Should I lease a car or buy?

Question

I will soon start working for an auto company and they offer these nice looking leases:

-30k miles/ year

-2 year contract

-maintenance included

-insurance included

but I'm not sure if it's worth not having a car after 2 years...would I be better off buying a new car? I am currently 22, so insurance costs will be significant, but still, I can't really tell if I will be better off with leasing or not. Estimating, I would end up paying double the monthly amount if I decide to buy (including insurance cost). But then again, I would have a property that has a resale value...?

Answer 1

Better look at that again.  I doubt that is a 30k mile PER Typical leases are 12k or 15k per year.  You may be looking at a 2yr 30k mile lease, which is 15k per year.

Leasing can be good for the right people.

Essentially, in a lease, you never "own" the car. You make payments for 2-3 years, then hand the car back. Think about it almost like a long-term rental.

If you purchase a car on a conventional 'buy' contract, but trade it off before you are done paying for it, you never *owned* that car either. If you routingely trade out of cars every 2-3 yrs, you never *own* them at all. You are just moving from one monthly payment to another.

Dealers make no more on a lease than they do on a purchase. The cap cost of the car is the same as the 'buy' price. A lease customer has no need to buy extended warranties or any other extras - in fact lease companie usually don't allow for them. So we typically make LESS on a lease than a 'buy'. The residual is set by the bank, not us. When the car is handed in at the end of the lease, the dealer is just an agetn for the bank. We don't stand to gain anything on the residual, except hoping you buy another car in teh process.

There are some advantages to leasing under the right circumstances.

First, if you trade out of cars every 2-3 years, it might be right for you. In a lease, you have a contract for a fixed amount of time. I discourage leasing past 3yrs - 2 is better. In a 'loan', after 2 yrs, if you try to trade you will probably be upside down, and owe more than the car is worth. So, in order to get out of it, you have to have a lot of cash, or finance that negative on the next car.

The contract will tell you that your payments are $x per month plus tax. At the end of the term, you will have a residual value for the car. The lease company basically says "In three years, we feel this car will be worth $Y" You have the option to buy the car at the end of the lease for that amount. If you are in love with the car, or it is worth well above the residual, you may want to consider that. However, in most cases, you simply hand over the keys and walk away.

In a lease, there is a specified amount of mileage. Most leases are constructed around 12K or 15K miles per year. If you go over the mileage, there will be a per-mile penalty at the end of the lease. So, if you drive a lot, it may not be for you.

Leasing typically allows a person to get a nicer car for the same payment as a lower-end car on a loan. that is because of that residual. You are only "financing" the difference between sales price and residual. In a loan, you are financing the entire purchase price.

In other words, if a car has a sale price of $25,000. on a three year lease, lets say the residual is $12,500. You are only "financing" $12,500 for 3 yrs. If you were to buy that same car, you would finance $25,000 either for a longer term, or a much higher 36 month payment.

Lastly, in a lease you pay less sales tax. In a conventional purchase on that $25k car, you pay tax on the whole 25,000. In a lease, you pay sales tax on the monthly payment. In other words, your payment of $300/month is actually $300+sales tax. BUT you are only paying tax on the leased amount - in the earlier example you are only paying sales tax on $12,500.

To those who say "never lease" -- read this forum for 30 mintues. For every lease 'horror story' you read, you will see 20 people who are upside down on a 6 yr purchase and no way out. The key is to be thoroughly informed about the pros and cons of both, and make an educated decision based on your needs and lifestyle.

Times leasing is good: You trade cars ever few years, you dont drive more than 12-15k per year, you want to put less down

Times it is bad: You like to keep cars a long time, you drive a lot, you want to put a lot of cash down.

Hope that helped some

Answer 2

You can't just look at the cost per month on these things. You have to look at the value of the car 2 years out and any additional funds due at termination.   Even when repaired a car in an accident has diminished value that you may have to make up. Many times these lease agreements lure people in with low rates and essentially balloon the costs at the end of the contract. Make sure the insurance you are talking about doesn't just protect the outstanding balance on the car to them and says nothing about liability required by law to operate the car. If you were at fault in an accident and or medical payments for injuries, who pays, how much, what are the deductibles?

I am much older than you but the advice I gave my son would be the same I would give to you. I would say that do not buy a car that you cannot afford to pay off in 3 years time. The reason for this is to not be upside down on the note. (Owing more than the car is worth.) These days, I would be focused on something that was fuel efficient and affordable.... especially if your new job doesn't pan out and a change of employment has you scraping for funds. It doesn't have to be brand new to be reliable and nice looking with an added benefit of much lower insurance premiums. If you plan your expenses to have built in buffers for changes in your life then you will rarely be caught with your pants down. Those who spend money counting on everything to go "as planned" seldom see that work out in their favor and are in continual turmoil.

The final decision is yours. There is no absolutely correct answer to your question, but there are smart ways of doing  things that don't have your entire paycheck going out to service debt.

Answer 3

Leasing is just another name for LONG TERM RENTAL.  You do not own the car.  But you are fully responsible for the car. AND you are stuck in the contract with lease.

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>> But then again, I would have a property that has a resale value...?

That would be one benefit.  Another benefit is that people at your age often have many changes (job, school, marriage).  With lease, you are really locked in badly.

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Do you want to own or rent?

Good Luck...