Compare the Costs: Buy vs. Lease vs. Buying a Used Car

Compare the Costs: Buy vs. Lease vs. Buying a Used Car

We make decisions every day that are based on our personal preferences. However, when it comes to making financial choices, we need to think beyond preferences in order to maintain budgets and ensure savings. For car seekers looking to buy or lease a car, the financial aspects can be quite complicated. Would you prefer to drive a new car with low monthly payments or would you like to own one so that you’ll have an asset after paying off your loan?

If you only consider the financial aspect, the best choice would be to buy a used car by cash so that you don’t have to worry about interest or depreciation. However, not everyone can afford to buy a car with cash and thus, an auto loan is imperative. A lease allows you to drive a car for a fixed period (usually three years) at a small monthly payment.

When Leasing Makes Sense

If you want a car for just a few years and don’t want to worry about its trade-in value, leasing can be a great choice. It gives you the freedom to drive new cars every few years and the monthly payments are lower than auto loan installments.

When Buying Makes Sense

If you can get 0% financing from your dealership and you plan on keeping your car for a long time, buying makes a lot more sense. Eventually, you will pay off the car loan and then you won’t have to worry about monthly payments. Instead, you’ll own an asset that you can sell off to buy another new car or you can use it for as long as you need.

Comparing Costs

Let’s say you lease a car after $1,999 down and have monthly payments of $199 for three years with a 36,000-mile lease. In this case, it will cost you $9,163 after three years and $18,326 after six years if you renew your lease. On an annual basis, your expense would be around $3,054.

In another case, let’s assume you decided to buy the same vehicle at a cost of $20,840. After putting down $1,999, you get a loan at 2.5% for a period of four years. In this case, your monthly payments will be around $412. After a period of four years, the cost to buy the car would be $21,817, including the interest amount. So during a six-year period, you would have spent $3,636 on a yearly basis.

So if you calculate these numbers, leasing seems cheaper by nearly $600. However, in case you buy the car, your car will still be worth almost $10,000. This means, your cost of ownership is now reduced to $1,969 a year. So if you buy, you can save up to $6,508 over a period of six years.

When you choose to buy a used car, you will have to spend more in terms of maintenance and repairs. Also, sometimes an auto loan on used cars might have a higher interest rate. However, if you get a relatively newer model with fewer miles on the odometer, you have a good chance of being financially smart and saving quite a lot.

Ultimately, the decision to lease, buy new or buy used is entirely dependent on your needs and what works best for you and your family.