?

If there's a more appropriate forum for this, please move it...

I'm going to treat myself to a new or used card for Christmas. Who can tell me the bare-bones on whether to lease vs. buy?

I'm going to use the car to commute, and I've got a 50mi round trip. That equals about ~13,800 miles per year or so.

Thanks in advance!

Mospaw
My socks don't match.

join:2001-01-08
New Braunfels, TX

1 recommendation

Mospaw

A very quick rule of thumb is to buy if you're going to keep it for a good while (more than 3 or 4 years) then buying is a better choice. Otherwise, leasing might work.

Also, you typically only lease a new car, so if you're going used, you'll be purchasing.

The advantages of leasing are lower monthly payments, but this comes at the expense of not owning anything. Look at it this way, when you purchase the car, you pay for the whole thing, but you own it at the end, so you can recoup any residual value when it's time to trade. With a lease, you're basically paying for the anticipated depreciation of the car while you have it (which is why they're tied to a specific mileage) and a profit (usually healthy) for the dealer and interest charged by the finance company.

On the other hand, with interest rates as low as they are (I got 3.4% on a 2 year-old-car for 72 months in August) leasing is likely not a good option. The difference between the lease payment and the purchase price might not be that much. There are far more ways to hide costs and profits in a lease deal than a purchase deal.

You drive about 14,000 miles a year already. Many leases allow 15,000 miles a year. That's only about 20 extra miles a week above your commuting. Of course, you can get any mileage you want in a lease, but it will cost you. You'll want to try to get the anticipated miles slightly above what you drive each year but not under.

My bottom line recommendation: look to purchase your next car.

cdru
Go Colts
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Fort Wayne, IN

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You don't specify what, if anything, do you have for a down payment as well as what your budgeted limit is for a monthly payment. Those can limit (or at least influence) your options.

I would agree with the above advice that with driving 14k miles a year already, buying probably would be your better option.

Juggernaut
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Kelowna, BC

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Buy it. Unless you can write payments off, it's the best choice. And, a good 3-5 year old vehicle saves a ton of money generally.

Unless you're a primadonna, keep the $$$ in the bank.

Snakeoil
Ignore Button. The coward's feature.
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join:2000-08-05
united state

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Buy. Fewer strings involved, plus after you pay it off you can keep it for as long as you like. We have a 13 year old mini van and a 7 year old truck.

VegasMan
Living the Vegas life.
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Las Vegas, NV
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said by Juggernaut:

Buy it. Unless you can write payments off, it's the best choice. And, a good 3-5 year old vehicle saves a ton of money generally.

Unless you're a primadonna, keep the $$$ in the bank.

Are you saying that people that buy new are primadonna's?

Juggernaut
Irreverent or irrelevant?
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join:2006-09-05
Kelowna, BC

Juggernaut

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Nope, that wasn't my intent at all, and not what I said.

If you can truly afford it, go for it. If you're just wanting to impress people, well yea, you're a primadonna. Many try to keep up with the Jones', and pay the price.

I have no debts, and own everything I have. I like that.

psafux
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join:2005-11-10

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There are many good reasons for both sides of the argument. We are leasing a Town & Country because it was the best decision for us at the time when we needed a vehicle. After 16 months of use we have almost 5,000 miles on it and we are considering purchasing it when the lease is up.

For your situation I would probably not consider a lease. With that much driving you run the risk of going over the allowed miles per year (typically 12000-15000 miles per year). You are leaving yourself a thin margin for personal travel and you pay dearly for going over the limit. Also - with that much driving you are asking for normal road damage; pits, dents, cracks, & scratches. The general rule of thumb for leases is you pay for any damage that can't fit under a standard credit card. You can opt to repair the damage yourself or have the dealership do it but you pay for it either way.
Other considerations include the fact the dealership may require you to put new tires on it if they are beyond a certain spec. There could be penalties if you don't follow the manufacturer's guidelines for preventative maintenance as well; oil changes, part replacements, brakes, other parts, fluids, etc, etc.

For a lease you are paying to rent the vehicle for the period of time. In exchange you are paying a monthly fee that accounts for the diminished value of the vehicle over that course of time. Instead of paying for a $42,000 vehicle you are paying for the first three years of it's value at $22,000 (or whatever).

Compared to purchasing outright the lease is cheaper but its all the potential extras that add-up quickly. You are under contract to keep the vehicle in appropriate shape & condition. You may not replace the tires as quickly or repair those dings and scratches if you owned it outright.

There is something fabulous about driving a vehicle that you -know- nobody has ever beat the crap out of though.

Just some thoughts.
tcope
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Sandy, UT

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Buying a new car means you take about a 20% hit on instant depreciation. As mentioned, you take the same on a lease but then walk away with nothing.

Worse way: lease
Next worse: buy new

If you can afford it, then no problem. You are entitled to whatever you want.

Many times I see people lease when the want new but can't afford it. IMHO, they are fooling themselves as they are losing even more in the long run.
Bob4
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New Jersey

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The problem with leasing is that after you spend all that money, you have nothing to show for it. If you purchase a car, at least after you make all those payments, you own the car.

In your case, do you have another car in the family? If not, your daily mileage is so high, you won't be able to use the car to make any other trips (vacation, visiting friends, etc).

For these two reasons, I would suggest buying your next car.
batsona
Maryland
join:2004-04-17
Ellicott City, MD

batsona

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OP here: Thanks for all the recommendations! It looks like the majority of everyone here recommends buying a 1-2 yr-old car. I have some questions / observations:

**I see there's a cap on the mileage for a lease-option. How is this verified? Does a guy in a dark suit & glasses show up at your house and force you to show him the OD reading?

**Accidents: I'm guessing I pay for insurance, just as with a buy-option? --Or does the party that owns the asset, pay for the insurance?

**True, I was thinking that I could afford a slightly more expensive car, with the same payments, using a lease-option, versus buy.

**As for down-payment, I think I'm going to be able to muster about 9K cash. I'd like to try to spend a tiny bit of $$ to fix up my 2001 Ford Focus ZX5 (113K mi), and sell it privately. Wife disagrees. I can at least get more money for it that way, versus the trade-in at the dealership: "---gimmie $20 and I'll tow it away for you..."

**I"m gonna end up derailing the topic with this.. I was looking at the used-price on some 1-2 year old used cars, and the price is not very much departed from the price of the equiv new model. Although I know that buying used cars requires hours of haggling with that guy with the comb-over, in the plaid sports jacket with the huge lapels... (or am I living in yester-year...)?
Bob4
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join:2012-07-22
New Jersey

Bob4

Member

A lease comes with a mileage limit. When you turn the car in, they'll look at the odometer. If you're over the limit, they'll charge you an additional amount (could be 10 to 20 cents PER MILE).

You can also buy a higher mileage limit when you lease the car to avoid any surprises.

But think about what would happen if you were forced to change jobs and your commute doubled!

I recommend buying a new car (because I like new cars).
itguy05
join:2005-06-17
Carlisle, PA

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said by tcope:

Buying a new car means you take about a 20% hit on instant depreciation.

Only if you turn around and sell it right away. If you keep it 3-5+ years, depreciation is not a factor as that 3 year old car may have only lost 25% of its value so it's spread over 3 years vs 6 months.

In the OPs situation, buy. You drive too much.

And if the used is within 2k of new, buy new. The interest rates and deals are better on new. And you get full warranty and the new car smell

CylonRed
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You have the asset - as with renting - you pay for the insurance.

I would look at 3 year old cars with approx 25-30K miles. Depending on what you are looking for - that will determine the price more than anything else. Some cars are in more demand and that raises the prices for used.

Just based on the work commute - I would not even consider a lease. Buy used and drive the wheels off of it for 10+ years.
tcope
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Sandy, UT

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said by itguy05:

Only if you turn around and sell it right away. If you keep it 3-5+ years, depreciation is not a factor as that 3 year old car may have only lost 25% of its value so it's spread over 3 years vs 6 months.

This is only true (and kind of pointless) if you don't compare it to buying a used vehicle. That is, buying a used means you simply save that 20%... pure and simple. Think about it.
batsona
Maryland
join:2004-04-17
Ellicott City, MD

batsona

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OP here: Alrighty -- If the difference in 'model X' is less than 2K, go new. If its more than 2K, go used (if within 1-2 years old) Looks like leasing is not favored... Thanks all...

mityfowl
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join:2000-11-06
Dallas, TX

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New vs used.

Even though you take a big hickey on new there are some great deals on financing.

0%-1.9%.

EGeezer
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Midwest

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Lots of good suggestions here, I'll add my two cents worth;

If it's a financial lease vs. purchase analysis, consider the mileage on a used car and what maintenance would be scheduled or expected on it. If you buy one that's about due for brakes, tires, timing belt, etc, include that in your near term costs.

Also, be sure you estimate your mileage conservatively, since overage charges can be significant.

Bankrate has some good information on "buy or lease" and a simple decision tool with recommendations.

MSN Money has a relatively simple comparison calculator.

Leaseguide has a more detailed comparison calculator.
itguy05
join:2005-06-17
Carlisle, PA

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said by tcope:

This is only true (and kind of pointless) if you don't compare it to buying a used vehicle. That is, buying a used means you simply save that 20%... pure and simple. Think about it.

And I've not seen 1-3 year old used cars selling for 20% less than new. In most cases the prices are a little bit lower than new. But with many cars the rebates or financing deals negate any savings.

Since the used car prices have gone up in recent years, buying new is very attractive.
ctggzg
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join:2005-02-11
USA

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Some people also like to lease luxury cars to appear wealthy when they're not.

Mospaw
My socks don't match.

join:2001-01-08
New Braunfels, TX

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A 2-3 year old car is usually the sweet spot of still being pretty much "new" (not too many miles, mechanicals still in excellent shape, etc) and not too expensive. A lot of off-lease cars fall into this category, actually.

I just paid 59% of my car's sticker price for a 2-year-old car. Even if the original buyer had gotten a decent discount off of sticker when they bought it, I'm still safely below 70% of the original sticker price. A lot of that will depend on the specific car and the demand for it. More "popular" cars will maintain more of their value and be more expensive used. Also, expensive cars tend to lose more of their value quicker.

psafux
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You pay for the insurance on the lease, absolutely. You handle the maintenance and problems with it (assuming they aren't covered under warranty). If you hit a pot hole and bend a rim, that's your issue.

You may want to look into gap coverage as well. The minute you drive the vehicle off the lot it's value plummets - especially a new vehicle. What you might owe the dealership in a total loss scenario may not be the same amount insurance would cover - something to verify if nothing else.

Regarding the odometer / mileage limit, no they do not periodically check. If you are allotted 15k miles per year and you have a 36 month lease (3 years), you need to have no more than 45k miles when you turn the vehicle in. Each lease is different but rates can exceed 20 cents per mile over the allowed limit.

You could drive 18k miles one year, 8k the next, and 18k the last year. As long as it all adds up to less than 45k (or whatever the allowed limit it) you are golden. They don't keep track year to year or month to month to verify you are in compliance.
Bob4
Account deleted
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New Jersey

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It seems that more expensive cars have lower mileage limits and higher overage charges. At least for the leases advertised on TV.

cowboyro
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CT

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It all depends whether you're employed or have a small business you're using for contracting. If you have a business then the car lease can be a business expense.
Otherwise you'll get screwed with a lease. Most leases call for 12,000 miles/year (some 10,000), you'd put almost 6,000 miles extra in 3 years (assuming you don't drive at all on weekends, don't go on vacations, etc etc). That's $1,500 easily extra cost, plus any charges for not having the car in a showroom condition.
Now if you *KNOW* you'll get another car in 3 years you may be considering a lease as there is a cost for trading in your car as well...