Optimal term/number of months for car finance or lease?
If you have the money to pay cash for the car. Then 0 months will save you the most money. There are of course several caveats. The money for the car has to be in a relatively liquid form. Selling stocks which would trigger taxes may make the pay cash option non-optimal. Paying cash for the car shouldn't leave you car rich but cash poor. Taking all your savings to pay cash would not be a good idea. Note: paying cash doesn't involve taking a wheelbarrow full of bills to the dealer; You can use a a check. If cash is not an option then the longest time period balanced by the rates available is best. If the bank says x percent for 12-23 months, y percent for 24-47 months, Z percent for 48 to... It may be best to take the 47 month loan, because it keeps the middle rate for a long time. You want to lock in the lowest rate you can, for the longest period they allow. The longer period keeps the required minimum monthly payment as low as possible. The lower rate saves you on interest. Remember you generally can pay the loan off sooner by making extra or larger payments. Leasing. Never lease unless you are writing off the monthly lease payment as a business expense. If the choice is monthly lease payments or depreciation for tax purposes the lease can make the most sense. If business taxes aren't involved then leasing only means that you have a complex deal where you finance the most expensive part of the ownership period, you have to watch the mileage for several years, and you may have to pay a large amount at the end of the period for damages and excess miles. Plus many times you don't end up with the car at the end of the lease.  In the United States one way to get a good deal if you have to get a loan: take the rebate from the dealer; and the loan from a bank/credit Union. The interest rate at banking institution is a better range of rates and length. Plus you get the dealer cash. Many times the dealer will only give you the 0% interest rate if you pay in 12 months and skip the rebate; where the interest paid to the bank will be less than the rebate.
"My spouse will only be entering medical school within 2 years at the earliest, and will likely be there for about 4-5 years. If she get's into the school she wants we would not have to move This is probably the biggest return on investment that you can get.  Sure, you could invest what you have in the market and take out tens or hundreds of thousands of dollars on ""cheap"" medical school loans, but consider this: Figure out how much you need for all 4-5 years, and develop a plan to make sure you can cash-flow the entire education.   Bootstrapping a software company has potential for high rewards, but a much greater risk.  you could get 10X back or you could lose it all.  With your income, you've got plenty of time to save for college, so I don't see that as a huge win now.  I would also dump the lease - you can probably get a much better car for $16k that the five-year old one you have when the lease is up. (or get a similar car for less money).  With no debt and a good income you do not need a credit score. The lease probably didn't help it that much anyways - you're paying more for the lease than any benefit you would get by a higher score." "Cars depreciate the most their first year after introduction. So you could buy a ""new"" car in year 2 for the optimal price, and at year 4 (when you finish paying yours off) you could buy the next car in year 2 (this is surprisingly similar to rolling options in a buy-write strategy, an arguably more constructive use of your money)" It depends how detailed you want to get in your calculation, but fundamentally, 1K < 25K.   On a very basic level, divide the cost (less what you sell it for) by the time you'll have the car for.  If you junk it, $1K/12 month = $83/month to buy tires to have a car for a year. If you sell it for $1K, then it become $0/month.  (Plus other maintenance, etc..., obviously). If you pay 25K and keep the new car for ten years and sell it for nothing, it becomes roughly $208/month (plus maintenance). If you want to get more accurate, there are a lot of variables you can take into account--time cost of money, financing, maintenance costs of different vehicle types, etc... 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... There needs to be more numbers with your choices, without those any answer is purely speculation. Assuming that India is much like the US, you are almost always better to go with a company leased car.  That is if you are not responsible for the lease if your employment ends with the company. Here in the US companies typically reimburse, so tax free, their employees for about 50 cents per mile, or about 31 cents per kilometer.  This barely covers the gas and insurance and falls way short when one includes deprecation and maintenance.  So it is better to have the company to pick up all those costs.      Borrowing money on a car is just plain dumb no matter what the interest rate.  So I would stick with choice number 1 or 3 depending on the arrangement for the company leased car. The next question becomes how much you should spend for a car?  I would say enough to keep you happy and safe, but not much more than that until you are wealthy. "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." 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 some who argue that you should lease an electric car. These factors are in addition to all the normal pros and cons of leasing vs. buying. The technology is still new and is advancing rapidly. In 2-3 years, the newer model may have significantly improved features, range, and efficiency, as well as lower prices. If you are the type of person to upgrade regularly to the latest and greatest, leasing can make it a smoother transition. It is hard to predict the depreciation of the vehicles. This is both because of the above factors, but also because these kinds of cars are newer and so the statistical models used to predict their future values are less refined. The models for predicting gas car prices have been honed for decades. EV Manufacturers have in the past made some mistakes in their residual value estimations. When you lease a car, you get essentially an option to buy the car at the future predicted residual value. If, at the end of the lease, the market value of the car is higher than the residual value, you can purchase the car at the predetermined price, making yourself some extra money. If the value is lower than the residual, you can return the car or renegotiate. I know a relatively large number of electric vehicle owners. Most or all of the ones who got the vehicle new leased it. The rest bought used vehicles coming off lease, which can also be a good deal. I might be missing something, but I always understood that leasing is about managing cash-flow in a business. You have a fixed monthly out-going as opposed to an up-front payment. My accountant (here in Germany) recommended: pay cash, take a loan (often the manufactures offer good rates) or lease - in that order. The leasing company has to raise the cash from somewhere and they don't want to make a loss on the deal. They will probably know better than I how to manage that and will therefore be calculating in the projected resale value at the end of the leasing period. I can't see how an electric car would make any difference here. These people are probably better informed about the resale value of any type of car than I am. My feeling is to buy using a loan from the manufacturer. The rates are often good and I have also got good deals on insurance as a part of that package. Here in Germany the sales tax (VAT) can be immediately claimed back in full when the loan deal is signed. 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. Your short-term time frame makes buying used the best option, but it seems you already are aware of that.  Look into a certified pre-owned model if you are concerned about lemons. You will usually get some sort of warranty.  However, be aware that any car can be a headache with repairs.  I would not recommend a lease because basically you are still paying for the depreciation on the car plus interest. Generally, this is the most expensive way to drive a car. You may find the numbers look good for a lease but beware of the 'gotchas' in the terms that can put you way over budget (over mileage, wear and tear, etc.).  My best recommendation is to buy gently used with cash. This gives you the most flexibility and best resale value. If you finance a late-model vehicle, be aware that depreciation can leave you upside-down on your loan. That would put you in the position of having to shell out cash just to get rid of the car. Don't let the tail of credit score wag the dog of prudent financial planning. If you have a sufficient emergency fund in addition to the car cost, then buying the car for cash is to my mind a better plan. But if the car purchase would deplete your emergency fund, then I'd go for the loan. Cash in hand gives you optionality that can be very valuable when things go wrong. And credit will be withdrawn at exactly the most painful moment. 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. "I strongly discourage leasing (or loans, but at least you own the car at the end of it) in any situation. it's just a bad deal, but that doesn't answer your question.  Most new cars are ""loss leaders"" for dealerships.  It's too easy to know what their costs are these days, so they make most of their money though financing.  They might make a less than $500 on the sale of a new car, but if it's financed though them then they might get $2,000 - $4,000 commission/sale on the financing contract.   Yes, it is possible and entirely likely that the advertised rate will only go to the best qualified lessees (possibly with a credit score about 750 or 800 or so other high number, for example). If the lessee meets the requirements then they won't deny you, they really want your business, but it is more likely to start the process and do all the paperwork for them to come back and say, ""Well, you don't qualify for the $99/month leasing program, but we can offer you the $199/month lease."" (since that's the price you're giving from other dealerships). From there you just need to negotiate again. Note: Make sure you always do your research and negotiate the price of the car before talking about financing." I have a colleague who always leases cars first.  He's very well off, has piles of money in savings, owns a home, and the cherry on top, he could just write a check for the car....   He sees the lease as an insurance policy on the first couple of years of the car's life.  If it gets in an accident or he finds something about it he doesn't like, he can give it back to the dealer at the end of the term with no hassle and move on to the next car.  Some people value the fact that a lease is a rental.   If you're leasing a luxury car or something you couldn't otherwise afford, no amount of mental gymnastics will turn this in to a good idea.   Separately, you should never make a down payment on a lease.  If the car is totaled early on, you will not recoupe the money you put down.  The issue here is that while the numbers all work out the same between a lease and a purchase your situation is different.  If the leased car is totaled, the bank gets its money back from an insurer.  If that payment doesn't cover the value of the car, the GAP insurance will cover it.  In either situation, if there's an excess remaining it will be returned to you.  The issue is the excess may not fully replace your down payment.  If you then went to lease another car you would need to come up with that down payment again because you couldn't just simply choose to lease a used car; like you could in the case of a purchase.  Additionally, GAP is generally included in a lease whether you want it or not.  As far as I'm concerned it doesn't make financial sense to mitigate the value of the GAP coverage once you've decided to live in a lease situation.