Is it better to lease a car, finance a car or buy it outright in cash?
Discuss the pros and cons of each and choose one was the "best" method.
Best Answer
699 points
7million7years answered one year ago …
There are three choices: Buy, Lease, Rent. Right now I have one car in each category ...
BUY
Are you buying the behicle to go from Point A to B (eg to/from work)? Then, buy your car used, pay cash, and keep it as long as you can. A car is a money drain. Some people say that you should never have more that 2% of your Net Worth invested in your vehicle. I own a very nice car - my 'toy - it fits within the 2% criterua and I paid cash. Also, it was 'oh so very slight used' (I'm not proud!), which saved me $35,000 ... nothing to sneeze at, huh?
LEASE
If your vehicle is a 'tool of trade' that is something that is required in order for you to earn an income because you own a business or are self-employed, then you need to establish the Lowest After tax Ownership Cost. It's probable that the favourable tax treatment of such vehicles makes it worth while to lease the vehicle ... go ahead ... it's EARNING you money!
In one of his books, Robert Kiyosaki mentioned that he actually BOUGHT a business so that he could finance a Porsche or Ferrari! Interesting strategy ...
I just picked up a new leased vehicle yesterday.
RENT
I actually RENT my daily-use vehicle, a nice, new European car; I don't recommend this for most people, but I managed to negotiate an outstanding deal + there are NO maintenance costs, airport parking, gas costs (they fill the tank for me whenever I leave the vehicle with the rental company while I am travelling), and it is 100% tax deductible!
Now, your friends may treat their cars as 'status symbols' and over-extend themselves to get the latest little 'hot rod'; follow the advice that I've just laid out for you ... keep reading investing what you save on buying cars ... and, when you're kicking back sipping Pina Coladas in Majorca, you won't worry about the rust-bucket that you had to drive for a while to get there ;)
Answers
4075 points
EthanR answered one year ago …
I believe that it is never better to finance a car than to buy it with cash. A car is a depreciating asset, and one never wants to spend a lot on a depreciating asset. But when you pay interest on it as well, that is compounding the felony! Some people may say you can use the cash to generate an investment return, but that is always a risk, and there are taxes to pay on your returns as well. So always pay cash, and best is to buy a two year old or three year old car with low mileage, as then somebody else has paid a large portion of the depreciation, and you can get a reliable car at a hugely discounted price.
For the rest of the question, I refer you to a post from Dave Ramsey, financial talk show host on foxbusiness news and radio, from www.daveramsey.com: http://www.davesays.org/index.cfm?FuseAction=dspContent&intContentID=7858
Dave Says - October 15, 2007 Is leasing throwing your money away?
Dear Dave,We’ve leased our last couple of vehicles, and to me it seems like we’re just throwing our money away. At the end of the term we have nothing. What is your take on buying new cars or leasing? What is the best way financially to go about getting a vehicle?
Anna
Dear Anna, To start with I’ve got to tell you that I’m a boy, and I love cars. But when you run the numbers you find that automobiles represent the largest purchases Americans make that goes down in value. Kiplinger’s Personal Finance magazine says that a new car will lose 60 percent of its value in the first four years. Turning $30,000 into $11,000 is not a good plan! So financially speaking – and common sense agrees – that if you pay cash and buy a two-year-old car with very low miles in great condition, someone else has already taken the bulk of the loss in value.
This is what the typical millionaire does. Very few millionaires lease cars – or as we call it, “fleecing†a car – because it’s the worst deal on the car lot. Consumer Reports, Consumer Federation of America and Smart Money Magazine have all done articles on the “fleece†and the fact that it’s a rip-off. The only one who comes out to the good in an auto lease is the dealership. Have you noticed, too, how they never mention those high interest rates you’re getting roped into? Buy a two- or three-year-old or older vehicle, and pay cash for it. You’ll never be able to build wealth when you’re throwing your money away on car payments!- Dave
3930 points
MNSL answered one year ago …
I think it is depending on what type of investor are you. If you don’t have good investment ideas, if you don’t have any business to generate income it is better buy it outright in cash. Then you don’t have to pay higher interest rate unnecessarily.
If you have a business to generate income and good investment ideas then it is better to lease a car or finance a car. Then you can earn some income while paying your car instalments according to lease or finance.
127 points
WilliamYoung answered one year ago …
I agree the normally best solution is to purchase slightly used vehicles with cash and that leasing is normally useful for business since that cost is much lower then purchase cost when business demands vehicles for transport. Additionally rental of a vehicle would be in a class with leasing and viable perhaps in some business senario but not suitable for the average person who needs basic transportation.
Having said all this it is also possible to use the purchasing and leasing together to get the best of both worlds. If you are in business it is possible to purchase a new vehicle or luxury vehicle with cash then lease it to the business. This purchase is then paid for out of the business and the business writes it off as an expense. If your business is generating a large amount of income then that purchase/lease will have the effect of reducing taxes and increasing expenses. Check with your local CPA about particulars.
896 points
jillybeansisme answered one year ago …
If you are the average person, BUY the car and use it for MANY years. I realize I am probably not the norm, but I kept my Ford Escort LX for 16 years (I was determined to hit 100,000 miles on it.) until I bought my 007 vehicle, a Toyota Rav4, for which I paid cash. (I actually paid for it on my credit card to get the points and then paid off the bill the next month so there were no interest fees). I am currently saving for my next vehicle, which I hope to NOT BUY for at least ten years.
Something I did learn was I should have gotten rid of the Ford Escort before it hit 100,000 miles to get the most money I could on it. I did not trade it in.
If you occasionally want a status car for some reason, rent it for the day but be kinder to your wallet and the environment and drive your car and extra couple of years!
