Last week, I wrote about how my friend probably saved money by leasing a brand new civic for $199/mo with no money down. Yesterday, he told me that he has the option to purchase the vehicle at the end of his lease term at 60% of the MSRP price. He couldn’t remember what that number was so I went on to Honda.com and looked it up. Let’s just assume that his car is a brand new 2010 Honda Civic DX, priced at $17,205. Couple adys ago, I saw a Honda commercial that outlined $199/mo lease for 36 months or 0.9% financing. So, let’s compare the two deals and see which one makes more financially sense.
So according to the table above, financing makes more sense over leasing. You would save about $200 over the course of 36 months. If you’re able to sell it for more than 60% of MSRP, then even better. But let’s also consider the fact that you’ll be paying $285.58 less every month by leasing when compared to financing. This money can be put into an online savings account, such as Ally, which currently gives 1.29% return on your money. After every month, you deposit $285.58 into your new Ally account, you would have $10,414.53 at the end of 36 months. This earns you $133.65, meaning financing only saves you about $50 over leasing.
So, this proves that leasing is not always the better option. In the example above, it appears that there really is no big financial advantage one way over the other. Although tax, tags, and title fees are all included in the $199 monthly payment and not when financing, no one ever pays MSRP price anyway.
Bottom Line
You should lease a car if you like to drive a brand new car every 3 years or so, don’t like to pay for costly maintenance, and enjoy having lower monthly payments. You should buy or finance your next car if you need the comfort of having an ownership of your car and have plans to pay off your loan earlier to become payment-free, and understand the added costs for unexpected maintenance and repairs.
On a side note, visit Mrs. Accountability’s Outofdebtagain.com for her Yakezie Roundup this week.
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I have a friend who changes his cars like gloves (we have this expression in Russian, hope it makes sense in English.) So, he never buys a car but leases. I asked him once if he is going to buy a car ever, and he said no. He likes to change them too often and he doesn’t want to worry about maintenance cost.
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Buying a car is better after the 3 years also especially if you plan to drive it until it can’t go anymore. I plan to drive mine for as long as I can to get the maximum benefit from it.
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