Check your inbox or spam folder to confirm your subscription.
Go to main Voices page »
One situation in which a lease can make sense is with a new electric car. Because the technology is changing so quickly, it’s harder to know what the resale value will be the down the road. In general, I don’t think leases are a good deal, but this is one situation in which a lease might be beneficial.
If you frequently plan on trading to new models every 3-4 years. At least with leasing you know your sunk cost, and if you get in an accident, you don’t have to worry about a carfax.
We used to buy and hold cars. In fact, we still have a 2011 Toyota Corolla. But we began leasing once we retired to our old beach house. No garage and the daily ocean spray eats metal. Now we lease and move to a new vehicle every three years in self defense. The Corolla looks terrible, but still works well locally. Once that’s no longer the case, I’m afraid we’ll be leasing 2 vehicles.
I was inclined to say “never.” But my mother-in-law, a very frugal and well-off retiree, may end up leasing for the remainder of her life now. She doesn’t want the hassle of even the most minimal maintenance. She’s earned it.
This is one of those situations where one must carefully consider what they really like and are going to do anyway. What’s the base case? For spendthrift folks, they will buy new cars every few years because they like them or maybe because their job requires a fancy vehicle. If so, then leasing makes sense so that you can avoid the huge depreciation early in a car’s life.
For most people though, leasing a vehicle is a poor financial decision. Buying a slightly used car and owning, maintaining it well, and owning it many years allows someone to pour more money into investments (or use the extra cash flow for fun).
Also consider the new WFH environment. Maybe you won’t even need a car very much–that’s even more incentive to own a more utilitarian vehicle.
It makes sense when the total annualized cost of the lease, including signing amount and insurance, is equal to or less than the annualized depreciation, loan interest, maintenance and insurance for a purchased car.
When I was in high school my father worked for a car company in Detroit that offered employees subsidized car leases for family members that were below market and included insurance. This was a no-brainer.
I’ve seen lease deals advertised by manufacturers that sometimes come close to that – $199 month including insurance, with a small signing amount
I don’t do it. We buy a good used five-year-old vehicle with 50,000 – 90,000 miles on it, drive it for five or six years, and then sell it. It ends up costing us about $1500-$2500/year in depreciation and maintenance. Insurance is on top of that. Tough to beat those numbers on a lease, as long as you don’t mind driving an older vehicle. Toyota/Lexus has worked well for us – they go forever.
If your company or self-owned business will pay for a lease, it may make sense. My brothers both lease cars, where I buy keep till they die. They like driving a relatively new car, and trying new models. It would be interesting to compare that to buying, and selling after 2–3 years. With the growth of car-buying companies that make it easy to sell, it might be an alternative. I have a friend who wanted a high end Audi convertible. For some reason they would not budge on price, but negotiated substantially on a lease. He felt he got a great deal on the lease.