I've been leasing cars since 1993 and, for me, they are a much better deal than buying one because I drive less than the (usually) 1,000 miles a month most leases state and that means when I've gone in to at the end of the lease to lease a new car that the mileage equity I've built up covers and down payments for the new car and all I have to pay is the first month's lease payment (incl sales tax) and license fee. I also take advantage of manufacturer's lease specials to further reduce monthly payments. That way I get full warranty during my lease, get a new car every 36-39 months with all the latest safety features, etc. A lease is NOT as good a deal if you put more than the monthly mileage allotment on the car.
And you've got a monthly car payment for the rest of your life. Unless you're leasing for a business and can use it as a tax write off, I can't see the advantage in leasing.
@@abc456f Pros of leasing 1: You've got a new car every 3 years. 2: The car is always under warranty. 3: Lease payments are less, especially manufacturers lease specials***. 4: By the time you've paid off a car it's not worth much and, with the exception of car companies like Kia/Hundai, any repairs after the typical 3 year warranty all come out of your pocket, and repairs aren't cheap. As I said in my original post, leasing a car is not for everyone, especially if you drive more than the monthly mileage. *** in February of 2024 Hyundai had a lease special on their Ionic 6, all electric car that's won all sorts of awards, including some 'World Car' award. How much was drive off and 1st months payment? $239 plus sales tax. $239 a month lease.
@@abc456f If you invest the cash you would have spent on the purchase of a car, you'll actually make money instead of sinking capital into a depreciating asset.
I did a similar analysis when I considered how to purchase a new car. In the end, I chose to purchase the least expensive car that met my needs and was reliable. I didn't buy a luxury vehicle. I didn't get the highest trim level (even though I wanted it.) I paid in cash and love not having a monthly payment. For me there is a lot of psychological value to not having the weight of debt. As much as possible, I try to live a debt free life. It may seem unsophisticated, but I sleep well.
Well done! I live on Social Security and the minimum distribution requirement from my IRA, with the Lord's help. Not a lot of income, but being debt-free really helps. :-)
@@tfewald01 I’m sure it does. I didn’t know as a young person that it cost money just to maintain our cars…I know this might sound dumb but if you don’t have a loan payment then you can maintain the car just fine.
We can absolutely go back and forth about what rates and costs are realistic, but the great value here is the analysis, the takeaways, that allow us to figure out for ourselves and our realities what is the best choice. Very excellent video! Thank you for making it.
Despite so many people telling me that leasing is a bad option when I was younger, I've always leased because avoiding car troubles/repairs is at the top of my priority list. I don't have a tolerance for dealing with bringing a car into the shop, getting a loaner, any of that crap. I just want to get in and go, not worry about any of the crap that comes later with older vehicles. I understand this sounds like I just don't want to maintain a car and I guess that's correct, and the market gives people like me an option that suits my needs. I guess we all just have to know what we prioritize!
When leasing a car you partially pay for sale tax because it is usually based on the amount of each rental or lease payment. In the case of $48486 Wrangler purchasing sale tax is $5196, but you would pay around 50-60% of $5196, $2598 to $3437 when leasing. Overall, cost incurred is about $15000, less than $17132 as mentioned in the video.
1.99% is pretty unrealistic for most people who are financing. Extremely rare. 3%-4% is already a very solid/good rate for most people. Just avoiding 5%-8% interest for most people is the goal, if possible.
Sometime you can get better rates with your own bank then going with the car dealer and always read the the CONTRACT. Sometime if you read it says that you don't need to SIGN The CONTRACT. So Don't let the dealers push you around and getting you to sign a CONTRACT that you don't want to sign or understand.
yup, also is very unrealistic for most people to finance a car for 36months. Most buyers finance 60-72. I'm guessing she is going on the assumption of the money saved, if you can safe that much, you already know what to do with your money and you're definitely NOT BUYING a new vehicle (unless is for business or very premium that doesn't lose value) NOR buying CASH
I just bought a new 2023 Corolla hybrid awd and got 4.5% APR for 36 months from Cefcu and the vehicle I traded in on it was a new 2014 that at that time was 1.99% APR for 36 months.
Ex auto finance manager now certified financial planner here, good video. Some things to consider: if your car is owned outright or financed and you are in an accident and repaired, the accelerated depreciation will be borne by the owner. If it’s leased that is borne by the leasing company as the residual is guaranteed on a closed end lease. Also pay attention to residual values, if the residual value is higher than you think the car will be worth at lease end, consider leasing. Also if you are using the car solely for business then the whole lease payment will be tax deductible up until the maximum of about 900 per month. If it’s owned you will be able to deduct interest costs and depreciation logging kms used for business
@@chowsquid Yup. Cost of a lease payment is depreciation and interest. If the assumed depreciated value at disposal/sale is less than what you sell it for it is deemed a recapture and you’re taxed on the amount you kept. If the depreciated value is greater than you sell for, it is a terminal loss and you can write that off too.
Exactly. This lady don’t know what the f she talking about. Lease its the best option. No even close . U can keep the car at the end of the lease if u want too by the residual value if it makes sense . U pay taxes at a monthly basis. U need a good credit . Thats it
@@lizardman1303 interest rates are up across the board. Even with a near excellent credit (760). In 2020 I was able to get a 4% auto loan with no credit history. It's crazy these days.
I keep my cars for about 20 years. Paying cash is the only way to go. But now, I am considering leasing, since I am in my 70's and don't have 20 years left!
Given enough time, all car will worth $0 (end of life). I always buy. * New for my wife every 4-5 years. (maintained by the dealership). and take advantage of the low interest incentives. * Used for myself and drives it unit it dies (I do the repairs myself as much as possible) and always cash. That is the best approach! * The cost of ownership on my car is less than $1K a year. * The cost of my wife's car is worth every penny it as it eliminates a lot of headaches.
As an Accountant myself, kudos to you for keeping the numbers simple. It’s clear that Financing is always cheaper than leasing. If you keep the car for around 7-10 years, then it’s more cheaper. Only lease if you have extra disposable income and want a new and shiny car every few years. But for most of middle class people, financing or buying used is the way to go.
@@financenumber2953 its more expensive and not expensiver. Its cheaper and not more cheaper. He's being a douche and pointing out a grammar mistake. Acting as if everyone's first language is english...
Lease vs financing depends on your finances and the brand/ model car. Some dealerships allow you to lease cars for 48+ months, and offer a maintenance package so you don’t have to worry about car troubles. Personally, I prefer to lease luxury cars, and buy low maintenance cars.
This is probably the best advice here, haha. Unless you can buy a German car without finance, there isn't any point even if you take good care of the vehicle once that warranty is gone-the price drops. Also, if you want a BMW to be reliable, you must change some parts; that's a given, so add that to the price. Plus, most people here will pay it off after the warranty. So, unless you are buying a good reliable car, where you can make your money back later. German cars, should be leased. Because you can use that spare money to invest.
Do the comparison of buying used and leasing a new one so people can understand. In my opinion the best thing is to get like 3 years old car which already dropped it’s value but has only like 30k miles on odometer. And go from there. I like to buy those in cash, so I am also not forced to pay for full coverage. And also you can get the credit card from which you buy a car and have 0apr for 18 months. Those are the best options in my opinion
Also, most leasing agreement has a buyout option. So if your lease residual value is lower than actual value, it's best to buy it out at the end of lease. Also, all the cons you listed for leasing, such as the mileage, mod requirements would be no issue if you buy it out.
@@tommieboi707 No, it's not. If you are not making enough to first owe 7500 in your tax liability to the federal, especially for those living in non-liberal states
There is also the time element that isn't really discussed here. Meaning the money you didn't spend on the car, while buying at 4% will probably be growing at a higher rate than 4% in a reasonable IRA. There is still depreciation, which is very car brand dependent. All cars have a lifespan. No getting around that.
The one thing that most comparisons forget to include is ongoing maintenance costs. As shown in the video, the benefit of leasing comes when there is a bigger depreciation hit. This usually occurs most often with luxury vehicles, which also happen to have expensive maintenance schedules. For the DIY enthusiast, they also tend to require special tools (which add to the cost of service) in addition to the parts themselves being more expensive. Service costs are also affected by location, which can drive up prices significantly. Generally, leasing vs buying is a very different conversation between a new Toyota Camry and a new BMW 340i. In my research, it was rarely worth leasing a standard vehicle, but it made sense to lease luxury cars given how expensive their standard maintenance can be. For sure you can find parts cheaper online, buy the special tools once, etc., but not everyone is a DIY hero that has a professional grade scan tool and a random assortment of tools made solely to service these German vehicles. Major service for a luxury car can cost several thousands, and anything engine related can easily set you back over $5k. And generally speaking, the luxury manufacturers seem to actively make it difficult for your to work on your own car (by not having jack points for a floor jack, or requiring a special screwdriver to remove a panel, for example). At the end of the day, however, the best deal is the best deal. Sometimes the leasing incentives are better, and sometimes the financing terms will work out best. You really have to do your own math based on the offers you have to figure out if you are saving money in the long run.
One very important factor has not been mentioned. If you lease a car, you shift the risk of the future value of the car to the leasing company. If you get into an accident, even if it is not your fault, this will substantially reduce the resale value of your car. If you are leasing, this is not your issue. But if you bought the car, it is a big deal in this calculation.
@@EM-cz4rd yep. So at the end of the lease you compare the current market value to the estimated residual value on the lease agreement. If the contract price is lower than the current value, you can buy it cheap, or trade up to a new one with no money down. You are under no obligation to buy if the current market value ends up being lower.
@@EM-cz4rd Also you do not shift the risk of future value. Leasing company tend to hold your residual value higher to protect themselves from the very situation you are talking about.
Great comparison on 36-month timeline costs. However, if you extend out the length of time (48+ months) lease vs ownership, the numbers will greatly skew toward ownership.
Not necessarily, because a car will have significant drop in resale value with each passing year, AND you have more risk of expensive repairs lowering its resale value further the longer you own it as older cars break down more. I think the examples given are highly speculative and not reflective of real world data but at least you have an idea on how to setup your own spreadsheet and input more appropriate numbers on your own.
Owning a vehicle longer will depreciate the value of the vehicle more which you don't have to worry about when leasing. Also, accidents and repairs will further decrease resale value and that is more likely to happen the longer you own the car and resale value is the only thing going for financing or outright buying vs leasing so owning a vehicle longer would make the cost incurred longer than leasing thanks to depreication
Depreciating the value of the car is actually a good thing if you’re in it for the long haul: lower insurance and registration fees, and my cars have been lasting at least 18 years with few problems.
As a cpa and cfp, great analysis. In reality most car buyers are so confused, purchase is an emotional purchase not rational. The seller wants confusion.
Spot on. Most vehicles- especially new vehicles- are an emotional purchase. As a former ad exec, the money poured into car advertising is staggering. That’s why car ads have beautiful models, pefect traffjc free mountains, or stylized graphics and music- with very little data or information. “The mind will justify what the heart wants.”- that’s the car industry in a nutshell.
The effects of the downturn are beginning to sink in. People are being impacted by the long-term decline in property prices and the housing market. I recently sold my house in the Sacramento area, and I want to invest my lump-sum profit in the stock market before prices start to rise again. Is now the right moment to buy, or not?
Stocks with yields that outperform the market should be on your radar, as should shares that at least lag the market over the long term. But if you want a long-term strategy that works, I advise you to consult a broker or financial advisor.
Don't depend your market assessments and decisions on hearsay and rumors; I did it in 2020 and ended up with worthless market holdings. Before I started noticing any notable improvements in my portfolio, Helene and I had to completely rebuild it. I've been using the same advisor ever then, and in just two years I've scaled up to $876k. Depending on where you look, a bullish or down market might both produce good profits.
Thats a good one. I know a lot of folks that made fortunes from the Dotcom crash as well as the 08’ crash and I’ve been looking into similar opportunities in this present market. Could this coach that guides you help?
REBECCA NASSAR DUNNE is her name. She is regarded as a genius in her area and works for Equity Services inc. She’s quite known in her field, look-her up.
This video taught me that these calculations keep people who lease cars to keep leasing and keep having a monthly payment. They continue their leasing behaviors because of opportunity cost,low maintainence cost, no hassle of selling the car is justified. People like me buy and keep their cars long. No monthly payments, lower insurance and registration costs.
People that lease are paying prime depreciation plus interest. Depreciation occurs the most in the first five years and car dealerships will charge the renter accordingly. Leasing might seem affordable the first time but after two or three leases you realize you're throwing money away. Same logic as a person renting a property as there's no built up equity, just money thrown out the window every month and after the life of a mortgage which is 25 years renters have nothing to show for
@@vincentortega4284 When I was younger and stupid, all I did was finance crap. Now I'm older, my used cars are paid off, have a home, and use the money i use to waste on monthly payments towards investments as you do.
There's pros and cons to all methods. Leasing is better for high-income earners cause the monthly cost is negligible. For enthusiasts, financing a dream car is the best way to get their hands on it the quickest because the value of enjoyment exceeds the interest premium.
I haven’t had a car payment for many years and it is amazing. Only way to ‘get your money out of them’ is to pay cash and drive them until they need so many repairs that it doesn’t make sense to keep them anymore.
I’m from the UK and have never had a car payment. Bought a second hand car with cash like many people do in my country. In the US people earn so much but they still end up in debt somehow spending loads on their cars 😂
one very important consideration that is left out here is the buyout option(residual) on mostly all lease contracts. This can be the deal maker or breaker. If the market value of the car at lease end is lower than the buyout, you can walk away. If vice versa, you can buy it out and pocket the difference. Same concept as options trading. However, with a higher residual, your payments will be lower but the chances of you having a chance at a profit at lease end is lower. Pluses and minuses to both, but it can significantly effect this calculation. With consideration given to lease end buyout, leasing is basically a hedge against a set depreciation. This is the biggest advantage to leasing.
I am confused I fail to understand your comment. I assume that at lease end the value of the car is lower than buyout. Why would it be higher? And how would you pocket the difference?
When comparing lease to purchase, you can also include the residual value of the lease and can capture the delta between residual value and resale value - lots of companies will give you cash to buy your car out at the end of your lease
This is false! I absolutely cannot believe how many scammers are in this comment section. Beware of these fraudulent statements. Pretty sure half these people make money from leasing ehich is why they are here spreading false info.
Thanks for the video! Yes, this is a confirmation of a conclusion I've made a while back. Once the used car market goes back to the norm (nowadays it is overpriced), the best financial decision in terms of car purchase is to buy a good condition and reliable brand/model used car and keep it for many years. Maintain it adequately but not necessarily following all manufacturers recommended maintenance (only the critical ones. I.e: Timing belt replacement, etc.). Make sure oil changes (fully synthetic always) are always timely and good gasoline is always used. This should keep expenses to a minimum and have a headache free car ownership. I have been doing this for decades and the process never let me down.
All of those maintenance costs and time taken to take care of the car does not equal headache free. All cars of every brand and model have a new issue specific to that year and make. Cars are the most depreciating asset of all time. There is no value in a vehicle. Leasing is the best bet considering you could make money after lease end when given the option to purchase and there is rarely ever any need to waste time on maintenance or wear and tear
@@kennethguerrero6802 I completely disagree with your assessment. Starting with the base assumption "All of those maintenance costs and time taken to take care of the car". If you start with a good purchase and follow the steps I mentioned, maintenance is very low cost and effective. The time to do it is almost negligent. Lease is more convenient for the ones who want to always be driving a new car but is definitely not the best financial choice.
@@corujariousa you should look up the average maintenance for every model of car over a 6 year span. The longer you own a car the less valuable it is. You can assume your car will never give you problems because you “take care” of it. But everything wears down on a vehicle. You will always have a problem over a long enough span of time
@@kennethguerrero6802 True statements but under the conditions and process I mentioned those expenses are way below the cost of leasing over the same time period. Again, I've been doing it for decades and it hasn't failed me once. I do recognize not everyone would be like me and most people buy cars not based on reliability but in terms of looks only. Also, many people fail to take minimum adequate car of their vehicles. All my vehicles look almost new after 7-10 years of use. So much so that I have many times been offered good money on leaderships, given the inflated used car market and the profit they see they can make with my cars. And I do not "baby" my cars. I just do not treat them as something disposable.
@@corujariousa hey if you just want someone to affirm your beliefs, youre good to go. The information is out there is you want to learn more. This accountant left out alot of details that a financial expert should not leave out about the process
It really comes down to what condition of car you need, and your personal situation. Older reliable car bought outright is always best. But if you need a specific model and year finance. If you need to keep up with having a new car lease. Its that simple.
What i learned from people that got money and know how to keep money is you never buy any car that's not older than 10 years thats when all the value of that car is lost so you get your moneys worth. Cars are liabilities no matter how you flip it. I got to agree with that. :D
Great video... my only issue is that you're comparing 36 month leases to 36 month loans. Almost no one does 36 month loans. Run it again with a 72 month loan at 4.99% interest. Financing is still cheaper than leasing most of the time, but leasing is less hassle on the back end, just turn it in and move on.
This is a great breakdown, I would add one thing. The opportunity cost will always be more than the interest amount for finance. The interest rate on finance is calculated on a depreciating balance, whereas the interest earning potential should be calculated on an appreciating/compounding balance. I know it's more complicated, but I have seen circumstances where interest rates on earning can be half that of finance rates and the customer still earns more than they pay over the same length of time.
No, the potential earning interest rate is also on a depreciating asset, because you take out money to pay for the car. They are literally identical if base interests are equal.
Cool to see the various scenarios here. It would have been fun to see a few real world examples in the sense that most people financing don’t have perfect credit and won’t get that 1.99% rate. Additionally, most people finance their cars for 5-6 years now. It would be beneficial to show people how drastically these change the cost of ownership numbers.
That was a good analysis, Gabrielle. Another factor to consider is inflation. When you purchase a car outright with cash, you are using dollars at their highest (present) value. If you finance or lease, over time your payments become cheaper in real terms because the payments are fixed but money is losing value. The real win comes when the finance rate is well below the rate of inflation. So, all things considered, if inflation is high and the finance rate is much lower than the lease rate and prevailing money market rates, IMO the best option is to finance. You take advantage of inflation. You can invest the excess money you would have spent to purchase. And the car is yours to do with as you please without having to worry about charges for damages at the end of a lease. Furthermore, as the car ages is depreciates at a much lower rate, so finance the vehicle, take good care of it, and own it until it dies.
I still prefer to just pay outright in cash. I know if I may be leaving money on the table, but I like owning things. I have a mental block to finance anything that depreciates.
This is incorrect. Yes your car depreciates but that is net with inflation. I just sold my 5-year old car for $23k and I bought the car with cash brand new for $28k 5-years ago so it depreciated only $5k thanks to inflation.
@@bpang88 It's certainly true that different cars depreciate at different rates, but the rate of depreciation depends on market conditions as well. Also, the Covid policy-induced supply chain problems distorted the normal supply-demand dynamics for used cars so prices were and perhaps still are much higher than they otherwise would have been. However, if the sale price of your car was higher than normal due to the "inflation", then the price of all cars is higher due to inflation, so you realized less of a loss ONLY if you don't need to purchase another car. If the market value of your house doubles, you are no richer if all other houses doubled as well. My point about depreciation in my orginal comment was that as a car ages, the slower rate of depreciation reduces the cost of ownership. That may be off-set somewhat by the cost of more frequent repairs, but it's still cheaper than, say, leasing a new car every three years because the biggest cost to car ownership is depreciation, and cars typically depreciate by about half in the first three years. So, if you get a new car every three years, you are always paying huge amounts in depreciation. If you buy a two or three year old car, you can foregoe a great deal of that cost if you plan to own the vehicle until the end of its useful life. Then, if you can finance the purchase at an advantageous rate where you actually come out ahead (or simply lose less), so much the better. It's only in very rare cases where you can turn a profit on a vehicle, so the goal is to lose as little money as possible, while maximizing the vehicle's utility.
Your calculation has a major flaw. If you lower the residual (resale) value of the car to 30K from 35k, the monthly leasing cost goes up by $138.89. I have done the math two million ways and leasing is always the better option. You can always buy back the car at the end of the lease term if one wishes and during the leasing period one can earn a return on the money. Also, are you adding the sales tax on lease payments? In many places there is sales tax on lease payments.
And the interest is greater then inflation. Instead your giving worthless cash for a semi less worthless depreciating "asset" in the vehicle. At least if you were to sell it in a few months you would get inflation adjusted dollars in most cases (so the depreciation would be slightly less).
@@crazycdn8327 A depreciating asset only matter if you *actually* planned on selling it within a reasonable period or expensing it as depreciation through a business. Most people don't buy a car to sell, they buy to have a car for them and their family to drive around. If you're looking at a car from a depreciation point of view, you need to minimize costs and get an old 2002 toyota or whatever. Otherwise, the argument is only whether or not you value money in your hand vs paying it upfront.
@@sws212 Finally! Eveyone keeps talking depreciating and while I understand that's true it's only relevant if you don't plan on keeping your car. Eveytime I have a conversation I have to remind people of that.
Bought a brand new Toyota corolla S cash in 2006 for $18,000 and about 8-10 years later with about 200,000 miles on it someone hit my parked Corolla and totaled it. Insurance paid me over $12,000 for the car. Bought a new 2018 Honda Civic Hatchback Sport for $21,000 and financed it at 1.99% and quickly paid it off in 3 years. 3 weeks ago after 6 years of ownership and 60,000 miles plus on it. The Civic was totaled due to flood damage by my insurance company and they gave me about $20,900. Moral of the story. Only buy Japanese cars that keep their value meaning Toyota and Honda products. Try to buy gently used or dealer certified used and drive them til the wheels fall off and it's hard to lose money with Honda and Toyota. Both of these cars I've owned costed me pretty much nothing to own. Changed the oil, 1-2 sets of tires each, oil changes and windshield wipers. Don't lease a car, it's a huge financial mistake since you have no equity in it even though you're making payments (same reason why not to rent a house). American and European cars are unreliable and lose value off the lot.
I think the concept of owning a car with other people’s money is a bit misleading. Whether you finance or lease, you never own the car. But, as stated, there is greater freedom to do more with your car if it’s financed since the dealership no longer has any vested interest in the vehicle because they don’t own it. But you’re still driving someone else’s car, a in a sense. However, to help minimize any depreciation from buying a car with cash, never walk into a dealership and tell them you want to buy a car for cash. They can easily pad hidden fees and cost into that because they know they won’t be able to maximize their profits through interest. In cases like this, it’s best to negotiate the best price (not monthly payments) you can for the car as if you were going to finance. Once you have the figure you want, you can then tell them that you want to pay cash. They may not like that but that could potentially help to minimize any depreciation once you drive it off the lot.
Good video. I liked it because my decision to finance my vehicle in today's climate was reinforced. The insurance companies charge different premiums depending on whether the car is leased or financed. I think this is a hidden cost in the decision-making process. I believe you are more likely to take better care of your vehicle when it is financed.
Whoa! Been writing auto insurance for 50 years with multiple companies. There is no difference in cost of insurance if you are leasing or buying. That being said, gap insurance is optional and should be considered depending on the amount of down payment. Leasing companies typically include gap insurance in their lease and you should not be paying twice with an insurance company. Whether buying or leasing ALWAYS ask if gap insurance is included.
@@Monster-Abee true to a point however if you sink in your hard earned money into something you usually also will take better care of it. Financing you aren’t fully invested with your hard earned money yet. If you pay cash $10k+ usually that’s enough amount to trigger your brain that I just spent a lot of my hard earned money on something!
@@famousamos1 that probably explains why i hear folks complaining constantly about how they totaled their car but still have to keep up with the payments.
It's a delicate season now, so you can do little or nothing on your own. Hence I will suggest you get yourself a professional that can provide you with entry and exit points on the securities you focus on.
Very true! I've been able to scale from $350K to $650K this red season because my FA figured out Defensive strategies to protect my portfolio and profit from this roller coaster market.
@@andrewchandler0 My advisor is ‘’Isabel Cecilia Ramsey’’ she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market
@@robertosaviano215 I just looked up Isabel Cecilia Ramsey online and researched her accreditation. She seem very proficient, I wrote her detailing my Fin-market goals.
I bought Honda with cash. That was my first car. In last 28 years I bought three more Honda cars for family members. All paid in full. Took care of all cars regularly. All cars still working great. Never touched my investments. Btw my pressure washer also has Honda engine. Very reliable.
One thing you didn't consider was increased cost of insurance between lease/finance and owning. If you lease or finance a car you are required to buy comprehensive car insurance (covers damage to your car) vs just liability insurance (covers damage to other party) if you purchase outright. Oftentimes, comprehensive insurance is 2X the cost of liability insurance and can add significantly to the total cost of ownership. I own my car and only pay for liability insurance, choosing to pay out of pocket for any damage to my own car.
Yeah, but I think its obvious for the person who has the money to walk in and purchase what they want. For the majority, they are used to just having to pay and have full coverage anyway.
@@fazilm1 yes, be a safe driver. If you do total your car, be grateful for surviving the accident and this of it as an opportunity to treat yourself to a new car. If you follow normal financial advice of having 3-6 months salary as an emergency savings then you can buy another. As long as you’re not having total loss accidents too often the money you save on insurance is more than that of having to buy another car. And if you are having so many total loss accidents then your insurance is going to be super expensive anyway… You don’t ever come out ahead with insurance.
Not sure if this was included in your lease calculations but on-road running costs, maintenance, registration, road side assistance etc are all covered in the monthly instalment so that's a benefit worth noting. Also, in Australia we have GST (Goods and Services Tax) and the lease excludes GST so calculations for Australians would be different since the price of the car is lower.
I don't know if it's different where you live, but in NH you still have to pay to register your leased car every year. It's not included in your lease payments. But everything else you mentioned is. I registered a leased car last year for $500. And will have to pay $480 to register it again this year.
This is great! Thank you! The minor thing I would add is the difference in opportunity cost between three. I mean you out for the cash purchase. But there is a difference between leasing and financing. With leasing your have more cash left for other investment. That is a pro compared to finance. Anyway, great analysis. Thank you.
The big difference comes the minute the car’s warranty expires. If you go beyond that 36 month period, in a loan or purchased car you may not have a payment anymore, but you likely have the heaviest maintenance and repair costs where with the lease the car is gone after the warranty is up and the only maintenance you’ve done is $30 oil changes. Additionally if you use for business it’s much easier to expense vs depreciate
Excellent video. However, when financing, any money you pay up front is not a "deposit." Any money you pay up front towards a financed car purchase is a down-payment.
Hi Benjamin, I think Gabrielle is trying to explain to having at least 25 a month to save for (every day) costs that might occur. Tires, bougie, battery and other issues. So when those issues come up, it is not entirely painful to pay or downpay for the costs. Something I will definitely try with my next pre-owned car.
Isn't the rate usually lower when you lease? Plus, you don't have to pay for repairs because it's still under warranty. The monthly payments are significantly lower. If you can write it off, I think leasing is the better option, especially if you plan on getting a new vehicle every few years. I would just watch the down payment on the lease, and remember that it can be negotiated.
To make a fair comparison all scenarios must start with the assumption that all have same budget, in other words, all guys must have 48K in cash hence they are able to pick one of these options. This implies that whichever option they choose they all must deal with the opportunity cost. In other words, the guy with the first option loses the interest that he could have gotten if he had invested his 48k in fixed income, ETF, etc., the second guy loses the PV of the CF generated from interest that he could have gotten if he had invested the cost price minus the down payment which is the interest of best option - PMT from t1 to t36. , something similar applies to the third option.
If you lease the right vehicle, one that retains the highest resale value, you can buy it out at a guaranteed residual value and sell it for profit. I have leased 4 vehicles over the last 8 years and have sold 3 of them post buyout for 5-7 thousand dollars over the buyout price. Small dealers will snap them up because they save auction fees and transport costs.
One thing that is missing in the discussion of opportunity cost is the tax implication. Investment income is subject to income tax. Depending on your tax bracket and income type, it could be more than 50% of your investment income .
Only if you sell or have capital gains or dividends in the US. If not, there’s no tax. Adding this factor would make this crazy complex because of how many permutations you can have.
I could split hairs on how low that opportunity cost is, but I’m just glad it was included. The only flaw I can see is the payments in the financing option have to be discounted. Today, that discount rate would be enormous
When the resale value is lower, the leasing company will increase the lease cost because you have to “pay” for that additional depreciation. You are leasing a larger amount so cost goes up.
The resale price is a prediction though, they almost always give you a buyout price that is lower than the car will be worth when the lease is up. So, you end up being able to finance the car for less than it's worth at the end of the lease and get some of that value back.
@@krisevon except for leases that have occurred in last two years--residual values are upside down for the leasing companies for the first time ever across the board on all automobiles. Due to: parts shortages. This was first lease I ever had done and got extremely lucky on the timing of things. Now to figure out best use of equity in leased car: buy it or try to role equity into one more lease and not get fleeced!
@@themartdog This really depends, the lease buy out price is the residual value there is no alternative buy out price.......Dealers often set the residual value at a much lower rate when you lease vs if you buy then sell later at market price. You often lose as a customer in leasing because you are paying upfront rental fees you will never recoup and also dishing out additional financing cost or cash if you buy it out after. If you do the math if often cost you more than if you take the financing option.
I was told that lease payment is based on projected value of car at end of term .. so if you are adjusting resale value, maybe you should adjust monthly lease amount.
The opportunity cost is a big IF (it's up to you to invest it or not). Most people won't. Monthly payments HAVE to be paid, financed or leased. Insurance is not mentioned here. With financed you have to have full insurance (at least in the US). With leases, the lessor may or may not cover the full coverage, as the car isn't fully yours yet. As a big IF for insurance, if you buy the car outright you may only choose to have limited insurance coverage, thus reducing your overall ownership expense (This is up to your comfort level, of course).
When leasing, don't you pay less taxes&fees as you are pay them monthly, and after 36 months you have paying only a fraction of the car? So you only pay taxes on the amount of the car you bought, in your example $18.396. Whereas in financing, you pay taxes&fees on the full amount: $43.290. When leasing, numbers change also whether you decide to exchange the car, return it or buy it at the end of the lease (this video's calculations seem to be for the 3rd option).
Leasing is a trap. When you turn it in they will knit pick you to death on dings, scratches, etc. So, it's not simply just turning it in. And, you should never lease unless you own a business and you better not drive it more than the annual allowed mileage. Maintenance is on you, as well and that includes tires, which usually don't last two-years (OEM tires). Dealerships are not in the business to give you the best deal, that is up to you. If you don't care about the cost and like a new car every two or three years, then lease one and don't worry about the cost. Cars are a depreciating asset big time, so the cost of ownership is up to you. Do you take care of your vehicles or just drive the wheels off of them. If you take care of your vehicles and you buy a reliable vehicle, then buy it. Finance it for 36 mos. (20% down minimum) and if you have the money, pay it off in 12 mos. This gives you time to appreciate the vehicle or hate it. And, Good Luck at the dealership, they are sharks in the water, and will take you for a big ride. Don't believe me, then go watch The Homework Guy (THG) on TH-cam and learn.
When your car is financed, the insurance premium will go up. You will end up paying more insurance if you car is financed than is paid off in full upfront. This additional insurance premium should be considered as a cost to finance. The accumulated increase in premium could be quite high over time.
Not true, this depends on the individuals track record and the insurance company risk assessment. Financing is often less in premium because you own the vehicle. But if its a lease, your insurance have to deal with the leasing company because the title owner isn't you. There is often an additional cost to protect the title owner. Second, insurance premiums also depends on the vehicle you buy.
These calculations are innaccurate. The resale value of a leased vehicle is '$0' as result of not owning the vehicle. Those payments for the lease do not incur equity due to not having an asset. Cash or Finance, creates equity from the asset of the vehicle due to ownership. "For Educational Purposes" The best option - negotiate a lower price via financing, though ensure there are no clauses in the contract that incur early payoff penalties, and then payoff the loan within a month of finance.
It's inflation, car dealerships are taking advantage of it. But in reality it comes down to the money printing press of the Fed and the government is getting bigger it means the budget and liabilities are also getting bigger for the taxpayers to support its obligations.
Your numbers are a little misleading on the percentage rates. Because everyone's credit is different if someone with a credit score of only 600, they can not qualify for those interest rates
Hey Gabrielle, great work with this video. One question I have is in scenario two, why did you ignore the opportunity cost of making a $5,000 down payment when financing?
When you lease you often have the option of a "one payment" lease, which would subtract the payments from your calculations. That would put leasing on a financial par with financing, I think.
One other factor to consider is whether rebates are based on how you choose to pay for the car. When i offered to pay cash , dealer said i would lose one of the rebates if i paid cash. Obviously this was many many years ago when cars were routinely sold way below MSRP. So instead of paying $25000 cash for the car , i financed it for &23500. I then paid it off after a couple of months. Sure i paid interest on those two months but i came out way ahead by financing and paying of early than buying cash.
Confused, if you're leasing and the residual is lower then the amount paid during the lease would be higher. Your examples have the “lease cost incurred” the same when there's a $5K delta between the residuals in your two comparisons. Your cost incurred should be $5K higher in the second example. Next, if your leasing as a business expense then a higher deposit isn't beneficial. Interest rates are a business expense. Even in the case of a car allowance. I don't think this is as accurate a video as it could have been.
The taxes and fees would be significantly lower on the lease compared to the financed purchase option, as the taxes are only calculated off of the purchase price minus the residual. Also, using a promotional interest rate for the purchase option further skews the results in favoc of the financed purchase option.
So cool! Love the spreadsheet you used to encapsulate your summary. Great information for folks wanting to change cars every few years. I think if you extend the ownership horizon to 10 or 15 years, it will become quite apparent that purchasing (either by finance or by cash) becomes considerably less than leasing.
@@SyrupCanuckmy secondhand car is almost 20 years, with me driving for the past 10 years, still working but it requires one major repair so far.... overall still worth it then purchasing a new vehicle...
@@financenumber2953 other than Toyota maybe what? So many expensive parts on vehicles now. I just saw a late model subaru forester with burnt out fog light and it was at least a 2020.i saw new Ram trucks with burnt out led lights. Those are sealed units and cost a ton. That's what I meant when msot new cars are junk. A few parts go and bam you are in for an exspensive ride.
@@SyrupCanuck WRONG. I have a Mazda Miata 2006. 70K miles. No parts have failed. None. Just regular maintenance (oil, tires, brakes, coolant). That car is now 17 years old. I'm light years ahead in $. I know Miata owners, who are pushing toward 200K miles without major repairs. If it's stick, I can have an engine replacement on an NC for well under $4K. The manual tranny will last until doomsday; might need a clutch for under $1K - which will last 100K miles.
I buy everything for cash and lived below my means and investing the rest-currently my Camry is 16 years old!!!. This strategy allowed me to me retire at 56 with a lifestyle which does NOT eat into my principal.
I've been leasing cars for years, paying at most 1.9%. I even had one term at 0.9%. I am driving Subaru cars financed by Toyota Finance. My dealer continually adjusts the residual value to the market with some discount and applies the difference as a cash down payment to my new lease. I go for two-year lease terms and almost always exceed the km quota; however, since I am always leasing from the same dealer, I have never had to pay the overage km charges. The other advantage of a short lease is the low maintenance cost and 100% warranty. I gladly leave some money on the table for the dealer selling my return car instead of all the hassles of selling the car privately. It's interesting that the financing interest in your example is less than the lease interest.
Jeep Wranglers have a high resale value compared to other cars that is what drives the higher cost of lease. Remember than in leasing the APR that is shown is hiding the residual value they are calculating for the car.
I think if planning to keep the car around longer then buying is always a better option, right? Plus , I also thought there is also a millage cap, and they will charge more afterward. One more thing, 1.9% finance? Is this possible with the current high % rate?
lots are now filling up w/ 40K+ cars/SUVs that have a couple years on their life cycle, they aren't budging on price but even companies that rarely budge at all (Toyota) are offering 1.9-2.9% financing on their pricey-er vehicles (need 800 credit rate tho).
Never heard of an opportunity cost. No one’s ever mentioned that before. I do not understand what that is and why should someone be penalized for paying outright for it
Sorry for the dummy question I don’t understand how accounting works 😅 Why opportunity cost is added to the cash buyout plan? Don’t we need to subtract from the cost? To me, it feels like, the cash buyer doesn’t give away an extra for the interest hence it’s a benefit and it is a gain , not a cost; so I would expect like 13k - 1.5 k = 11k ish , thus making the cash plan the best ? What I am mistaken about here ? Thanks !
The skyrocketing price of cars these days, it might actually be smarter to lease and then buy out the car at the end of your 3 years. The dealership won’t want you to do this because the cost of that car has gone way up by then and you could just turn around and sell it. I don’t know. Maybe worth doing the math on it…
When you finance the entire purchase up front with debt you don’t own the car. So no difference between leasing and that. You only get the title when you have paid off the car. Leasing is just a different method of financing and it provides even more flexibility than using debt to fund the entire purchase up front. Leasing doesn’t always make sense but I’ve found there are many people who would never lease even when leasing is the best option and it is often because they get lost in these semantics.
That’s important for people to understand. Financing is not the same as ownership. Debt is debt regardless of purchasing or leasing. I know people tend to look at financing as potential ownership at the future date but during the financial or leasing period, there is no “ownership”. I’ve always leased and it has been the best option for me.
I'd like to see a more realistic comparison based on monthly budget. Say $500 or $600 dollars a month. Also, the value of the vehicle at the end of the lease is negotiated at the start of the lease. Some people got real lucky when their buyout came up for option when rates were low and used prices were high.
I’m no expert but buying outright vs financing (or leasing) wouldn’t you also want to consider the potential savings over the term from not having a monthly payment?
I purchase all my cars outright. Never purchase new. I can’t possibly wrap my head around someone wanting a mortgage payment for a car loan. If you can’t afford it outright, don’t buy it. That’s a huge issue for most folks. They want to look good/cool and they don’t own the car until a 3-5yr period. And they have lost 50k dollars. Geesh that’s crazy. Great video.
I would have gone for financing if the interest rates weren't so high in current times. Nowadays, buying outright seems to be the best option if you have the means, since the other options are pretty expensive. Even getting a used car can be more costly than waiting for a new car.
But leasing interest also goes up regardless whether you finance or not. The leasing company is also base their interest rates on commercial loan rates. You only see a difference in % is because the dealer is making a incentive deal for you to lease vs buy during a shortage so they can have their vehicle back.
I just looked up average mileage cap/year for leasing a car. The mileage caps were 10,000, 12,000 and 15,000. So after 3 years that comes out to be 30,000, 36,000 and 45,000 miles respectively. At 54,000 miles you would end up paying the cost for additional mileage imposed for the leased car. In my area, I have seen the cost of $0.25 for each mile beyond the lease mileage cap. I think you should factor that in to your estimate. Other than that, everything looks good.
Not sure if this was mentioned or not, but the other thing to consider (at least in the US) is insurance requirements on a financed car. Banks typically require full coverage for a new car that they are fronting. Buying cash, you might have cheaper insurance options. What the difference between financed insurance versus cash insurance options will vary but worth considering.
If I pay cash for a new vehicle (which I wouldn't do - I'd rather buy a good used vehicle and let someone else eat the depreciation) - no way would I be looking to under insure or cheap out on the insurance options.
Financial-wise NEVER BUY A NEW CAR...that's it. Buy a used 2-3 year old car and let the first owner take most of the hit on depreciation. If you're not comfortable then do it from a dealer. Still better than buying a new one outright.
Interest rates are higher for used cars and new cars have don't have problems. Certified Pre-owned cars aren't much cheaper than new. I don't worry about depreciation because the purpose of my car is not to sell it but to use it to get from point A to B safely and reliably EVERY single time which is important for work and family. I only buy new cars... but I've only had two cars in my whole life; 2005 Toyota Corolla and 2013 Hyundai Azera which I drive now.
It really depends on how long you plan to keep the car. If only for a short time, leasing is always better. But for 5+ years, buying and financing are always better.
This is partially right. She mentions it also, it depends on the purchase price and depreciation. This might be true with something like a Toyota Camry which holds its value or if you buy a CPO vehicle. If you buy a new luxury car or model (BMW, Mercedes)where the values drops like a rock after the first few years it might be better to lease.
The depreciation is not really relative if your planning to keep it until it is no longer useable but if you are the type to replace before it is necessary than yes. Personally I am the type to keep it for as long as possible, currently still using my 1996 infinity i30 and I am sure in that case buying was certainly the cheapest option. Will probably replace with a camry I can hopefully use for 20 or more years but sadly most people want to replace their cars at the same crazy pace they do their phones.
What would you do for a vehicle that you plan to keep forever? I’m wanting to purchase a 4Runner (at some point) and I’m not worried about reselling it or anything because I’d be planning to keep it for life. It’s also around $50k and I’m exploring ways to pay for it. Willing to save a few years for it but exploring if there is a “better” way.
You mentioned being able to keep a purchased car after payments are finished (as opposed to leasing), but I think this could have been emphasized more. I've had my (inexpensive) car for 10 years, and it's still going fine. Think of all the years of payments leasing would have cost. If having the latest and greatest is important to you, then leasing might make sense. But if you just want transportation, leasing is foolish IMHO.
you can finance the residual value of the lease at the end of the contract. if the residual value is lower than the standard purchase price of the car with the same amount of wear, then financing your leased car after the contract is a good idea
very Interesting info, what would be the case if we look at financing vs out right buying with no intention of reselling the car? i guess it would be unfair to compare leasing in this case
Really clear analysis. I now see how super low interest rates really made financing a great deal. My dad, who always bought new, was an economist and he taught me just how much buying new cost in depreciation and to a lesser extent about opportunity costs. Consequently I buy used (and have the skill fix them myself) and hang onto my savings in case the sky caves in.
Ton of public enthusiast dealer networks can verify all these video categories, consumer public happiness is key, even trying car vending machines. vehicle, vending, machines :)
I've been leasing cars since 1993 and, for me, they are a much better deal than buying one because I drive less than the (usually) 1,000 miles a month most leases state and that means when I've gone in to at the end of the lease to lease a new car that the mileage equity I've built up covers and down payments for the new car and all I have to pay is the first month's lease payment (incl sales tax) and license fee. I also take advantage of manufacturer's lease specials to further reduce monthly payments.
That way I get full warranty during my lease, get a new car every 36-39 months with all the latest safety features, etc.
A lease is NOT as good a deal if you put more than the monthly mileage allotment on the car.
And you've got a monthly car payment for the rest of your life.
Unless you're leasing for a business and can use it as a tax write off, I can't see the advantage in leasing.
@@abc456f Pros of leasing 1: You've got a new car every 3 years. 2: The car is always under warranty. 3: Lease payments are less, especially manufacturers lease specials***. 4: By the time you've paid off a car it's not worth much and, with the exception of car companies like Kia/Hundai, any repairs after the typical 3 year warranty all come out of your pocket, and repairs aren't cheap.
As I said in my original post, leasing a car is not for everyone, especially if you drive more than the monthly mileage.
*** in February of 2024 Hyundai had a lease special on their Ionic 6, all electric car that's won all sorts of awards, including some 'World Car' award. How much was drive off and 1st months payment? $239 plus sales tax. $239 a month lease.
@@abc456f If you invest the cash you would have spent on the purchase of a car, you'll actually make money instead of sinking capital into a depreciating asset.
@aliasoma I won't argue with that.
The fact that you get a new warranty every 3 years is why I encouraged my daughter to lease a new car after her first lease was up.
I did a similar analysis when I considered how to purchase a new car. In the end, I chose to purchase the least expensive car that met my needs and was reliable. I didn't buy a luxury vehicle. I didn't get the highest trim level (even though I wanted it.) I paid in cash and love not having a monthly payment. For me there is a lot of psychological value to not having the weight of debt. As much as possible, I try to live a debt free life. It may seem unsophisticated, but I sleep well.
Love this!
Well done! I live on Social Security and the minimum distribution requirement from my IRA, with the Lord's help. Not a lot of income, but being debt-free really helps. :-)
@@tfewald01 I’m sure it does. I didn’t know as a young person that it cost money just to maintain our cars…I know this might sound dumb but if you don’t have a loan payment then you can maintain the car just fine.
This is the way
Smart
We can absolutely go back and forth about what rates and costs are realistic, but the great value here is the analysis, the takeaways, that allow us to figure out for ourselves and our realities what is the best choice. Very excellent video! Thank you for making it.
😅😅😅
Despite so many people telling me that leasing is a bad option when I was younger, I've always leased because avoiding car troubles/repairs is at the top of my priority list. I don't have a tolerance for dealing with bringing a car into the shop, getting a loaner, any of that crap. I just want to get in and go, not worry about any of the crap that comes later with older vehicles. I understand this sounds like I just don't want to maintain a car and I guess that's correct, and the market gives people like me an option that suits my needs. I guess we all just have to know what we prioritize!
Get a Toyota. My family and myself always keep them for 16+ years. No issues.
When leasing a car you partially pay for sale tax because it is usually based on the amount of each rental or lease payment. In the case of $48486 Wrangler purchasing sale tax is $5196, but you would pay around 50-60% of $5196, $2598 to $3437 when leasing. Overall, cost incurred is about $15000, less than $17132 as mentioned in the video.
1.99% is pretty unrealistic for most people who are financing. Extremely rare. 3%-4% is already a very solid/good rate for most people. Just avoiding 5%-8% interest for most people is the goal, if possible.
Sometime you can get better rates with your own bank then going with the car dealer and always read the the CONTRACT. Sometime if you read it says that you don't need to SIGN The CONTRACT. So Don't let the dealers push you around and getting you to sign a CONTRACT that you don't want to sign or understand.
This video is moot because the numbers are unrealistic!
I thought so too, but Ford (Canada) is giving 1.99% for a finance from 36 up to 72 months.
yup, also is very unrealistic for most people to finance a car for 36months. Most buyers finance 60-72. I'm guessing she is going on the assumption of the money saved, if you can safe that much, you already know what to do with your money and you're definitely NOT BUYING a new vehicle (unless is for business or very premium that doesn't lose value) NOR buying CASH
I just bought a new 2023 Corolla hybrid awd and got 4.5% APR for 36 months from Cefcu and the vehicle I traded in on it was a new 2014 that at that time was 1.99% APR for 36 months.
Ex auto finance manager now certified financial planner here, good video. Some things to consider: if your car is owned outright or financed and you are in an accident and repaired, the accelerated depreciation will be borne by the owner. If it’s leased that is borne by the leasing company as the residual is guaranteed on a closed end lease. Also pay attention to residual values, if the residual value is higher than you think the car will be worth at lease end, consider leasing. Also if you are using the car solely for business then the whole lease payment will be tax deductible up until the maximum of about 900 per month. If it’s owned you will be able to deduct interest costs and depreciation logging kms used for business
The cost of the lease is basically the depreciation. If the assumed depreciation is in your favor, you win. Amirite?
@@chowsquid Yup. Cost of a lease payment is depreciation and interest. If the assumed depreciated value at disposal/sale is less than what you sell it for it is deemed a recapture and you’re taxed on the amount you kept. If the depreciated value is greater than you sell for, it is a terminal loss and you can write that off too.
Exactly. This lady don’t know what the f she talking about. Lease its the best option. No even close . U can keep the car at the end of the lease if u want too by the residual value if it makes sense . U pay taxes at a monthly basis. U need a good credit . Thats it
She over simplified it depends on your usage and intent before you do the math.
GAP … that shoots first the entire argument above
WHERE DID YOU SEE 1.99% APR FOR FINANCING?!?!??!?! I haven't seen that ANYWHERE.
Right?? Just bought a van with 7.5%
@@goosewithagibus damn why so high
@@lizardman1303 interest rates are up across the board. Even with a near excellent credit (760). In 2020 I was able to get a 4% auto loan with no credit history. It's crazy these days.
Plenty of low interest rates. Dig! 😂
@@goosewithagibus what vehicle?
I keep my cars for about 20 years. Paying cash is the only way to go. But now, I am considering leasing, since I am in my 70's and don't have 20 years left!
Sure you do. My neighbor just turned 94!
Given enough time, all car will worth $0 (end of life).
I always buy.
* New for my wife every 4-5 years. (maintained by the dealership). and take advantage of the low interest incentives.
* Used for myself and drives it unit it dies (I do the repairs myself as much as possible) and always cash.
That is the best approach!
* The cost of ownership on my car is less than $1K a year.
* The cost of my wife's car is worth every penny it as it eliminates a lot of headaches.
As an Accountant myself, kudos to you for keeping the numbers simple. It’s clear that Financing is always cheaper than leasing. If you keep the car for around 7-10 years, then it’s more cheaper. Only lease if you have extra disposable income and want a new and shiny car every few years. But for most of middle class people, financing or buying used is the way to go.
Thanks for summarizing
“More cheaper?” And you are a professional?
@@2004cyrus So what you are saying is that Financing is not cheaper than leasing? Sorry if don’t get your message. Thanks.
@@financenumber2953 its more expensive and not expensiver. Its cheaper and not more cheaper. He's being a douche and pointing out a grammar mistake. Acting as if everyone's first language is english...
@@financenumber2953 I think he was criticizing your grammar in using "more cheaper" rather than just using "cheaper" or "much cheaper"
Lease vs financing depends on your finances and the brand/ model car. Some dealerships allow you to lease cars for 48+ months, and offer a maintenance package so you don’t have to worry about car troubles. Personally, I prefer to lease luxury cars, and buy low maintenance cars.
I thought all leases included maintenance? Why would you lease a vehcile if you were stuck maintaining it as well.
Me too leasing is the best option plus I can write it off
lease Germans and finance/buyout Japanese cars 🙃
This is probably the best advice here, haha. Unless you can buy a German car without finance, there isn't any point even if you take good care of the vehicle once that warranty is gone-the price drops. Also, if you want a BMW to be reliable, you must change some parts; that's a given, so add that to the price. Plus, most people here will pay it off after the warranty.
So, unless you are buying a good reliable car, where you can make your money back later. German cars, should be leased. Because you can use that spare money to invest.
Yes. I’ve had my Honda for over 20 years.
You forgot...run away from American cars
Or get a car what you want regarding the origin of country and take care and know your car.
@@UnitedShredNationpeople taking care of and knowing how certain cars work is why we're saying this lmao
Do the comparison of buying used and leasing a new one so people can understand. In my opinion the best thing is to get like 3 years old car which already dropped it’s value but has only like 30k miles on odometer. And go from there. I like to buy those in cash, so I am also not forced to pay for full coverage. And also you can get the credit card from which you buy a car and have 0apr for 18 months. Those are the best options in my opinion
Also, most leasing agreement has a buyout option. So if your lease residual value is lower than actual value, it's best to buy it out at the end of lease. Also, all the cons you listed for leasing, such as the mileage, mod requirements would be no issue if you buy it out.
Good to know! Thank you
At that point, it would be better to just buy it out right from the beginning.
@@tommieboi707 No, it's not. If you are not making enough to first owe 7500 in your tax liability to the federal, especially for those living in non-liberal states
There is also the time element that isn't really discussed here. Meaning the money you didn't spend on the car, while buying at 4% will probably be growing at a higher rate than 4% in a reasonable IRA. There is still depreciation, which is very car brand dependent. All cars have a lifespan. No getting around that.
The one thing that most comparisons forget to include is ongoing maintenance costs. As shown in the video, the benefit of leasing comes when there is a bigger depreciation hit. This usually occurs most often with luxury vehicles, which also happen to have expensive maintenance schedules. For the DIY enthusiast, they also tend to require special tools (which add to the cost of service) in addition to the parts themselves being more expensive. Service costs are also affected by location, which can drive up prices significantly.
Generally, leasing vs buying is a very different conversation between a new Toyota Camry and a new BMW 340i. In my research, it was rarely worth leasing a standard vehicle, but it made sense to lease luxury cars given how expensive their standard maintenance can be. For sure you can find parts cheaper online, buy the special tools once, etc., but not everyone is a DIY hero that has a professional grade scan tool and a random assortment of tools made solely to service these German vehicles. Major service for a luxury car can cost several thousands, and anything engine related can easily set you back over $5k. And generally speaking, the luxury manufacturers seem to actively make it difficult for your to work on your own car (by not having jack points for a floor jack, or requiring a special screwdriver to remove a panel, for example).
At the end of the day, however, the best deal is the best deal. Sometimes the leasing incentives are better, and sometimes the financing terms will work out best. You really have to do your own math based on the offers you have to figure out if you are saving money in the long run.
So that means if you buy a BMW you are screwed?
@@RacingS2000 If you are poor, then yes. If you are upper-middle class or above, then no.
One very important factor has not been mentioned. If you lease a car, you shift the risk of the future value of the car to the leasing company. If you get into an accident, even if it is not your fault, this will substantially reduce the resale value of your car. If you are leasing, this is not your issue. But if you bought the car, it is a big deal in this calculation.
@@EM-cz4rd yep. So at the end of the lease you compare the current market value to the estimated residual value on the lease agreement. If the contract price is lower than the current value, you can buy it cheap, or trade up to a new one with no money down. You are under no obligation to buy if the current market value ends up being lower.
@@EM-cz4rd Also you do not shift the risk of future value. Leasing company tend to hold your residual value higher to protect themselves from the very situation you are talking about.
Great comparison on 36-month timeline costs. However, if you extend out the length of time (48+ months) lease vs ownership, the numbers will greatly skew toward ownership.
Not necessarily, because a car will have significant drop in resale value with each passing year, AND you have more risk of expensive repairs lowering its resale value further the longer you own it as older cars break down more. I think the examples given are highly speculative and not reflective of real world data but at least you have an idea on how to setup your own spreadsheet and input more appropriate numbers on your own.
Bying a vehicle with a good maintenance value will save money over a money hog.
Owning a vehicle longer will depreciate the value of the vehicle more which you don't have to worry about when leasing. Also, accidents and repairs will further decrease resale value and that is more likely to happen the longer you own the car and resale value is the only thing going for financing or outright buying vs leasing so owning a vehicle longer would make the cost incurred longer than leasing thanks to depreication
Depreciating the value of the car is actually a good thing if you’re in it for the long haul: lower insurance and registration fees, and my cars have been lasting at least 18 years with few problems.
Pay cash for a pre owned car coming off a lease is the best option…
Pay cash for a reliable car. Use the $ you save for investing, etc.
As a cpa and cfp, great analysis. In reality most car buyers are so confused, purchase is an emotional purchase not rational. The seller wants confusion.
Spot on. Most vehicles- especially new vehicles- are an emotional purchase. As a former ad exec, the money poured into car advertising is staggering. That’s why car ads have beautiful models, pefect traffjc free mountains, or stylized graphics and music- with very little data or information. “The mind will justify what the heart wants.”- that’s the car industry in a nutshell.
@@BR-gz3cv
Applies to most of our world now incl politics and healthcare. Follow the money.
The effects of the downturn are beginning to sink in. People are being impacted by the long-term decline in property prices and the housing market. I recently sold my house in the Sacramento area, and I want to invest my lump-sum profit in the stock market before prices start to rise again. Is now the right moment to buy, or not?
Stocks with yields that outperform the market should be on your radar, as should shares that at least lag the market over the long term. But if you want a long-term strategy that works, I advise you to consult a broker or financial advisor.
Don't depend your market assessments and decisions on hearsay and rumors; I did it in 2020 and ended up with worthless market holdings. Before I started noticing any notable improvements in my portfolio, Helene and I had to completely rebuild it. I've been using the same advisor ever then, and in just two years I've scaled up to $876k. Depending on where you look, a bullish or down market might both produce good profits.
Thats a good one. I know a lot of folks that made fortunes from the Dotcom crash as well as the 08’ crash and I’ve been looking into similar opportunities in this present market. Could this coach that guides you help?
REBECCA NASSAR DUNNE is her name. She is regarded as a genius in her area and works for Equity Services inc. She’s quite known in her field, look-her up.
I searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you
This video taught me that these calculations keep people who lease cars to keep leasing and keep having a monthly payment. They continue their leasing behaviors because of opportunity cost,low maintainence cost, no hassle of selling the car is justified.
People like me buy and keep their cars long. No monthly payments, lower insurance and registration costs.
David D I also buy a car like you. Buy it used, no payments; invest the money that would be payments.
People that lease are paying prime depreciation plus interest. Depreciation occurs the most in the first five years and car dealerships will charge the renter accordingly. Leasing might seem affordable the first time but after two or three leases you realize you're throwing money away. Same logic as a person renting a property as there's no built up equity, just money thrown out the window every month and after the life of a mortgage which is 25 years renters have nothing to show for
@@vincentortega4284 When I was younger and stupid, all I did was finance crap. Now I'm older, my used cars are paid off, have a home, and use the money i use to waste on monthly payments towards investments as you do.
There's pros and cons to all methods. Leasing is better for high-income earners cause the monthly cost is negligible. For enthusiasts, financing a dream car is the best way to get their hands on it the quickest because the value of enjoyment exceeds the interest premium.
@@paulklp8262 financing a depreciating car is not what high earners do; it's foolish. Invest that money.
I haven't had a car payment for several years, and it feels amazing
I haven’t had a car payment for many years and it is amazing. Only way to ‘get your money out of them’ is to pay cash and drive them until they need so many repairs that it doesn’t make sense to keep them anymore.
Have you had any unexpected repairs or been stranded on the road in that period of time?
@@SkarTisu never, Toyota
I’m from the UK and have never had a car payment. Bought a second hand car with cash like many people do in my country.
In the US people earn so much but they still end up in debt somehow spending loads on their cars 😂
@@r3negade47 well, we travel much further and are independent. Debt is not necessarily a bad thing. Obviously, you didn't watch the video...
one very important consideration that is left out here is the buyout option(residual) on mostly all lease contracts. This can be the deal maker or breaker. If the market value of the car at lease end is lower than the buyout, you can walk away. If vice versa, you can buy it out and pocket the difference. Same concept as options trading. However, with a higher residual, your payments will be lower but the chances of you having a chance at a profit at lease end is lower. Pluses and minuses to both, but it can significantly effect this calculation. With consideration given to lease end buyout, leasing is basically a hedge against a set depreciation. This is the biggest advantage to leasing.
Good thinking
Excellent point. Hedge on the downside and potential much larger gain on the upside - exactly what is happening to many up and coming expiry right now
Excellent advice.
I am confused I fail to understand your comment. I assume that at lease end the value of the car is lower than buyout. Why would it be higher? And how would you pocket the difference?
When comparing lease to purchase, you can also include the residual value of the lease and can capture the delta between residual value and resale value - lots of companies will give you cash to buy your car out at the end of your lease
😂😂😂😂
This is false! I absolutely cannot believe how many scammers are in this comment section. Beware of these fraudulent statements. Pretty sure half these people make money from leasing ehich is why they are here spreading false info.
Thanks for the video! Yes, this is a confirmation of a conclusion I've made a while back. Once the used car market goes back to the norm (nowadays it is overpriced), the best financial decision in terms of car purchase is to buy a good condition and reliable brand/model used car and keep it for many years. Maintain it adequately but not necessarily following all manufacturers recommended maintenance (only the critical ones. I.e: Timing belt replacement, etc.). Make sure oil changes (fully synthetic always) are always timely and good gasoline is always used. This should keep expenses to a minimum and have a headache free car ownership. I have been doing this for decades and the process never let me down.
All of those maintenance costs and time taken to take care of the car does not equal headache free. All cars of every brand and model have a new issue specific to that year and make. Cars are the most depreciating asset of all time. There is no value in a vehicle. Leasing is the best bet considering you could make money after lease end when given the option to purchase and there is rarely ever any need to waste time on maintenance or wear and tear
@@kennethguerrero6802 I completely disagree with your assessment. Starting with the base assumption "All of those maintenance costs and time taken to take care of the car". If you start with a good purchase and follow the steps I mentioned, maintenance is very low cost and effective. The time to do it is almost negligent. Lease is more convenient for the ones who want to always be driving a new car but is definitely not the best financial choice.
@@corujariousa you should look up the average maintenance for every model of car over a 6 year span. The longer you own a car the less valuable it is. You can assume your car will never give you problems because you “take care” of it. But everything wears down on a vehicle. You will always have a problem over a long enough span of time
@@kennethguerrero6802 True statements but under the conditions and process I mentioned those expenses are way below the cost of leasing over the same time period. Again, I've been doing it for decades and it hasn't failed me once. I do recognize not everyone would be like me and most people buy cars not based on reliability but in terms of looks only. Also, many people fail to take minimum adequate car of their vehicles. All my vehicles look almost new after 7-10 years of use. So much so that I have many times been offered good money on leaderships, given the inflated used car market and the profit they see they can make with my cars. And I do not "baby" my cars. I just do not treat them as something disposable.
@@corujariousa hey if you just want someone to affirm your beliefs, youre good to go. The information is out there is you want to learn more. This accountant left out alot of details that a financial expert should not leave out about the process
It really comes down to what condition of car you need, and your personal situation. Older reliable car bought outright is always best. But if you need a specific model and year finance. If you need to keep up with having a new car lease. Its that simple.
What i learned from people that got money and know how to keep money is you never buy any car that's not older than 10 years thats when all the value of that car is lost so you get your moneys worth. Cars are liabilities no matter how you flip it. I got to agree with that. :D
Why would anyone "need" a "specific model and year?"
@@cosmomontanaro5759 having piece of mind w/ the condition of the vehicle is what most ppl say. not sure how valid it is buttt
Great video... my only issue is that you're comparing 36 month leases to 36 month loans. Almost no one does 36 month loans. Run it again with a 72 month loan at 4.99% interest. Financing is still cheaper than leasing most of the time, but leasing is less hassle on the back end, just turn it in and move on.
This is a great breakdown, I would add one thing. The opportunity cost will always be more than the interest amount for finance. The interest rate on finance is calculated on a depreciating balance, whereas the interest earning potential should be calculated on an appreciating/compounding balance. I know it's more complicated, but I have seen circumstances where interest rates on earning can be half that of finance rates and the customer still earns more than they pay over the same length of time.
She said in the video that her opportunity cost was an example and you'd make more in real world situations.
No, the potential earning interest rate is also on a depreciating asset, because you take out money to pay for the car. They are literally identical if base interests are equal.
Cool to see the various scenarios here. It would have been fun to see a few real world examples in the sense that most people financing don’t have perfect credit and won’t get that 1.99% rate. Additionally, most people finance their cars for 5-6 years now. It would be beneficial to show people how drastically these change the cost of ownership numbers.
Rub a few brain cells together and do the math yourself
@@bunterrRthis implies he has more than a single brain cell
My mom did. Some dealers have these deals. She got it on a Toyota
@@bunterrRNo need to be so rude.
That was a good analysis, Gabrielle. Another factor to consider is inflation. When you purchase a car outright with cash, you are using dollars at their highest (present) value. If you finance or lease, over time your payments become cheaper in real terms because the payments are fixed but money is losing value. The real win comes when the finance rate is well below the rate of inflation. So, all things considered, if inflation is high and the finance rate is much lower than the lease rate and prevailing money market rates, IMO the best option is to finance. You take advantage of inflation. You can invest the excess money you would have spent to purchase. And the car is yours to do with as you please without having to worry about charges for damages at the end of a lease. Furthermore, as the car ages is depreciates at a much lower rate, so finance the vehicle, take good care of it, and own it until it dies.
Perhaps you have never heard of Dave Ramsey 😂
I still prefer to just pay outright in cash. I know if I may be leaving money on the table, but I like owning things. I have a mental block to finance anything that depreciates.
This is incorrect. Yes your car depreciates but that is net with inflation. I just sold my 5-year old car for $23k and I bought the car with cash brand new for $28k 5-years ago so it depreciated only $5k thanks to inflation.
@@StephenChen72 that's like having inverted sunken cost fallacy lol
@@bpang88 It's certainly true that different cars depreciate at different rates, but the rate of depreciation depends on market conditions as well. Also, the Covid policy-induced supply chain problems distorted the normal supply-demand dynamics for used cars so prices were and perhaps still are much higher than they otherwise would have been. However, if the sale price of your car was higher than normal due to the "inflation", then the price of all cars is higher due to inflation, so you realized less of a loss ONLY if you don't need to purchase another car. If the market value of your house doubles, you are no richer if all other houses doubled as well. My point about depreciation in my orginal comment was that as a car ages, the slower rate of depreciation reduces the cost of ownership. That may be off-set somewhat by the cost of more frequent repairs, but it's still cheaper than, say, leasing a new car every three years because the biggest cost to car ownership is depreciation, and cars typically depreciate by about half in the first three years. So, if you get a new car every three years, you are always paying huge amounts in depreciation. If you buy a two or three year old car, you can foregoe a great deal of that cost if you plan to own the vehicle until the end of its useful life. Then, if you can finance the purchase at an advantageous rate where you actually come out ahead (or simply lose less), so much the better. It's only in very rare cases where you can turn a profit on a vehicle, so the goal is to lose as little money as possible, while maximizing the vehicle's utility.
Your calculation has a major flaw. If you lower the residual (resale) value of the car to 30K from 35k, the monthly leasing cost goes up by $138.89. I have done the math two million ways and leasing is always the better option. You can always buy back the car at the end of the lease term if one wishes and during the leasing period one can earn a return on the money. Also, are you adding the sales tax on lease payments? In many places there is sales tax on lease payments.
the opportunity cost only matters if the money you invest has a higher yield than the interest charged by the financial institution.
And the interest is greater then inflation. Instead your giving worthless cash for a semi less worthless depreciating "asset" in the vehicle. At least if you were to sell it in a few months you would get inflation adjusted dollars in most cases (so the depreciation would be slightly less).
@@crazycdn8327 A depreciating asset only matter if you *actually* planned on selling it within a reasonable period or expensing it as depreciation through a business. Most people don't buy a car to sell, they buy to have a car for them and their family to drive around. If you're looking at a car from a depreciation point of view, you need to minimize costs and get an old 2002 toyota or whatever. Otherwise, the argument is only whether or not you value money in your hand vs paying it upfront.
@@sws212 Finally! Eveyone keeps talking depreciating and while I understand that's true it's only relevant if you don't plan on keeping your car. Eveytime I have a conversation I have to remind people of that.
yup. if you are a by profession equity trader for example
And sometimes life happens…
Bought a brand new Toyota corolla S cash in 2006 for $18,000 and about 8-10 years later with about 200,000 miles on it someone hit my parked Corolla and totaled it. Insurance paid me over $12,000 for the car. Bought a new 2018 Honda Civic Hatchback Sport for $21,000 and financed it at 1.99% and quickly paid it off in 3 years. 3 weeks ago after 6 years of ownership and 60,000 miles plus on it. The Civic was totaled due to flood damage by my insurance company and they gave me about $20,900. Moral of the story. Only buy Japanese cars that keep their value meaning Toyota and Honda products. Try to buy gently used or dealer certified used and drive them til the wheels fall off and it's hard to lose money with Honda and Toyota. Both of these cars I've owned costed me pretty much nothing to own. Changed the oil, 1-2 sets of tires each, oil changes and windshield wipers. Don't lease a car, it's a huge financial mistake since you have no equity in it even though you're making payments (same reason why not to rent a house). American and European cars are unreliable and lose value off the lot.
Be an owner not a loaner.
Buy a used Toyota or Honda. Maximum budget $20,000.
18KM? Why not walk or cycle?
I meant 18,000 km 😅
I think the concept of owning a car with other people’s money is a bit misleading. Whether you finance or lease, you never own the car. But, as stated, there is greater freedom to do more with your car if it’s financed since the dealership no longer has any vested interest in the vehicle because they don’t own it. But you’re still driving someone else’s car, a in a sense.
However, to help minimize any depreciation from buying a car with cash, never walk into a dealership and tell them you want to buy a car for cash. They can easily pad hidden fees and cost into that because they know they won’t be able to maximize their profits through interest. In cases like this, it’s best to negotiate the best price (not monthly payments) you can for the car as if you were going to finance. Once you have the figure you want, you can then tell them that you want to pay cash. They may not like that but that could potentially help to minimize any depreciation once you drive it off the lot.
Life hack 🤘
Good video. I liked it because my decision to finance my vehicle in today's climate was reinforced. The insurance companies charge different premiums depending on whether the car is leased or financed. I think this is a hidden cost in the decision-making process. I believe you are more likely to take better care of your vehicle when it is financed.
Whoa! Been writing auto insurance for 50 years with multiple companies. There is no difference in cost of insurance if you are leasing or buying. That being said, gap insurance is optional and should be considered depending on the amount of down payment. Leasing companies typically include gap insurance in their lease and you should not be paying twice with an insurance company. Whether buying or leasing ALWAYS ask if gap insurance is included.
You’re most likely to take better care of your auto if you buy it in cash vs finance!
Taking care of things is a character trait. You either will or won't.
@@Monster-Abee true to a point however if you sink in your hard earned money into something you usually also will take better care of it. Financing you aren’t fully invested with your hard earned money yet. If you pay cash $10k+ usually that’s enough amount to trigger your brain that I just spent a lot of my hard earned money on something!
@@famousamos1 that probably explains why i hear folks complaining constantly about how they totaled their car but still have to keep up with the payments.
This year seems slow , especially financially 😔 I feel like inflation is affecting majority of us God will help us 🙏
It's a delicate season now, so you can do little or nothing on your own. Hence I will suggest you get yourself a professional that can provide you with entry and exit points on the securities you focus on.
Very true! I've been able to scale from $350K to $650K this red season because my FA figured out Defensive strategies to protect my portfolio and profit from this roller coaster market.
@@robertosaviano215 Please can you leave the info of your investment advisor here? I’m in dire need for one.
@@andrewchandler0 My advisor is ‘’Isabel Cecilia Ramsey’’ she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market
@@robertosaviano215
I just looked up Isabel Cecilia Ramsey online and researched her accreditation. She seem very proficient, I wrote her detailing my Fin-market goals.
I bought Honda with cash. That was my first car. In last 28 years I bought three more Honda cars for family members. All paid in full. Took care of all cars regularly. All cars still working great. Never touched my investments. Btw my pressure washer also has Honda engine. Very reliable.
Please redo this video with the current higher interest rates as of December 2024. Thank you. 😊
One thing you didn't consider was increased cost of insurance between lease/finance and owning. If you lease or finance a car you are required to buy comprehensive car insurance (covers damage to your car) vs just liability insurance (covers damage to other party) if you purchase outright. Oftentimes, comprehensive insurance is 2X the cost of liability insurance and can add significantly to the total cost of ownership. I own my car and only pay for liability insurance, choosing to pay out of pocket for any damage to my own car.
And if that cost is prohibitive, i.e very expensive or if the car is written off, then what??? Pay out of your pocket to replace it???
Yeah, but I think its obvious for the person who has the money to walk in and purchase what they want. For the majority, they are used to just having to pay and have full coverage anyway.
If you car gets stolen that is gonna be brutal
@@fazilm1 yes, be a safe driver. If you do total your car, be grateful for surviving the accident and this of it as an opportunity to treat yourself to a new car. If you follow normal financial advice of having 3-6 months salary as an emergency savings then you can buy another. As long as you’re not having total loss accidents too often the money you save on insurance is more than that of having to buy another car. And if you are having so many total loss accidents then your insurance is going to be super expensive anyway… You don’t ever come out ahead with insurance.
@@baconblaster6422 I agree this is real concern for people living in certain areas.
Not sure if this was included in your lease calculations but on-road running costs, maintenance, registration, road side assistance etc are all covered in the monthly instalment so that's a benefit worth noting. Also, in Australia we have GST (Goods and Services Tax) and the lease excludes GST so calculations for Australians would be different since the price of the car is lower.
I don't know if it's different where you live, but in NH you still have to pay to register your leased car every year.
It's not included in your lease payments. But everything else you mentioned is.
I registered a leased car last year for $500. And will have to pay $480 to register it again this year.
Here in cali, to lease a tesla, youll pay $3500 in just fees, aquisition fee, destination fee, order fee, disposition fee. Tax ect. Some bs lol
This is great! Thank you! The minor thing I would add is the difference in opportunity cost between three. I mean you out for the cash purchase. But there is a difference between leasing and financing. With leasing your have more cash left for other investment. That is a pro compared to finance. Anyway, great analysis. Thank you.
Wonder why leasing didn’t have that opportunity cost bonus in the video.
The big difference comes the minute the car’s warranty expires. If you go beyond that 36 month period, in a loan or purchased car you may not have a payment anymore, but you likely have the heaviest maintenance and repair costs where with the lease the car is gone after the warranty is up and the only maintenance you’ve done is $30 oil changes. Additionally if you use for business it’s much easier to expense vs depreciate
Excellent video. However, when financing, any money you pay up front is not a "deposit." Any money you pay up front towards a financed car purchase is a down-payment.
I would love a copy of the spreadsheet you created so I can put my own numbers in. Is that possible?
Nice breakdown, but I just really want to know where you go to have your car maintained for $25 a month.
Hi Benjamin, I think Gabrielle is trying to explain to having at least 25 a month to save for (every day) costs that might occur. Tires, bougie, battery and other issues. So when those issues come up, it is not entirely painful to pay or downpay for the costs.
Something I will definitely try with my next pre-owned car.
Isn't the rate usually lower when you lease? Plus, you don't have to pay for repairs because it's still under warranty. The monthly payments are significantly lower. If you can write it off, I think leasing is the better option, especially if you plan on getting a new vehicle every few years. I would just watch the down payment on the lease, and remember that it can be negotiated.
To make a fair comparison all scenarios must start with the assumption that all have same budget, in other words, all guys must have 48K in cash hence they are able to pick one of these options. This implies that whichever option they choose they all must deal with the opportunity cost. In other words, the guy with the first option loses the interest that he could have gotten if he had invested his 48k in fixed income, ETF, etc., the second guy loses the PV of the CF generated from interest that he could have gotten if he had invested the cost price minus the down payment which is the interest of best option - PMT from t1 to t36. , something similar applies to the third option.
If you lease the right vehicle, one that retains the highest resale value, you can buy it out at a guaranteed residual value and sell it for profit. I have leased 4 vehicles over the last 8 years and have sold 3 of them post buyout for 5-7 thousand dollars over the buyout price. Small dealers will snap them up because they save auction fees and transport costs.
One thing that is missing in the discussion of opportunity cost is the tax implication. Investment income is subject to income tax. Depending on your tax bracket and income type, it could be more than 50% of your investment income .
Exactly
@@robocop581 Murphy?
Only if you sell or have capital gains or dividends in the US. If not, there’s no tax. Adding this factor would make this crazy complex because of how many permutations you can have.
@@thecorrectoification lol
I could split hairs on how low that opportunity cost is, but I’m just glad it was included. The only flaw I can see is the payments in the financing option have to be discounted. Today, that discount rate would be enormous
When the resale value is lower, the leasing company will increase the lease cost because you have to “pay” for that additional depreciation. You are leasing a larger amount so cost goes up.
The resale price is a prediction though, they almost always give you a buyout price that is lower than the car will be worth when the lease is up. So, you end up being able to finance the car for less than it's worth at the end of the lease and get some of that value back.
@@themartdog you are correct. I should have said a lower buy-out price.
@@aslancpawouldn’t worry about. Leasing to own is never going to make sense if the goal is to incur the lowest costs.
@@krisevon except for leases that have occurred in last two years--residual values are upside down for the leasing companies for the first time ever across the board on all automobiles. Due to: parts shortages. This was first lease I ever had done and got extremely lucky on the timing of things. Now to figure out best use of equity in leased car: buy it or try to role equity into one more lease and not get fleeced!
@@themartdog This really depends, the lease buy out price is the residual value there is no alternative buy out price.......Dealers often set the residual value at a much lower rate when you lease vs if you buy then sell later at market price. You often lose as a customer in leasing because you are paying upfront rental fees you will never recoup and also dishing out additional financing cost or cash if you buy it out after.
If you do the math if often cost you more than if you take the financing option.
I was told that lease payment is based on projected value of car at end of term .. so if you are adjusting resale value, maybe you should adjust monthly lease amount.
True
The opportunity cost is a big IF (it's up to you to invest it or not). Most people won't. Monthly payments HAVE to be paid, financed or leased. Insurance is not mentioned here. With financed you have to have full insurance (at least in the US). With leases, the lessor may or may not cover the full coverage, as the car isn't fully yours yet. As a big IF for insurance, if you buy the car outright you may only choose to have limited insurance coverage, thus reducing your overall ownership expense (This is up to your comfort level, of course).
When leasing, don't you pay less taxes&fees as you are pay them monthly, and after 36 months you have paying only a fraction of the car? So you only pay taxes on the amount of the car you bought, in your example $18.396. Whereas in financing, you pay taxes&fees on the full amount: $43.290. When leasing, numbers change also whether you decide to exchange the car, return it or buy it at the end of the lease (this video's calculations seem to be for the 3rd option).
Leasing is a trap. When you turn it in they will knit pick you to death on dings, scratches, etc. So, it's not simply just turning it in. And, you should never lease unless you own a business and you better not drive it more than the annual allowed mileage. Maintenance is on you, as well and that includes tires, which usually don't last two-years (OEM tires).
Dealerships are not in the business to give you the best deal, that is up to you. If you don't care about the cost and like a new car every two or three years, then lease one and don't worry about the cost. Cars are a depreciating asset big time, so the cost of ownership is up to you. Do you take care of your vehicles or just drive the wheels off of them. If you take care of your vehicles and you buy a reliable vehicle, then buy it. Finance it for 36 mos. (20% down minimum) and if you have the money, pay it off in 12 mos. This gives you time to appreciate the vehicle or hate it.
And, Good Luck at the dealership, they are sharks in the water, and will take you for a big ride. Don't believe me, then go watch The Homework Guy (THG) on TH-cam and learn.
When your car is financed, the insurance premium will go up. You will end up paying more insurance if you car is financed than is paid off in full upfront. This additional insurance premium should be considered as a cost to finance. The accumulated increase in premium could be quite high over time.
Could you give an example of how much would this premium be? Thanks
@@MrQuay03 About $1-200 per year.
Not true, this depends on the individuals track record and the insurance company risk assessment. Financing is often less in premium because you own the vehicle. But if its a lease, your insurance have to deal with the leasing company because the title owner isn't you. There is often an additional cost to protect the title owner.
Second, insurance premiums also depends on the vehicle you buy.
Really? Source for that? And why would that be true? The value of the car and the driver remains constant. Are you a bad driver?
@@johnhansen8272 Compare two quotes for the same car, financed and non-financed.
Thanks for your video. For the spreadsheet, Do you have a download or online link?
How can you compare monthly expenses on financing/cash vs a lease where at the end of the 36 months you own nothing with the lease…??? 🤷🏻♂️🤷🏻♂️🤷🏻♂️
These calculations are innaccurate. The resale value of a leased vehicle is '$0' as result of not owning the vehicle. Those payments for the lease do not incur equity due to not having an asset.
Cash or Finance, creates equity from the asset of the vehicle due to ownership.
"For Educational Purposes" The best option - negotiate a lower price via financing, though ensure there are no clauses in the contract that incur early payoff penalties, and then payoff the loan within a month of finance.
Customer never wins. Car dealers have figured this all out already! That’s what they do😢 They have thousands of ways to trick you😮
It's inflation, car dealerships are taking advantage of it. But in reality it comes down to the money printing press of the Fed and the government is getting bigger it means the budget and liabilities are also getting bigger for the taxpayers to support its obligations.
Your numbers are a little misleading on the percentage rates. Because everyone's credit is different if someone with a credit score of only 600, they can not qualify for those interest rates
Adjust the numbers then
Hi! I don’t quite understand opportunity cost and why it’s added back to the the total cost. Are you able to explain?
Is it because we’re deducting interest from taxes? Is this possible with financing?
Hey Gabrielle, great work with this video. One question I have is in scenario two, why did you ignore the opportunity cost of making a $5,000 down payment when financing?
What option did you choose for your car? I am still driving my 2004 car which is still going strong…perhaps a new one soon! Not a Jeep though 😂.
this has nothing to do with the video but gabrielle I need you to drop your skincare routine!! You look AMAZING
thank you 😊 maybe a future video on budget skin care tips 😀
I concur
She's beautiful 😍
@@atombomb6719 i concur too
Totally agree!!
Genetics 🧬
When you lease you often have the option of a "one payment" lease, which would subtract the payments from your calculations. That would put leasing on a financial par with financing, I think.
One other factor to consider is whether rebates are based on how you choose to pay for the car. When i offered to pay cash , dealer said i would lose one of the rebates if i paid cash. Obviously this was many many years ago when cars were routinely sold way below MSRP. So instead of paying $25000 cash for the car , i financed it for &23500. I then paid it off after a couple of months. Sure i paid interest on those two months but i came out way ahead by financing and paying of early than buying cash.
Hello! could you share the spreadsheet?❤
Confused, if you're leasing and the residual is lower then the amount paid during the lease would be higher. Your examples have the “lease cost incurred” the same when there's a $5K delta between the residuals in your two comparisons. Your cost incurred should be $5K higher in the second example.
Next, if your leasing as a business expense then a higher deposit isn't beneficial. Interest rates are a business expense. Even in the case of a car allowance. I don't think this is as accurate a video as it could have been.
The taxes and fees would be significantly lower on the lease compared to the financed purchase option, as the taxes are only calculated off of the purchase price minus the residual. Also, using a promotional interest rate for the purchase option further skews the results in favoc of the financed purchase option.
Finance is always the better option regardless. This topic has been debated many times, you lose money when you lease.
Agreed on both points. I'm surprised she missed the lease tax difference.
So cool! Love the spreadsheet you used to encapsulate your summary. Great information for folks wanting to change cars every few years. I think if you extend the ownership horizon to 10 or 15 years, it will become quite apparent that purchasing (either by finance or by cash) becomes considerably less than leasing.
Good luck finding a car that will last 10+ years without major parts failing.
@@SyrupCanuckmy secondhand car is almost 20 years, with me driving for the past 10 years, still working but it requires one major repair so far.... overall still worth it then purchasing a new vehicle...
@@SyrupCanuck really? What an immature comment. Most of the modern cars easily last 10 years without major issues unless you bought a lemon.
@@financenumber2953 other than Toyota maybe what? So many expensive parts on vehicles now. I just saw a late model subaru forester with burnt out fog light and it was at least a 2020.i saw new Ram trucks with burnt out led lights. Those are sealed units and cost a ton. That's what I meant when msot new cars are junk. A few parts go and bam you are in for an exspensive ride.
@@SyrupCanuck WRONG. I have a Mazda Miata 2006. 70K miles. No parts have failed. None. Just regular maintenance (oil, tires, brakes, coolant). That car is now 17 years old. I'm light years ahead in $. I know Miata owners, who are pushing toward 200K miles without major repairs. If it's stick, I can have an engine replacement on an NC for well under $4K. The manual tranny will last until doomsday; might need a clutch for under $1K - which will last 100K miles.
I buy everything for cash and lived below my means and investing the rest-currently my Camry is 16 years old!!!. This strategy allowed me to me retire at 56 with a lifestyle which does NOT eat into my principal.
do you happen to have this spreadsheet available for viewing/download?
I've been leasing cars for years, paying at most 1.9%. I even had one term at 0.9%. I am driving Subaru cars financed by Toyota Finance. My dealer continually adjusts the residual value to the market with some discount and applies the difference as a cash down payment to my new lease. I go for two-year lease terms and almost always exceed the km quota; however, since I am always leasing from the same dealer, I have never had to pay the overage km charges. The other advantage of a short lease is the low maintenance cost and 100% warranty. I gladly leave some money on the table for the dealer selling my return car instead of all the hassles of selling the car privately. It's interesting that the financing interest in your example is less than the lease interest.
That's not uncommon with some manufactures to have higher lease than finance rates. FIAT Chrysler though is notorious for this for some reason.
Jeep Wranglers have a high resale value compared to other cars that is what drives the higher cost of lease. Remember than in leasing the APR that is shown is hiding the residual value they are calculating for the car.
I think if planning to keep the car around longer then buying is always a better option, right? Plus , I also thought there is also a millage cap, and they will charge more afterward.
One more thing, 1.9% finance? Is this possible with the current high % rate?
true, 1.9% financing is too good to be true
lots are now filling up w/ 40K+ cars/SUVs that have a couple years on their life cycle, they aren't budging on price but even companies that rarely budge at all (Toyota) are offering 1.9-2.9% financing on their pricey-er vehicles (need 800 credit rate tho).
Im searching for a car now, informative info Thank you
Never heard of an opportunity cost. No one’s ever mentioned that before. I do not understand what that is and why should someone be penalized for paying outright for it
Sorry for the dummy question I don’t understand how accounting works 😅 Why opportunity cost is added to the cash buyout plan? Don’t we need to subtract from the cost? To me, it feels like, the cash buyer doesn’t give away an extra for the interest hence it’s a benefit and it is a gain , not a cost; so I would expect like 13k - 1.5 k = 11k ish , thus making the cash plan the best ?
What I am mistaken about here ? Thanks !
The skyrocketing price of cars these days, it might actually be smarter to lease and then buy out the car at the end of your 3 years. The dealership won’t want you to do this because the cost of that car has gone way up by then and you could just turn around and sell it. I don’t know. Maybe worth doing the math on it…
When you finance the entire purchase up front with debt you don’t own the car. So no difference between leasing and that. You only get the title when you have paid off the car. Leasing is just a different method of financing and it provides even more flexibility than using debt to fund the entire purchase up front. Leasing doesn’t always make sense but I’ve found there are many people who would never lease even when leasing is the best option and it is often because they get lost in these semantics.
That’s important for people to understand. Financing is not the same as ownership. Debt is debt regardless of purchasing or leasing. I know people tend to look at financing as potential ownership at the future date but during the financial or leasing period, there is no “ownership”. I’ve always leased and it has been the best option for me.
Stumbled acrossed this video and absolutely loved it. You explained everything so well and enjoyed how informative it was. Subbed!
I'd like to see a more realistic comparison based on monthly budget. Say $500 or $600 dollars a month. Also, the value of the vehicle at the end of the lease is negotiated at the start of the lease. Some people got real lucky when their buyout came up for option when rates were low and used prices were high.
I’m no expert but buying outright vs financing (or leasing) wouldn’t you also want to consider the potential savings over the term from not having a monthly payment?
this was extremely valuable and definitely gained new insights! Thanks a ton.
Thank you, really appreciated for giving this information Gabrielle.
I purchase all my cars outright. Never purchase new. I can’t possibly wrap my head around someone wanting a mortgage payment for a car loan. If you can’t afford it outright, don’t buy it. That’s a huge issue for most folks. They want to look good/cool and they don’t own the car until a 3-5yr period. And they have lost 50k dollars. Geesh that’s crazy. Great video.
I would have gone for financing if the interest rates weren't so high in current times. Nowadays, buying outright seems to be the best option if you have the means, since the other options are pretty expensive. Even getting a used car can be more costly than waiting for a new car.
But leasing interest also goes up regardless whether you finance or not. The leasing company is also base their interest rates on commercial loan rates. You only see a difference in % is because the dealer is making a incentive deal for you to lease vs buy during a shortage so they can have their vehicle back.
I just looked up average mileage cap/year for leasing a car. The mileage caps were 10,000, 12,000 and 15,000. So after 3 years that comes out to be 30,000, 36,000 and 45,000 miles respectively. At 54,000 miles you would end up paying the cost for additional mileage imposed for the leased car. In my area, I have seen the cost of $0.25 for each mile beyond the lease mileage cap. I think you should factor that in to your estimate. Other than that, everything looks good.
Not sure if this was mentioned or not, but the other thing to consider (at least in the US) is insurance requirements on a financed car. Banks typically require full coverage for a new car that they are fronting. Buying cash, you might have cheaper insurance options. What the difference between financed insurance versus cash insurance options will vary but worth considering.
If I pay cash for a new vehicle (which I wouldn't do - I'd rather buy a good used vehicle and let someone else eat the depreciation) - no way would I be looking to under insure or cheap out on the insurance options.
Financial-wise NEVER BUY A NEW CAR...that's it.
Buy a used 2-3 year old car and let the first owner take most of the hit on depreciation. If you're not comfortable then do it from a dealer. Still better than buying a new one outright.
Interest rates are higher for used cars and new cars have don't have problems. Certified Pre-owned cars aren't much cheaper than new. I don't worry about depreciation because the purpose of my car is not to sell it but to use it to get from point A to B safely and reliably EVERY single time which is important for work and family. I only buy new cars... but I've only had two cars in my whole life; 2005 Toyota Corolla and 2013 Hyundai Azera which I drive now.
for current car market, new car is better choice
These days 3-4 year old cars more expensive than new car.
@@tenzinthutop Not really, I just bought a 3 year old Toyota RAV4 Hybrid (2020) that is more than $8k less than a new one (2023).
Buy It New or buy it 2-3 years, but maintain It and keep It until It dies
Pragmatic advice from a pro. Thanks. Helpful
It really depends on how long you plan to keep the car. If only for a short time, leasing is always better. But for 5+ years, buying and financing are always better.
This is partially right. She mentions it also, it depends on the purchase price and depreciation. This might be true with something like a Toyota Camry which holds its value or if you buy a CPO vehicle. If you buy a new luxury car or model (BMW, Mercedes)where the values drops like a rock after the first few years it might be better to lease.
The depreciation is not really relative if your planning to keep it until it is no longer useable but if you are the type to replace before it is necessary than yes. Personally I am the type to keep it for as long as possible, currently still using my 1996 infinity i30 and I am sure in that case buying was certainly the cheapest option. Will probably replace with a camry I can hopefully use for 20 or more years but sadly most people want to replace their cars at the same crazy pace they do their phones.
What about the taxes on the financial gains if you banked & received interest payments? Was that considered in your calculations?
What would you do for a vehicle that you plan to keep forever? I’m wanting to purchase a 4Runner (at some point) and I’m not worried about reselling it or anything because I’d be planning to keep it for life. It’s also around $50k and I’m exploring ways to pay for it. Willing to save a few years for it but exploring if there is a “better” way.
You mentioned being able to keep a purchased car after payments are finished (as opposed to leasing), but I think this could have been emphasized more. I've had my (inexpensive) car for 10 years, and it's still going fine. Think of all the years of payments leasing would have cost. If having the latest and greatest is important to you, then leasing might make sense. But if you just want transportation, leasing is foolish IMHO.
In short, leases are for shallow morons, who will never become rich (because they can't handle their money wisely).
you can finance the residual value of the lease at the end of the contract. if the residual value is lower than the standard purchase price of the car with the same amount of wear, then financing your leased car after the contract is a good idea
very Interesting info, what would be the case if we look at financing vs out right buying with no intention of reselling the car? i guess it would be unfair to compare leasing in this case
It would basically come down to your interest rate vs your rate of return in on your investment
Really clear analysis. I now see how super low interest rates really made financing a great deal. My dad, who always bought new, was an economist and he taught me just how much buying new cost in depreciation and to a lesser extent about opportunity costs. Consequently I buy used (and have the skill fix them myself) and hang onto my savings in case the sky caves in.
I agree.. my cars are always two years old when I buy. I never buy new either..
How about one payment lease? Any benefits for cars with poor resale values?
depends on city, snow, assignments, fleet, public works, gas stations, insurance, reinsurance, tyres,nF1, metal , engines
Ton of public enthusiast dealer networks can verify all these video categories, consumer public happiness is key, even trying car vending machines. vehicle, vending, machines :)