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Comparing Car Costs: Buy New, Buy Used or Lease?

Edmunds.comEdmunds.com Member, Administrator, Moderator Posts: 10,315
edited April 2017 in Editorial
imageComparing Car Costs: Buy New, Buy Used or Lease?

Which auto financing method is cheapest over the long run? We compare the long-term costs of buying a new car, buying a used car, and leasing.

Read the full story here


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    busbodgerbusbodger Member Posts: 11
    $282 IS pretty close to $350...
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    jacobfjacobf Member Posts: 1
    Time value of money is also not clearly taken into consideration. If you lease, you are saving on monthly payments out to at least 3 years. Those savings can be either invested or spent otherwise immediately, where as with buying you may save over the "long run", but money later is worth less than money now...
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    orionantaresorionantares Member Posts: 1
    @rbdeli61

    The math says you forgot to mention that you likely paid (or managed to negotiate down) about a $3000 Cap Cost Reduction in your "due at signing" payment. That's what the mat says about your supplied numbers.
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    torres_satorres_sa Member Posts: 1
    A large part of this argument depends on how long you plan to keep your car. I know most of this is based on averages, but if your going try and keep your car for as long as possible then buying new may end up being cheaper than buying used. In theory if you buy a 3 year old used car then it will last 3 years less than a new car. I think the value of those 3 years extra you get from buying new makes the new car the best option if like me you plan to drive the car for as long as possible. I personally try to get 10 years out of mine.
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    reywreyw Member Posts: 1
    In your buying an old car vs. leasing a new car analysis, you left out the positive effect of buying a new car model with improved gas mileage vs. the poorer gas mileage of an older car. That could be a game changer. This is the only point that I see may help some people have better overall view of their purchase vs. lease situations.
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    bruceedenbruceeden Member Posts: 1
    My wife and I leased a new 2013 Acura ILX for $350/mo. for 39 months. The lease would have been $306 per month if we didn't take insurance on the tires and wheels (damaged wheel is $1000 to replace). We put $1500 down. At $350/mo. for 39 months, the total would be $13,650 + $1500 =$15,150. At $306/mo., it would be $11,934 + $1500 or $13,434. Buyout option at the end of the lease would be $13,200 (which you could take a loan on and pay off).
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    dwoodmanridwoodmanri Member Posts: 1
    I have been insuring vehicles for individuals and families for the past 12 years. I have yet to see, in RI anyways, someone's premium be higher for a leased vehicle vs an owned vehicle. Most carriers do not even ask the question.

    Once the owned vehicle loan has been paid off, the consumer has the option to remove expensive physical damage coverage from their vehicle that is required by finance companies. This reduced coverage would only apply in this example for the years after the loan has been paid off. The annual amount would vary greatly depending on the vehicle, driver characteristics, and driving history. $150 per year seems on the low end for comprehensive and collision coverage in RI.

    I would be interested to know which companies (and in which states) people are charged a higher premium for leasing a vehicle compared to buying it.

    **Not that it changes anything, but I just realized this article is two years old**
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    philip17philip17 Member Posts: 25
    I recently updated this article with new information and figures. In this example, the TMV (True Market Value) price of the car that was leased was $27,000, not $20,000 as stated in this comment. In this example, there was also $0 on drive off fees which makes the monthly payment higher. The monthly payment was $344 which was offered as a typical example of a typical lease payment. This was done for purposes of comparison to shed some light on the three different scenarios not to try to say that buying is better than leasing.

    Furthermore, in this article, I offered other non-financial reasons to consider leasing over buying or buying a used car.

    I wrote this article to reveal costs, not to state my opinion. I hope you will read it that way and learn from the information.

    Philip Reed, Senior Consumer Advice Editor, Edmunds.com

    Philip Reed, Edmunds.com Senior Consumer Advice Editor

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    orbeorbe Member Posts: 1
    Dart article!! buying a car is the best idea, leasing are for no smart people.
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    commonmanncommonmann Member Posts: 1
    We bought a used Honda Accord 1998 in 2008, cost us about $7,500. Now, the dealer valued it at about $2,000. So the cost of ownership for 5 years is about $5,500. Given that it will continue to depreciate, then the 6 years cost of ownership is about $6,000. So, where does my story fit into the scenario above?

    For a 6-year cycle, we could save almost $10,000. That's an extra money the wife can spend on other stuffs.
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    kiltman54kiltman54 Member Posts: 1
    I am in a quandary between buying new, buying old or leasing. The biggest advantage of leasing is getting a high end car (I like to drive) for a lot less money per month. For example: 2014 Cadillac ATS at around $375/month 36 months. The buy out is steep at $25k but what a great car! or I can get a used BMW 328ix for $25k with $10k down for around $200 per month. Buying new isn't an option at around $45-48K for me. It seems obvious that the used BMW is the way to go, but repair costs on these fine cars is huge. Whereas the Cadillac is maintenance free for 36months. After 3 years the BMW is getting pretty old while the Cadillac is still fresh, but do I buy it? that's $25 for a 3 year old car so I am back to where I was with the BMW. I think I am starting to answer my own question (this website is good!!). To perpetually lease the latest car is very attractive to me because of my pleasure factor but in the end there is no equity to show. Just a lot of pleasure. I have lost pretty big on new cars due to depreciation so I won't consider them again.
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    thart2thart2 Member Posts: 1
    I see a couple of issues with this writer's analysis of leasing vs buying. Most importantly the money you don't spend on a car has to go somewhere else. If it goes to entertainment, then the net result does not change. But the way I have always calculated my own financial options for leasing or buying is that I have a total budget to be invested, and if I am buying a car then I am investing in a depreciating asset. But if I am leasing a car, then the money I do not spend, monthly, on the lease goes into my 401k, tax free, and is invested in an appreciating asset (and matched by my employer).

    This makes a huge difference and at the end of the period of a loan vs lease, the money not invested in the car but invested in the SandP 500 has appreciated dramatically, off-setting the entire cost of leasing a car (using historical rates of return, not selecting for best or worst or most recent periods).

    This is a key flaw with every lease vs buy analysis I see online. In the real world of family budgets, the money you don't spend on a monthly payment goes somewhere. If it goes to dining out and bars, etc, then there is no net gain and the purchase is better than the lease. But if the savings go to another investment, which to me is the only sensible way to account for the differences, then leasing is far less expensive.

    I drive an Outback. Current lease rate is 269 before taxes. They are offering an interest free loan to purchase. At 3 years that's 720 per month. At the end of the 3 year period Kelly blue book says the car is worth roughly 19,000. The difference between the 720 purchase payment and 269 lease payment is 451. I put the 451 in my 401k and it's actually 563 before taxes, let it grow at 5-7% per year. At the end of 3 years I'm net ahead.

    Of course I have to emphasize this only works if you view the 720 payment as money available for investment, and this only works if the difference between the lease and purchase goes directly to your retirement account.

    What do you think?
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    needacar24needacar24 Member Posts: 3
    Hi,

    I am trying to get a new car. I am in love with the new chevrolet Impala. it cost more than i have. I am whiling to either lease it or buy it but i do not have any idea on what would be the best choice.

    it cost, according to www.chevrolet.com, $32,885 and I only have 16.000

    I need help please!
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    orbit9090orbit9090 Member Posts: 116
    Convenience factors are not really taken into consideration. A used car may be slightly cheaper than a new car over time, but the extra time and inconvenience that used vehicles may require for unexpected repairs, maintenance, and loss of transportation availability can be a great loss. For less than a couple grand more over time, a person can buy a brand-new car which doesn't have an unknown history and is less likely to need repairs as soon. Well worth it.
    Leasing only makes sense if you are someone who likes to get a new car every so often. Clearly, leasing is more expensive over time, but to some people who have more disposable income, leasing is worth the extra long-term cost.
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    wizard8873wizard8873 Member Posts: 20
    After buying for a while, I've found that looking for barely used cars (3 yrs old and under 20k miles) gives you the best deals generally speaking. Was able to pick up a 2006 M45 with 9k miles in 2009 for $10k under the list price of other M45's at the time and a used 2013 Golf R with 10k miles $5k under the price other dealers offered for used cars in the same category, not to mention most were 2012's. I still get to use the manufacturers warranty and with the money saved, I was able to get extended warranties on the cars. Once you fall outside of that 3 year mark, you're generally going to find lower prices but the warranty is either close to expiring or already has and costs for repairs can be high. This applies more to cars with gizmos than older cars but it can still add up. I believe my cousin was quoted $600 to replace the clock in a 2003 Corolla since the entire unit is shared with the radio.
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    scottnsc2scottnsc2 Member Posts: 29
    Some cars 'lease well' and others do not. Remember, you are only paying for the depreciation over the lease period so if you choose a car that depreciates very rapidly then that will be reflected in your payments. I actually made money on a Nissan Frontier because the lease-end buyout cost was about $2,500.00 less than what Carmax would pay me for it. I financed it through the leasing bank, then the day the new title arrived I took it to Carmax and sold it to them. Worked beautifully! I now lease BMW's as they also lease well. BMW will also sweeten the deal and offer to end your lease early if you lease through them again. I know at some point I need to get off the leasing merry-go-round, but for now I enjoy driving a new car every few years without the worry of negative equity.
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    ken117ken117 Member Posts: 249
    The actual true cost of used versus new is not as significant as it appears. Say a person buys a new vehicle with an MSRP of $20,000. A smart buyer should be able to buy that vehicle for at least 10 percent off MSRP. In this case, $18,000. With a five year loan, the buyer has paid the $18,000 plus interest, which is quite minor with today's low interest rates. However, after five years the vehicle still has value. Say $8,000. That means the buyer is out $10,000.

    Now say the buyer buys this same vehicle used, perhaps at $8,000. In five years, the buyer has paid $8000 plus interest. Interest on a used vehicle is usually higher than on a new vehicle. After, five years the vehicle is worth say $1,000 wholesale. That means the buyer is out $7,000. Of course, with a used car the buyer pays far more in maintenance and repairs. It is not unreasonable to assume those costs could be $2,000 more than the new car buyer would pay. The used car buyer has paid a total of $9,000.

    Finally, the new car buyer after five years has a vehicle that should last far longer the the used vehicle will last. Therefore, the used car buyer will now be required to purchase a replacement vehicle while the new car buyer still has time with the current vehicle.

    There is no set rule as to whether new or used is most appropriate in all cases. Each buyer has unique goals and abilities. However, in the long run, the actual cost of new versus used is not always significant. All cars cost money to operate.
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    steverstever Guest Posts: 52,454
    "More than one out of every four new vehicles were rented, rather than bought, by American consumers — and the percentage choosing a lease has risen sharply over just the last two years. It is now roughly 27 percent, up from 22 percent in 2012, according to Edmunds.

    “The consumer mind-set has shifted in many ways; it’s been driven by this narrow focus on monthly payments, regardless of total cost,” said Jessica Caldwell, senior analyst at Edmunds. “That’s a perfect environment for leases, where auto dealers already try to keep customers’ attention on the monthly payment.”

    The lease has offered a solution for many shoppers: a chance to drive home in a vehicle that has the latest technology, while still keeping that monthly payment within reach. And, the thinking goes, in three years, when it is time to return the car, the technology will have advanced so much that it will be time to upgrade. Owners can dump their suddenly obsolete infotainment system for the new version."

    Auto Leasing Gains Popularity Among American Consumers (NY Times)
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    barbsbasicbarbsbasic Member Posts: 1
    I've been an insurance agent for 31 years and trust me when I tell you that leasing a car doesn't in any way, shape, or form increase your annual insurance premium. I would suggest however recommend buying GAP insurance through the dealership in the event of a total loss.
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    kyfdxkyfdx Moderator Posts: 243,132

    I've been an insurance agent for 31 years and trust me when I tell you that leasing a car doesn't in any way, shape, or form increase your annual insurance premium. I would suggest however recommend buying GAP insurance through the dealership in the event of a total loss.

    Most manufacturer's leases include GAP. Toyota is a big exception to that.

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    lenstanglenstang Member Posts: 68
    There is no mection here of a person who wants to pay cash for the new or used car. That is what I do. I don't like to pay interest. If I thourght a lease was less expensive I would have one. I don't know how paying cash fits into these choises .
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    MichaellMichaell Moderator Posts: 244,993
    Probably because such a small percentage of folks pay cash, it didn't factor into the article.

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    steverstever Guest Posts: 52,454
    I don't like paying interest on a depreciating asset - I'm fine with a house payment, since houses historically (mostly) hold their value. But interest rates are so low now so you have to weigh the loans costs against lost opportunity costs, assuming you have a place to park your cash that actually earns some interest.

    Even if you buy on time (as opposed to leasing), "More of your ready cash is tied up in a car, which depreciates in value."

    Should You Lease or Buy Your Car?

    The other way to save a lot on car expenses is to have fewer cars in your driveway.
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    steverstever Guest Posts: 52,454
    A reporter is looking to speak with car shoppers who recently purchased a truck or SUV instead of a coupe or sedan because they were influenced (at least in part) by today's low gas prices. If this sounds like your experience and you're willing to help, please contact pr@edmunds.com by no later than May 24, 2016.
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    JerrsJerrs Member Posts: 1
    Looking at purchasing a car as an investment is ridiculous for most buyers. Most people are living on very tight budgets so it's more about what you can afford. Making a decision based on a couple of thousand dollars while ignoring warranties and repair costs could end up costing a buyer dearly. Before buying a car the buyer must be honest with him or herself about how many miles they will drive per year and what are the worst repair cost they might face. Unexpected miles will kill someone who leases and repair costs could kill someone who buys. If you are sure that you will not drive more than the contracted lease miles and you will maintain the car then leasing is pretty risk free choice for someone on a tight budget. Based on the years you will own a car you buy without a warranty you must include something for repairs because they will occur. It is not unusual to find buyers become car poor as the miles add up and the repair costs become larger. Just normal maintenance costs for brakes, tires, batteries and minor dings add dollars to the monthly costs i.e. approx. $50/month. Repairs are impossible to quantify but can easily exceed $1000 for minor problems. I feel strongly that leasing is the best choice for someone who lives on a tight budget. The few thousand dollar the author promotes for buying (ignoring the time value of money and repair costs) is not justification to buy versus lease for someone on a tight budget.
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    Bill_BeeBill_Bee Member Posts: 1
    Great article. Thanks, Ron. For the 1st time in my life (yes, 82 years :-) ) I'm serious about a lease, and the primary reason is the rapidity of change in automotive technology. For most of my life, I bought used and kept the car for 10-12 years. At the end it was still a viable automobile. For anything beyond three years, who knows what cars will be like?! My 15-year-old Grand Cherokee hardly fits into today's automobile culture, tech-wise. It's only real value is a still humming V-8. (V-8! What's that? Bluetooth? What's that? Using your phone in your car? NOT! Get it?)
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    egghead25536egghead25536 Member Posts: 9
    I believe your article is simple stating the obvious when holding a car for a term of 5 years or longer and to dissuade people from leasing from the straight money standpoint. However, it is not really a fair comparison. If you want to be more fair, do a 3 years comparison or for long term, compare getting 2 new 3 year leases vs buying 2 new cars every 3 years vs buying 2 used cars (plus average out of warranty repair + time + loss of use during repair) every 3 years over a 6 years period. Oh, you forgot the sales tax, which in most states you pay 100% upfront but only the lease portion in a lease.
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    Seppi00Seppi00 Member Posts: 1
    Complete BS regarding the equity. To get to those supposedly lower numbers, you would have to sell the vehicle at which point you have NOTHING just like a lease. So those numbers are B O G U S. As for used vehicles, you have ZERO for repairs and maintenance. For a lease, zero is right. There is NO WAY a used vehicle will have zero running costs so your entire article is completely worthless.
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    ApexlvrApexlvr Member Posts: 1
    Let’s not forget about states where you are required to pay personal property taxes on a leased vehicle even though you don’t own it. That could add several hundreds of dollars a year to your payment. Also, you are required to pay state sales tax on the entire capitalized cost amount of the lease even though you are “renting” and only using the vehicle for 3 years with no ownership.
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    Joe232021Joe232021 Member Posts: 1
    What about the Electric version, XC40 RECHARGE
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    qqqtrdrqqqtrdr Member Posts: 2
    At work many coworkers lease their Mercedes, BMWs, and other luxury vehicles... For luxury vehicles it makes sense, bceause for 3 years it is under warranty and one does not need to pay for maintenance.. Coworkers drive these cars hard, because they don't need to worry about maintenance once they turn them in and upgrade... Now if you lose your job, eventually you will turn in the vehicle and might not have a car. I am on the opposite fence of buying a new or relatively new car and keeping it for 20 years with preventative maintenance... Which brings up a second point.. I have 5 drivers in my family, and can't afford to have 5 leases....
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    docjzdocjz Member Posts: 1
    You have omitted one important point. You have another extra 2 years of driving with the new car before it goes to junk yard, extra 2 years could cost 10 k in new car payments. So new is almost as good as used if you keep your car for 10 years.
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    tm4545tm4545 Member Posts: 10

    Is there a typo in the number for money factor? Seems like it should be .00195 or 4.6%

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    cjbrowncjbrown Member Posts: 29
    The biggest problem with these averages is that most people aren't average. And that biggest factor is the amount of miles they drive per year. Many are over, many are under, and this all has a huge determination on actual costs for leasing verses buying.
    I've bought and sold about half as many cars as the author, but certainly enough to understand the topic, and I have some pretty solid notions on what real costs are.

    Leasing ALWAYS costs more, and if you drive a lot you'll like get stung pretty good. If you don't drive a lot then buying any car, new or used, makes WAY more sense.

    You also didn't give an option for DIY maintenance, there are still a few around that can do that. I was probly the only new benzo owner than changed their own oil.

    Some expensive models you simply don't want to own out of warranty. And extended warranties never make sense - too many loopholes and way too costly - better to just budget or have a savings account for those unexpected repairs.

    And none of this dealt with car performance and reliability - better made cars in high demand are less costly to own due to depreciation and cost of maintaining them.

    So I give it about a 7-8 out of 10 for completeness and accuracy - it's kind of the thousand-foot view of the whole thing without digging into the finer details.

    Leasing is for more affluent buyers that can afford to put money into a car every month while they own it. Buying, new or used is for the more frugal consumers that can't afford to throw good money away. The biggest factor is that at the end of a lease, all you got was use of the car - you don't own it, in fact you don't own anything. You have an option to trade, sell, or buy it out, generally about half the vehicles value is still due. IT's a horrible way to actually BUY a car.
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    q1werty2q1werty2 Member Posts: 1
    Help me with the math on the leasing option.
    I get exactly 1/2 of what you have listed here. $14,941 instead of $29,882.
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    MichaellMichaell Moderator Posts: 244,993
    q1werty2 said:

    Help me with the math on the leasing option.
    I get exactly 1/2 of what you have listed here. $14,941 instead of $29,882.

    If you are referring to the original article, please note that it was written in 2011.

    Can you elaborate on your question, please?

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