Posted on 05/31/2012 8:19:42 AM PDT by Kaslin
Dear Carrie: I've been out of school for just under a year and have a nice steady job. I need a new car, but I don't know if I should buy or lease. I'm earning a decent income, but I don't have much saved. Your advice, please? --A Reader
Dear Reader: This is a good question for someone in your situation -- or for anyone looking to buy a car. And actually there are three car-buying choices: buy outright, buy over time or lease. Buying a quality used car outright and driving it for many years is probably the most cost effective over the long run. However, the need for a large amount of cash upfront makes that impractical for many people.
The problem with leasing or buying over time is that you end up financing (that is, paying interest on) a depreciating asset. That said, these two options do give you the chance to get on the road with less of an initial financial commitment. However, there's more to consider than your cash outlay when deciding whether buying or leasing is the better choice.
WHEN A LEASE MAKES SENSE
The biggest advantage to leasing a car is that it will initially cost you less. There are plenty of low- and no-down-payment deals out there. On top of that, monthly payments are usually lower than if you financed the same car. That's because lease payments aren't based on the value of the car, but rather on the depreciation of the car over the time of the lease. So leasing a lower cost car could be quite economical, especially in the short run.
For this reason, a lease might make sense if you think you'll be in a better position to buy in a couple of years. Most leases are for two to four years. At the end of the lease, you simply turn the car back in and either purchase or lease a different one. (This also makes leasing attractive for people who know that they will want a new car every few years.) One caveat is that the car must be kept in excellent condition or you may pay a penalty.
If you use your car for business, there's another plus. You may be able to write most of your lease payments off your taxes.
THE FLIPSIDE
While all this sounds good so far, there are some disadvantages that you should consider. First, leasing is kind of like paying rent. At the end of the lease, you don't own anything. Beyond that, leases are restrictive. There is a mileage limitation, usually 12,000-15,000 miles per year. Drive more and you'll have to pay extra at the end of the lease. Also, you're pretty much locked into the time frame. If your life circumstances change, it can be very costly to get out of a lease early. (On the other hand, though, you will likely be able to extend your lease if you want to keep the car longer.)
Another possible issue is insurance. Should your car get totaled or stolen, the insurance company will only pay the value of the car at the time, not what's left on your lease. Many lease agreements offer gap insurance to cover such a situation, but if not, you could come up short.
WHAT ABOUT BUYING OVER TIME?
If you think you want to keep your car longer term or if you're uncomfortable with the restrictions of a lease, buying over time is another viable option. In today's car buying environment, it's possible to finance a purchase with nothing down and zero percent financing for a certain time period. This could make the initial purchase easier on your checkbook. But be aware that with these types of offers, the dealer often compensates for upfront savings with longer loan terms. The plus side is that when the loan is paid off, you'll own your car.
WEIGHING YOUR CHOICES
From a purely economical standpoint, it probably makes the most sense to buy a good used car -- preferably one still on warranty with very low mileage -- and keep it for several years. That way you get the pleasure of driving a fairly new car without financing the depreciation that happens as soon as you drive it off the lot. Plus, you'll have something to show for your money.
If you choose to lease, be sure to work with a reputable automobile dealer or leasing company. Read the lease agreement carefully. Find out if it offers gap insurance, what the charge is if you go over the mileage limit, and what the terms are should you decide to buy at the end of the lease.
There's no right or wrong choice. It depends on your current cash situation plus what you want from a car both now and in the future. Before you start shopping, I'd suggest running different scenarios on an online buy vs. lease calculator to compare both upfront and long-term costs. Seeing the actual numbers might be the ultimate deciding factor.
I thought the verdict was in that leasing is the worst idea ever...
Buy a good clean used car.
Drive it for several years.
Sell it and buy another good clean used car.
Never lease.
Never buy new.
Or why not buy a cheap used car, run it into the ground and buy another cheap used car?
The last 4 'new' cars that I've bought have all been program cars from new car dealers. I bought a 2010 Chrysler 300, loaded, in 2010 that was a retired rental with 18,000 miles on it. It had probably been on the road for about a year. I got new car financing from my CU at under 3% and paid nearly half the sticker price on a comparable car. I got a nearly brand new car after someone else paid the first 2 years depreciation.
Dave Ramsey would be so pleased...LOL. I have a great 150 ford truck that runs like a top - I have had leased trucks too, but they cost way more to operate.
Leasing is the second worst idea ever. Obama is first!
“I’ve been out of school for just under a year and have a nice steady job. I need a new car”
The writer does not ‘need’ a ‘new’ car...and certainly shouldn’t even consider a lease.
Just buy a used car, and leave the new car buying to others.
Buy a 4-year old car at 1/3 the price, pay it off in 2 years, pocket the 3 years of interest and someone else eats the depreciation. You can get 250K-300K on the newer cars easily. Even if you have some repairs, you’re way ahead on costs.
I used to think that used cars were the way to go. The only problem is that you never quite know when they will go down on you.
If you can afford it- a VERY inexpensive new car will give you dependable transportation. You get the warranty with a new car and repair bills with a used car.
It is no fun to get stuck on the road when you are on the way to work, an important appointment, or an emergency. You can buy used, but make sure you have a very good relationship with your mechanic.
This has worked well for me. In the last 20 years I have bought two low-milage used cars. One I drove for 8 years and the current one I have had for 12 years and it still runs great, looks nice. Drove both as paid off for half of the time I have had them.
After 40 years of marriage I don’t need a chick magnet and I find no status in a vehicle. A car is a utility that should be reliable and low cost over the long term.
Buy used (just off a two year lease is usually a good buy), pay cash. Make car ‘payments’ to your savings while you drive it ‘til it falls apart. Lather, rinse, repeat.
“Or why not buy a cheap used car, run it into the ground and buy another cheap used car?”
I’ve gone retro with a ‘67 Camaro and ‘57 Bel Air. They will both be driveable indefinitely because the repairs are less than new cars (parts easily available and not so complicated). I take it in the shorts on gas, but I am working on getting mileage up (mostly new transmissions). Best part is I no longer have a depreciating asset, they are appreciating. Also, since repairs are always done with better than stock, I will end up with top of the line vehicles. And everyone drools over them.
I could never lease a car. My commute is 120 miles a day.
All depends on how long you’re going to keep it. If you won’t keep it long enough to pay off the loan lease because in the end that’s what you’re doing anyway. Even if you only intend to keep it a little longer, lease. If on the other hand you intend to keep it for at least 2 years longer than the loan buy. In the end it really boils down to how much you’re into preventative maintenance, if you get things fixed right away buy, if you ignore it until it’s a catastrophic failure lease that way you get rid of the car before the catastrophic failure hits.
I’m a 200,000 mile guy, always buy. Well “always” being twice so far, don’t have to buy often if you keep things for 10 years or more.
I am currently near the end of my first car lease and plan
to lease again. I used to buy used and keep forever. I enjoy the no worry new car warranty. As long as interest rates are so low, I am not paying much of a premium for this luxury and peace of mind.
The only thing dumber than leasing a car is borrowing to buy one. With a lease, you don’t pay as much interest to buy the use of the car. And generally the cap reduction is lower than the down payment you’d make on a comparable time buy. So you end up with a lot more car for the money with a lease. The vehicle is always covered by warranty and you walk away from it at the end (or buy it if it’s a closed-end lease). Leasing makes more sense than a time buy.
But neither make as much sense — financially — as buying used and drving the wheels off.
Whenever I go shopping for a car, the salesmen always push leasing over buying. That alone tells me that you are correct.
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