Lease vs buy car with cash?

Question

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.

Answer 1

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.

Answer 2

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.

Answer 3

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.