What should I consider in a decision to lease or buy a car?

Question

My car may have been totaled by a driver who plowed into me at a stoplight. The body shop and the insurance adjustor are still evaluating the damage.

If the car is a total loss, I'll have to decide between leasing and buying. Naturally, I don't want an option that is substantially more expensive than the other, but saving myself energy and time and hassle over the expected life of the car or duration of the lease is an important consideration. I am willing to pay for convenience.

Pertinent information:

• I drive the car between 7,500 and 10,000 miles per year.
• I probably will have to stop driving in less than 10 years.
• If I bought a car, I would not get a loan, but just write a check for it. I have no need or desire to borrow money for anything.
• I am picky about the car I drive.

What I am hoping for is Leasing vs Buying 101. If you need more information to answer, just ask.

I have to stress that I am more interested in saving myself hassle than saving myself money. I hope the answers will give me info on how a lease might save me time and energy -- or not.

Answer 1

Consider the fact that you are essentially renting the car for the lease period. Once the lease is over, you have no equity in the car, and it will likely cost you more to buy the car than it's worth (as you said, you are paying for convenience). You've spent all of that money with nothing to show for it.

If I bought a car, I would not get a loan, but just write a check for it. I have no need or desire to borrow money for anything.

Then why in the world would you throw money away on a lease??? Just buy a car for cash, put what you would have spent on a lease payment in the bank or some investment, and you'll be WAY better off in the long run.

The only way a lease is cheaper is if the lease payments are less than the amount that the car depreciates. That would also means that the leasing company is losing money, since the effective interest rate (the amount you pay over depreciation) is negative.

I have to stress that I am more interested in saving myself hassle than saving myself money.

Buying a car for cash is one transaction. With a lease, you have monthly payments and have to deal with either turning the car in at the end (and paying any residual costs) or buying it out. Sure, you have to deal with a car salesman when buying a car, but you can avoid hassle by paying full sticker price. :)

I'm also confident you can find a dealer that will "throw in" convenience things like oil changes, routine maintenance, courtesy vehicles, etc.

Answer 2

If you are going to ignore the financial aspect of the leave vs buy situation, and just focus on convenience, then the analysis focuses on the weight you put on the haggle process.

If you buy car and drive it till it falls apart, then you essentially haggle over the price/value one time when you purchase it, and then again when you sell it. In between there are many visits to the mechanic for simple and complex items. The longer you own the car the more likely there will be stressful repairs that need to be done and paid for. The stress comes with the fact you may need a tow, and it might take more than one day to fix. It is likely that a new or newish car you buy today will last the 10 years.

If you decide to lease you again haggle at the start and the end, but the time between the haggles is only 2 or 3 years. So over the next 10 years you will be doing 3 to 5 sets of negotiations. So if you think it is painful to pick, and buy a car this route is very stressful. But there is one benefit, within the first 2 or three years of the life of the car, most will not have many high stress repairs unless you truly get a lemon.

I am picky about the car I drive

What is unknown is how long you will own the car. If that means that you will be selling this car and getting another in 2 or 3 years then the convenience factor of option 1 goes away, and the repair benefit of option 2 is mitigated.

One thing that option 1 gives you is freedom to sell at any time. If you like next years model and money is no object then not having to negotiate your way out of the lease is a benefit of option 1. Also the lack of a lease contract means that if decide in two or three years to wait one more model year, then owning allows you to skip finding a car to fill the gap between leases.

It all depends on the weight you put on the stress of negotiating.

Answer 3

The following are independent:

• choosing the car (pick whichever you like);
• buy vs lease; and
• maintaining the car.

Maintenance is normally your responsibility, regardless whether you are the owner or the lessee. In Australia, some places are prepared to include several years of standard servicing when you buy a car. I'd expect the US to be even more open to such haggling.

Leasing a car (at the consumer level in Australia, anyway) is the same as buying it, except you have a loan you need to service. The loan gives you money up front so you can buy the car. Then you need to pay back the loan under whatever conditions you agreed to. Since they have an interest in the car, it would probably be more hassle as you need to make sure you meet servicing schedules. In the event of a problem with the car, you might also have to remember to notify them. It's more hassle, and you're paying for it (well, you're paying for the money up-front; the hassle is thrown in for free).

You could go through even more hassle to get a novated or other lease that goes through a corporate entity to get a tax benefit. The way they spruik this is that you're paying with pre-tax money instead of after-tax money (your taxable income goes down, so your tax should as well; the company uses that money they didn't put into your bank account to buy the car, and the company gets taxed at the company rate, which factors into how much of your salary they don't put into your bank account). The car dealer may also agree to repurchase the vehicle for a fixed sum at the end of an agreed period. But you'd probably have to pay even more attention to your servicing and mileage because them agreeing to buy it back means that they have an interest in the car itself, not just the money to be repaid. You'd not only have the repayments etc to deal with, but now you also need to deal with the corporate entity.

So the way to save hassle is to just buy the car outright and negotiate a deal for servicing.

Try to find a reputable 'we come to you' mechanic. Then you can just call them, hand them the keys and go back to what you were doing. A bit later, they knock on your door and hand you back the keys in return for payment. Failing that, some mechanic shops offer loan vehicles, or offer to drive you to your office/home and back again, when you bring your car in for servicing.

Or to avoid the hassle of servicing and even refueling altogether, there's always public transport. But then you can't pick the make and model, and you'd miss out on the driving. :)