it

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]