I'm thinking of getting a new car … why shouldn't I LEASE one?
If you are looking to build wealth, leasing is a bad idea.  But so is buying a new car.  All cars lose value once you buy them.  New cars lose anywhere between 30-60% of their value in the first 4 years of ownership. Buying a good quality, used car is the way to go if you are looking to build wealth.  And keeping the car for a while is also desirable.  Re-leasing every three years is no way to build wealth. The American Car Payment is probably the biggest factor holding many people back from building wealth.  Don't fall into the trap - buy a used car and drive it for as long as you can until the maintenance gets too pricey.  Then upgrade to a better used car, etc. If you cannot buy a car outright with cash, you cannot afford it.  Period. You SHOULDN'T lease one if you are going to get an economy car, if you don't drive too much (<15K / year), and you want to hang on to the car for a long time.  Otherwise, if you are a regular driver, driving a leased new quality car can be cost effective. Many cars now have bumper-to-bumper warranties that last as long as the lease (say 80K). So there is rarely any extra costs apart from regular maintenance. The sweet spot for most new cars is in the 5th, 6th, or 7th years, after they are paid off. But at that point, you may find you have maintenance bills that are approaching an average of $200 - $300 per month. In which case, a lease starts to look pretty good. I owned a 7 year old Honda Accord that cost only $80 less per month in maintenance than the new leased VW that replaced it.  Haven't looked back after that. Into my 3rd car and 9th year of leasing. Here are the reasons I did not lease my current car. When you lease, you're tied in at a monthly payment for 48 months or more. The only way to get out of that payment is to transfer the lease or buy out the lease. If you buy/finance, you can always sell the car or trade it in to get out of the payments. Or you can pay down more of the vehicle to lower the payments. Most leases calculate the cost of leasing based on the 'residual value' of the vehicle. Often these values are far lower than the actual worth of the vehicle if you owned it for those months and sold it yourself. So when you do the math, the lease costs you more -especially with today's low financing rates. "Also consider how cars fare under your ownership: Does your current car... If any of the answers to these questions are ""Yes"", you're probably going to get hosed with fees when you return the car." I agree with Speedbird389 - I leased an economy car 10 years ago, paid the residual at the end of the lease because I knew the car would last a long time, but that cost me $5000 more than if I had bought it in the first place... I never understood why people lease rather than buy or finance.  I'm financing a new civic 09 @ 0.9%.  At the end of the 5 year terms I will have paid less than $800 in interest. I have an eight year old Kia Spectra that my wife is after me to replace -- but it hadn't been giving me any trouble at all.  Soon after she started telling me I should replace it soon it started having problems; compressor, tires, and so on.  How did she know? Anyway, so now I'm looking -- not ready to buy yet, but I'm looking.  The reason I won't be leasing is mileage.  I live 45 miles from where I work, so with incidental driving, I put at least 100 miles a day on a car.  That's about 26,000 miles a year if I do nothing but drive back and forth to work. On a monthly basis the lease is advertised as being less than most payments, but that is with a mileage limitation.  Since most leases I've looked at top out the mileage well below that mark I won't be leasing. I am looking at the new cars that are available now -- but I don't plan on buying until next year, and buying a lightly used car that is only a year to two old.  So I'm looking at what I will be buying while I can still find information about them. So yeah, mileage is a strong reason why I'm not considering leasing. "It's a very simple equation. If we forget about the stress and limitations that come with the so-called ""lease"", and make the following assumptions: Then after 3 years of using this new car: I will never understand why people still ""lease"" a car. Even for very low income people who have to have a car, financing a per-owned decent car would do, but it's just ""show off"" seduction and lure that either unknowing minded or idiot teenagers fall for."
It is almost never going to be more economical to buy a new car versus repairing your current car. If you want a new car, that is justification enough. "One reason I have heard (beside to keep you paying rent) is the cost of maintenance and improvements.  If you hire someone else to do all the work for you, then it may very well be the case, though it is not as bad as a car. Many factors come into play:   If you are lucky, you may end up with a lot that is worth more than the house on it in a few decades' time. Personally, I feel that renting is sometimes better than owning depending on the local market.  That said, when you own a home, it is yours.  You do have to weigh in such factors as being tied down to a certain location to some extent.  However, only the police can barge in -- under certain circumstances -- where as a landlord can come in whenever they feel like, given proper notice or an ""emergency.""  Not to mention that if someone slams a door so hard that it reverberates through the entire place, you can actually deal with it. The point of this last bit is the question of home ownership vs renting is rather subjective.  Objectively, the costs associated with home ownership are the drags that may make it a bad investment.  However, it is not like car ownership, which is quite honestly rarely an invesment." A Lease is an entirely different way of getting a car. In two situations it makes sense, in all other scenarios it generally doesn't make sense to lease. In the case of always wanting a new car every 2 or 3 years it can make sense to lease. Of course if you drive more the allowed miles you will pay extra at the end of the lease. If you can take the monthly lease as a business expense leasing makes sense. Otherwise you want to pay cash, or get financing. Does zero percent make sense? Sometimes. The only way to make sense of the numbers is to start with your bank, have them approve of the loan first. Then armed with the maximum loan amount they will give you and the rate and the length of the loan, then visit the dealer. You have to run the numbers for your situation. It depends on your income, your other expenses, your credit score, your bank, what deal the dealership is running, how much you have for a down payment. Here is an example. For a recent loan situation I saw: 36 months, 1.49% rate, 20K loan, total interest paid: ~$466. Armed with that information can the person get a better deal at the dealership? There was only one way to find out. In that case the credit union was better. The rebate was larger than the interest paid. "Welcome to Personal Finance and Money. This answer will depend a lot on what is most important to the buyer, for example, whether it is important to always be in a newer car, to save money, or strike a balance between the two. There are trade-offs and I don't think there is one right answer for all circumstances. Leasing Leasing does make financial sense for at least two types of people I'm aware of: The company I work for provides company cars to sales executives, which we lease. We lease because it wouldn't be appropriate for a salesperson to meet a client in a car that clearly appears used. Similarly, I know people who value being in a newer car all the time, and for them, leasing makes more financial sense then buying a new car every 2-3 years, and selling their old car which is now 2-3 years old and has depreciated significantly. They understand that they are paying more to always be able to be in a newer car. I used to work with a manager who, every time the new model of the car he owned came out, would see the car and buy it on the spot, even though he already owned last year's model, and he didn't need two cars. He just couldn't help himself; he felt he had to have the new model. It's no use sermonizing about how he ""should"" learn to save money by just being content with what he had. In reality, if he is going to buy the new model every year no matter what, he should lease rather than buy. From my experience, I would only recommend leasing if you would otherwise be buying a new car on a regular basis, and the lease would be less expensive. This is probably the most cost effective way to maintain the highest possible quality, but would cost much more than buying and holding a new car or buying a value used car. I don't see reliability as much of a factor here since the seller will have a very good idea of how much maintenance will cost, but you will pay a premium to be able to pay a fixed cost for maintenance instead of risking a worse-than-average experience. Buying New According to Edmunds and BIGResearch, only a relatively small number of people are ever in the market for a new car at a given point in time. While you do pay quite a bit more to own a brand new car instead of the same car that is 2-3 years old, there are several reasons I'm aware of why people buy new cars: Number 4 is probably the biggest reason, and many people are willing to pay for the certainty of knowing that the miles are correct, the parts are new, the car is in good working condition, etc. Additionally, some makes of cars have much higher resale values than others (such as Hondas), meaning that there isn't as large of a drop in price between a new car and a used car. Many people consider buying a new car the best way to ensure they get the best reliability since they know the initial condition of the car and can care for it meticulously from that point on. This can especially make sense when the buyer intends to keep the car for the like of the car as the buyer will then benefit from having no car payments once it is paid off. Buying Used Buying a used car is the most affordable option, but for a given quality of car the reliability can be a significant potential pitfall. It can be very difficult for a non-professional to tell whether they are getting a good value. Additionally, it is hard for an owner who wants to sell a used car in excellent condition to get the true value of the car, and much easier for an unscrupulous seller to to get the market price by selling to an unaware buyer (the ""lemons"" problem in economics). You could buy an inspected car with a limited warranty from a retail seller like CarMax or a dealership, but you often pay a significant premium that cancels out much of the biggest reason to buy used - saving money. However, there is an opportunity to save money when buying used if you're willing to compromise on the condition of the car (if you don't care whether a car has hail damage, for example), or if you are able to wait until you find a motivated/distressed seller who needs to sell quickly and is willing to sell at a discount. If cost is your primary priority, buying a used car is likely the best option, but I would recommend the following in all circumstances: If the seller isn't willing to offer both of these, I would walk away. When buying used, you will also need to consider maintenance, which will vary significantly based on the make and model of the car as well as the condition, which is another risk you need to be willing to take on if you choose to buy used." I'm a finance manager at a dealership. The thing that I tell people about leasing:  It's good if you plan to make more money in the future. You can get a new car.  The downside of leasing. When you get out of your lease you will either pay straight cash, get another loan for the unit, or get a new unit. 3 years down the road you have no idea what interest rates will be. If you lock in your rate today you are guaranteed that rate. With the government increasing rates we could see higher rates that could cost you more.  Also if you get a loan today it will be 5-6 years. Leasing will have a 3 year lease with another 5-6 year loan on top of that. Causing to pay more in the long run  If your brother doesn't have straight cash to pay for it at the end of 3 years I recommend buying new "So this has been bugging me for a while, because I am facing a similar dilemma and I don't think anyone gave a clear answer. I bought a 2012 kia soul in 2012. 36 months financing at 300/mo. Will be done with my car loan in 2015. I plan on keeping it, while saving the same amount of money 300/mo until I buy my next car. But, I also have an option of trading it in for the the next car. Question: should I trade it in in 2015. should I keep it for 2 years more? 3 years more, before I buy the next car? What makes most financial sense and savings. I tried to dig up some data on edmunds - the trade-in value and ""true cost to own"" calculator. The make and model of my car started in 2010, so I do not have historical data, as well as ""cost to own"" calculator only spans 5 years. So - this is what I came up with:  Where numbers in blue are totally made up/because I don't have the data for it. Granted, the trade-in values for the ""future"" years are guesstimated - based on Kia Soul's trade-in values from previous years (2010, 2011, 2012) But, this is handy, and as it gets closer to 2015 and beyond, I can re-plug in the data where it is available and have a better understanding of the trade-in vs keep it longer decision. Hope this helps. If the analysis is totally off the rocker, please let me know - i'll adjust it/delete it. Thank you" 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. There are many reasons for buying new versus used vehicles. Price is not the only factor.  This is an individual decision. Although interesting to examine from a macro perspective, each vehicle purchase is made by an individual, weighing many factors that vary in importance by that individual, based upon their specific needs and values. I have purchased both new and used cars, and I have weighted each of these factors as part of each decision (and the relative weightings have varied based upon my individual situation). Read Freakonomics to gain a better understanding of the reasons why you cannot find a good used car. The summary is the imbalance of knowledge between the buyer and seller, and the lack of trust. Although much of economics assumes perfect market information, margin (profit) comes from uncertainty, or an imbalance of knowledge.  Buying a used car requires a certain amount of faith in people, and you cannot always trust the trading partner to be honest. Price - The price, or more precisely, the value proposition of the vehicle is a large concern for many of us (larger than we might prefer that it be). Selection - A buyer has the largest selection of vehicles when they shop for a new vehicle. Finding the color, features, and upgrades that you want on your vehicle can be much harder, even impossible, for the used buyer. And once you have found the exact vehicle you want, now you have to determine whether the vehicle has problems, and can be purchased at your price. Preference - A buyer may simply prefer to have a vehicle that looks new, smells new, is clean, and does not have all the imperfections that even a gently used vehicle would exhibit. This may include issues of pride, image, and status, where the buyer may have strong emotional or psychological needs to statisfy through ownership of a particular vehicle with particular features. Reviews - New vehicles have mountains of information available to buyers, who can read about safety and reliability ratings, learn about problems from the trade press, and even price shop and compare between brands and models. Contrasted with the minimal information available to used vehicle shoppers. Unbalanced Knowledge - The seller of a used car has much greater knowledge of the vehicle, and thus much greater power in the negotiation process. Buying a used car is going to cost you more money than the value of the car, unless the seller has poor knowledge of the market. And since many used cars are sold by dealers (who have often taken advantage of the less knowledgeable sellers in their transaction), you are unlikely to purchase the vehicle at a good price. Fear/Risk - Many people want transportation, and buying a used car comes with risk. And that risk includes both the direct cost of repairs, and the inconvenience of both the repair and the loss of work that accompanies problems. Knowing that the car has not been abused, that there are no hidden or lurking problems waiting to leave you stranded is valuable. Placing a price on the risk of a used car is hard, especially for those who only want a reliable vehicle to drive. Placing an estimate on the risk cost of a used car is one area where the seller has a distinct advantage. Warranties - New vehicles come with substantial warranties, and this is another aspect of the Fear/Risk point above. A new vehicle does not have unknown risk associated with the purchase, and also comes with peace of mind through a manufacturer warranty. You can purchase a used car warranty, but they are expensive, and often come with (different) problems. Finance Terms - A buyer can purchase a new vehicle with lower financing rate than a used vehicle. And you get nothing of value from the additional finance charges, so the difference between a new and used car also includes higher finance costs. Own versus Rent - You are assuming that people actually want to 'own' their cars. And I would suggest that people want to 'own' their car until it begins to present problems (repair and maintenance issues), and then they want a new vehicle to replace it. But renting or leasing a vehicle is an even more expensive, and less flexible means to obtain transportation. Expense Allocation - A vehicle is an expense. As the owner of a vehicle, you are willing to pay for that expense, to fill your need for transportation. Paying for the product as you use the product makes sense, and financing is one way to align the payment with the consumption of the product, and to pay for the expense of the vehicle as you enjoy the benefit of the vehicle. Capital Allocation - A buyer may need a vehicle (either to commute to work, school, doctor, or for work or business), but either lack the capital or be unwilling to commit the capital to the vehicle purchase. Vehicle financing is one area banks have been willing to lend, so buying a new vehicle may free capital to use to pay down other debts (credit cards, loans). The buyer may not have savings, but be able to obtain financing to solve that need. Remember, people need transportation. And they are willing to pay to fill their need. But they also have varying needs for all of the above factors, and each of those factors may offer value to different individuals. When getting a car always start with your bank or credit union. They are very likely to offer better loan rate than the dealer. Because you start there you have a data point so you can tell if the dealer is giving you a good rate.  Having the loan approved before going to the dealer allows you to negotiate the best deal for the purchase price for the car. When you are negotiating price, length of loan, down payment, and trade in it can get very confusing to determine if the deal is a good one. Sometimes you can also get a bigger rebate or discount because to the dealer you are paying cash. The general advice is that a lease for the average consumer is a bad deal. You are paying for the most expensive months, and at the end of the lease you don't have a car. With a loan you keep the car after you are done paying for it. Another reason to avoid the lease. It allows you to purchase a car that is two or three years old. These are the ones that just came off lease. I am not a car dealer, and I have never needed a work visa, but I think their concern is that there is a greater risk of you not being in the country for the entire period of the lease. Generally speaking, buying a fancy new car out of college is dumb. Buying a 3 year old flashy car with a 60 month loan is going to eat up your income, and when the thing starts breaking down, you'll get sick of buying $900 mufflers and $1,000 taillights pretty quickly. Buy a car that nobody wants for cheap and save up some money. Then buy yourself your dream car. Edit based on question update. You're posting to a Q&A site about money, and you're asking if spending over $30k (don't forget taxes) on a luxury car when you're making $60k is a good idea. You have car fever, and you're trying to sell this transaction as a good deal from a financial POV. At the end of the day, there is no scenario where buying an expensive car is a good financial transaction.  For example, since you're planning on driving too many miles for a lease to make sense, the certified pre-owned warranty is a non-factor, because you'll have no warranty when the car breaks down in 4 years. The only reason CPO programs exist is to boost residual values to make leases more attractive -- luxury car makers are in the car leasing (as opposed to selling) business. "Two reasons: Many people make lots of financial decisions (and other kinds of decisions) without actually running any numbers to see what is best (or even possible).  They just go with their gut and buy things they feel like buying, without making a thoroughgoing attempt to assess the impact on their finances.  I share your bafflement at this, but it is true. A sobering example that has stuck with me can be found in this Los Angeles Times story from a few years ago, which describes a family spending $1000 more than their income every month, while defaulting on their mortgage and dipping into their 7-year-old daughter's savings account to cover the bills --- but still spending $275 a month on ""beauty products and services"" and $200 a month on pet expenses. Even to the extent that people do take finances into account, finances are not the only thing they take into account.  For many people, driving a car that is new, looks nice and fresh, has the latest features, etc., is something they are willing to pay money for.  Your question ""why don't people view a car solely as a means of transportation"" is not a financial question but a psychological one.  The answer to ""why do people buy new cars"" is ""because people do not view cars solely as a means of transportation"". I recently bought a used car, and while looking around at different ones I visited a car lot.  When the dealer heard which car I was interested in, he said, ""So, I guess you're looking for a transportation car.""  I thought to myself, ""Duh.  Is there any other kind?""  But the fact that someone can say something like that indicates that there are many people who are looking for something other than a ""transportation car""." Don't buy the new car. Buy a $15k car with $5k down and a 3 year loan and save up the rest for your car. A $500/mo car payment is nuts unless you're making alot of money. I've been there, and it was probably the dumbest decision that I have ever made. When you buy a house, you end up with all sorts of unexpected expenses. When you buy a house AND are stuck in a $500/mo payment, that means that those unexpected expenses end up on a credit card. Leasing is never a good idea.  A car is a depreciating asset -- it loses money over time.  Pay cash for your car and buy used ones until your net worth reaches at least $1M. I think you're dancing with the line here, this question is hard to back up without opinions and could really be three different questions. I'm going to push aside the part about quality and reliability, that could be an emotional subject. So from a price standpoint, there's virtually no disagrement that it makes financial sense to buy a used car instead of a new car. The majority of new cars lose the majority of  their resale value within the first year or two. If you purchase said car after someone else has used it for the first two years, you just avoided all of that depreciation yourself, and you're still going to be purchasing a perfectly reliable car as long as you are diligent in the buying process. Regarding the opportunity cost comparison, consider the following two scenarios assuming a three-year lease: Option A: Keep your current car for three years In this scenario, you start with a car that's worth $10,000 and end with a car that's worth $7,000 after three years. Option B: Sell your current car, invest proceeds, lease new car Here, you'll start out with $10,000 and invest it.  You'll start with $10,000 in cash from the sale of your old car, and end with $10,000 plus investment gains. You'll have to estimate the return of your investment based on your investing style.   Option C: Use the $10k from proceeds as down payment for new car In this scenario you'll get a reduction in finance charges on your lease, but you'll be out $10,000 at the end. Overall Cost Comparison To compare the total cost to own your current car versus replacing it with a new leased car, first look up the cost of ownership for your current car for the same term as the lease you're considering.  Edmunds offers this research and calls it True Cost to Own.   Specifically, you'll want to include depreciation, fuel, insurance, maintenance and repairs.  If you still owe money you should also factor the remaining payments.  So the formula is: Cost to keep car = Depreciation + Fuel + Insurance + Maintenance + Repairs On the lease side consider taxes and fees, all lease payments, fuel, and maintenance.  Assume repairs will be covered under warranty.  Assume you will put down no money on the lease and you will finance fees, taxes, title, and license when calculating lease payments.  You also need to consider the cost to pay off your current car's loan if applicable.  Then you should subtract the gains you expect from investing for three years the proceeds from the sale of your car. Assume that repairs will be covered under warranty.  The formula to lease looks like: Lease Cost = Fuel + Insurance + Maintenance + Lease payments - (gains from investing $10k) For option C, where you use the $10k from proceeds as down payment for new lease, it will be: Lease Cost = Fuel + Insurance + Maintenance + Lease payments + $10,000 A somewhat intangible factor to consider is that you'll have to pay for body damage to a leased car at the end of the lease, whereas you are obviously free to leave damage unrepaired on your own vehicle.