Should I buy or lease a car given that its not a super luxury car and I only drive 15 miles/d on avg?
I have a few recommendations/comments: The trick here is to make it clear to the dealer that you will not be getting a new car from them and their only hope of making some money is to sell you your own car. You need to be prepared to walk away and follow through. DON'T buy a new car from them even if you end up turning it in! They could still come back a day later and offer a deal. Leasing a new car every 3 years is not the best use of money. You have to really, really like that new car feeling every three years and be willing to pay a premium for it. If you're a car nut (like me) and want to spend money on a luxury car, it's far wiser to purchase a slightly used luxury vehicle, keep it for 8+ years, and that way you won't have a car payment half the time! If you lease a car, you are paying for the depreciation of a certain number of miles, even if you don't actually use those miles.  Since you know you will be well under the standard number of miles when your lease is up, and you already know that you want to keep the car, buying is better than leasing. Alternative: buy a recent-model used car in good condition. Or buy an older car in good condition. Let someone else pay the heavy depreciation that happens the moment you drive a new car off the dealer's lot. Which to do is determined by how you like to consume cars. If you don't drive a lot and like to get a new car every 2-3 years, leasing is often the better choice. If you drive a lot or want to keep a car longer than 3 years, you're normally better buying. Leasing is not exactly a scam, but it doesn't seem to be the right product for you.  The point of leasing over buying is that it turns the capital purchase of a car which needs to be depreciated for tax purposes into what is effectively a rental expense.  Rent is an expense that can be deducted directly without depreciation.   If you are not operating a business where you can take advantage of leasing's tax advantages, leasing is probably not for you.  Because of the tax advantages, a lease can be more profitable for the car dealer.  They can get a commission or finder's fee on the lease as well as the commission on the car sale.  That extra profit comes from somewhere, presumably from you.  If a business, you can then pass part of that to the government.  As an individual, you lose that advantage.   At this point, the best financial decision that you could make would be to buy out the lease on your current car.  Lease prices are set based on the assumption that the car will have been abused during the course of the lease.  If you are driving the car less than expected, its value is probably higher than the cost of buying out the lease.  If you buy that car, you can drive it for years.  Save up some money and buy your next car for cash rather than using financing.   Of course, if you really want a new car and can afford it, you may not want to buy out the lease.  That is of course your decision.  You don't have to maximize your current financial position if buying a new car would return more satisfaction for the money in the long run.  I would try to avoid financing for what is essentially a pleasure purchase though. "I usually recommend along these lines.  If you are going to drive the same car for many years, then buy. Your almost always better to buy, and then drive a car for 10 years than to lease and replace it every 2 years. If you want a new car every two years then lease. You're usually better off leasing if you're going to replace the car before the auto loan is paid off or shortly there after. Also you can get ""more car"" for the same monthly money via leasing. I honestly would advise you to either buy out your lease, or buy a barely used car. Then drive it for as long as you can. Take the extra money you would spend and spend it on an awesome vacation or something.  Also, if you're only driving 15 miles a day, then get a cheap, but solid car. Again, just my advice." "Cars depreciate and lose value the second you drive off the lot. Why lose money?  Foreign cars require too much maintenance. What will kill your wallet will be the maintenance on the car, not the payment. Think tires, oil changes, spark plug changes, transmission oil changes, filter changes, brake changes, cost of maintaining is the expensive part. Call the dealer speak to the servicing dept, and go to town. Ask away what all this costs. Basic stuff you expect to have, and find out what the cost of owning that car. Then ask yourself, ""should I buy it?""."
"Electric does make a difference when considering whether to lease or buy. The make/model is something to consider. The state you live in also makes a difference. If you are purchasing a small electric compliance car (like the Fiat 500e), leasing is almost always a better deal. These cars are often only available in certain states (California and Oregon), and the lease deals available are very enticing. For example, the Fiat 500e is often available at well under $100/mo in a three-year lease with $0 down, while purchasing it would cost far more ($30k, minus credits/rebates = $20k), even when considering the residual value. If you want to own a Tesla Model S, I recommend purchasing a used car -- the market is somewhat flooded with used Teslas because some owners like to upgrade to the latest and greatest features and take a pretty big loss on their ""old"" Tesla. You can save a lot of money on a pre-owned Model S with relatively low miles, and the battery packs have been holding up well. If you have your heart set on a new Model S, I would treat it like any other vehicle and do the comparison of lease vs buy. One thing to keep in mind that buying a Model S before the end of 2016 will grandfather you into the free supercharging for life, which makes the car more valuable in the future. Right now (2016/2017) there is a $7500 federal tax credit when buying an electric vehicle. If you lease, the leasing company gets the credit, not you. The cost of the lease should indirectly reflect this credit, however. Some states have additional incentives. California has a $2500 rebate, for example, that you can receive even if you lease the vehicle. To summarize: a small compliance car often has very good reasons to lease. An expensive luxury car like the Tesla can be looked at like any other lease vs buy decision, and buying a used Model S may save the most money." Auto insurance is a highly personalized item, so depending on your driving record and other factors, $600 a month for full coverage may be as good as you can get. Look at the premium for each category, and consider raising the deductible if you have some savings that could be used in the event that you have a claim. Also, you're not only buying insurance to cover the other person's damage and medical expenses, you're paying for insurance for your car.  Brand-new cars are more expensive to replace (and thus insure) than used cars. Leasing is effectively renting a car for a long period of time. While the payments are less, when the lease expires you're going to have to decide whether to give up the car or buying it, usually at a price much higher than market value.   I'm glad you discovered that the insurance would break your budget before it's too late.  My suggestion would be to look for a 1-2 year old car that's less expensive to buy and to insure. "You are still paying a heavy price for the 'instant gratification' of driving (renting) a brand-new car that you will not own at the end of the terms. It is not a good idea in your case, since this luxury expense sounds like a large amount of money for you.  Edited to better answer question The most cost effective solution: Purchase a $2000 car now. Place the $300/mo payment aside for 3 years. Then, go buy a similar car that is 3 years old. You will have almost $10k in cash and probably will need minimal, if any, financing. Same as this answer from Pete: https://money.stackexchange.com/a/63079/40014 Does this plan seem like a reasonable way to proceed, or a big mistake? ""Reasonable"" is what you must decide. As the first paragraph states, you are paying a large expense to operate the vehicle. Whether you lease or buy, you are still paying this expense, especially from the depreciation on a new vehicle. It does not seem reasonable to pay for this luxury if the cost is significant to you. That said, it will probably not be a 'big mistake' that will destroy your finances, just not the best way to set yourself up for long-term success." I must say, I can't completely agree with the tone of most of these answers.  I think there may be a good reason to buy a new car, or a luxurious used car. For years I drove old, second hand cars that were really cheap. and unreliable.  I can't count the number of times I was left stranded because my car didn't start, or the alternator burned out.  I could have bought more recent models, but I was trying to save money. But in 2010 I found a very low mileage 2008 Smart Car for small money.  It was a good deal at the time.  It was almost new, having very low mileage, and about 60% of the price of a new, less well appointed Smart.  I found out that I really like driving cars that won't break down and leave me stranded in sleet or ice storms.  When my wife's Mazda hatchback finally rusted to the point that it wouldn't pass the safety inspection and couldn't be repaired, we bought a new 2013 Toyota Rav4.  We are really happy with it.  It's probably not a luxury car to you, but having reliable heat and air conditioning seems like luxury to us, and we are happy with our decision.  I get the Smart serviced at the Mercedes shop.  They have very nice coffee and pastries, and very fast free wifi. "There are two reasons leases are generally a worse deal than buying. First, inherent in the lease is the concept of trading in the car at the end of the lease term. As we all know, cars depreciate the most in the first year or two. By repeatedly leasing cars on short time frames, you own the vehicles during those most expensive years. Of course there's nothing stopping you from doing the same thing when buying (be it via cash or loan), but leasing builds in a schedule and encourages you to stick to it. Second, it is easier for the dealer salesperson to hide things from the consumer in a lease contract. Most salespeople will try to get a car purchaser to focus on the monthly payment, or they'll four-box the purchaser, but even then there's only 4 numbers, and most consumers have a rough idea what they are and what they mean. But in a lease the numbers in question are renamed and obscured. ""Price"" becomes ""capitalized cost"". ""Interest rate"" becomes ""money factor"" and is divided by 2400, making it look really small and not easily translatable without a calculator or pencil and paper. ""Down payment"" becomes a capitalized cost reduction. There's a new concept ""residual value."" Neither of those reasons change when interest rate is lower." I have coworker who reported that he leased a Nissan Leaf from 2013-2016 and was offered $4000 off the contracted purchase price at the end of the lease due to a glut of other lessees turning in for a lease on the newest model with greater range.  It's not clear that this experience will be repeated by others three years from now, but there is enough uncertainty in the future electric car market that it's quite possible to have faster depreciation on a new vehicle than you might otherwise expect based on experience with conventional internal combustion powered vehicles. Leasing will remove that uncertainty. Purchasing a lease-return can also offer great value. I looked at the price for a lease return + a new battery with the extended range, and it was still significantly cheaper than buying a completely new vehicle. I'd approach the lender that you're getting the lease from, but be prepared for them either saying 'no' to putting the lease into the name of an LLC without any proven track record (because it hasn't been around for a while) or require you to sign a personal guarantee, which partially defeats the purpose of putting the car lease into the LLC. I'd also talk to an accountant to see if you can't just charge the business the mileage on your vehicle as that might be the simplest solution, especially if the lender gets stroppy. Of course the mileage rate might not cover the expense for the lease as that one is designed to cover the steepest part of the depreciation curve. Does your LLC generate the revenue needed so it can take on the lease in the first place? If it's a new business you might not need or want the drain on your finances that a lease can be. Buying this car would be a good idea because you will quickly learn why you feel you need a BMW (that you cannot afford).  This is not an investment, but a financing decision, beyond your means of living. As a future MBA you will regret not investing this money now. I tend to agree with Rocky's answer.  However it sounds like you want to look at this from the numbers side of things.  So let's consider some numbers: I'm assuming you have the money to buy the new car available as cash in hand, and that if you don't buy the car, you'll invest it reasonably.  So if you buy the new car today, you're $17K out of pocket.  Let's look at some scenarios and compare.  Assuming: If you buy the new car today, then after 1 year you'll have: If you keep the old car, after 1 year you get: After 2 years, you have: And after 3 years, you're at: Or in other words, nothing depletes the value of your assets faster than buying the new car. After 1 year, you've essentially lost $5K to depreciation.    However, over the short term the immediate cost of the tires combined with the continued depreciation of the old car do reduce your purchasing power somewhat (you won't be able to muster $25K towards a new car without chipping in a bit of extra cash), and inflation will tend to drive the cost of the new car up as time goes on.  So the relative gap between the value of your assets and the cost of the new car tends to increase, though it stays well below the $5k that you lose to depreciation if you buy the new car immediately.  Which is something that you could potentially spin to support whichever side you prefer, I suppose. Though note that I've made some fairly pessimistic assumptions.  In particular, the current U.S. inflation rate is under 1%, and a new car may depreciate by as much as 25% in the first year while older cars may depreciate by less than the 8% assumed.  And I selected the cheapest new car price cited, and didn't credit the tires with adding any value to your old car.  Each of those aspects tends to make continuing to drive the older car a better option than buying the new one. Not really. You just pay the other side of payroll taxes your employer typically pays. That's 7.65% more on your net. Not that much, all things considered.  Plus, on part time Uber driving, the depreciation deduction on a car should exceed true depreciation costs. Putting 10K more miles on a car each year does not result in that much extra depreciation.  2010 Honda Civic DX Sedan 4D with 100K miles is worth $4,500 in Good condition, according to KBB.  With 130K miles, it's worth $3,900.  That's a difference of $600, or $0.02 per mile.  You'll have more oil changes, brake replacements, gas, and other operating costs. But depreciation is small potatoes compared to the $0.535 in deductions per mile.  Edit: If you would own a car regardless of whether or not you drive for Uber, Uber isn't a bad deal. It's a bad deal if you have to buy a car just to drive for Uber. It's all about the marginal cost of a mile. "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." "Just to argue the other side, 1.49% is pretty low for a loan. Let's say you have the $15k cash but decide to get the car loan at 1.49%. Then you take the rest of the money and invest it in something that pays a ~4% dividend (a utility stock, etc.). You're making money on the difference. Of course, there's no guarantee that the underlying stock won't drop in value, but it might go up, too. And you'll likely pay income tax on the dividends. Still, you have a good chance of making money by taking the loan. So I will argue that there are scenarios where taking advantage of a low interest rate loan can be ""good"" as an investment opportunity when the risk/reward is acceptable. Be careful, though. There's nothing wrong with paying cash for a car!" 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. You're looking at a used car, which is good, but I think you can still be much wiser with the type of car you're looking to purchase. Maybe I'm such a fuddy-duddy because I didn't own a car until I was 25, but let's break this down with a small comparison: If you drive 1,000 miles per month with gas at $4/gallon -- which is absurdly conservative, I think -- for five years, then you're looking at an extra $60/month for just gas, and probably twice the payment, compared with a perfectly reliable but more fuel-efficient car from the same year.  (Disclosure:  I own a 2004 Corolla and love it.  I got mine in 2007 for under $10k, and I paid cash.) $300/month or so is a good chunk of change, no?  I'd do even more, and pay that loan off (which will almost certainly be less than $500/month) faster by throwing $500/month at it.  You'll save hundreds of dollars in interest. Edit based on your additions: There's one thing that you don't see yet that I have.  It's only because you're in your early 20s and I'm pushing 40. It is far easier to sock money away when you're single and don't have a family to take care of. (I'm assuming you're not married yet and that you don't have kids.  Hopefully it's not a poor assumption.) I would be saving like crazy now if I were in your position.  You have a great job for fresh out of college.  My first job started ten years ago after grad school at the same salary you're making.  Man, it was so easy to save money back then.  Now that I'm married with a daughter, a lot of that cushion goes away.  I wouldn't trade it for the world, but that's the price of being head of household. If you have any intentions of not being a hermit for the rest of your life (and I hope you do) then you'd be wise to save as much as you can now. "As others have already pointed out, there is no monetary sensible reason to borrow at 5% cost to invest at 1% return. However, just because it doesn't make perfect sense financially doesn't mean it can't make sense for peace of mind. And you should not dismiss the peace of mind argument out of hand. Ignoring tax effects, credit score effects, cost of higher levels of insurance required, etc., and assuming a five year repayment plan, borrowing $15,000 at 5% will cost you about $283/month for a total cost of $16,980. 1% interest on the same $15,000 would give you about $12/month. In other words, your ""loan premium"" is $21/month (interest expense about $33/month on the car loan, reduced by interest earned $12/month on the retained savings) plus the capital repayment amount. If you were to take the money out of savings you would probably want to replenish that over a similar time period (ignoring interest, saving $15,000 in five years means $250/month), so this boils down to the $21/month interest premium. Now consider that the times when an emergency fund is most often needed are very often the times when banks will be reluctant to extend a loan (a job loss being a common example). While foreclosing on an existing loan can still happen, as long as you keep making payments, I suspect that most banks are far more willing to overlook the fact that you would not have qualified for the loan after the job loss. If a loss of income situation develops after you pay the car with your savings without a loan, you start out with $15,000 in the bank plus whatever ""car payments to yourself"" you have been able to save afterwards. Depending on when things turn bad for you, this could mean that you having only half of the savings that you used to, but of course you also have no car payment expense (which is the same as you do now). If a loss of income situation develops while you are still paying off the car, you start out with $30,000 in the bank instead of $15,000, but run the risk of having to make the car payments with money out of your savings. The net result of that is that your savings are potentially effectively reduced by whatever the remaining debt outstanding on the car is, which in turn is reduced over time. Even if you were not to actively save, your net financial situation becomes better over time. If a loss of income situation develops after you have paid off the car, you now own the car free and clear and still have $30,000 in the bank. Assuming that you would repay yourself on a schedule similar to that of a car loan if you took the $15,000 out of the bank instead, this is a very similar situation. Consequently, the important consideration becomes: Is it worth it to you to pay $21/month extra to have an extra $15,000 on hand if something happens to your financial situation? I have been in pretty much exactly the same situation, albeit with smaller amounts, and determined that having the cash on hand was worth the small additional interest expense, not the least of which because I was able to secure a loan at a pretty good interest rate and with no early repayment penalties. You may reach a different conclusion, and that's okay. But do consider it."