The process of purchasing or leasing a new car is not something I look forward to. In fact, I tend to hold on to my cars for 8+ years and then wait until the beginning of the year and get a nice deal on one of the remaining prior year’s models of the same exact vehicle. I stick to what I know is reliable and don’t go for the next best thing or trade in my car every 2-3 to get the latest model. That’s not very smart financially and very much like Keeping Up with the Joneses. This post will make the case that leasing a car is not in your best interests either.
I’ve driven Nissans for quite a while now so let’s say I was in the market for a new Nissan Rogue. I check with the local Nissan dealer and they give me the following lease offer:
$179/month for 36 months
$2,879 due at signing (includes first month’s $179 payment)
Seems like a decent monthly price which most people would probably happily add to their budget. Unfortunately, most people don’t look at the fine print which states “Excludes taxes, title, license and $595 Acquisition Fee.” Nor do people think about the opportunity cost of buying and financing or, better yet, buying outright in full.
TrueCar tells me that I can find the same Nissan Rogue in my area for $23,241. Let’s say I’m a good negotiator and I can walk out of the dealer with an all-in total of $24,000.
Here’s the opportunity cost math:
$179 X 35 months = $6,265
$6,265 + $2,879 due at signing + $595 acquisition cost + $X for tax, title, license = approximately $10,000 over three years
The breakeven from buying ($24,000) vs leasing ($10,000) is 7.2 years. As I said, I typically hold on to my cars for 8+ years, so in this example, I’m better off buying.
Holding everything constant, technically I’d have to sign 3 3-year leases (to cover the 7.2 year breakeven period), which would put my total cost at $30,000. If I held onto my purchased car for 9 years, I’d save $6,000. Even if I purchased another car after 8 years (for another $24,000), I’d still save $3,000 over the 9 years.
This doesn’t take into account the resale value when I’m ready for a new vehicle either. Let’s say the car has been accident free and had all the scheduled and recommended maintenance done. I’d be looking at somewhere around $2,500 – $3,000 as a trade-in value for the old vehicle. If I lease, the advantage of a trade-in value is $0, since you obviously don’t own the vehicle!
One more thing about leasing. You’re still responsible for the maintenance of the vehicle as per the lease offer. And don’t forget to stay under the 12,000 miles/year threshold or you’ll be paying $0.15 per mile over. 1,000 miles per year over and you’re basically paying an extra lease payment per year. I wonder why there are so many restrictions when you lease?
I’m also not a proponent of recurring monthly expenses (subscriptions, leases, financings, etc.) so I always opt to buy my cars in full upfront. I understand that some people may not be in the financial position to do that, but you’d be a fool to agree to any interest rate above 0.0%! There are plenty of dealers that offer 0.0% financing for 48 or 60 months. You should be shopping around!
So what do you think? Do you usually lease or buy?