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Your Next Car--Should You Buy or Lease?

To know what's best you'll need to understand the complexities and major differences between buying and leasing cars.

By
Laura Adams, MBA
3-minute read
Episode #89

The Sad Reality of Depreciation

For most of us, the reality of buying a car is that we make a decision to invest in something that will decline in value over time with normal use. What a bummer! Unfortunately cars are usually losing propositions; it’s rare to sell one for more than the purchase price or to break even. Cars depreciate the same amount whether the driver owns it or leases it. Simply kiss that depreciated value and say bu-bye! There are certainly exceptions to this for certain models of cars or for professional collectors who really know what they’re doing to make a profit from cars.

But leasing a car is similar to buying in that it’s a losing proposition, but you potentially can lose even more. This is because you don’t have any equity built up in the vehicle to recoup a portion of your depreciation loss at resale. So leasing means no equity with lower payments. And buying equates to having partial equity from making higher payments.

Opportunity Cost of Leasing

So if you think I’m trying to tell you that buying a car is more beneficial than leasing, let me throw you a curve ball. Perhaps you compare the monthly cost of buying versus leasing a car and determine that you’d save $400 a month by leasing. What if you invested that $400 for a nice return on your money? Hmmm, over 24 months, at 6% interest, that could be over $10,000 by the end of the lease.

 

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.