Leasing VS Buying a Car

Seems like a very popular topic these days – do you buy a car or lease one.

Having lived in NYC for a very long time until recently, I was happily and blissfully ignorant of the car culture — couldn’t even think past the cost of parking 🙂

But I went ahead and leased a car when we moved to San Francisco, and after being asked by a few people why I went with a lease, I figured I’d share some thoughts here:

Leasing Pros:

– I NEVER want to own a depreciating asset.  Buying a car is like owning an investment that loses money every day — similar to all of our 401K these days :).   Why tie-up lots of capital/cash in something that only goes down ?
– I like new tech.  I want a new car every 24/36 months with the latest safety advancements, bluetooth, iPod, GPS, etc systems.  The idea of an old car makes no sense to me.
– Green technology.  With biodiesels, hybrids, and plugins cars getting better, why do you want to own a “gas guzzler” for very long ?
– Your Needs change. You may start with a sedan and need a station wagon a few years later — why lock in for 10 yrs to a single car ?
– Auto companies change.  The car you bought might be part of a dead or bankrupt auto firm that will not produce parts to fix your car in the near future.
– Maintenance.   Most cars have a 5/10 yr or 50K or 100K miles coverage plans so everything is taken care of.  With a lease I never have to worry about rhe possibility of paying for large repairs since I’ll return the car well before the coverage expires.
– And the biggest item for me – leasing means you can afford a high-end car that would be prohibitively expensive to purchase.  A lease is the difference in value between the new car and the value when you turn it. High residuals make for low lease payments, and high-end cars retain their value.  So don’t lease a mid to lower tier car.

Leasing Cons:
– If you drive more than 15,000 miles per year, the lease can start to get expensive
– Some people hate monthly payments and prefer to own
– When you return the car on a lease they can hit you up for costly repairs.  There is actually decent inurance against this.  Make sure to pay this insurance up front, and not how most leasing companies recommend – which is to put it into your financing.  That only adds to the cost of a relatively low priced expense.

So there you have it.  Assuming car companies learn to adapt and get through this economic downturn ( or get a PC like biz model as Arrignton suggests ) I think you’ll see more and more people leasing and getting good deals.

2 thoughts on “Leasing VS Buying a Car

  1. mike j says:

    great points and i agree. 2 points i’d add in “pros” – 1) depending on the car – hummer or other gas guzzling suv – you may not be able to sell it in 10 yrs; 2) you can negotiate the leasing price the same way you can the purchase price.

    i leased my first car, an acadia, last year, and got it for invoice. provided i stay within the miles, can simply turn it in and not worry about reselling it

  2. @mike j —

    good point, that car you buy today may actually be 100% worthless in a few years.

    Another interesting point is the way the incentives work for auto dealers, they typically won’t lease used cars — which is too bad — I think it would be a good market and a cheap lease since the bulk of the depreciation happens in the first couple of years.

    p.s. You should sign up for a gravatar so your comments will have a nice avatar next to them 🙂 http://gravatar.com

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s