[kdawg22]

Hey everyone this is off topic, but since passing I am looking into getting a new car. What are everyone’s thoughts on leasing vs. buying new vs. buying a slightly older pre-owned.

Thanks!

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[Anonymous]

Do you want to own the car after all your payments have been made?

Put it all in a schedule in Excel and see if it's worth it. Sometimes it is worth it to lease if you get a good deal + package, but usually, owning the asset after payments have been made is a better deal. Generally speaking.

Of course, there are a lot more variables to consider including the market values, maintenance, and depreciation.

[Anonymous]

Oh and some people swear by buying new and never buying pre-owned. It's somewhere between 10-15% immediate depreciation the moment a new car exits the lot.

I've only done pre-owned and financed a purchase and will probably never buy new or lease. However I'm very picky and will travel 100 miles for that single-use manual with <75k and no major accidents–among other things.

[CPAcandidate3]

If you're smart you will buy a used car. Buying new or even worse leasing a car is ludicrous unless you're in a position where the amount of money you're spending is something you could burn and it wouldn't be something you would feel from financial standpoint.

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[M123]

I thought this was a FAR question 🙂

The best answer to this question is Dave Ramsey Baby Steps. Check it out on his web site. Excellent financial sense.

If someone asked you to pay them $20,000, drive 100 feet and then get $17,000 back, would you do it? That's what buying a new car is. Drive it off the lot = instant depreciation. As accountants, I just don't see how we tolerate that.

I say buy a later model, low mile, used vehicle as long as its price reflects its used status. Used cars were a seller's market for a while and it didn't make sense to buy late model used in some cases – as a “door buster” deal on a new car would be better.

Let someone else take the initial hit, I say. My goal is to buy a car cash. No payments. But do negotiate with the dealer with financing as they make money off that (leverage for you to negotiate) – then pay off the financing early!

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[Anonymous]

I leased a brand new luxury vehicle and have been happy with it. My payments have been just under $500 every month. I have a few years of experience though and my old car I had for over 10 years through high school and college started breaking down. I drove that, paid it off, and enjoyed a few years without a car payment…so I had a good chunk of change saved up for down payment on the new lease.

The best investment would be to buy a used car though. Not extremely old that it might have mechanical problems, but ideally 1-3 years so you aren't paying such a high premium and extra fees for a brand new vehicle.

PS. Included in the $500 is prepaid maintenance for 3 years, free car washes at dealership, free snacks/cookies, free coffee, free massages, free loaners, etc.

[Anonymous]

@M123 Having cash flow available for other investments may be better. Hypothetically, if one can finance at 2.99% but their portfolio is earning five times that, should the entire vehicle be paid in cash?

[M123]

Leveraging is an interesting option but it's pure speculation to think that the market will return 15% for a 3 year period. Even then, the diffs between option 1) investing/leveraging and 2) paying cash and investing “payment” that doesn't exist into funds with those returns are still quite small on a $19k vehicle. After tax, the diffs are slimmer.

However, if you can get that 15% sustained over time please do share your investment strategy as that is far more interesting than financing cars 🙂

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[Anonymous]

No strategy, just a hypothetical!

Also, cash may be better off towards a down payment or paying off higher interest debt.

[GAPilot715]

I disagree that deprecation is a major reason to discourage anyone from buying a brand new car. Its not an investment and ordinarily you wouldn't buy a vehicle with the intention of selling it after a short period of time.

There are pros and cons between buying new/used or leasing. When I purchased my truck brand new, the price difference between a new and gently used (Less than 2 years old, and less than 20k miles) was less than 5%. If you are like me and intend to keep the vehicle for its entire life, say ten years or so, then buying new would be a good option. If you are the type of person that would like a new vehicle every 3 years, then you should consider a lease.

If you want to save in the short term buy a cheap used vehicle 5+ years old. But there is a high risk of maintenance uncertainty. I know people who have saved a ton buying a used vehicle and they were lucky to have few mechanical issues, but I've also known people to pour a lot of money into a used vehicle for repairs only to end up having to buy another car.

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[SafariSteve]

It depends a lot on what it is you're trying to buy or lease.

I bought a new Toyota Tacoma last year and somewhat quickly realized I didn't need it. I sold it to a dealer through a Blue Book online offer for $635 less than I'd paid 8-1/2 months earlier (although I was out the sales tax). I later found it listed at a CarMax in a better Tacoma market for $6,000 more than I paid new. Tacomas don't lease too well directly from Toyota because they set a high interest rate on them, so in that case you're usually better off buying. They also don't depreciate much, so I never saw much of a reason to buy used.

I'm now leasing a Chevy Volt plug-in hybrid that I never would have considered buying. They depreciate like a rock, but a good deal, state and local rebates, and an optimistic residual value make the average monthly cost roughly equivalent to what I was spending on gas before. There's no chance I'll be able to replicate the deal in three years, but it works for now.

Point being, leasing some cars makes sense and leasing other cars is a a terrible idea. If you're considering leasing, definitely do some research on how to calculate a lease payment. The basic factors that determine a payment are MSRP, selling price, residual value, and money factor (aka interest rate). You can usually find current residual and money factor information on an Edmunds.com forum by searching for something like “Honda Civic Lease Edmunds.” An online calculator can handle the rest for you.

The magic combination for a perfect lease is a high residual, a good discount, and a low interest rate. High residuals and discounts don't usually come together, but they can happen. I've found it's rare to get a lease that's truly a good deal as they're usually targeted toward people who will pay a premium to always drive a new car, but there are occasional unicorns out there.

[1skibum]

I'm an enthusiast so I buy cars more frequently than anyone should. 😉 Every single car I've bought, I've paid cash or financed. My current car is financed for 66 months at 0% so I paid nothing down and deal with high payments so my cash can grow.

As for your question on leave vs buy. Make an excel spreadsheet with lease in one column which will entail your lease payments, tax, protection plans, etc. This is basically money thrown away because you'll never get it back. Google ‘true cost to own x vehicle.' You'll see a grid showing the cost to own for 5 years. Add up the depreciation for 3 years and put that into a cell under buy. Then figure out how much tax you'll pay along with interest on the loan. Now sum those up and compare it to leasing. If leasing is cheaper, lease the vehicle, if not buy it.

[Anonymous]

I just want to add to the bit about “leasing is throwing your money away” thought process…

I am currently leasing a vehicle. I am paying just under $500 per month for an all inclusive (maintenance, services, warranties, car washes, etc.) 36 month lease.

$500 X 36 months = $18,000

So in other words, I am paying a total of $18,000 to drive a $50,000+ vehicle for 3 years.

At the end of the lease, there is a buyout option, and also an incentive to swap to another lease.

It's not a bad deal in my opinion…especially considering the monthly payments would be higher if purchasing the vehicle and even with the salvage value to sell the vehicle after 3 years, it still won't necessarily save more money in the long run compared to leasing.

If I bought the car for $55,000 and sold it after 3 years for $35,000 – $40,000 (high end and unlikely), that's still a good $15,000 – $20,000 overall cost for me compared to $18,000 (which also gave me lower monthly payments and more access to cash) to lease it.

It really comes down to preference…the overall savings may be a couple thousand at most…and that's if you take excellent care of the vehicle and go through the hassle of finding a buyer and completing a private sale.

[Yolonge]

Buy if you can, but leasing is fine. People on this forum with our profession should be able to do whatever we desire.

Why do people say car loses its value 10-15% when it leaves a lot?

It barely loses anything, and without actual usage car value does not drop.

Are you saying $20k accord leave a lot, and all the sudden it is worth 17k at 6 miles?

Many cars depreciate less than 15% annually, with normal usage. Stop spreading false information.

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[Anonymous]

@Yolonge Simple. A new car is no longer new. It is now used. Previously owned. Instant value loss.

How is this false information? It's pretty common knowledge.

[M123]

I'm glad to now know that when I buy a vehicle it's essentially a liquid cash asset where I can simply sell back the car at the price I paid. Thank you! Yes, I agree – let's stop the spread of false information.

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