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After reading a few questions about renting vs buying an house and seeing how many people strongly support renting, I'm wondering if the same applies to renting vs buying a car.

Suppose:

  1. I don't need a car loan to buy one.
  2. I will use it for 10 years.
  3. I'm willing to spend 50-60k on that car. So a luxury one which could require costly mantainence work during this 10 years timeframe.
  4. The car probably could be sold for around 5k after 10 years.

If I find a good leasing or renting plan which will cost me the same amout after 10 years is it a better option than buying? Also, most renting plans include mantainance expenses.


Side question: Why is buying a car so popular vs renting/leasing?

  • Buying a car -- especially buying a recent-model used car, where someone has already paid for the huge depreciation that takes place the moment you drive the car off the dealer's lot -- is almost always cheaper than leasing unless you're one of those people who plans on trading in your car every three years. Read the terms of the lease to figure out the exact costs. – keshlam Sep 17 '16 at 19:49
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    Some people can't stand driving anything but a recent model and are willing to waste money on upgrading long before most of us would consider it appropriate. Those, and cars provided by businesses, are the only good uses of auto leasing that I know if. It just isn't a good deal. Run the numbers. – keshlam Sep 17 '16 at 21:52
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    @KingBOB you do realize that lease deals are for 2, 3 or 4 years, and then you return the car? So you would have to do this multiple times to have access to a vehicle for the 10 years. – mhoran_psprep Sep 18 '16 at 10:55
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    @JoeBlow Some of us would prefer some modern amenities. 10k doesn't buy as much in a used car as it would 10 years ago. However, if your basic point is that spending 60k on a car is beyond practical and into the luxury category, I would definitely agree. Personally, I think the sweet spot is in the 3 year old car market, where you can find a car with current safety and environmental features, plus modern electronics, factory warranty for 15-25k depending on options. Same car on a lot would be ~10k more. So you're still dodging sticker shock, while still getting a modern car, with warranty. – Xalorous Oct 19 '16 at 21:57
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    I wouldn't say that "people strongly support renting" a house over owning a house on this site. It's just that most of the time, when someone is asking the question, they are in a situation where renting makes more sense: short time-frame, tight budget, overextended with debt, etc. If they weren't in that situation, they wouldn't be asking. So it might come across that many users here are against home ownership, but I don't think that's true. – Ben Miller Oct 19 '16 at 23:55
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If you plan to keep this asset for ten years then you can take the deprecation of its cost over that time period. For simplicity lets treat that as 120 monthly payments. So at a purchase price of $60,000 you are committing around $500 per month not including vehicle maintenance. I typically allocate around 20 percent of the purchase price of my vehicles for future maintenance costs.

Since you have the cash to purchase this outright you have an option not afforded to most people. This adds for additional consideration. Here is an example.

You purchase a $60,000 car and put $10,000 down. You finance $50,000 at 2.84% over 60 months. Your total finance cost is $53,693 if you do not miss any payments. The question here is can you make more than $3,693 on the $50,000 that you would retain in this situation over a five year period? I know that I most certainly can and is an excellent example of why I finance my vehicles. Obviously this all goes out the window if you do not have the credit for top rates.

I have also negotiated a vehicle maintenance plan with the dealership at the time of my vehicle purchases. Most dealerships offer this service, the key here is negotiating. On my last truck I was able to get an all inclusive maintenance policy for 72 months for 8% of the purchase price. Your mileage will vary with manufacturer and dealership.

As described in the comments above it is never beneficial for an individual to lease. You end up paying more for the newer models. I consider that to be a lifestyle choice as it is most certainly not a sound financial decision.

  • Nice answer, could you rephrase the "you purchase a 60k car and put 10k down....etc" paragraph? What if I find the same vehicle for around $500/mo as long term renting (not leasing)? Would that be a better deal? – KingBOB Sep 18 '16 at 7:53
  • What do you mean by long term renting? Are you referring to a more extended loan term? – Daniel Curtis Sep 18 '16 at 22:35
  • @KingBOB rental car always belongs to the rental company. A car purchased with an auto loan belongs to the owner. At the end of an auto loan, the lien against the car is released and any value retained by the vehicle belongs to the owner. – Xalorous Oct 19 '16 at 21:52
  • The converse to this is the maxim: Do not borrow to purchase a depreciating asset. Instead of a 60k new car, why not buy a 20k used car outright, and invest the other 40k. Pretty sure you can beat the return on financing a 50k auto loan and investing 50k. – Xalorous Oct 19 '16 at 22:00
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This question has been asked and answered before.

Financially, owning a car will be more economical than leasing one in most cases.

The reason for this is that leasing arrangements are designed to make a profit for the leasing company over and above the value of the car. A leasing company that does not profit off their customers will not be in business for long. This is a zero-sum game and the leasing customer is the loser.

The lion's share of the customer losses are in maintenance and in the event of an accident or other damage. In both cases, leasing arrangements are designed to make a large profit for the owner. The average customer assumes they will never get into an accident and they underestimate the losses they will take on the maintenance. For example, if both oxygen sensors need to be replaced and it would have cost you $800 to replace them yourself, but the leasing company charges you $1200, then BOOM! you just lost $400. If the car is totaled, the customer will lose many thousands of dollars. Leasing contracts are designed to make money for the owner, not the customer.

Another way leasing agents make money is on "required maintenance". Most leasing contracts require the leasor to perform "required" maintenance, oil changes, tire rotations, etc. Also, with newer cars manufacturers recalls are common. Those are required as well. Nearly nobody does this maintenance correctly. This gives the agent the excuse to charge the customer thousands of dollars when the vehicle is returned. Bills of $4000 to $6000 on a 3 year lease for failure to perform required maintenance are common. Its items like this that allow the leasing agent to get a profit on what looks like a "good deal" when the customer walked in the door 3 years previously.

The advantage of leasing is that it costs less up front and it is more convenient to switch to a different car because you don't have to sell the car.

protected by Chris W. Rea Sep 12 '17 at 13:08

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