I've read up a little bit on this topic and would like to share some of what
I've learned from my financial background, and how it applies to the "lease or buy" a car
scenario. I’ll try to make this clear
and if I am incorrect about any of this, please let me know because I am always
In this example well assume you have good credit, which will make each
scenario more clear.
**Remember this is hypothetical and does not claim to be exact #’s!
You get a brand new 2008 Honda for $300/month, no down payment, 15k
miles per year. In 2011 you will get a
brand new Honda for $325/month (inflation). You will always have the warranty
for both cars.
You get a brand new $25k Honda for $450/month (with a low rate) for 5
years. You get a 5 year warranty and will eventually own equity in the car.
In a perfect world, well assume that you choose to put the extra $150 a
month you “saved” by leasing instead of buying into an investment where you
could potentially gain high interest.
Here is how the two scenarios could play out.
It is now 2013:
You now completely own your 2008 Honda.
You own all the equity in the car, which is now worth between
$10k-$12k. You would have to sell the car
to get that money, and the longer you hold it, the more it depreciates. You have spent $27k already into the car and
now that the 5 year warranty is up, you will be responsible for any
repairs/damages from now on. You could
potentially save a lot by keeping your car for 5-10 more years but would then
sacrifice a lot more equity and take on more repair risk (and even the risk of
having to buy a whole new car soon).
now have a 2011 Honda and will have a 2014 in one more year (after 6 years
total). You drove a 2008 for 3 years and
the 2011 the last 2. You have spent a
total of $18,600 the past 5 years + plus the risk of going over the miles or
repair fee’s if you mess up the car. But you have also now have $8400 in cash +
interest ($150 month first 3 years and $125 thereafter) which could be
significantly more if you invested correctly over the past 5 years. You still have a complete warranty on your
car and will have the new options of a 2011 Honda and soon a 2014 Honda. While you have spent a lot to “rent” your car,
your cash equity could be significantly high if you invested on schedule and
So, In conclusion the best option in my opinion is IT DEPENDS. But it really depends on if you want your
equity to be in your car (to save by keeping longer) or in potentially cash
after 5 years (but the cost of paying always thereafter). The equity gained by buying might not be as
important to you as the power of always having a new car. You will have to continue to pay close to $5k
per year or more by continuing to lease after 2013, which will change this
scenario a lot over the next 5 years (if say you kept your bought 2008 honda until 2018). Plus, if you choose to spend the extra $150
per month instead of save it, well then you have zero equity but had more to
spend over the years.
Again, I will not claim to be a car expert and this hypothetical situation on
the financial aspect of buying or leasing a car.