Leasing vs Buying a Car: Which is ACTUALLY Cheaper in 2024?

Summary

This video compares the financial aspects of leasing versus buying a car, breaking down costs like depreciation, interest, and taxes. It explains that leasing often offers lower monthly payments but leaves you without ownership at the end, while buying typically results in higher payments but leads to full ownership. The host uses the example of a Toyota RAV4 Hybrid to illustrate the costs and benefits of each option over 3- and 5-year terms. The video concludes by advising which option might suit different lifestyles and financial priorities.

Takeaways

• 🚗 Leasing a car is like renting it for a set period, typically 3 years, and involves making monthly payments that cover depreciation, interest, taxes, and fees.
• 💸 Buying a car involves paying the entire value of the car, with monthly payments covering both the principal and interest over a longer term, usually 5 to 6 years.
• 📉 When leasing, you only pay for the depreciation of the car during the lease term, making it generally cheaper on a monthly basis compared to buying.
• 📊 Leasing a Toyota RAV4 hybrid for 3 years would cost around $17,000, whereas buying it for the same period would cost about $34,000, but with higher resale value afterward.
• 📈 The resale value of a car after owning it for 5 years can offset the total ownership costs, making buying a car more economical in many cases.
• 📉 Interest rates, loan terms, and depreciation play a major role in determining whether buying or leasing is more cost-effective.
• 💰 Leasing may be a better option for people who want lower monthly payments, prefer driving a new car every few years, or have businesses that can write off payments.
• 🔧 Buying offers more flexibility in terms of mileage limits and ownership, while leasing often includes restrictions and penalties for exceeding mileage caps.
• 🚘 Cars that depreciate quickly or have high maintenance costs, like luxury vehicles, are sometimes better suited for leasing rather than buying.
• 🤔 Overall, buying tends to be the better financial option if you plan to own a car for a long time, value ownership, and don’t want the limitations of leasing.

Q & A

What factors should be considered when comparing leasing and buying a car?

When comparing leasing and buying, factors to consider include depreciation, interest rates, maintenance costs, taxes, and fees. Intangibles like the sense of ownership, flexibility, and mileage limits also play a role.

How does the monthly payment structure differ between leasing and buying a car?

In leasing, monthly payments cover depreciation, interest, taxes, and fees. In contrast, buying involves payments on the entire car value, plus interest if financing, making buying typically more expensive per month.

What are the benefits of leasing a car compared to buying one?

Leasing generally offers lower monthly payments, limited responsibility for maintenance, and flexibility to drive a new car every few years. It can also offer tax advantages for business owners.

What are the drawbacks of leasing a car?

Leasing comes with limitations like mileage caps and possible early termination fees. You don't own the car at the end of the lease, and if you want to keep it, you must pay a residual value.

How is depreciation accounted for in a lease?

In a lease, you pay for the car's depreciation during the lease term. For example, if a car depreciates by $10,000 over three years, your payments will cover this depreciation, not the full car value.

What is a residual value in leasing, and why is it important?

The residual value is the car's estimated worth at the end of the lease. It's important because you can buy the car at this price, which is often lower than the car's market value, offering potential savings.

How does financing a car purchase over five years compare to leasing it for three years?

Financing a car over five years results in higher total payments due to interest but grants full ownership. Leasing for three years has lower monthly costs, but you may pay more long-term if you decide to purchase the car later.

When might it be better to lease a luxury or sports car instead of buying one?

Leasing can be better for luxury or sports cars with high maintenance costs and rapid depreciation. Leasing allows you to drive a more expensive car at a lower monthly cost without worrying about long-term maintenance.

What are some advantages of buying a car outright?

Buying a car outright provides full ownership, with no mileage limits or lease terms to worry about. It can be more economical long-term, especially if you plan to keep the car for many years.

What personal factors should influence the decision to lease or buy a car?

The decision depends on personal preferences such as the desire for ownership, how long you plan to keep the car, your driving habits (mileage), and whether you prefer lower monthly payments with leasing or long-term savings with buying.