Forced into the car market: Lease or Buy?
Lease vs. Buy (Assuming you have cash for a downpayment and you can find a lease with the right number of miles allowed on it) is just a math problem. However if you aren’t the sort to want a new car every three years or so it is pretty much inevitable that buying is a better deal. The way a lease works is there is an assumed residual value at the end of the lease term, so the total payments for the lease are (Sale Price-Residual Value +Fees+ Carrying Cost of the car during the lease)/term of the lease. The first three items should be totally transparent to you so you can back into the implied carrying cost (i think the term the industry uses is discount rate). Compare this rate to the rate car companies are willing to give you on a purchase. If this discount rate is lower leasing is a better deal for you (Assuming you would want a new car at the end of three years). I doubt that is the case. In the past leasing was a better deal only because the companies were way too optimistic about
Don’t buy a VW. Maybe lease one, but do not buy one. After six years or so, it will break down over and over and over again. I finally donated my 2001 Cabrio (bought slightly used, I was the second owner) this past December, after it had broken down four times in the past year. Each time it broke down, it was a repair that cost over $1,000. The final time it just stopped on the freeway with no warning. Even the minor things had to be taken to the dealer: you can’t change a headlight without it costing over $70. I bought a Honda Fit to replace the Cabrio. I love it. It gets about 35 MPG (well, 34.7 MPG, to be exact), and I find it really comfortable to drive in. However, I could see it getting a bit cramped for backseat passengers.
When in doubt, drive lotsa cars. So many people have been interested in a particular car, liked what they’ve read about it, heard great things from people they’ve come across who have one, driven the car and found they couldn’t get comfortable in it or there was something about it that rendered it a not-good choice for them. In general, carsurvey.org is your friend. Probably worth buying short-term access to Consumer Reports online content or at least buying one of their books (from a locally owned bookstore). As per that and other references, I wouldn’t buy a Saab or a Volvo S if they were half off. Those cars, the 3 and the Merc don’t come close to tree-huger MPG’s, either. Lotsa people have had lotsa problems with Jettas, too. Short of something like the base-model Nissan Versa, the days of the high-revving, uncomfortable econobox are long over. People have related decent long-trip comfort in things as small as the Honda Fit, which sounds like it’s worth checking out. My brother-in-
I went through this awhile back, here’s what I found: – I found leasing really targeting people who want to hit a magic cash flow number per month, and wanted the most car for that number. – This generally meant stay at home moms, second sports car or other low mileage vehicle. – Without any sort of business lease deduction, it didn’t really make sense. I could find any car with mileage to get me back and forth to work everyday, as a main car. Well, it probably could have, but I wouldn’t have a lot of miles to to do other things in. Take in account the fees they charge for dings and blemishes, it didn’t work out. I highly recommend looking at entry-level luxury cars. Normally I’d say financing a depreciating asset like a car is going to always be bad unless they were giving you the money, and some financing deals I’m seeing are literally giving you the money. I’d look at 3-series BMWs if you can afford it, they’re practically asking you take them off the lot. High MPG vehicles are also
