Leasing is gaining in popularity again. Car makers are making attractive offers
with low monthly payments. One of the most common question people ask is whether
they should buy or lease. Our goal here is give you the BEST advice without you
spending a lot of time reading. With that in mind, we will give you the short answer
without first getting into the details. In order to do that, you need to decide
what your main focus is when choosing the option.
1) Buying a car is the BEST choice if your focus is the lowest cost over a longer
term (6+ years) period.
2) Leasing should only be considered if you are almost certain that you will stay
close to the mileage limits (usually around 12,000 miiles/year) AND you are relatively
good about keeping your car in decent shape: scratches, dings, damage, etc. If both
of these aren’t true, then you should buy a car.
3) Leasing is the BEST choice if your main focus is having the lowest monthly payments
over the short term (3 years) AND #2 is not an issue.
4) Leasing is the BEST choice if you want to have new car every 3 years AND #2 is
not an issue.
5) When you lease a car you will need to maintain high levels of car insurance as
specified by your leasing company. This usually means having comprehensive/collision
insurance with a maximum deductible of $500. You will also need personal liability
insurance of $100k/$300K. When you buy a car and finance it, your lending bank will
have similar requirements although they may not be as much as leasing. Buying a
car for cash only has requirements as set out by your state since you own the car.
You should keep this in mind as your insurance can increase significantly depending
on what you have now. For purposes of our comparison we assume you are either buying
and financing or leasing. The all cash option is not considered because it is the
least common way to buy a car.
A little Math
The best way to illustrate this is to compare an attractive 3 year lease vs purchasing
the same car and keeping it 6 years(2 lease terms).
Lets take a real world example, leasing a Honda Accord LX (the base model) vs. buying
it. While some of these assumptions are estimates (and exclude taxes), it will give
you a good idea.
A common lease for this car is $199 month with $2,000 down. Over a 6 year period,
you will have leased 2 cars. Lets assume each lease is the same. You would have
paid a total of $4,000 down, $14,328($199 x 72 months) in total lease payments and
$1000 X 2 in bank/dealers fees which are in most leases. Lets round up and assume
your total payments are $20,500.
Now buy the same car for $19,500 plus: 1) $500 in dealer fees 2) $1,250 for an extended
warranty which we highly recommend and bring you equal to the lease in coverage Click
here to read our reasoning for purchasing the extended warranty 3) $1,250 in extra
maintenance costs in wear which would include new tires, brakes, battery and fluid
changes. Total payments = $22,500. Adding in interest (assume a 5 year loan at
2%) would be about $24,000.
At the end you have a 6 year old Honda Accord LX with 72,000 miles on it, with 2
years left on your extended warranty, that is in very good condition (equal to lease
assumptions). Based on Kelly Blue Book, you would be able to get $10,000 for this
car. As our experience shows, selling a car that you have owned a manufacturers
warranty that you can transfer to the buyer will allow you to get top value. After
this sale, your total net costs under the buy would be $14,000 or $6,500 less than
Look at it another way, the lease cost you an extra $6,500. What did you get for
1) A new car in years 4-6 with the latest upgrades/technology
2) Less time spent on bringing your car in for maintenance
3) No hassle of selling your car after year 6
4) Lower monthly payments
To some people, that extra $6,500 is worth it for those main benefits. Ultimately
that is the decision you need to make. From a strictly financial sense, buying is
better, and you don’t have to worry about mileage. But if those benefits above are
worth the extra cost, leasing is something you should consider. Our example makes
some assumptions on prices and does not include some common taxes and fees. Additionally,
you can get better lease deals. We have seen year-end lease deals on this car down
to $159/month with $0 down. If you can catch one of those deals it can close the
gap on the cost and make leasing more attractive.
Have any questions or comments? Feel free to email us!