Do you lease or buy your vehicle ?
Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes
Do you lease or buy your vehicle ?
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Allentown, PA · Member since 2016 · 515 posts · 404 votes
8yIf you ever get on the Dave Ramsey bandwagon, he will tell you that on the list of dumbest ways to finance a car: Leasing is #1, Car note is #2, and Owning is #3. You are going to rent out a car that is going to decrease in value once you take it off the lot, the same is said for a car note. The insurance on leased cars and bank financed cars tend to be quite higher than vehicles owned free and clear.
There is nothing wrong with buying older model cars and they don't have to be complete beaters that are on their last leg. You can find pretty descent vehicles between 2005-2014 model years with not too high mileage and be surprised how well they run.
Many people will tell you go for a Japanese model car because they are more reliable, and they are right, most are. However, with my experience, it does not really matter. The parts for American cars tend to run pretty cheap, thus repairs tend to be on the cheaper side as compared to foreign cars.
I have a 2003 Volkswagen Jetta and a 2005 Jeep Cherokee, that I own free and clear. Just them being owned free and clear, makes me happy because its like a boulder lifted off my shoulder. I pay $82 monthly (with comprehensive insurance) for BOTH cars. I average a max of $500 in repairs per year. If you do the math, I still come out on top compared someone leasing or has a car note. I plan on running these suckers to the ground and once I do, guess what I am getting again? A beater.
Not having a monthly payment is a blessing, strive for it.
142 Replies
- Allentown, PA · Member since 2016 · 515 posts · 404 votes8y
If you ever get on the Dave Ramsey bandwagon, he will tell you that on the list of dumbest ways to finance a car: Leasing is #1, Car note is #2, and Owning is #3. You are going to rent out a car that is going to decrease in value once you take it off the lot, the same is said for a car note. The insurance on leased cars and bank financed cars tend to be quite higher than vehicles owned free and clear.
There is nothing wrong with buying older model cars and they don't have to be complete beaters that are on their last leg. You can find pretty descent vehicles between 2005-2014 model years with not too high mileage and be surprised how well they run.
Many people will tell you go for a Japanese model car because they are more reliable, and they are right, most are. However, with my experience, it does not really matter. The parts for American cars tend to run pretty cheap, thus repairs tend to be on the cheaper side as compared to foreign cars.
I have a 2003 Volkswagen Jetta and a 2005 Jeep Cherokee, that I own free and clear. Just them being owned free and clear, makes me happy because its like a boulder lifted off my shoulder. I pay $82 monthly (with comprehensive insurance) for BOTH cars. I average a max of $500 in repairs per year. If you do the math, I still come out on top compared someone leasing or has a car note. I plan on running these suckers to the ground and once I do, guess what I am getting again? A beater.
Not having a monthly payment is a blessing, strive for it.
- Rental Property Investor · Chicago · Member since 2018 · 36 posts · 23 votes8y
I agree with Brian. I have 2 car loans at the moment. We did buy them used but they were both about a year old with around 20k miles. I do this so I can still have the new car feel without the off the lot and first years depreciations which tend to be the greatest. I plan to get many years out of our purchases so that we dont have to continue to pay the loans. Leasing is best for the type of person that would otherwise sell a newer car just to have a brand new one. Which means a loan that lasts forever. If you are content with keeping a car longer than about 5-6 years, then buying a slightly used car is the better option in my opinion because you are eventually paid off while the other route just keeps adding up.
- Lender · Chicago, IL · Member since 2015 · 71 posts · 19 votes8y
Here is my take on Lease/Buy. You buy a used car 30k mileage say 25k you put down 3k now you owe 23k at lets say 3%(Very Low interest) the loan is for 5 years. Repairs not high maybe $500.00 a year.
Now take a lease $500.00 down total do on 2 year lease $5000.00 This is a car that cost around 30k. No maintenance or repairs.
Let's look at the numbers:
First option you put 3k down and pay for the first 2 years around 12,000.00 in payments and $500.00 maintenance. total out $15,500.00 for two years. You don't have any value in that car at all at this time. Go forward to 5 years and paid off now you have spent total 34,500.00 the value of said car that is now 7-8 years old is 2k. You spent 32500.00 to drive for 5 years.
Second option, For five years of leases including down payments 14,000.00 and you have had no worries or maintenance.
Now decide do you want to be out 32,500.00 in 5 years or 14,000.00. I think I can find somewhere else to spend the 18,500.00 that would make me money.
And yes the insurance on both senerios is higher than owning the car. And if you keep said car for longer the repair bills go up and the insurance goes down.
Good Luck deciding about Leasing-Buying.
- Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes8y
I drive a 2001 Toyota Tacoma that has hit 2-3 deer and has over 198k miles on it. All of my tenants drive nicer vehicles than me. Our newest vehicle is a 2013 Nissan that my wife drives.
If I ever buy a brand new vehicle than that means I have more money than I know what to do with it.
- Investor · Grand Junction, CO · Member since 2017 · 207 posts · 201 votes8y
Originally posted by @John S.:
Let's look at the numbers:
First option you put 3k down and pay for the first 2 years around 12,000.00 in payments and $500.00 maintenance. total out $15,500.00 for two years. You don't have any value in that car at all at this time. Go forward to 5 years and paid off now you have spent total 34,500.00 the value of said car that is now 7-8 years old is 2k. You spent 32500.00 to drive for 5 years.
First let me say a car loan is a huge waste of money, as is buying a new depreciating asset. But your numbers are completely off here. There is no car out there that you buy new for 25k and 7 yrs later is only worth 2k unless you totally beat the hell out of it.
But aside from wrong numbers, just go buy a late model used lower mileage car and invest your savings elsewhere.
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes8yI paid cash for my own cheap car but lease a car for my wife. When it comes to my kids, I want the safest and most reliable car possible, so I choose to always have her drive a new car, and leasing is a cheaper payment than buying the same car.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes8y
You could do both...
Have your company lease the car for the first three years and write into the contract the right to buy it at the end of the lease and if you buy it, any mileage overages are waved. Your company writes off the lease expense, saving you money on taxes, and you get to enjoy a new car and buy it once its depreciated.
@John S. I don't spend $500/yr on maintenance for two cars that both have over 100k miles, so you may want to find a new mechanic. What if you pay off the loan in 2-3 years, because taking a 60 month loan on a depreciating asset is a sub optimal choice? Your scenario doesn't take into account years 6-10+, where the owning expenses go down, but leasing expenses go up.
And a seven your old car with 300k miles? Really? You bought it with 30k and five years later you have 300k on it? That's 54,000 miles per year or 147 miles every day of the year, which is four times the national median.
- Accountant · Battle Ground, WA · Member since 2018 · 91 posts · 48 votes8yNicholas, I’m in the buy a used car you can afford camp, one big difference for me is that most leases typically cap or limit the number of miles you can drive. I don’t like the idea of budgeting my miles. - I didn’t know you could get a lease where all repairs were paid for I always thought the warranty work was covered but any repairs were out of pocket? Which is similar to buying new car but I could be wrong. -Buy an old car cash spend the difference on an investment property:)
- Investor · Saskatchewan , Saskatchewan · Member since 2017 · 311 posts · 233 votes8yI’m guessing Thomas probably knows this, you can fit an entire sheet of drywall / plywood in a caravan if the seats are out. Handy as heck.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yThis one is pretty simple. Buy used cash. Drive til it doesn’t drive anymoren
- Contractor · New York, NY · Member since 2017 · 18 posts · 9 votes8y
I have 2 cars. One is a 2000 Silverado I bought about a year ago with just over 100k miles. I ran into some bad luck with it and decided to finance my other car. A 2017 VW golf gti which I bought used for about 10 grand less than a brand new one. I have since fixed my Silverado. I enjoyed the new car for about 2 months and then the constant payments and higher insurance started wearing on me. I still like it but that expense every month would be great to not have.
I think as long as you buy a car with less than 100000 miles and is less than 8 years old you’ll have a great car and not have to deal with issues like I had on a 20 year old car.
- Member since 2016 · 13k+ posts · 12k+ votes8y
@Account Closed
"you can fit an entire sheet of drywall / plywood in a caravan"
Yep that is the reason I buy caravans with the stow away seats. A caravan and a utility trailer will out perform a pick up truck hands down. Nice thing is mine is jammed full of tools all the time and with tinted windows I never have to worry about theft. Pick up trucks, definatly the yuppie trucks, are pretty useless. Parking lots full of pick up trucks that have never been worked. Nothing more than transportation for most truck owners.
Love Caravans, most practical vehicle built. Cheep, common as dirt and reliable.
- 8yGlen MauldinPro MemberReal Estate Broker · Houston, TX · Member since 2015 · 18 posts · 14 votesI bought a 2003 Honda Accord brand new. Today it hit 266K miles. Recently had a mechanic tell me that Japanese/Korean autos were the least expensive when it came to “significant” repairs. Drive out was just under $20k and I have spent about $10k on significant repairs. I replaced the a/c, rebuilt transmission, replaced steering rack, radiator and catalytic converter. There are some issues that are starting to appear that may be just too much so seriously starting to look for a replacement.
- Tacoma, WA · Member since 2018 · 230 posts · 257 votes8y
Originally posted by @John S.:
I said that you buy a used car or 25 k. A 7 year old car with 300k in mileage is worth how much in blue book value. This is assuming that the car was originally only 2 years old when you buy it for $25k.
The lease numbers you quoted earlier are way off if you are putting 50k miles/year on it. Your comparison is apples to oranges.
- Contractor · Pensacola, FL · Member since 2017 · 311 posts · 156 votes8y
Paid cash for my last 3 vehicle purchases. 2 were less than 10k, one was 25k. The way some vehicles are built today, they will go over 300k before they are ready for the junk yard. I drive a 2004 Dodge Ram 1500 5.7 hemi that is nice on the inside and runs just fine. Paid 8200 for it a couple years ago.
I'll drive it for a couple more years then do the same thing
- 8yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
I sold cars for 10 years. Your dad has drank the Kool-Aid
Cars are the worst thing you can possibly spend money on. buy the cheapest car you can stand to live with. don't spend more than 8-10K.
debating to lease versus buy is like debating if it's better to lose your left arm or your right arm. I'm sure you have a preference, but either way you're life is about to be much worse.
- 8yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Originally posted by @Thomas S.:
@Account Closed
"you can fit an entire sheet of drywall / plywood in a caravan"
Yep that is the reason I buy caravans with the stow away seats. A caravan and a utility trailer will out perform a pick up truck hands down. Nice thing is mine is jammed full of tools all the time and with tinted windows I never have to worry about theft. Pick up trucks, definatly the yuppie trucks, are pretty useless. Parking lots full of pick up trucks that have never been worked. Nothing more than transportation for most truck owners.
Love Caravans, most practical vehicle built. Cheep, common as dirt and reliable.
You can also fit multiple 4x8 sheets of drywall/plywood into the back of a 2003 Honda Element. While I bought it new, I will drive it forever and if it died today I'd go out and buy another one tomorrow.
I have 3 cars, 2 purchased brand new and one purchased used. The two new ones are the only new cars I've ever owned and only new cars I will ever own.
I would never lease a car. Buy used cars for cash. Like someone said above, you can get a nice looking used car for cash. My nicest looking car is the used one.
- Tampa, FL · Member since 2017 · 49 posts · 29 votes8y
No one mentioned the TAX advantages to leasing!!
I own a small business (unrelated to real estate) and have leased a car throughout my time in business (17 years). The tax benefit is that you can expense your entire lease payment off your top line taxes, whereas with a loan you can only expense the miles/depreciation. The lease begins to make more and more sense the more your yearly income is, and the more expensive the lease is. Thats why high income folks like doctors and lawyers etc are always driving brand new cars. They aren't idiots right? So how does the math work?
Lets say you make $60k a year and you lease a car for $500 a month ($6k a year). That $6k is expensed from your $60k income reducing your income to $54k. To figure out how much you saved you would calculated your taxes owed at $60k and then calculate your tax owed on $54k and subtract it from the first number. So what would the EFFECTIVE cost of your lease actually be? Its actually $6k (yearly lease) minus your tax savings. The result is what you ACTUALLY pay to drive that new car. You can ballpark this math by simply calculating the net amount through your tax bracket pecentage. So if you are in the 22% tax bracket, you subtract 22% of the lease payment. So you are only really paying 78% of that lease payment and the rest is savings from the tax benefit.
It makes even more sense if you make lots of money and you are in the highest tax bracket. Imagine 37% tax benefit taken off your lease payment. a $1,000 a month lease on a fancy BMW X5 would cost you only $630 a month once you factor in the tax advantages. If you pulled up at a traffic light next to someone with an X5 that they bought on a loan, their payment is most likely more like $1,500 a month or more. Your NET expense is $630 a month and you drive the same car!
The last point on taxes sometimes makes a HUGE difference for people. for the tax year 2018 If your taxable income after all expensing is $77,401 because you don't have a lease payment to expense, your tax bracket is 22%. If you have $10,000 a year in lease payments your taxable income is $67,401 and now you are in the 12% tax bracket.
Disclaimer, I am not an accountant and there could be things wrong with this math. But this is how I have always understood it.
- Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes8y
I look at it this way: a new $40,000 truck will make me no more money than my 2001 F150 with the dents in the fender from the bull running into it and the scratches on the side from tree limbs and other things.
- Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes8y
Originally posted by @Account Closed:
I’m guessing Thomas probably knows this, you can fit an entire sheet of drywall / plywood in a caravan if the seats are out. Handy as heck.
LOL
That also works in my 2004 Honda Odyssey.
- Member since 2018 · 6 posts · 5 votes8y
I purchase cars between $6000 and $12000, used of course, with the plan to use them for about 5years till they degrade to a $2000-4000 car and then dump the bag before it makes it into the barely useable "I keep getting problems" <$2000 car.
Leasing is good if you want a new car constantly, buying is good if you are in love with a specific car and it has decent long-term value (Tesla), but both are financially worse than buying a car that's used, and buying a car that's more than a little used is way better economically.
Till you reach the "financial freedom" meme I wouldn't dare touch a car above $12-15k, and really I'd say it's better to stay under that unless you're buying a double-back seated minivan or SUV because you have tons of kids, in which case I'd bump the limit up a little as the sweet-spot for those cars is about 12-14k verses cars/trucks being more around 8k in my experience. - Specialist · Austin, TX · Member since 2018 · 111 posts · 28 votes8y
Originally posted by @Brian Adzadi:
If you ever get on the Dave Ramsey bandwagon, he will tell you that on the list of dumbest ways to finance a car: Leasing is #1, Car note is #2, and Owning is #3. You are going to rent out a car that is going to decrease in value once you take it off the lot, the same is said for a car note. The insurance on leased cars and bank financed cars tend to be quite higher than vehicles owned free and clear.
There is nothing wrong with buying older model cars and they don't have to be complete beaters that are on their last leg. You can find pretty descent vehicles between 2005-2014 model years with not too high mileage and be surprised how well they run.
Many people will tell you go for a Japanese model car because they are more reliable, and they are right, most are. However, with my experience, it does not really matter. The parts for American cars tend to run pretty cheap, thus repairs tend to be on the cheaper side as compared to foreign cars.
I have a 2003 Volkswagen Jetta and a 2005 Jeep Cherokee, that I own free and clear. Just them being owned free and clear, makes me happy because its like a boulder lifted off my shoulder. I pay $82 monthly (with comprehensive insurance) for BOTH cars. I average a max of $500 in repairs per year. If you do the math, I still come out on top compared someone leasing or has a car note. I plan on running these suckers to the ground and once I do, guess what I am getting again? A beater.
Not having a monthly payment is a blessing, strive for it.
/\/\/\/\ THIS right here! Cars are nothing but a money pit as soon as you drive it off the lot. Dumped my brand new lease with all the gadgets two years ago for a well maintained, beautiful 2000 Jeep Cherokee. No payment, and I cut my insurance premium nearly in half! And, I LOVE my cherokee :)
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