Is it better to lease or purchase my car?

127 Replies

This was a convo my family had around the dinner table last night as some are leasing and some are buying their car. I was wondering what the BP community thought about leasing a car. 

Lets make the assumption that you want a new car, can afford a $150-$300 payment and would plan to pay off your car in 10 years or less if you decided to finance to purchase. 

In a lease, you're paying for all the depreciation in the first couple years.  If you are the type that has to drive a late model car all the time, you might pay for that luxury, but if you want to save money in the long run to invest elsewhere, buy (or even better - buy a 3 year old car off lease) and drive it for 10+ years.

@Brendon Woirhaye Thx for the reply! 

What about making money in the long run though or investing currently? Would you recommend still buying if i can take the 20-30K and put it into another investment vehicle (not talking about cars now lol)

I have bought all my cars.  From 18months to 5 yrs old.   Most of them were all cash.

Depends, first being can you make do w/ the mileage restrictions of lease (typically 10k/yr). Second, you have to be ready for a new car every 24-39 months.... if you don't put any value on that and want to keep a 10 yr old car then stop right there and buy.

Now.... how a lease makes sense:
High residual, this is set by the bank and there are plenty of times where it's marked up so the car will be worth much more than it should be. It's based off MSRP and is a %.

Sale price, this needs to be worked down, the same as when you buy. Figure out the price THEN go after discounts/rebates etc. 

Money Factor, this is the interest. It'll be marked up more times than not and impacts the lease. You can sometimes bring it down by doing security deposits (refundable).

So how does this work out for you on a lease?
Well... go find a car with high msrp, that has a high residual and is either discounted heavily or a previous loaner. You'll be able to get nice car for cheap, the target is typically 1% msrp w/ 0 down (but you'll pay fees plus first mo).

Bonus points for CA and other similar states... tax is off the monthly payment not the sale price of the car. 

Real life example:
2015 Q50a (cheapest q50 they make): 38k MSRP, 28k sale price, 20k residual. 39 mo lease, 230 mo + 20 in tax so 250.

2016 528i, 400 mo, +40 tax + 49 excess wear+tear warranty. I think this was something around 52k new.

I’d say if you are dead set on driving a brand new car, and are the kind of person that intends to have a payment forever, then lease. That way you’re only paying for the equity you actually use. Also, when you buy you pay for the sales tax on the entire purchase price. When you lease you’re only paying for the equity in the vehicle used during the term. If I were a “car guy” I’d lease. That way I could trade up every few years for less money. Otherwise just pay cash for a used car. I love not having a car payment.

Originally posted by @Ellis Hammond :

@Brendon Woirhaye Thx for the reply! 

What about making money in the long run though or investing currently? Would you recommend still buying if i can take the 20-30K and put it into another investment vehicle (not talking about cars now lol)

 30k into a property should cover a 300/ mo lease easily and you can get some nice luxury cars at that level. If you just want a cheap car you can one for half that.

Almost always the best decision is to buy a used car that’s 3-6 years old.

It depends what’s important to you. Investing, financial freedom etc or having nice stuff. It’s rare that you can have it all. I know people who are worth millions and they drive at best used cars or a used car that’s newer (think 3-5 years old).

I don’t know anyone who’s a millionaire who drives a Mercedes. Typically people who drive that type of car are high earners who have low net worths.

3 percent of luxury car owners in the US are millionaires. The biggest factor keeping Americans from building wealth is a car payment. There’s no equity in it.

End of my rant

Leasing is the smartest way to go . It is a write off to an agent no matter the miles.  So you can continually drive a 1-3 yr old car and use as a tax deduction. My lease is 252.00 a month for 39 months I get something like 50k in miles. My car is loaded with extras.  I write off the whole amount for business use minus the times I drive to the grocery store or shopping(anything non business). And I get to have a car that I don't have to worry about doing any maintenance except tires if needed and windshield  wipers. 

Oh and last time I took my old lease in and got this one I put down 500.00 and then two months later I got a check from them for the 500.00 back.  I also was over 3k in miles they did not charge me for, and I had a scratch on the one side of the car estimated to cost 1500 to fix and i didnt have to pay anything. 

@Caleb Heimsoth I feel you. Out here in Los Angeles keeping up with the Joneses is a way of life. Problem is out here the Joneses drive Aston Martins lol. So good luck keeping up. People out here are so self conscious about their cars. I know a guy that makes around $50,000 a year and drives an S class Mercedes. I don’t even know how these people get approved for the loans. I’ll have a fancy car one day. But not until I can TRULY afford it.

Originally posted by @Caleb Heimsoth :

Almost always the best decision is to buy a used car that’s 3-6 years old.

It depends what’s important to you. Investing, financial freedom etc or having nice stuff. It’s rare that you can have it all. I know people who are worth millions and they drive at best used cars or a used car that’s newer (think 3-5 years old).

I don’t know anyone who’s a millionaire who drives a Mercedes. Typically people who drive that type of car are high earners who have low net worths.

3 percent of luxury car owners in the US are millionaires. The biggest factor keeping Americans from building wealth is a car payment. There’s no equity in it.

End of my rant

 I almost did a similar deal, but my lease now is worth so much less I can't trade it in for anything close to what it'll be worth at the end.... so I have about 9mo left till I get to try for new deal

https://leasehackr.com/blog/2015/9/19/how-i-manage...

It depends ..for most people your best bet is to buy one or two year old cars and keep them as long as you can . If you have an llc there are ways a lease can work out good because of how it’s taxed and written off .A lease for an everyday joe six pack is absolutely a waste of money . They don’t tell you this but It’s a way for manufacturers to dump cars off at about 14% interest without them realizing it .

Originally posted by @Dennis M.:

It depends ..for most people your best bet is to buy one or two year old cars and keep them as long as you can . If you have an llc there are ways a lease can work out good because of how it’s taxed and written off .A lease for an everyday joe six pack is absolutely a waste of money . They don’t tell you this but It’s a way for manufacturers to dump cars off at about 14% interest without them realizing it .

 if you don't know what your doing maybe, but if you understand how lease is set up than not even close.

This calculator will show what you the money factor = APR...

https://leasehackr.com/calculator/

Well Mileage is the killer on the lease fees

@Dominique Pradel-Lewis good for you! do you not like to have debt or just think this is a better long term strategy?

@Matt K. whats your background? I'm taking it that you prefer the lease route so you can drive these cars?

@Caleb Heimsoth thanks for the "rant" haha and I'm not necessarily interested in driving a top of line mercedes or Ferrari but don't you think as an investor we actually can have both?? if we figure out creative ways to take advantage of leverage, financing, etc? thats really the point of this question.

Originally posted by @Ellis Hammond :

@Dominique Pradel-Lewis good for you! do you not like to have debt or just think this is a better long term strategy?

@Matt K. whats your background? I'm taking it that you prefer the lease route so you can drive these cars?

@Caleb Heimsoth thanks for the "rant" haha and I'm not necessarily interested in driving a top of line mercedes or Ferrari but don't you think as an investor we actually can have both?? if we figure out creative ways to take advantage of leverage, financing, etc? thats really the point of this question.

 Contracts/Procurement....  I look at total value of things and make my decision based on that. Cheap isn't always cheap when all things are accounted for. I also spend a lot of time in my cars and don't go very far (thanks CA traffic) so if I'm doing that I might as well enjoy it.

@Michele B. next time you are in San Diego lets go car shopping! do you have a certain dealer you negotiate with that helps you get deals like this? also, can you speak about how you are able to write this off? do you have your own LLC or is this with a larger company you work for?

@Ellis Hammond I’m not saying you can’t have both I’m just saying if multiple people I know who are easily worth 5-10M each don’t drive fancy cars (one drives a car with 180k miles that’s 10 years old) I think that says something.  

When I buy a “new” 20-30k car I’ll be over halfway to a million but that’s just my personal choice 

@Ellis Hammond the payments or price of car depend on net worth and/or income level. Buying a $35k car while making $70/year may not be the best financial choice to make or if your net worth is only $100k. But someone who buys a $80k car but has a net worth of say $3M then that would make sense as the purchase is a small percentage of their total net worth. Best of Luck!

I prefer to “marry” a new car and stay together “until death do we part.” I’ve always purchased below my means. If I can’t pay cash its not a car I will buy, although I sometimes take a loan just for the cheap cash (if its half the interest rate of a mortgage, why not?).

I buy new because I’m 100% sure of the history. I’m sure I could save $$$ by buying used but I don’t need aggravation in my life and the price differential isn’t great enough for me to be concerned about. The one exception was when I graduated from college and money was tight so I bought a 1 year old car.

I’d say this is my mantra for life in general, live beneath your means and if you run into problems you are well placed to absorb the hiccups. As you move up, step up your lifestyle to celebrate success but always stay one or two levels below what your wealth would allow.

@Ellis Hammond people ask this question all the time and the answer can be different based your objectives. If you are an auto enthusiast or have an emotional need to drive a nice new car, then leasing may be better. If you are looking strictly at 10 year cost of ownership, then buying used will always work out better financially when you run the numbers. 

@Michele B. mentioned you can write off a lease, but you can also write off a purchased car when used for business. Either the business can purchase the vehicle or you can claim mileage on a personal vehicle. Part of the decision comes down to how much you are using a car for business. If you owned one rental property, it isn't really justifiable to the IRS to have your business lease or buy a car. Claiming mileage is more reasonable if you are driving a small number of miles annually.

The other thing to consider is that this write off isn't a tax credit. It is a tax deduction. It reduces your taxable income. A deduction is like getting a discount (25% or whatever your tax bracket is). When people talk about intentionally incurring expense to get a write off, that isn't financially savvy. Let's say you are in the 25% tax bracket, then you are still paying 75% of the expense. Even though you can write something off, it is still financially better to minimize the expense in the first place because you are still paying the majority of it.

Again it comes down to what you value. Are you looking for the least expensive financial option or is your car purchase more emotional. No judgement on my part. Driving a new car is no different than taking vacations or buying electronic gadgets. Everyone has splurge items they value. Just don't fool yourself into leasing a luxury car under the belief it is your least expensive option. Do it for fun.

Originally posted by @Matt K. :
Originally posted by @Ellis Hammond:

@Dominique Pradel-Lewis good for you! do you not like to have debt or just think this is a better long term strategy?

@Matt K. whats your background? I'm taking it that you prefer the lease route so you can drive these cars?

@Caleb Heimsoth thanks for the "rant" haha and I'm not necessarily interested in driving a top of line mercedes or Ferrari but don't you think as an investor we actually can have both?? if we figure out creative ways to take advantage of leverage, financing, etc? thats really the point of this question.

 Contracts/Procurement....  I look at total value of things and make my decision based on that. Cheap isn't always cheap when all things are accounted for. I also spend a lot of time in my cars and don't go very far (thanks CA traffic) so if I'm doing that I might as well enjoy it.

 My dad always told me "let someone else do the high depreciation for you".  If you have a company car that's different.  On a business lease, even if you write it off you are still spending the money, just not paying tax on it.  Let say you pay $500 lease = 12k/yr. You don't pay taxes on the 12k earned but that money is still coming out of your income; multiply that by the amount of years you choose to lease.  I don't know about you but it doesn't add up to a better deal for me.  Even if I won lotto I won't be buying or leasing a new car!  

500 mo lease better get me 50+k car..... and good luck getting that same car on a loan at 500/mo.

Go to a place that buys cars at auction that are coming off of leases.  They take a $500 profit and that's it and you can get a great car that's 1-3 yrs old with less than 35k miles and save $10k+ of depreciation.  Get a carfax and take it to a AAA auto body place and have them do their 100+ point inspection to find out if they are hiding any issues and what costs may arise with the car.  This has worked very well for me.    

@Matt K. @Joe Splitrock @Caleb Heimsoth @Twana Rasoul  what if we weren’t talking luxury cars?

VW instead of BMW for example.

I realize luxury leasing is still a big expense but trying to see what makes sense for the avg American or maybe the average investor here on BP.

Seems like summary so far is buy used. Are you still financing that purchase? Depreciating it to close to zero?

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