ACCOUNTANT EXPLAINS Should You Buy, Finance or Lease a New Car
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- เผยแพร่เมื่อ 4 พ.ค. 2024
- If you are in the market for a car - you probably asked yourself whether buying vs. leasing is the best option. Or more importantly, what is the best option where you can really get the biggest bang for your buck? In this video, we are going to go over the three main ways to purchase a car, the cheapest option, and as well as important considerations you should know. So, let’s get right into it!
00:00 Intro
00:33 Main Options
01:32 Cheapest Option (Calculations)
11:09 Other Considerations
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Gabrielle is a CPA and Tax Expert, as well as the founder of Balance + Wealth CPA, a licensed CPA firm that specializes in Tax. Prior to starting her business, worked as a Tax Manager at one of the Big 4 Accounting Firms for 7+ years, working with Fortune 500 companies. Gabrielle posts weekly videos on personal finance, business finance, and tax tips.
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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
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.
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.
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.
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?
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
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.
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.
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 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
You have used a great example by comparing three of these options for Jeep Wrangler. Very nicely explained ❤
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
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...
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.
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.
I just have to applaud your content ma’am, well done. I remember having a consultation with a financial analyst last August, and it was incredibly insightful. Can’t stress enough how helpful experts in this field are!
Absolutely agree! A pro can make a world of difference. What specific insights did you gain?
As long as you diversify your portfolio, any single stock or investment that you own shouldn’t have too much of an impact on your overall return. If it does, diversifying might be the right choice for you, as one can also try out other commodities. I now have a balanced portfolio that is yielding me profit thanks to guidance from Jonas W. Herman.
That’s awesome! I’ve been contemplating hiring one since I can’t get a hang of investing even after buying courses. I’d like a discussion with him. Any means to reach him?
Hermanw jonas (a Gma!L
Is he taking commissions for his services? Yes, I’m I still making money in the process? Hell yes!
I started working with Jonas back in June, and my financial goals have never been clearer. It’s like having a strategic partner for my money with a solid track record.
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.
Stumbled acrossed this video and absolutely loved it. You explained everything so well and enjoyed how informative it was. Subbed!
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.
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.
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…
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…
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 very well done... One other consideration tho (that I may have missed here) is the cost and time/opportunity cost to get top dollar when reselling your car... As a general rule, if its a very regular car and you plan on keeping it for only a few years, it usually makes more sense to lease.
How is it well done? Are you in her class or something.
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?"
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.
Thanks for the video. The only thing which is missing in my opinion is that when the resale values changes, the lease is changing as well. As a matter of fact, one of the factors the dealerships use to determine the lease cost is the resale value of the vehicle. But in general your points are correct. If you considering a Toyota, go for purchase options and when you are shopping around for a KIA or BMW, lease it
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.
It all depends on how long you plan on owning the vehicle. I bought a lightly used Toyota in 2003 for $20K and just sold it for $8500. I had no major mechanical problems so my cost was $11,500 plus the cost of routine maintenance for 20 years of transportation.
What kind of Toyota sells for $8500 at 20 years old?
@@dtsec Plenty of Hondas and Toyotas if kept in decent condition
@@dtsecrobably a Tundra. Btw I still have my 2002 4runner that I listed on craigslist for $10k. I got offers for $5k but hellz no. 😂
@@dtsec 4Runners sell for that price all day
More people would be financially free if they followed your lead.
Thank you, really appreciated for giving this information Gabrielle.
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
Great and simple to follow analysis, thank you for breaking down the numbers for different scenarios :)
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?
Pragmatic advice from a pro. Thanks. Helpful
In Canada, if you have a business, you can expense the cost of a lease and only write off the depreciation of a financed purchase and interest costs. Leasing for certain circumstances is very advantageous. You also have to consider that while you lease the vehicle is under warranty, without buying an extended warranty for a financed purchase.
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.
Pay cash for a reliable car. Use the $ you save for investing, etc.
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.
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.
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
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.
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 cant believe how you managed to explain this with such an ease. Thanks for this wonderful video!
When you lease you want the residual value to be higher because that forces the payments down, especially if you do not plan to buy it at lease end. If you lease it for business purposes, you can deduct the lease payments. If you purchase you can depreciate a good chuck of it up front (section 179 if that still applies) if it is a business vehicle, but you can only deduct the interest on the loan if taken.
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.
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.
Interesting video!I don't like to lease because of the concerns of the limitations put on you by leasing. I average at least 30k Kms per year which is more than what most leases offer. You mentioned the cost of repairing things to the dealers standards and if you go over the set amount of kms and then have to pay a big penalty. Personally, I like the feeling that the car is mine and not something I borrowed. Other things to think about is the option to buy the car at the end of a lease. Sometimes it's a better deal than what they sell for on a car lot. Maybe instead of buying new; you might want to consider a "lease buy back" if you can find a low mileage vehicle at less than market value. Much of the depreciation has taken place and there should still be years of trouble free use ahead. Opportunity costs are a good thing to think about if you have the discipline to invest the deposit money rather than spending it on other things.
Car insurance can vary widely based on purchase options and should play more of a role in your calculations. Ownership/lien status can be factored in by the insurance companies, and the greater the lien the higher you're likely to pay. When leasing, you may not be given a choice in the type and cost of insurance, so it's almost never the most economical of these options for a regular consumer. Also, $150 for insurance is VERY low in many places. Average drivers in many states will pay between $300 and $500 per month on that Jeep. If they're under 18, double that. In most scenarios, the cost of insurance will more than offset the opportunity costs of buying outright vs financing, and leasing would never make economic sense with insurance factored in.
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 🤘
This video was recommended to me and I’ve always been curious about this subject.
Let me just say, you explained it really well! I never lost interest while you were explaining the numbers. You’ve got a great presentation style. It’s professional but it’s not condescending. It’s like you’re talking and explaining to a friend.
It’s nice to see financial advice from a fellow Canadian.
Thank you for the valuable example; I'm at the moment trying to get my daughter to finance her first car buying as this is usually the cheapest option in the long run. She's ordered a new Toyota Corolla and she's waiting for it's delivery.
This could be helped with a higher interest rate on the financing options + some graphs to show the cross over between options based on interest rate changes, deposit amounts and price of the car.
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.
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.
if you have not already, another good video to do (similar to this one) is the one about buy or return a leased vehicle after the lease expires. good job.
Congratulations on the channel. Glad to see someone like you make sense of these relatively complicated decisions easier for consumers. Kindly confirm if the interest rates used in your calculation are effective interest rate or annual percentage rate (APR)? Keep Up The Great Work!
but girls hated this channel tho
@@jake9854 How would you know that… You are not a girl?
@@nnannaokoroji8451 well my female classmates did
Well, females can be catty. So, I am surprise they are jealous of her successes…. Goodluck!
Im searching for a car now, informative info Thank you
Nicely explained. This could be from country to country but In the lease section vs finance and cash purchase, insurance, repairs, servicing etc, (sometimes fuel depending on the lease) are generally covered by the lease. Reducing the ongoing costs vs the cash and finance options where these are out of pocket weekly/monthly. A 30k or 45k warranty service (given these are covered under some vehicle purchase offer) can be around $300-$600 respectively on most makes and models. Would the costs there then tend to make the option leasing more attractive?
Hi Gabrielle, I enjoyed this video, and I believe has great info; although, I did not hear anything about "TIME-VALUE" and for me that is the most important thing, that is why I always lease my cars. Thank you
I am doing novated lease. My insurance, registration, servicing, roadside assistance and fuel are all covered. Makes a difference with fuel prices up.
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.
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
Thank you so much for the free templates! I'm in the market for a new family car and need to make a sound financial decision.
Great video, one thing though there is also an opportunity cost incurred by carrying a monthly cost, if investing in a GIC or a similar bond, alot of cash upfront will yeild the most but when investing in stocks, index funds etc, in the long run consistent investments will yeild a better cost average. So in essence financing also carries an opportunity cost as well, only way around that cst is to not buy the vehicle point blank
One factor to consider - the dealer is incentivised to steer you towards a finance deal, since he earns commission on it (and any associated extras like Gap Insurance).
From the buyer's point of view, this means that there is more scope to negotiate a better deal, since the dealer has more room to manoeuvre price-wise.
Also, you can gain these benefits and then pay off the loan prematurely and so reduce the interest you end up paying a few months later.
This is very true, although I'm glad it was not included as part of the analysis because it adds too many variables. You can get the best of both worlds by financing (while refusing things like GAAP insurance) and then paying the car off in the first payment before any interest is accrued.
Interesting and good point
Most vehicle are open loans anyway, but dealers don't really incentives for you to lease. yes they make commission, but they make commission regardless if you buy, lease, or cash. The only difference is if you finance it, there is more chances of them selling you additional warranty and other packages you dont need during the negotiation because the monthly pmts are spread out, the hit is lower.
But dealers often want people to lease vs buying. This is why they often offer much lower interest rate on a lease than buy because when dealers get the vehicle back after 2-3 yrs, they can resale as a used with markups. This has been the case since covid where used/lease vehicle are selling for the same price as if its new.
With car loans in the USA (as far as I have seen and used), you pay the same amount if you pay it off early as you do when taking the full time of the payment plan. You do not save on interest if you pay it early, you can only pay more if you miss payments, you never pay less than the full amount including the interest...
@@0ooTheMAXXoo0 that doesn't make any sense. If you pay the loan off early then interest hasn't accrued, therefore you've avoided paying interest. If you make the minimum payment each month over the full term then you're paying the maximum amount of interest. The selling price is the same, but the cost of interest is not.
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 😂.
For Everyone that’s asking about where she is getting the 1.99%, I believe she used 1.99% because she actually states she is using the rates off of the Jeep website and that’s the promotion they are running at the moment. In the section of the video where she talks about the Opportunity Cost when buying with cash (around 4:58), she actually states that in the CURRENT market you can expect an average of 4-5%.
hi Gabrielle , great video, and thank you, there's one thing, You also have to take in consideration that some vehicles are harder to sell and you might not get 30 K or 35 K. im not saying leasing is better, but you don't have to worry about re selling at top $$$, and when the rates of GIC's are good you could invest all of your capital and use your passive income to help out with your lease payment. just saying, smart and 😍, I enjoy learning tricks from you.
Thank you for the video. Interesting study. I just wanted to say that the interest rate for Finance option is abit low. Maybe increase it up to 5-6 %. I live in North of Europe. Would be really nice to find 1.99% interest rate these days hehe.
Also what is interesting is that leasing a car through your company will give you tax benefits.
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.
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
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.
So glad u mentioned and recommended checking local zero emission electric vehicle incentives as our government has very attractive ones, especially for leasing via salary packaging using pre tax income…making them cheaper per week to lease than conventional equivalent car plus reduces taxes paid! I always assumed buying cash was cheapest so thanks for showing us the breakdown to myth bust that
It's just not practical when you live in Canada where places are spread apart, and you want to go for long scenic drive and camping in the mountains. There are many remote places with no charging facilities.
Well, there's a plug in hybrid option which takes gas and an electric charge.
@@eh8211 lol clearly you don't understand Canadian geography.
@@xo7454 it sounds like this isn't a good option practically speaking.
The long distances like what you're saying.
And I just read that the larger batteries of plug in hybrids means the gas tank is extra small. So they have less range.
@@xo7454 Where do you live in Canada? Plug in hybrids is a good mix of fuel economy and convenience. Took a trip from Vancouver to Regina in a RAV4 Prime. No problems whatsoever as once the battery goes below 20% the vehicle behaves like a normal hybrid.
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 🧬
This was a really great break down on the difference between paying for it in full financing and leasing. I’ve been trying to figure out what I want to do for at least a year and it’s definitely gives me a lot of good information.
Great video, thanks Gabrielle !
If I may ask, Since with leasing you don't technically own the car, wouldn't it be more accurate to adjust the resale value to be either null or only to be the equity portion part of the resale value ?
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'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.
Interesting analysis. Only problem is if you use less mileage on a lease then agreed. That is a lost opportunity. Similarly, if you go over on your mileage they hit you up pretty bad. Only way to beat this system is to have a low price option to purchase. That is the only way to come out whole. Their is also often some additional costs on starting lease. A good question to ask is if the financing comes from the manufacturer or dealer. In that case financing might make sense. You should also consider inflation rate that might push up the value of the car after lease. In a low inflation environment buying us the best.
Great overview - from an accounting perspective, for the first 36 months. Lots of comments that are valid; there is not a single answer, as market conditions, finance company terms, and the buyer’s personal situation are variables. One point to consider: lease costs are a rental charge + pay down of the depreciation during the term. The higher the residual, the less depreciation is included in the payment. The example comparing 35k residual v. 30k residual did not reflect the payment difference. Another point is that the lease capital cost allowance (shown as the starting vehicle cost) is based on the Retail pricing from the seller. The residual values shown in the example, likewise, show the used vehicle resale value, and appear to also be retail (what an individual would reasonable expect to pay) while lease residual values are based on the predicted future wholesale value of the vehicle. This creates two major gaps that can be very material: the retail to wholesale margin for used vehicles (which is much larger than for new vehicles) and the difference between the predicted residual value and the actual value 36 months later. In some cases, that difference can be worth thousands or even tens of thousands in your pocket.
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.
Excellent analysis. This should be Finance 101 for everybody.
Also worthy of consideration is the cost of insurance. When you lease, you need to insure the vehicle for higher limits than you might if you were to purchase the vehicle either through finance or buying it outright. So insurance isn’t necessarily the same cost for leasing vs. purchase.
What a clear, articulate presentation - great range of options presented! The two unknowns in real-time for no down payment are the interest rates and resale values:(
No it wasn’t. It contains all the information required but at a machine gun rate of delivery. Wtf with these comments?
I would love a copy of the spreadsheet you created so I can put my own numbers in. Is that possible?
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.
Although leasing comes out as more than 3000. above the other options plus no equity in not owning the car,
I am taking into consideration that the dealership is covering almost all maintainance costs. I have paid cash in the past and happily have zero debt in my life but am now thinking of leasing . But no one is offering me less than 7.9%. in 12/2023. Thanks for the great analysis!
Great stuff Gabrielle, as a non-financially minded person looking for a new car this was perfect! Thanks
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.
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..
Wondering about any differences in insurance on a lease vs. financed and then options at the end of the lease term would seem to be important to know too?
The other thing about leasing is that in some countries you can deduct the car maintenance, lease payments and other expenses from the income from your job, or in some cases the cost of the car can be withheld from pre-tax income. Of course, the catch is that there is a thing called FBT (fringe benefits tax) which is usually around 48% but this can be avoided in some states where there is an FBT exemption for electric vehicles.
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
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.
Thanks for the informative video. I am wondering, though, how do you factor in the discount you get for each of the options? Meaning, if you pay cash, do you get a better or worse deal than if you finance the car at a discounted rate? If you truly get the car for the same price cash or finance, the opportunity cost of cash payment would typically make it the less attractive option, as long as interest rates are below the typical investment returns.
Dealerships DO NOT want you to pay cash because they make money off of the financing. So they are less likely to give you a better deal for paying cash because they take consideration of how much money they are losing on the financing.
It's better to pay cash from a owner selling there car. They are more likely to negotiate with you. Just make sure you have the car looked over by a trusted mechanic before you buy it.
Thanks for your video. For the spreadsheet, Do you have a download or online link?
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.
Simple fix is... just make more money.
Hi Gabrielle, This is great stuff. Everyone truly appreciates your love of the numbers and your hard work. Can you share this spreadsheet in your resources area? I am sure it would be a lifesaver for many as they ponder your advice. Thank you sooo Much!
with leasing, when you put a deposit, do you get the deposit back and the end of the lease?