Buying a Used Car vs. Leasing a New One
No matter where you leave, you need a car — period. Yes, major cities have transit systems, but if you live in a rural area, or the suburbs, transit often won’t meet all of your transportation needs.
However, cars can also be one of the largest line items in a family’s budget. Fortunately though, there are ways to reduce this cost, such as buying used cars as opposed to buying a brand new car. You can also lease a new car to bring down the cost of driving.
However, which is the smarter move; buying a used car or leasing a new one?
Let’s take a look.
Pros & Cons of Leasing A New Car
The upside of leasing is that you can drive a lot more cars for a lot less money.
As this is being written the average new car price is right around $37,000. Running the numbers through a loan calculator reveals buying a new car at three percent interest over 36 months with a $7,400 down payment (20 percent) returns a monthly payment of $860.80.
That same monthly payment would lease a 2019 BMW 740e, which retails at $93,945, with a $5,500 down payment. In other words, you could drive a car worth almost 3 times the price for less money out of your pocket on a lease.
However, at the end of the lease period, you’d have no equity in the car. All of that money would stay with BMW, as would the car. Of course, they’d happily lease you another one, but you’d have to come up with another $5,500 to start all over again.
But hey, you had the privilege and the pleasure of driving a 7 Series BMW for three years. And, if you used the car for business, those lease payments were tax deductible. On the other hand, you were limited to 22,500 miles over those three years, you had to carry the maximum amount of insurance and of course you had to have a near-pristine credit history to qualify.
Pros and Cons of Buying A Used Car
Meanwhile, you could purchase a used 2019 Cadillac CTS with 22,000 miles on it for right around $37,000, or a 2017 Mercedes-Benz E-Class. The same is true for any number of other luxury cars whose styling is identical to their current models. Further, there are a wide variety of used car loans from which you can choose.
So, just like leasing, you’ll drive a nicer car for less money than you would if buying a new car. However, unlike leasing, once the used car is paid off, it’s yours. You can use whatever value is left in the car as a down payment on your next one, or you can just keep driving it. There are no mileage restrictions and you can tailor your insurance coverage to whatever degree of risk you’re comfortable accepting.
What’s more, you can find certified pre-owned used models in that price range, which will come with a warranty should something go wrong in the first couple of years of your ownership. Of course, when that warranty protection runs out, you’ll be on your own for repairs. And, in your mind, you’ll know you’re driving a used car.
Would You Try Buying A Used Car or Leasing A New One?
You can absolutely drive a much nicer car for less money when you lease a new car, as opposed to buying one. However, the advantages are outweighed by the economics when it comes to buying a used car vs. leasing a new one.
In most cases, buying the used car would be the smartest move of all — with but one exception. If you need a car for business, you’ll come out ahead leasing, as your car payment can be written off as an expense.