Leasing vs. Buying a Car?

[danny_w]

Hi, I am going to be in the market for a new car before long and am again considering the pros and cons of each method. I have always bought my cars and do not know anything more than the limited amount that I have read on the internet regarding leasing, but since the irs no longer allows you to take off the loan interest (and have not for many years) there is less reason to purchase. I historically have always kept my cars for 9-10 years and got a new one for me or my wife every 5 years or so, but now I am single again and am considering leasing to get a new car every few years. Can anybody give any pointers on what to look out for when leasing, and whether dealer/manufacturer leasing or a general leasing agent is best?

I currently own a 2001 Lincoln Town Car but have owned just about every make car on the roads at one time or another. I am looking to get a smaller and cheaper car this time (considering the Mazda Miata, VW Jetta, Mazda5, Honda Fit, Kia Soul, and a few others) but have not made up my mind just yet. Each model I have listed has its strong points and they are all quite different cars; does anybody want to chime in?

 

[niuniu]

Think of it like renting a flat and paying a mortgage. It's not exactly the same, but it's similar.

It's easier to get a lease than it is to get finance on a car but instead I went second hand for years until I was able to get finance and buy a nice car. I never really saw leasing as a good option.

 

[yg17]

It's simple. If you want to keep a car for a long time, buy, if you want to keep getting a new car every few years, lease.

Personally, I'd rather make higher payments for a year or two longer, and then be done with payments completely for another 5 years or so.

 

[renewed]

Personally, I'd rather make higher payments for a year or two longer, and then be done with payments completely for another 5 years or so.

This...

Also if you lease a lot of times you have a mileage limit per year and they will charge you if you go over it.

 

[prostuff1]

Think of it like renting a flat and paying a mortgage. It's not exactly the same, but it's similar.

It's easier to get a lease than it is to get finance on a car but instead I went second hand for years until I was able to get finance and buy a nice car. I never really saw leasing as a good option.

I agree with this completely. I have found that if you are willing to search around and wait for a good deal to come around for a second hand car you can get a vehicle that is very nice.

Case in point: I am currently driving around a 98 Chevy S10 pickup with 69,000 miles on it. I have had it for roughly 1.5 years and in that time have only done a few things to it outside of regular maintenance. I have changed the water pump in Sept 09 and just recently the alternator (about 2 weeks ago).

If you want to go new (or at least car dealer new) then I would look to buy. My feelings on leasing a car is that you are paying for something that you do not end up buying. There are advantages to it but they do not out way the disadvantages in my eyes.

 

[yg17]

This...

Also if you lease a lot of times you have a mileage limit per year and they will charge you if you go over it.

Yeah, that's also true. You can choose your mileage limit with most leases (higher limit=higher lease payments). You have to guess. If you guess too high, you pay more each month than you have to. If you guess too low, you pay a penalty when you turn the car in. My car is only 11 months old and is already just under 16,000 miles, thanks to a few road trips that I had never planned on taking when I bought the car so I might've gotten a lease allowing 36,000 miles over 3 years, and I would be way over when I turn the car in.

 

[niuniu]

Check this out http://www.prestige-car-leasing.co.uk/car_leasing/bmw/1_series_3dr_hatchback/116d_es_3dr.aspx

I have this car, bought in in September 09 brand new. I have a better model (M Sport) in white. Monthly payments on finance £274GBP.

On lease you will pay over 300 a month (Personal use), maybe you can get it for £269GBP - that's if you want tied down to a 4 year lease. Would you really want to pay £269GBP a month for 4 years and not own anything at the end of it? Of course not.

I'll keep the car for 2 years and sell it back to the dealer for something better, and I'll get some equity out of it.

Really, if you can get finance, I'd stay well away from a lease..

 

[iOrlando]

leasing makes more sense if you are into fancy/flasher cars that you really dont drive too much so you never go over the mileage limits.

the cars you listed in your post..really doesn't make a whole lot of sense to lease. They are pretty inexpensive, compared to the average automobile.

With leasing, the mileage limit is a big problem for many (could be on average 12,000 miles/year) and you have to follow the car's maintenance plan at the dealer (assuming you go to an actual dealership like toyota, mercedes, etc). They rip you off with these maintenance plans because they charge too much for labor and the car doesnt need as much as they say.

If you really want to lease, I would first argue about the price and then just before you sign..say oh by the way I want 50% more miles per year. If they say no, walk out.

 

[danny_w]

thanks for the replies so far. Like I said, I have always purchased my cars for mostly the same reasons noted. I have never felt comfortable with leasing but wanted to consider it, since the monthly payment is somewhat lower (but you never own the car either) and you can get a new car more often (but you are always paying). I can see good and bad both ways. and I have never been lucky with used cars; I would definitely consider going that route except for my bad history.

 

[danny_w]

BTW getting a loan is not a problem for me (the banks are always wanting to lend me far more than I would ever want to repay).

 

[niuniu]

BTW getting a loan is not a problem for me (the banks are always wanting to lend me far more than I would ever want to repay).

Personally I'd go for a second hand Miata - great little car, loads of fun and you can get a steal on one too if you put the effort in. Sounds like you've been bitten in the second hand market, so maybe you should take a buddy who's got a good eye for these things and go and see some

 

[BanjoBanker]

As some have said, Leasing a car is like renting an apartment vs buying a house. The up front cost, ie capital reduction fees, can be higher for a lease than a down payment on a car. Also, the annual mileage limits can bite you if you drive further than the average. Most factory leases are for 12k a year, but according to AAA the average American drives 14k per year. At .25 per mile over the limit, that can get very expensive very fast. Also, most states charge a use tax annually on leased vehicles which comes due with the license plates. Several years ago, I leased a car for my wife and the license plates were outrageously high. At the time I had a SUV with an assessed value for tax purposes of 32k as well as the leased Mercury Sable which had a 32,500 sticker price. My tag was $327 and hers was $545! You might want to inquire at the county tax assessor's about the license cost before leasing.
However, there is a plus to people leasing: low mileage, excellent condition used cars! My last two "new" cars have been off-lease vehicles. On both vehicles, I saved about 40% over buying new and they both came with factory warranties.

 

[danny_w]

Personally I'd go for a second hand Miata - great little car, loads of fun and you can get a steal on one too if you put the effort in. Sounds like you've been bitten in the second hand market, so maybe you should take a buddy who's got a good eye for these things and go and see some

I've done some online searches in my city (Austin, TX) and there are extremely few used Miatas to be had. And right now Mazda is offering discounts on 2009 models big enough ($5500) to make a new 2009 cheaper than many used examples of the same model.

As some have said, Leasing a car is like renting an apartment vs buying a house. The up front cost, ie capital reduction fees, can be higher for a lease than a down payment on a car. Also, the annual mileage limits can bite you if you drive further than the average. Most factory leases are for 12k a year, but according to AAA the average American drives 14k per year. At .25 per mile over the limit, that can get very expensive very fast. Also, most states charge a use tax annually on leased vehicles which comes due with the license plates. Several years ago, I leased a car for my wife and the license plates were outrageously high. At the time I had a SUV with an assessed value for tax purposes of 32k as well as the leased Mercury Sable which had a 32,500 sticker price. My tag was $327 and hers was $545! You might want to inquire at the county tax assessor's about the license cost before leasing.
However, there is a plus to people leasing: low mileage, excellent condition used cars! My last two "new" cars have been off-lease vehicles. On both vehicles, I saved about 40% over buying new and they both came with factory warranties.

Thanks for the use tax tip, I'll check into it.

 

[Gregg2]

It's simple. If you want to keep a car for a long time, buy, if you want to keep getting a new car every few years, lease.

Personally, I'd rather make higher payments for a year or two longer, and then be done with payments completely for another 5 years or so.

I agree with your first statement, but have a different take on the second one.

I almost always have a "car payment" but I have paid cash for my last three new cars. (I keep them for 10-12 years.) Prior to paying cash the first time, I was "paying" myself the same amount per month as my last car payment had been, or a little more, I don't recall. I was still driving that car, of course, but when it was paid off, I didn't use the car payment money that was now "freed up" to take a vacation to Tahiti or buy steaks more often, or... whatever. I just saved the money until I wanted to buy another new car.

By paying cash for cars, you pay roughly half as much for them, because you pay no interest, and the money you put away, if you do like I suggest, earns interest. You come out way ahead. It takes less time to save enough for a new car than it does to pay off a car loan. It's worth the "sacrifice" of maintaining a "lower standard of living" (that is continuing to "scrimp" as you were when you had a real car payment) for a few years, because once you save all those interest payments once or twice, your savings explodes! (increases faster)

 

[mstrze]

On the buying side of the equation do not pass up an opportunity to save thousands by buying pre-owned. You can get last year's model for a song, compared to brand new.

Many dealers certify their used cars so buying shouldn't scare you. In fact, most car company warranties on a year-old vehicle are still in full effect.

I bought our most recent car used from a car rental company. These are cars that generally make short trips around the city to and from the airport and the like. ALL maintenance is done, strictly in line with specs and you can get a log of such, if you want. These rental places always have the newest models, so they are always selling last year's models to the public. My car was from Enterprise...and we have an Enterprise used lot in my city. Check with the local car rental places and see what they offer.

In my mind, buying new is a HUGE waste of money.

 

[maflynn]

Leasing certainly has its place, but I find that if you buy, it provides a little more flexibility.

The mileage limit, scares me the most. Secondly, its your property (provided you eventually sell it off). I believe there's penalties or extra costs if you wish to break the lease mid-way through the contract.

My goal is to get out from under a car payment, that will be impossible with a lease and you get no tangible asset after the lease expires.

 

[yg17]

On the buying side of the equation do not pass up an opportunity to save thousands by buying pre-owned. You can get last year's model for a song, compared to brand new.

Many dealers certify their used cars so buying shouldn't scare you. In fact, most car company warranties on a year-old vehicle are still in full effect.

I bought our most recent car used from a car rental company. These are cars that generally make short trips around the city to and from the airport and the like. ALL maintenance is done, strictly in line with specs and you can get a log of such, if you want. These rental places always have the newest models, so they are always selling last year's models to the public. My car was from Enterprise...and we have an Enterprise used lot in my city. Check with the local car rental places and see what they offer.

In my mind, buying new is a HUGE waste of money.

I wouldn't touch an ex-rental car with a 10 foot pole, even with maintenance records. People beat the piss out of those things, sure, it might be fine now but who knows a few years down the road what problems will crop up. And if you go the ex-rental route, you are very limited in your options. Want a manual transmission? Too bad. Want something a bit more luxurious like a BMW or Audi? Good luck finding one. Want the sport model of a car, like a Golf GTI or Mazdaspeed 3? Nope, not going to find it. And please, if you've found a rental company that actually rents out decent cars like BMWs, please, let me know so I can use them next time I need to rent a car.

Even if you buy used from a dealer it could be tough finding one with all of the options you want.

 

[bigdaddyp]

thanks for the replies so far. Like I said, I have always purchased my cars for mostly the same reasons noted. I have never felt comfortable with leasing but wanted to consider it, since the monthly payment is somewhat lower (but you never own the car either) and you can get a new car more often (but you are always paying). I can see good and bad both ways. and I have never been lucky with used cars; I would definitely consider going that route except for my bad history.

One thing you might want to consider is a factory certified used vehicle. They usually are low miles, have warranty on them and are certified to have never been wrecked, flooded, etc.

*Oops Mstrze beat me to it.

 

[mstrze]

Even if you buy used from a dealer it could be tough finding one with all of the options you want.

If a desire for 'all of the options you want' is worth an extra 10K or more for the price of the car to you, then that is fine. For me, I will never again pay an extra several thousand dollars for essentially 'new car smell'.

As for beating up the car...I can't recall even trashing a rental car that I drove....and I would expect most drivers are like me. Sure, some probably do treat it poorly, but I think the good far outweigh the bad.

And how much damage really can a bad driver do to a car in just a few days?

 

[steve2112]

I wouldn't touch an ex-rental car with a 10 foot pole, even with maintenance records. People beat the piss out of those things, sure, it might be fine now but who knows a few years down the road what problems will crop up. And if you go the ex-rental route, you are very limited in your options. Want a manual transmission? Too bad. Want something a bit more luxurious like a BMW or Audi? Good luck finding one. Want the sport model of a car, like a Golf GTI or Mazdaspeed 3? Nope, not going to find it. And please, if you've found a rental company that actually rents out decent cars like BMWs, please, let me know so I can use them next time I need to rent a car.

Even if you buy used from a dealer it could be tough finding one with all of the options you want.

OK, Here you go. No BMWs there, but they do have Ferrari, Lambo, and others. The Ferrari F430 is only $995 for a day! What a bargain! If you are going to be in L.A. or Las Vegas, these folks can help you.

Seriously, though, I agree. Rentals get abused. And they are nasty. (Warning: video news story in that link.)

 

[mscriv]

Leasing is for people that see having a car the same way they see having a utility bill. I've got to use water/electricity and so I'll pay a monthly bill to get it. I'll always have this bill and that's just how it is. The advantages are that your vehicle is always in warranty or protected by some maintenance plan and so there is little to no expense when repairs and the like come up. However, to have this privilege and security you will pay a monthly premium and it's a bill you will always have. There are associated fees and potential unexpected charges based on mileage, damage, etc.

Buying a car means you assume the risk when it breaks down and you own it so when the payments are done, the payments are done. Like others have said I prefer to buy a used car to not take the big depreciation hit and to pay it off as soon as I can. This way I don't have to live with a car payment. Now the poster who mentioned paying yourself a car payment as savings for future automobile expenses is very wise, but not everyone can afford to do that or is disciplined enough to make it happen.

Best of luck with your decision and new automobile.

 

[2jaded2care]

And how much damage really can a bad driver do to a car in just a few days?

1. In the book "Inside Delta Force", Eric Haney describes using rental cars for their defensive driving training...

2. I worked with a mechanic who used to work with a weekend racing team. He said when they blew an engine and didn't have time to rebuild it, they would just go rent a car, lift the engine...

Just sayin'...

 

[danny_w]

Thanks everybody, I think you have helped settle the question of lease vs. by in favor of buy. I have never felt comfortable with the idea of leasing but thought I should consider it.

I went and test drove a Miata and a Jetta TDI today (the first time driving either one) and I really liked the Miata. I used to own roadsters and it felt so good to be back in one, but with all of the modern comforts. I have a few others to check out but think the Miata is going to be my choice; now I have to decide on getting a nicer used model (I drove a 2008 Grand Touring w/7K miles) or a stripped new model (2009 Sport) for about the same price. Decisions, decisions!

 

[mstrze]

now I have to decide on getting a nicer used model (I drove a 2008 Grand Touring w/7K miles) or a stripped new model (2009 Sport) for about the same price. Decisions, decisions!

Well...will you be as happy with fewer amenities in the stripped-down version?

Again, the only premium you are getting with a new car is the smell and an immediate 30-40% hit once you drive it off the lot.

 

[danny_w]

Well...will you be as happy with fewer amenities in the stripped-down version?

Again, the only premium you are getting with a new car is the smell and an immediate 30-40% hit once you drive it off the lot.

Agreed, plus a longer factory warranty (3yrs vs about 9mos). That has some level of comfort.