Compare the Costs: Buy vs. Lease vs. Buying Used
Every car buyer has faced this dilemma at least once – Should I buy a used car, a new car or should I lease my dream vehicle? One chain of thought will tell you that new cars tend to lose 10% or more of their value as soon as you drive it off the lot. Others will mention the equity benefits and the pride you feel when owning a brand-new car. And for those who don’t want the hassles of warranties or ownership, there’s nothing better than leasing the latest model. With so many opinions, it can be tough to decide what’s right for you. We bring you some numbers to help you make the right choice.
The Total Cost of Vehicle Ownership
Let’s consider the total cost of ownership for a new vehicle that costs around $20,000 which you might drive for nearly 12,000 miles annually, versus the same vehicle leased or buying a used model (around five years old) for $10,000.
Buy vs. Lease
From the above example, it might seem like the most expensive option is to buy a new car. However, before you make up your mind, let’s consider the other costs verse the value. When you buy a vehicle, you own it outright so you can decide to sell it and get its market value. In the case of leasing, you don’t own anything so from a purely financial perspective, ownership is better than leasing whether you decide to buy a new or a used car. (Note that this holds true even if you stay within the limits of the mileage penalty mentioned in your lease contracts.)
New vs. Used
Financially, it is not so clear whether buying a new or a used car will be more effective. In the case of the above example, the value of the new car will be around $7,000 after five years and the value of the used car will be $2,000. In this case, if you were to sell both cars, the total monetary commitment will be $25,400 for the new car and $16,400 for the used car. This leads to a $9,000 difference in favor of the used car.
What About the Life of the Vehicle?
If you buy a used car at half the price of a new car and use it for five years after it has already been used for five years before you, it might not have much life left in it. However, your new car can easily run for another five to seven years, especially if you are a conservative driver. So in the first five years, a used car will be $1,800 cheaper to own than a new one. However, after the period of five years, you might need another car as your used car won’t be as efficient. If you had bought a new car and your loan is paid off, you don’t need to spend any more money for the next few years.
If you like to show-off a new car every few years, leasing is a great option even though it can cost a little bit more. Based on how long you want to own a car, you should carefully weigh your options when deciding whether you want to buy new or used.