Compare the Costs: Buy vs. Lease vs. Buying Used
Considering the financial pros and cons of leasing vs. owning? Wondering what will be the out-of-pocket costs for the entire life cycle of your car? If you’re pondering these questions and wondering whether you should lease, buy a new car or buy a used car, here are some points to help you decide.
Let’s say you want to opt for a sedan that retails at about $25,000.
Buying New – With an interest rate of 2.99%, a five-year loan and a 20% down payment (around $5,000), your monthly payments will be nearly $400.
Buying Used – If the model is used for around four to five years, it might retail somewhere around $17,000. If you take a loan out for four years, pay a 10% down payment ($1,700) and get an interest rate of 3.5%, your monthly payments will be almost $370.
Leasing – If you get a special leasing offer with no drive-off fees, you might get the car for a flexible monthly amount of around $340. This might include state taxes without registration costs.
Out-of-Pocket Costs in Every Scenario
In case you are leasing, the total out-of-pocket costs will be around $4,400 over the course of the term you take the car for. In the case you decide to own a car, you will earn an equity that can be cashed out when you decide to buy another car or when you want to sell off this car. Buying a used car will be the cheapest option wherein the out-of-pocket cost will be around $4,000. In terms of buying a new car, this cost can be as high as $9,000.
The total average leasing cost will be nearly $24,000, a new car will cost around $28,700 and a used car will cost you somewhere around $19,500.
At the end of the loan term, customers who bought the new car might get about $11,000 in equity, while used car owners will get nearly $5,000. However, the person who leased the car will not own anything and thus, will shell out nearly $6,000 more than the person who bought the used car. Also, customers who purchase the car can decide to keep the vehicle once the loan is paid off. In the case of leasing, the customer has to opt for a new lease agreement and will have no equity benefit.
Maintenance & Insurance Costs
One of the biggest benefits of leasing a car is that you escape the major maintenance and repair costs that await car owners after a few years of usage. Some lease agreements also include basic maintenance costs, so drivers can save a few dollars. In the case of ownership, the cost of maintenance on a regular basis for a period of five years can go up to $1,000. (including oil changes, brakes, tire rotations, etc.)
If you think that you will save on maintenance costs in leasing, it might add up in the insurance as insurance companies charge extra for leased cars because of the higher liability. Insurance of a leased car can be nearly $150 higher than owned cars.
If you want to enjoy the benefits of equity and want a long-term vehicle, buying might be a better option for you. However, if you like a new car every few years along with the peace of mind of an assured warranty, leasing will work for you.