I get this question a lot from my clients. This choice, to lease or buy, can have a big impact on your finances.
First, I want to share a personal story illustrating what happens when you make the wrong choice so you don’t make the same mistake I did.
As you may know, I’m a car person. I know cars are a bad investment so I have to be smart about it. I like luxury cars. My go-to? BMW because their performance is AH-mazing, but I had to learn the hard way to never own one. I bought my Dad’s BMW when I was 16 and by the time I went to college, it was 5 years old and already out of warranty. Slowly, over time, the maintenance bills started piling up. It would break down, I would have to get a tow truck, the belts would break and these bills to fix the car were around $3,000, sometimes even $7,000! This was happening every 3 to 4 months! When you start calculating the cost of my dad buying the car which was at least $50,000, I bought it from him for $5,000 (thanks, Dad!), and then the maintenance bills, it was a REALLY bad investment. BUT I really loved the car. So what I took from that experience was never to own one.
If I lease one, it’s under warranty, and I pay the monthly payment every month. That’s it. The only additional costs are gasoline (which is for any car) and if I need to get new tires, which isn’t very often. So the moral of the story is - with a luxury car especially BMWs, Range Rovers, Mercedes - you do not buy, you lease.
Things to Consider Before you Decide:
Mileage
How many miles a year do you drive? Most leases the max mileage is 15,000 miles per year (from what I’ve seen). If you drive over 15,000 miles per year, then with a lease you’re going to be on the hook for those extra miles. This can be a pretty significant turn-in charge. For example, I had one client that is 40,000 miles over her lease allowance and she is looking at a $9,000 bill that we have to prepare for when she turns in her car.
The takeaway? If you don’t drive over 15,000 annually then a lease could be an option for you.
Are Cars Your Thing?
If you are happy with a standard car like a Mazda, Toyota, Jeep, Ford, etc. then buy. And when you buy, get one that is maybe 1-year old that is certified pre-owned, because cars depreciate fast when they drive off the lot so you will get a significant discount. Cars like Mazda last a long time and the maintenance isn’t exorbitant like luxury cars so get one and drive it until it dies. You will save a TON of money that you can spend on other things that are important to you.
With luxury cars, however, you have to make such a significant investment to buy it. By the time you get done paying it off, it starts breaking down and those maintenance bills are as much, if not more than what a lease payment would have been, which was my case. And you already sunk $50,000 - $60,000 into it just to purchase it.
The takeaway? If you like luxury cars, consider leasing to avoid high maintenance fees and parting with a significant chunk of change.
Do you like to get a new car every 3 years?
If you do, leasing is probably better. When you buy, cars depreciate the fastest when they are new so there is a chance you could owe more on your car than it’s worth when you go to sell it.
Are you hard on your car?
If you bang up your car, have multiple door dings, spill stuff all over your carpet, it’s probably best to buy because when you turn in that lease you will be on the hook for that damage. If you treat your car like it’s your baby, like I do, leasing will probably work for you.
In summary, consider how many miles you drive, if you prefer a luxury car (vs. a standard car), how often you would like to get a new car and how hard you are on your vehicles when deciding to lease or buy.
Tips & Tricks
Tesla is an exception to the rule. From what I hear from Tesla owners, which I would consider to be a luxury car, the maintenance is pretty great. It’s close to none and is a luxury car that I would buy. And I’ll tell you something a lot of people don’t know that a realtor, Doug Baldwin, told me - you can actually buy a pre-owned Tesla and he got a pretty good deal.
Another thing with leases, if you’re unsure of what car you want or would like to try a car for a shorter period of time than the typical 3-year lease, check out these two websites:
There are amazing deals where you take over someone else’s lease who no longer wants the car or perhaps their financial situation has changed and they can no longer afford it. Sometimes they offer a pretty good incentive to lower the monthly payment. If you do this, make sure you pay the $100 to get it pre-inspected because you will be liable for any dings when you turn it in. This option is great because:
You don’t have to put the down payment for the lease, which is normally around $3,000 - $5,000 for luxury vehicles. Note there is sometimes a lease transfer fee. The most I have seen it is around $500.
You get to try out a new vehicle for a shorter period of time such as 1 -2 years
The owners have already negotiated the lease payment down so if you’re not a great negotiator this is great for you because it’s already done
The current leasee can offer an incentive that creates a lower monthly payment than what you would get from the dealership with a standard lease
Hope you have found my tips helpful. If it would benefit you to have a financial partner along the way to help you with all these big decisions in life schedule a free 30-minute call here.
