Leasing Vs Buying a Car – How to Make Decision
February 5th, 2011
Leasing vs Buying a car discussion is becoming more and more active as the prices of cars go higher and higher at surprising rates, whereas the growth rate of the salaries remains low. In the middle of the 20th century people could afford to finance their cars for just 6 months or a year. But nowadays car loans are stretched over five to six years to make monthly payments lower. It is why leasing vs buying a car has become the question of importance.
Leasing means entering an agreement with an agent of leasing. This agreement is about keeping the car for lease time (normally minimum 6 months). Negotiation of the leasing price is almost always available. But I would suggest being careful when negotiating, because as we will see later price reduction can result in increased costs somewhere in the lease deal.
What makes leasing vs buying a car an active subject of discussion, which can never come to end, is that this question does not have one for all correct answer. The answer may vary from a person to person. The answer depends on several factors. Whether your current funds let you make savings in the long-term period or not, what is your personal preferences – driving a new car every 2-3 years or driving the same car for 5-8 years, how much you drive per year, how do you treat your cars and so on.
Everyone knows that monthly payments are lower when you choose leasing, than when you go for buying a car. So people tend to decide leasing vs buying a car question for leasing when their current income does not let them to afford monthly payments of a car buying loan. But consider you have enough salary to afford buying a car loan monthly payments then what would be the answer to leasing vs buying a car question ?
After leasing period has ended you have to lease another car, but after you have paid car buying loan the car remains your property and you can still use it. After some time of usage (as you can see it by making calculations using our leasing vs buying a car calculator, or following our articles and making calculations by hand or using MS Excel, the time depends on lease/loan time, interest rate, residual value of a car and some other factors) buying a car can become less expensive, than leasing a car as after you have paid your loan, your costs reduce to insurance, DMV and maintenance and repair costs, whereas if you chose leasing you would have to pay leasing monthly payments again. So in the long-term period buying a car becomes cheaper, than leasing. However, here arises another question: would you like to drive the same car for 5-8 years, or drive a new car every 2-3 years ?
It would be much easier to make decisions if we would look only at the numbers. Then we would have chance just to compare expenses and decide which option is the cheapest. Economical hidden costs are what makes leasing vs buying a car discussion unresolvable. Every decision has its hidden costs. For example when you go for buying a car, you miss an oportunity of getting extra pleasure from driving a new car every 2-3 years. That is a hidden cost that adds to the other costs when we make decisions. But unfortunately it is impossible to measure these hidden costs in $$ as they differ from a person to person according to their personal characteristics, lifestyle.
So here are some general advice, which option is more likely to be cheaper for some fixed factors:
Going for leasing can be cheaper: if you strongly desire to drive a new car every 2-3 years, if your current income does not let you paying high monthly payments, if you prefer to keep the maintenance and repair costs low, if you can keep your car from more than allowed wear and tear during lease time, if you do not drive more than 12000-15000 miles per year.
Going for buying a car can be cheaper: if it does not matter for you whether you drive a new car in every 2-3 years, or in every 5-8 year, if your salary lets you pay high monthly payments, if a bit higher maintenance and repair costs does not make a difference for you, if you just want to be an owner of a car, if you are likely to drive more than 12000-15000 miles per year.
Leasing vs buying a car resolution example – following this link you can see an example of calculations and comparison. Three models of car ownership are being discussed: leasing, buying a new car and buying an used car. All the results of calculation are displayed and decisions based on expenses alone are made.
