There is something about new cars, driving in them, looking at them and talking about them. Sometimes daydreaming and conjuring up images of a buffer version of you cruising around in a brand new convertible laughing at the peasants that you have the displeasure of having to gaze upon from the rear view mirror. However for most people the daydreaming ends there and we go back to our old rides. Forgetting about that mythical buff, cool, rich version of ourselves till the next shiny thing catches our eye. However some people pursue that daydream and find themselves in a brand new (or a couple of years old) car, even though they can’t afford it. Who would lend money to our day dreamers to buy a car they can’t afford? Well that just it, they don’t, they lease the car from the dealership, only to return it a couple of years later, with a mass of fees.
However is leasing a car only to return it 2 to 3 years later really that much different than buying a brand new, car every 2 or 3 years? Well I intend to find out which is better.
Leasing a Car: Anyone over the age of 40 will probably tell you that leasing is bad and stupid and honestly they are not wrong. It is kin to renting, meaning you are paying a monthly payment for something that you are not even going to own at the end of it. Also there are tons of fees that get tacked onto the final price once the car returns to the dealership. For the comparison lets look at a 2019 Honda Accord lease. The car isn’t anything special, running at about $24,000, which is really all anyone should be paying for a car, but anyways lets look at the lease term. The lease in question is for 36 months and will run us about $249 per month with a $2,950 down payment. This will bring us to a total of $11,914 for the base payments over three years, which compared to the price of a new car looks pretty good, but remember we don’t get anything back and have to find a new car to lease afterwards.
Buying a car: Now this is the option that the older folks would recommend, well let’s be real, this is the overwhelming majority favorite. Mainly for the reason that you actually get to own your car when it is all said and done. Now the main objection that I can see coming from a mile away is the fact I am comparing a new car lease with buying a new car. Anyone that has ever bought a car can tell you that you’re losing out on money due to depreciation as soon as you take it off the lot. Anyways Honda’s website says that the payment of buying a new 2019 Honda Accord, with a $2950 down payment, at 3.9% APR is about $398 a month, over a term of 5 years.
However for this comparison we are only going to own this car for 3 years, and that comes out to about $14,345, plus the $2,950, coming out to a total of $17,295. Also, since this is a 6 year car loan we still owe half of the principle, amounting to $12,000, bringing the total cost to $29,295. But hold on, we still own the car and according to Kelley Blue Book a 2016 Honda Accord is worth about $12,500, for a car with 36,000 miles, and in very good condition, bringing the total back down to $16,795 for 3 years of ownership. This means that the lease option is actually $4,881 less expensive than the buy/finance option, which would surprise most people.
Wait, so leasing is better? Keep in mind that a lot of the difference is due to the fact I compared two brand new cars to each other. A lease beats out a buy/finance option due to two things, interest and depreciation. If I were to compare two 2016 Honda Accords using the same methodology, the buy option would have the edge and if I were to pay straight up without a loan, it would be no contest. So really, the lesson here is to buy used instead of new when it comes to cars.