Welcome everyone to round three of the Car Buying “Great Debate” series. In the party-pooper corner, Tavarish says that leasing a new car is really just a slavery-inducing rental and you are throwing money away. However, if you work the numbers right, leasing a vehicle may be the smarter way to drive a new car.
And this advice isn’t just for boring office drones. Leasing can make sense if you’re a normal car enthusiast, although maybe not if you’re a
sadist car enthusiast like Tavarish who buys cars with salvage titles for fun and drives around in a Mercedes he bought off a carny for six funnel cakes and a really deep swedish massage.
Tavarish needs to make up his mind; on the one hand he says that buying a new car is dumb because of the massive depreciation hit you will take. But what if you could drive a new car and only pay for that depreciation? Basically, how a lease works is your payment is calculated based on the difference between sale price and the residual value. Of course at the end of the term, you have to give the car back and you have, “nothing to show for your payments.” This is only a problem if you actually care about ownership, some people just budget a monthly cost for their vehicle expense so they can drive what they want.
Why make the payments on a Toyota Camry when you can drive a BMW 3-series for less? A brand new snooze fest 2015 Camry XSE is $33,500. With $4,000 down financed at three percent for 60 months, that’s about $530 per month. A nicely equipped BMW 328 is $41,500 with about $4,000 down leased for 39 months, is $359/mo. Now suppose your monthly budget supports that $530 a month payment, by leasing the 3-series you can pocket a savings of $6,669 over the first 39 months. At the end of the lease you take that savings use the $4,000 towards your next down payment and keep the $2,669 for whatever you like. You will eventually own the Camry, but what would you rather be driving?
In an ideal world you could get a CPO BMW for the price of the new Camry, but you are at the mercy of the used car market in terms of what is available. Good luck if you want your Bimmer with 3 pedals. The point remains that even with the same down-payment the lease on the new BMW is going to make a smaller dent in your monthly budget.
Most people don’t want to be making car payments and repair payments at the same time. With a lease, your new car is under the factory warranty coverage so you don’t have to worry about budgeting for repairs. Some brands like BMW, will even cover things like oil changes and brakes during the first four years. So the only added cost is fuel.
With 72 and 84 month loans gaining in popularity, these folks are running the risk of having to shell out money when issues arise in addition to paying their car note. Many of these people taking out these extended loan terms would have been better off, leasing two or even three brand new cars within the same time period for less.
Are you one of those fancy entrepreneur types? Do you own your own business? Depending on the nature of your work and the vehicle you choose, you may be able to use a portion or all of your lease payments as a tax deduction. Here is an article that can shed some more light on this, but I recommend you consult a specialized tax accountant to assess you specific situation. Some business even offer a “vehicle stipend” for their employees. If someone else is paying for it, get yourself the nicest car you can.
Millions of people rent apartments and condos with no “ownership” to show for it. From a financial perspective this is a waste of money and they should just buy something. However, some people want to live in an area or have access to features that would be cost prohibitive if they purchased. Sure, we could just tell these people to suck it up and live somewhere else, but if they can afford it why not? Leasing is the same way, it is not for everyone, but if you want to drive a new car that would normally not be supported by your budget, yet you can handle the parameters of the lease, go for it.
Let’s not forget that most of you who think leasing is stupid are usually the same folks that love to snatch up luxury cars after the depreciation. So even if you don’t think leasing is wise for you, be thankful for those who do. Without leases, that lightly used luxury inventory would be much smaller.
At the end of the day, driving anything but the most basic of transportation is a luxury. It’s your money, you earned it, spend it how you want. Just make sure you shop wisely.
If you have a question, a tip, or something you would like to to share about car-buying, drop me a line at AutomatchConsulting@gmail.com and be sure to include your Kinja handle.