Is a car lease the best choice?

[mikenelson]

Hello Savings Advice Forum,
I am a longtime lurker in this forum and have learned immensely from folks here. It's time for me to post something!

I am shopping for a SUV/minivan that will allow 4 adults, 2 kids in car seats and some luggage to be taken comfortably. We travel quite frequently so comfort is important. It seems to be that a MiniVan best suits my needs and I like the Honda Odyssey a lot (based on test drives as well as consumer reports and other auto magazine research).

I will likely keep this car for 10 years (more if it is still in good condition).

I have settled on the Honda Odyssey EX-L.

Here are my options:
- Buy Used for $10,000 (I can get a 2007 model with approx. 120,000miles on it)
- Buy Used for $20,000 (I can get a 2011 model with approx. 60,000 miles on it)
- Buy new ( I can get a 2016 model for $32,000)
- Lease new

I have previously purchased 2 cars.
Car1: 4 years old with 40,000 miles at purchase (original MSRP:37,000. I bought it for 19,000). This lasted upto 230,000 miles before I gave up on it)

Car2: 5 years old with 45,000 miles at purchase(original MSRP 49,000. I bought it for 20,000). I am at 203,000 miles and still have it.

As you can see I have subscribed to the theory of buy gently used car and drive it into the ground.

But with my research on the Odyssey, it seems to me that used just does not seem to make sense. The depreciation is linear and buying new is the way to go.

But, instead of buying new I am thinking about leasing to keep my monthly payment low with the intent of purchasing the car at the end of the lease.

If it matters, I plan on driving 200,000 miles over 10 years with this car as well.

What do folks think?

[Singuy]

Can you even get a lease that allows you to drive 20k miles/year?

[james.hendrickson]

Mike,

Here are my thoughts on this.

One good way to make decisions is to follow the model of people who are extremely economically productive. A good starting point is to check out Thomas Stanley's stuff on used car buying millionaires.

Stanley focuses on what he calls "UVPS" (used vehicle prone shoppers), which he says make up about 20% of his data on millionaires.

So here is his argument about UVSP's in a nutshell.

1. UVSP's are more productive at transforming income into wealth (so they are good at saving and investing) than other kinds of millionaires.

2. They shop aggressively for car deals among private sellers, dealers and leasing companies to get the best purchase price on their vehicles. As a result they pay 65% of the cost of other millionaire car shoppers.

3. They find and use the best suppliers of services. So, UVSPs look hard for smaller mom and pop outfits that provide the best parts and service at the lowest price. They don't go to the more conventional service types.

So, to specifically answer your question:

1. Buy used (Stanley's work implies this and research from Edmuds.com suggests leasing is moderately more expensive for mid-sized sedans relative to buying used)
2. Shop hard for the best price
3. Shop hard to find the best parts and service suppliers.

Links:

http://www.thomasjstanley.com/2012/02/millionaire-next-door-myth-4-used-cars/

https://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html

I know this isn't a specific answer to your exact question, but I am hoping its in the ballpark

[TexasHusker]

It all depends on your financial situation. If you have big chunks of savings and investments stowed away and have a healthy income, a lease is wonderful. You get a new car every couple of years with minimal headache. But leasing is like a country club membership - you cannot cost justify it - it is something that you do because you want to and can afford to.

We split the difference - I own a 6-year-old Toyota Landcruiser debt free, but we lease a 2016 Range Rover Sport for $1020 a month with 15K miles a year. Beyond 15K a year it's still only .$15 per mile.

D&M Leasing generally beats the dealer leases by a good bit and they work across the country. Google them.

[disneysteve]

leasing is like a country club membership - you cannot cost justify it - it is something that you do because you want to and can afford to.

Well said.

A lease virtually never makes sense financially. With rare exception, it is the most expensive way to own a vehicle (well not own technically since you don't actually own anything when you are leasing).

In order from cheapest to most expensive ways to have a vehicle, the list is typically buying used, buying new, and leasing.

[97guns]

I ran the numbers a few years ago and it was pretty much the same cost/expense to lease for 3 years or buy a car and sell after 3 years, you come out ahead if you buy the car and use it until it dies but if you like new cars every 3-5 years leasing is a viable option

[rennigade]

If you hate money lease a car

[pflyers85]

If you intend to buy after the lease term what difference does it make if you have the lower payments up front? The expression "Pay me now or pay me later" applies here. If you are just going to take the saved money from the lease payments and apply it at the time you buy out the lease it would have been no different than just buying in the first place. If the money saved is added to other money in an investment opportunity to generate more income then it might make sense.

[disneysteve]

If you intend to buy after the lease term what difference does it make if you have the lower payments up front?

That's an interesting question. I guess the question then is if you are going to buy the car, why not just do it upfront? Are you really saving anything by leasing and then buying? With the lease, you have a mileage cap to worry about. And what happens with the wear and tear charges at the end of the lease if you buy the vehicle? Do you still have to pay them? I don't know as I've never leased.

[bjl584]

Leasing can be a better option if you are running a small business and are buying the car for the business. You'd have to check with a tax professional that can break it all down for you. It depends on your situation.

From a personal financial standpoint, it's probably better to buy and hold for the long term.

[LivingAlmostLarge]

You can write off a portion of the lease for business expenses. It is usually better to write off a lease for a business.

[TexasHusker]

You can write off a portion of the lease for business expenses. It is usually better to write off a lease for a business.

You can deduct the portion of the car expense that is directly related to use for your business, and you had better have your ducks in a row with solid documentation when you get audited.

These types of deductions are an auditor's dream.

I'll pass.