My wife and I recently had to make this decision. Our old car was dying and we knew that we needed to replace it soon. At the time, we didn’t have a lot of money saved so a lease was very tempting, but when I calculated the costs (yes, once again, I am the nerd in the relationship) I knew that I would rather buy a used car with cash.
You might be fighting me in your mind already, so let me handle the big disputes before I even show the calculations. “A used car has higher repair costs than my lease, and my lease is under warranty.” This is true, but it still does not outweigh the cost of the leased vehicle. “If I lease a new vehicle, I can drive a brand new model and drive in style.” This may also be true, but after you read this article, perhaps you’ll be willing to look a little less cool. What grade are you in again?
First, we’ll look at the vehicle purchase and the payments. Please refer to the table below. After 2 years, the lease on a new Sentra will cost you $11,984. The total cost on the slightly used car is $6,000. This, of course only counts the base factors, but there is still more to come.
So, currently we have the used car costing $5,984 less than the lease, but of course, the used car will most likely have a major repair within those two years that you own it (all other expenses are similar – oil changes, car wash, new tires, so we’re ignoring these). Let’s say that the major repair costs an additional $2,000. Now that used car costs $8,000. You might be thinking, “That’s not so bad, I only pay $3,984 more AND I’m driving around a brand new vehicle?! Sweet!” Not so fast. You seem to have forgotten something. What is the value of that new car once your lease is up? $0.00. You have to give it back, and you get nothing in return. What is the value of the used vehicle? After two years, it can still be worth $5,000. Take a look at the updated table below.
Ta-Daaaa! The final costs. The used car only costs $3,000 over a course of 2 years, but the leased vehicle costs nearly $12,000!! I don’t know about you, but I like a savings of $4,500 every year. If you need to purchase a car and want are trying to get out of debt, buy the used car with cash, hands down.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.