Compare the Costs: Buy vs. Lease vs. Buying Used

Compare the Costs: Buy vs. Lease vs. Buying Used

If you’re considering the options for your next set of wheels, you have probably thought about leasing and buying. From a purely financial point of view, it makes sense to buy rather than lease. For those who don’t mind a used vehicle, the best bet is to opt for a slightly used car, maybe something that’s been on the road for a year or two. This is because cars tend to depreciate quickly in the first few years of their life and then the depreciation curve tends to flatten out.

When you buy a relatively new car, you can save a lot compared to a brand-new version of the same model. Plus, if you decide to sell it off a few years later, you can still get an amount close to what you paid for it. But, what if you really like the idea of buying a brand-new car? And if you can’t really afford it, should you consider leasing a new model? Before you decide what’s right for you, there are three major considerations to think about:

1. Equity

In the case of leasing a car, you get to drive a brand-new model every few years. Plus, leasing is an attractive option for many as the monthly payments are considerably low compared to buying a new vehicle. In the case of a $30,000 vehicle, the monthly lease will be around $450 with no down payments and an interest rate of 1.9%. If you buy the same car and decide to pay it off in three years at 0% financing, you will have to pay monthly installments of $940. However, at the end of the lease, the car will be worth $17,000 but you won’t enjoy the equity benefits. Car owners can sell the car or keep driving for another five to seven years with minimum maintenance costs.

2. Annual Mileage

Before you make a decision about leasing or owning, you must plan how many miles you’re likely to drive in a year. Lease contracts are based on fairly low mileage and if you go over the number, it will cost you quite a lot. If you have a long work commute or like to go on road trips often, you will find yourself above the mileage cap. Many times, leased cars also seem expensive because of the repair and maintenance costs. (Especially if the basic maintenance is not included in your contract). In the case of ownership, you are free to drive as much as you want. If you are a cautious driver, your maintenance and repair costs will also be minimum.

3. Tax Deductions

Many car owners believe that leasing is better than buying if they are self-employed as they can get attractive tax deductions. However, this is only true if you lease a really expensive car, more than $40,000. Those who have average budgets, it won’t make much of a difference whether you decide to lease or buy.

Simply put, it might be wise to buy a car if you’re thinking long-term and want financial security. If you like to drive new cars every few years and don’t mind losing out on equity, leasing is a good option for you.