In the second example, that’s a business situation, not a personal finance situation. There are reasons for a business to lease that are simply not applicable to an individual.

Here is at least one example of clear evidence of a situation in which a lease is substantially and clearly better than buying. This is one example, but a very, very popular one. I prefer new cars over used cars. I prefer the fewer headaches and fewer stresses that come when I buy new, versus when I buy used. So, the first few years of car ownership of a new car for me, have always been the best. I place a financial value on that reduced stress and reduced time to manage that while I own (or lease a vehicle).

Here is another example. If a business gives cars to it’s salesforce, they are likely new cars. To keep them new and to manage finances wisely, leasing the vehicles makes the payments lower in the short term and in the long term – unless the business also wants to get into the business of buying their own fleet of cars and then selling it later. That is usually not a wise decision for most businesses that are not in that market and that is not their core competency.

I am making this way more complicated than I should, and probably distracting from the simplicity that you are going for. That’s my bad. I am a huge fan of simplicity, and I have totally broken my own normal thought model here with my comments on this post. :(

So, even when you lease a vehicle and “return it to the dealer” at the end of the lease, there really is a set of transactions between the financing party and the dealer. Most times the dealer is not the financial portion. That’s why most times there is a separate finance office that has various options for you, and also why they offer more add-ons and other sales things when doing that deal. They may be employed by the dealership, and trying to make money for the dealership, but they are usually routing the finances of the deal to an outside party.

Leases exist to get people into cars they can’t really afford, and for that “service,” you will pay. There is no such thing as a free lunch.

If someone can show me clear evidence of a situation in which a lease is substantially and clearly better than buying, I’d be glad to retract my advice. The problem is that they don’t exist.

jay s: Yup, that’s exactly what I mean. Those are manufacturer specials, not dealership specials.

Tim: No, I did not forget “that you can negotiate the purchase cost of a buy it out right car, too.” That is exactly what I meant by saying, “I always negotiate the price and then tell the dealership how I want to deal with finances.” Telling the dealership how you want to deal with finances, after you have negotiated a price allows you to start with the best price and to go from there, and to pay cash or do a loan or do a lease. In very simple terms, a lease is usually a balloon payment at the end, and a loan is usually a balloon payment at the beginning. They can be structured in various ways, and they both have depreciation costs and finance costs. I don’t agree with saying that “you should NEVER go into a lease with the intent of purchasing at the end of the lease.” Sure it may cost more in the end, but finances are not always about which things cost more or less. There are also timing issues. I may have many reasons for wanting to go with a lease. It could be because of business arrangements and how much a business is going to pay for a portion of the lease. It could be because I know that I have other financial obligations at the begginning of the lease that I will not have later, and this allows a way to structure the car deal within the parameters of my needs, etc.

I just think that giving blanket advice about many things (like car lease versus loan) is dangerous. I think it is a much better route to help educate people to find out what is important to them and to find out what their own needs and capabilities are financially. Then people can make better decisions. I think people need help trying to make better decisions, not help being told what decisions to make. Blanket statements often totally screw people out of good deals and often are very misleading to a lot of people. They may be good for “most” people, but there is still a lot of decision making happening with the rest of everyone out there.

Toby, I will concede that you cannot put a simple formula on anything; however, in your analysis, you have forgotten that you can negotiate the purchase cost of a buy it out right car, too. Yes, you can negotiate terms for a lease, but the terms will be higher than for a buy it car. Why? For the sole reason that the vast majority of leased cars are not purchased at the end of the lease. Because of this, the dealer now has to put money into and recoup money out of the leased car in order to sell the vehicle. The dealer does not have this concern with a buy it car.

When buying a new car, a dealership makes very little to no money off the buyer, unless the buyer pays too much. They make most money from manufacturer specials, rebates, selling add-on items and warranties, and then from service.

The special low rate financing deals are usually done via manufacturer financing and are tied to picking from dealer stock. I have never noticed any that are tied to paying the inflated MSRP.

I always negotiate the price and then tell the dealership how I want to deal with finances.

Not necessarily…often the loan rates offered by car dealers is so low that you’d be better off financing. For example, if the dealer will loan you the money for the car at 2.9% (or even 0% occasionally) you’d be better off investing the cash in any way that earns more than what the loan is costing you. That 5.05% you mention in the post would be a gain of 2.15% on your money.

Further, you can negotiate the price of any new or used vehicle, and THEN determine how you want to pay for it. In other words, get the best starting price and go from there. Lease it, or buy it. But, negotiating the starting price is always in the consumers hands.

There are many angles to take here and there no one answer that is right. Advising that way is really dangerous and very wrong much of the time.

It really depends on how good of a deal you can negotiate, how good of a price you can get for the extra miles, how much cash you can put down, how much of a monthly payment you can afford or want to pay, and if you plan on having payments for a vehicle forever or if you eventually want to have no payments and to own the vehicle. There is no simple formula in that regard.

Same for my car, it was about 2 years old and had 40k miles on it. Again certified and had a little bit of factory warranty, and for a few bucks a month we added a few years to the warranty.

We ended up with about $60k worth of vehicles (as they were priced new) for about a purchase price of $36k. After the trade-in we only had to finance about $20k for two nearly new vehicles with warranty. The only difference is our odometer didn’t read 5 miles on each vehicle when we bought them. And not to mention the money saved on insurance and registration by not being brand new.

Jeremy, yes and no on leasing. generally, even in a lease, you are going to be spending more on the car than if you bought it outright. This is because you have the value of the purchased car, versus having nothing after a lease. However, if you are of the opinion that you will always have a car payment, then leasing is a viable option if you can maintain under the mileage limits of the lease. I would direct a pretty good analysis between used, new, and leased car at edmunds.com.

HOwever unless you HAVE to have a new car, buy used. I picked up a 6 year old mercedes (original cost 38k) for 8. Sure, it isn’t “new”, but runs like new, drives better than most new cars, and will last another 100k miles. I will probably keep it for 2 years and then sell it for just under 7 grand. $40 a month in depreciation isn’t bad.