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I was planning to buy a new car for about $18000. I rarely drive and probably drive less than 5000 miles every year, but for various reasons I need a car. I am replacing my current car because it is more than 10 years old and in need of repair. Repairing it will be quite expensive.

I noticed that I can get a 3 year lease on the same car for about $100 dollars a month with no money down. That is much less money spread out over a much longer period. The lease has mileage restrictions, but I can easily meet them.

The lease seems like a better arrangement for me, but most sources suggest that the lease is almost always a bad deal relative to buying. I can buy the car without a loan. Should I buy the car with cash or go ahead with the lease? What am I failing to consider (insurance, additional liability)?

UPDATE WITH MORE DETAILS:

It is apparently not just the $100 a month. There are $2000 in fees at the start of lease. Assuming I don't buy the car, I will pay an additional $500 fee at the end of the lease.

I assumed the car will depreciate by 40% ($7200) over three years. Maybe this is too much considering how little I drive.

$100 * 36 + $2000 + $500 is $6100, which is less than what I expect depreciation to be. If I discount the future lease payments and the future sale price of the car then the lease becomes even more attractive.

Other considerations: I really don't want to get a new car, but I need a cheap, safe car for a few years. It feels to me that there is less uncertainty with the lease, because I don't have to worry about selling the car at the end. At the end of the lease, I may buy a new car or I may stop driving entirely.

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    I have always been told that the cost per mile is ALWAYS more expensive when a car is leased vs purchased. YMMV – Eric Apr 30 '16 at 23:21
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    Can you provide more details about the lease? Which car are you looking at? Is there a webpage you can link to that shows the details? – Ben Miller May 1 '16 at 4:58
  • Would financing the car via a loan be an option? That way you can spread out your costs, but avoid some of the costly pitfalls of leasing. – Julian May 1 '16 at 5:39
  • Please, if there's any more information about the costs and restrictions you haven't mentioned, edit your question to add them. Answerers will have a hard time explaining to you the upsides or downsides of this lease without knowing what it entails. For example, are you expecting to trade in your current car as part of the deal? – Dan Getz May 1 '16 at 16:51
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A lease is a rental plain and simple. You borrow money to finance the expected depreciation over the course of the lease term. This arrangement will almost always cost more over time of your "ownership." That does not mean that a lease is always a worse "deal."

Cars are almost always a losing proposition; save for the oddball Porsche or Ferrari that is too scarce relative to demand. You accept ownership of a car and it starts to lose value. New cars lose value faster than used cars. Typically, if you were to purchase the car, then sell it after 3 years, the total cost over those three years will work out to less total money than the equivalent 36 month lease. But, you will have to come up with a lot more money down, or a higher monthly payment, and/or sell the car after 36 months (assuming the pretty standard 36 month lease). With this in mind, some cars lease better than others because the projected depreciation is more favorable than other brands or models.

Personally, I bought a slightly used car certified pre-owned with a agreeable factory warranty extension. My next car I may lease. Late model cars are getting so unbelievably expensive to maintain that more and more I feel like a long term rental has merit.

Just understand that for the convenience, for the freeing up of your cash flow, for the unlikelihood of maintenance, to not bother with resale or trading the car in, a lease will cost a premium over a purchase over the same time frame.

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If you are talking straight dollars then leasing is always a losing proposition when compared with purchasing.

The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan. And even if they did, the extra cost is difficult to calculate. Still, many people can’t afford the higher payments of a typical loan, at least not without putting a substantial amount down. If payments are an issue, consider buying a lower-cost vehicle or a reliable used car.

http://www.consumerreports.org/cro/2012/12/buying-vs-leasing-basics/index.htm

If you are talking about convenience, lifestyle, ability to purchase a car you could not pay for outright, then you will have to evaluate that.

  • The information in the OP's question, if correct, indicates that lease would cost them significantly less than an equivalent loan. Since your quote says essentially "that never happens", could you go into more detail as to how the OP's information might not be the whole story? – Dan Getz May 1 '16 at 1:39
  • @Dan - I have never seen a lease where you could get the car with no monies out of pocket and simply $100/month. If that is actually the deal (walk out with car, no money spent, first payment $100) then it may be a good deal. All depends on the car and its value. I do not think we have the whole picture here.... – Eric May 1 '16 at 3:50
  • @Dan Getz: How does the OP's lease cost less? At the end of the lease, s/he has spent $3600 and has nothing. Buy the same car and at the end of 3 years, you have a car. – jamesqf May 1 '16 at 5:56
  • Not to mention cash due at signing and cash due when turning the car in. Think about it, the dealer is not going to give you a car where they will loose money. How do they not loose money, they own it and the buyer with the lease pays all the depreciation, etc. If it is truly a $100/mo with no upfront and no turn in, it is most likely a good deal as long as it is not a golf cart or a yugo – Eric May 1 '16 at 6:02
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    I agree that the numbers are probably inaccurate. If nothing else it's likely missing tax, license, delivery etc charges. However $0 drive off leases aren't unheard of. But everybody gets caught up on having the car at the end of 3 years as though in a lease arrangement you've spent money for nothing but you spent money to use the car. A lease is absolutely more money than a purchase over the same time, but it's not for nothing, it's for the use of the car which will lose value either way. – quid May 1 '16 at 16:55
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Think of a car has having an inventory of available miles. The first few thousand miles are the most expensive. A decent-quality new car has at least 120,000 (closer to 200,000) miles available. Some parts (timing belt, anything else that is rubber or plastic) also degrade with time and not just miles. You only drive 5000 miles per year - no reason to keep a ton of inventory sitting around.

Your best bet is to buy a somewhat-used (5 years old) car with 60,000-80,000 miles on the clock, or as I've put it, 40,000-140,000 miles in stock. Since you really don't seem to care what kind of car it is (good for you!), go for something really economical like a Corolla or Fiesta. Make sure to have a mechanic not connected with the seller inspect it for you first.

If you end up scrapping or giving it away at the end of 5-8 years, you are still going to come out far ahead of leasing or buying new and then having to sell.

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