I was raised in a household that believed in owning everything and that includes cars. Even when buying cars, the belief was that you had to buy new. Used was just a dumb decision.

As I grew older, especially in recent years, I began to form some new opinions. Since cars are a depreciating asset anyway, and if I am one of those guys who likes to have a new car every few years, shouldn't leasing be the way to go since it's cheaper?

Well, I decided to just run some quick calculations and I have to admit that I threw in really random assumptions. So please correct me if I'm wrong.

Say you have a $40,000 pseudo-luxury car. My assumption is that such a car with an initial down payment of $7000 would lease for around $600 a month or $7200 a year. Using that $7000 as down payment to purchase that car instead and using a random interest rate that I have no idea of its accuracy (6%), monthly payment would be around $1000 or $12,000 a year.

After three years, when you would presumably change cars, you would have spent $28,600 if you were leasing. If you were to sell the same car for $20,000 (50% of original value) after owning it for three years, you would have spent less than if you had leased it.

Aside from the obvious lower monthly payment, what exactly am I missing in terms of advantages of leasing over owning? Perhaps my assumptions completely off base and completely wrong?

It seems like in the end, even if you want to switch vehicles every three years, you spend the same amount at worst if you had just bought the same car instead of leasing...

Just bored on a July 3rd at work so hopefully this doesn't come off as a completely dumb and useless topic.

This is what you are missing.

Leasing is continual, as long as you want a car you have to make monthly payments.

Whereas when you buy, you eventually own it and have no more car payments for many years.

alphasux said:For me there is no point in building equity in a car.

It's not like a house.

I consider it more like a consumer durable.

There's a yearly cost to run the car. It's depreciation + maint.

So for instance, if you buy an Acura TL (~33,000), you're looking at 6500+2500+2500 (depreciation) which is $11,500 after three years.

Leasing costs about 15000. So there IS a cost to leasing the vehicle. However my number (11,500) doesn't reflect the dealer trade-in value which typically runs 2,000 short of the retail sale side. So, bump that 11,500 to 13,500 and you'll see ~1500 built in profit to the dealer for leasing the car (which is partially used to recertify it and do the upkeep to resell it).

There is something to be said about the ability to just walk away and not have to worry about getting rid of the car in the end.

Sorry, I have a bad time with words and the topic really is misleading. What I meant by "building equity" was the ability to resell a car you own to purchase a new one every three years. That has nothing to do with actually building equity. Sorry.

My question I guess is, if leasing costs the same or more as just owning and reselling a car every three years, what is the advantage?

241comp said:If you are selling a $40K for $15K after 3 years, you are either putting a LOT of miles on it or there is significant damage (both would have cost extra on the leased vehicle) or you are selling it way too cheap. Try getting a car that holds resale value decently well (let's say a $39,450 Infinity FX35) and selling it after 3 years for the average private-party price as determined by Edmunds ($28K). $7K deposit + $36K payments - $28K resale = $15K cost. Now do you see the difference?

I tried to be conservative with my point of view (that there is no point in leasing a vehicle) so I agree my number may be low... So I guess really there doesn't seem to be any advantage to leasing? Even the main argument that you should lease if you want to drive a new car every 3 years does not hold as it's cheaper to buy and resell your car every 3 years?

I am just looking for counter-points as I like to have all perspectives.

Sometimes the breakeven point for a purchase is not too long after the lease expiration. For example, I had a friend a few years back who leased a Chevy Cavalier(yes, dumb, I know!), anyway, it was a 36 month lease, but if she had done a 48 month financing the payment would have been the same and she'd own it outright.

Also, if you are buying a $40k car, getting rid of it after only 3 years is just stupid. That is where your biggest mistake is. If you could keep it even five years it would be much more financially prudent. I would try to buy something with a first or second year body style so to someone who doesn't know all the details of your specific car it looks new (if cared for) for several years. For example, we own a 2000 Toyota Tundra and this year is the first time they rehauled the body style since we bought ours, so only someone who knew the little detail differences would know ours was not new until this year.

I also like new vehicles every few years. I used to think that leasing was only for the people whom owned a business or people whom could not afford the loan pymt on a car they "had to have". I have since determined that if one is going to purchase a new vehicle every couple of years that you should always run the numbers of whatever vehicle it is that you want a the time. Sometime leasing is cheaper sometimes buying is cheaper. Depends on the vehicle and incentives at the time of purchase/lease.

My current expense on a 2006 Ram for 27 months of usage is $210 a month which includes all maintenance($5,670 total cost). This is on a vehicle that stickered at $35,xxx and could have been purchased for $25,xxx. I chose to lease this vehicle because the interest alone on a $25,000 note would average $100 a month in expense or lost earnings from investments. I hope to obtain a similiar lease on a vehicle in about a year when the lease runs up.
My wifes vehicle is double the lease payment of mine, however it is worth every penny to make her happy and keep her in a safe vehicle. (The lease cost is less than the buy cost in my calc). Next year I might buy her an accord or similiar to save on gas. We will probably buy it unless they have an incredible lease rate since Honda's normally hold their resale value well.

Driving a new vehicle every few years that is always under warranty with all costs known up front for ~$200-$275 a month is worth it to me.

closenotes said:i got an ad in the mail for an '07 cheppy trailblazer asking price 17,500. it seemed cheap so i checked the msrp on an '07 new same model.. they wanted like 28k. lets assume you can get it for 25-26 new. the cheppy for 17,500 had less than 7k miles. seems like purchasing a car 6-18 months old is a good way to buy a "new" car and have something that holds resale value. The problem is, vehicles that hold their resale value (Civic, Corolla, etc.) don't drop that much in the first couple years.

and i doubt they drop that much each consecutive year after.

so to reiterate my statement about the OP's question,,, it may be a good idea to look at something a year or two old.

If you want to drive new cars every few years, choose a car with minimal depreciation and get the "loss leader" special advertised in the paper.

You can pay $17k or $27k for a new Accord, depending on options. Get the loss leader special in the paper. In 3-4 years from now, the spread between the "ad special" car and the fully loaded car is going to be less than $3000.

He it hit it on the nose. Leases are a way for people to get cars they can't afford.

Don't these people every wonder why they can lease a BMW, Lexus or Mercedes for $300-400 a month while if they were to buy something like a civic or a corolla they could pay double or even triple that per month???

All the time do I see people that can barely get by in life leasing these expensive cars and always complaining about money problems. Hello!!!! Wake up and look at what you are doing!!!!