When is it smart to lease a car
Buying vs. Leasing a Car (Pros and Cons)
hey everybody welcome back to whiteboard
finance my name is Marco and I'm here to
help you master your money and build
your wealth in this video we're gonna be
talking about buying a car versus
leasing a car and which option is better
for you so in the first half of this
video I'm gonna actually go over a
hypothetical scenario using numbers that
way you can see how the math actually
works and how it plays out and in the
second half of the video I'm going to
give you an anecdotal point of view from
my personal perspective and why leasing
and buying is situational for
everybody's situation so let's pretend
like we're buying a subcompact car okay
let's just call it like a Honda Civic
Toyota Corolla it's essentially a car to
get you from point A to point B right so
we have one option of buying the car
over here we have the other option of
leasing the car and in both these
scenarios let's pretend like we're going
to keep the car so we have a keep
scenario so you can buy it or buy it
after your lease is up makes sense okay
so the purchase price let's pretend like
we're gonna be paying seventeen thousand
seven hundred dollars for this
subcompact car our down payment is going
to be two thousand dollars and since
this is actually dealing with real math
and interest rates and for the sake of
not using a calculator I have this all
pre written down so bear with me here so
the interest rate is going to be four
point two two percent this is typical on
a car loan if you're a you know eight
hundred credit score it may be a little
bit lower than this but this is the
average rate right now term let's
pretend like we're financing this
vehicle over the course of three years
and then what our payment is going to be
using these numbers is actually 465 a
month okay so if we're actually gonna be
buying this car let's pretend like we're
actually selling it as well so our sales
price
after three years let's just say we're
gonna get 12 grand for it okay now with
the lease let me use a little different
marker here that way we can actually
differentiate let's say the down payment
because you're not actually purchasing
the car is $2,000 the lease term is
going to be the same thing as our buy
it's going to be three years the payment
for this now remember these aren't loan
payments these are just payments that
you're using to buy the car and
hopefully you guys can see this green
marker okay 1:59 a month and then the
buyback so at the end of your lease term
you actually have the option to purchase
the car it's gonna be let's call this 12
- right so twelve thousand two hundred
dollars okay so let's run through this
scenario very quickly here and again
hopefully you guys can see those numbers
in green so if you want to keep the car
we have the buy scenario we have the
least scenario okay so for buying the
car how much money do we have into this
deal so far well we know we have the
down payment which was $2,000 okay we
know that we paid 465 a month okay for
the course of three years so that's four
sixty five times thirty six months for
65 times 36 and this equals a total of
eighteen thousand seven hundred and
forty okay now we're going to lease the
car okay but we're gonna buy it back at
the end of three years so how much money
do we have out-of-pocket for this lease
we have our down payment which was two
grand okay we have the payments which is
159 a month times thirty six months okay
and then we have the buyback price of
twelve thousand two hundred dollars
a total of 19 thousand nine hundred and
twenty four so we can see here just by
keeping this car okay to buy the car out
right from the beginning cost us a total
of eighteen thousand seven hundred and
forty dollars over three years of
ownership to actually lease the car over
three years and buying it back at this
purchase price it's costing us nineteen
thousand nine hundred and twenty four
dollars so obviously you can see that
buying the car is more economical now
let's pretend like we're giving up the
car because most people in their lease
there's a higher percentage that
actually give back the car after that
three year period let's see how very
quickly how the math shakes out on that
okay so this is for keeping this is for
let's call it giving back so remember we
have eighteen thousand seven hundred and
forty into it for the buy however we're
actually selling it for twelve thousand
dollars because we own the car after
three years so this actually comes out
to be six thousand seven hundred and
forty dollars okay because think of it
like an internal rate of return if we
have a piece of real estate that's
giving us monthly rent rent rent rent
and we go to sell the house not only did
we realize the rent but we also realized
the the sale of the house the money that
we're getting for the house this is
similar obviously you're not getting
paid to drive your car but you own it
for a period of time but you actually
have an asset at the end of the three
years to be able to sell so we're
actually getting a cost of ownership is
six thousand seven hundred and forty
dollars after three years okay if you
want to lease the car and give it back
all you have into it is the two thousand
dollar down payment and all of your
payments which was 159 times 36 which
gives you a grand total of seven
thousand seven hundred and twenty four
dollars so even in this scenario if
you're giving back the car and you do
get back 12 grand for it you're still up
ahead
about $1,000 okay so mathematically this
will be the first part of the video
mathematically it makes sense to buy a
car right but let's talk about people's
life situations okay what if you're
someone that doesn't like to keep your
cars okay and you're someone that needs
a new car every three years so in my
personal opinion leasing would probably
be better for you because if you're
someone that's giving up cars every
three years you're not necessarily gonna
be someone that's sitting there every
weekend detailing your car vacuuming
your car you know changing the oil you
know meticulously and keeping all your
service records and doing all that stuff
you're not a quote-unquote car person or
a car guy if you will on the other hand
you have a car guy who knows how to buy
a car right and he enjoys his vehicle
and he truly takes care of it and he
knows he's going to keep the vehicle for
a long period of time so that's the key
so think about it the longer you own
your car okay yes it's going down in
value but the less you're paying for it
per month okay so if you bought a car
for $10,000 okay and you own it for 10
years you can roughly estimate that it
costs you about $1,000 a year to own the
car right now let's talk about
maintenance because the people that
lease will always go back to saying hey
I don't got to worry about my
maintenance you know it's covered it's
in the plan blah blah blah some things
are some things aren't some things fall
back on you so you're essentially
repairing a rental car when you're
leasing that's just a fancy word for
renting okay it's like renting an
apartment versus buying a home okay at
the end of the day I'm all about
ownership even though mathematically
sometimes it may not make sense
depending on how long you own the car
however if you care for your car and you
own it for an extended period of time
for many years
you will definitely be under the cost
per month when it comes to a person
who's actually leasing now with leases
you also have to remember that you're
always limited to a certain number of
miles every year and for every mile that
you go over it's gonna cost you 15 20 25
cents a mile right so if you want to go
take a road trip with your friends you
have to be cognizant of that you have to
watch you know how much you drive every
week every month
every year so you don't go over those
miles when you own the car you can put
on as many miles as you want now let's
talk about maintenance for the ownership
of a car so the IRS is they typically
have at range anywhere from 50 to 58
cents a mile is what it typically costs
to write off expenses on a car and
believe it or not that's actually a very
accurate number so given that 50 to 58
cents a mile I believe the current
valuation is 58 cents it depends on how
much her maintenance really is gonna be
in owning these cars so if you own a
high-end German car it's obviously gonna
be a little bit more expensive than that
if you own a rare you know Ferrari it's
gonna be you know until they're 50 a
mile and maintenance and if you own you
know a subcompact car like this Honda
Civic or this Toyota Corolla it may even
be less so at the end of the day I'm
gonna take a page out of Dave Ramsey's
book here car leases in my opinion it's
the most expensive way to drive a car
because at the end of the day it's not
even yours and when you do go to
actually buy that car the dealership is
tacking on fees just because they need
to make money somehow on that vehicle
right so you're overpaying from the car
from the start you're overpaying for the
car when you go to actually buy it when
you're buying your lease out and then
you're always you know while you own it
during the lease you're always worrying
about miles and maintenance and things
like that so now here's the final parts
of this video what if you get the
ability to finance a car and own it with
0% you also have to realize those
promotions with 0% financing although if
you may have the budget in the car and
you may be able to pay for a day one
yeah it makes sense that you know use
the 0% financing and invest your money
elsewhere however you also have to
realize that you're paying full full
full sticker price for the car on those
promotions you're not getting any money
off and you're definitely not getting a
deal and since we have human nature
instead of using that you know 10 15 20
grand to pay for the car up front we're
gonna finance it for 0% and then we're
gonna go on a vacation then we're gonna
go buy those new speaker systems that we
want we're gonna buy the new MacBook
etc etc and then guess what oh crap you
know the zero percent of financing you
know I'm paying more for the car than I
originally intended because I'm using my
car budget to pay for other things so I
hope this helped I know this is
oversimplified version but at the end of
the day the math definitely is there and
I did use a lot of hypotheticals of you
know what the sales price is gonna be
and things like that however I just use
the typical depreciation rate however
that is vehicle specific so I know I'm
kind of rambling here but it is
important to actually understand you
know buying versus leasing a car in my
personal opinion I'm gonna buy cars all
day long because I do enjoy working on
them I do enjoy detailing them and I do
enjoy finding good deals and typically
when I go to sell a car I've never
necessarily lost that much money I've
always either broke even or made money
on the cars that I've owned but that's
because I buy right so you make your
money when you buy the car guys so at
the end of the day I hope this helped
you if you're someone that absolutely
needs to lease a car and have a new car
every three years by all means go for it
just know that you are renting a car and
you're renting it in the most expensive
way possible thank you so much and have
a prosperous day
[Music]
