4 ms·

Ask HN: Leasing vs. buying a car

16 points by officialjunk 12y ago

Does anyone know of any technical analysis, comparison calculator or have advice on leasing vs buying a car? I've seen some analyses of buying vs renting a house, but not for a car. I know one major difference is that a car is generally an asset that depreciates in value. I've purchased a few realtively cheap (~$2k) used cars, but am considering going for a new car this time around and am researching leasing over buying.

JacobAldridge 12y ago
There was an article on here many years ago (some quick searching has failed to reveal it, alas) that 'demonstrated' the most sensible thing to do was buy a 2 year old car and sell it 5 years later. This gave you the benefit of some of the new car warranty, and meant you passed it along before the more expensive fixes started to show up. Broadly, if you want to be sensible with your finances, don't buy a new car! You're essentially tearing up a whole lot of money the moment you drive it off the lot. Late last year I did the numbers for myself (so again, sorry - no link!). I could run it through my company, so had the tax advantages of that when it comes to leasing. What I found was that the benefits only became clear when I compared leasing a new car with purchasing a new car. (iirc, Leasing with tax benefits was just a better option than purchasing with cash.) And since I knew a new car wasn't a good idea, leasing was shelved and I bought a second hand (pre loved?) vehicle. Those tax benefits (which would differ in different jurisdictions) may be one reason why it's hard to find the site you're looking for. On the related topic of financing a car purchase, which I did with my first car many years ago, an obvious lesson I learned the hard way was combining weekly repayments with the length of the loan. All I had in my head at the time was "$100 per week" - of course, the dealer immediately applied this to a 5 year loan which almost lost me finance on my first home some years later. If you can't pay cash today, think $x/week over 2-3 years max to ensure it doesn't become a depreciating black hole.
axaxs 12y ago
Never buy, lease, or otherwise pursue a brand new car, unless you have money to burn and a hang up. The fact you posted makes me believe otherwise... Assuming buying "hardly used", buy. Most of the loss has been eaten by the previous owner.
- caw 12y ago
  There are legitimate reasons to purchase a new car, but it really comes down to doing the numbers for yourself. I bought a new car right after college. My intent was to do the "responsible" thing and buy a lease return or some slightly used vehicle. However, with the price difference, the warranty on that versus a new car, the APR I could get on a new vehicle (0%) versus a used one (2.75%), and how long I intended to keep the vehicle swung me to buying new. The warranty in particular was a key selling point because I was moving to a new city with no social net to help if I suddenly had to have massive car repairs. Been there, done that, it's not fun. There was some other intangibles. I have full service records for my car, there's no risk of "hidden" damage, I didn't have to bother with taking it to a mechanic to get checked out. Bottom line is run the numbers before blatantly assuming it's "money to burn". It's a cost effectiveness scenario. Obviously more expensive cars potentially have more expensive depreciation cycles. Leasing is similarly a good idea in certain cases. There's tons of articles around that illustrate in what scenarios it actually is a plausible option of obtaining a vehicle.
cstrat 12y ago
I am sure this depends on which country and which state you live in. I'm from Australia and the tax ramifications are quite interesting with both options. I did all the calculations on a normal lease vs. novated lease vs. outright purchase. Since I am on the road for work and I can deduct vehicle expenses and depreciation. So it works out okay to get a new car. It is still throwing away lots of money, but because of the tax deductions it is less painful. I have taken out a novated lease, and also bought outright with finance from a bank. In the end I worked out that novated leases are a waste of money if you are able to deduct car expenses yourself. Since I only benefit from a component part of the monthly expenses being paid pre-tax. (another benefit is that you dont pay GST on any expenses). Buying outright is fine if you don't have any need for the money, but I was better off putting the money in my mortgage offset and being charged interest - that interest is deductible along with the expenses that go along with the car. Edit: Again, this really only applies to you if you can deduct car related expenses from your income tax.
wikwocket 12y ago
Without knowing your situation or location, it is difficult to provide targeted advice, but in general it will be advantageous to buy a 1-3 year old car, from a good manufacturer, using your own financing (or even better, mostly with cash). New cars are nice and shiny, and do have the latest safety/efficiency gains, but you will lose a bunch of resale value as soon as you drive it off the lot. Depending on your goals, needs, and the car model, a lightly-used year-old car can give you 95% of the value for a lot less cost. Then, as for financing, shop around instead of using dealer financing. Check with banks and especially local credit unions and see their rates. Then when you have a car in mind, get pre-approved and get the car. I would only recommend a new car to someone with cash to burn, and I would only recommend leasing if it's a car for your small company and your accountant advises it.
- loumf 12y ago
  There was an analysis done by a respected frugal blog (can't find it now) on new v. used. From what I remember, the result was "new" only won if you intended to get a car and have it for a very long time. Eventually you could overcome the initial depreciation with decreased maintenance. Obviously, there are a lot of assumptions, chief among them, that we were only talking about cars with good maintenance histories. A lot of people would like to not have the same car for 15+ years -- they should get a used car.
wiradikusuma 12y ago
Everyone seems to suggest buying used car. But how about miles "used" by the car and any "abuse/negligence" by the previous owner(s), e.g. using the car for road trips across desert.
dynabros 12y ago
Most people forget to factor incentives and bargaining into the new/old/buy/lease argument. I've leased new cars that cost less than the depreciation on a purchase. You can also buy a used car for an exorbitant amount, spending more than new.
izzomatik 12y ago
http://www.carbuyingtips.com/used.htm http://www.carbuyingtips.com/used.htm This has been around for years and is very in depth with his analysis. I'm in the same vote , i'll be buying pre owned but remember "a car is not an investment." keep your payments low if leasing and lease short term i guess in the end, ask yourself what car would you be fine with for a long period of time with no payments if buying and why

16 points by officialjunk 12y ago

JacobAldridge 12y ago

There was an article on here many years ago (some quick searching has failed to reveal it, alas) that 'demonstrated' the most sensible thing to do was buy a 2 year old car and sell it 5 years later. This gave you the benefit of some of the new car warranty, and meant you passed it along before the more expensive fixes started to show up. Broadly, if you want to be sensible with your finances, don't buy a new car! You're essentially tearing up a whole lot of money the moment you drive it off the lot. Late last year I did the numbers for myself (so again, sorry - no link!). I could run it through my company, so had the tax advantages of that when it comes to leasing. What I found was that the benefits only became clear when I compared leasing a new car with purchasing a new car. (iirc, Leasing with tax benefits was just a better option than purchasing with cash.) And since I knew a new car wasn't a good idea, leasing was shelved and I bought a second hand (pre loved?) vehicle. Those tax benefits (which would differ in different jurisdictions) may be one reason why it's hard to find the site you're looking for. On the related topic of financing a car purchase, which I did with my first car many years ago, an obvious lesson I learned the hard way was combining weekly repayments with the length of the loan. All I had in my head at the time was "$100 per week" - of course, the dealer immediately applied this to a 5 year loan which almost lost me finance on my first home some years later. If you can't pay cash today, think $x/week over 2-3 years max to ensure it doesn't become a depreciating black hole.

axaxs 12y ago

Never buy, lease, or otherwise pursue a brand new car, unless you have money to burn and a hang up. The fact you posted makes me believe otherwise... Assuming buying "hardly used", buy. Most of the loss has been eaten by the previous owner.

caw 12y ago
There are legitimate reasons to purchase a new car, but it really comes down to doing the numbers for yourself. I bought a new car right after college. My intent was to do the "responsible" thing and buy a lease return or some slightly used vehicle. However, with the price difference, the warranty on that versus a new car, the APR I could get on a new vehicle (0%) versus a used one (2.75%), and how long I intended to keep the vehicle swung me to buying new. The warranty in particular was a key selling point because I was moving to a new city with no social net to help if I suddenly had to have massive car repairs. Been there, done that, it's not fun. There was some other intangibles. I have full service records for my car, there's no risk of "hidden" damage, I didn't have to bother with taking it to a mechanic to get checked out. Bottom line is run the numbers before blatantly assuming it's "money to burn". It's a cost effectiveness scenario. Obviously more expensive cars potentially have more expensive depreciation cycles. Leasing is similarly a good idea in certain cases. There's tons of articles around that illustrate in what scenarios it actually is a plausible option of obtaining a vehicle.

cstrat 12y ago

I am sure this depends on which country and which state you live in. I'm from Australia and the tax ramifications are quite interesting with both options. I did all the calculations on a normal lease vs. novated lease vs. outright purchase. Since I am on the road for work and I can deduct vehicle expenses and depreciation. So it works out okay to get a new car. It is still throwing away lots of money, but because of the tax deductions it is less painful. I have taken out a novated lease, and also bought outright with finance from a bank. In the end I worked out that novated leases are a waste of money if you are able to deduct car expenses yourself. Since I only benefit from a component part of the monthly expenses being paid pre-tax. (another benefit is that you dont pay GST on any expenses). Buying outright is fine if you don't have any need for the money, but I was better off putting the money in my mortgage offset and being charged interest - that interest is deductible along with the expenses that go along with the car. Edit: Again, this really only applies to you if you can deduct car related expenses from your income tax.

wikwocket 12y ago

Without knowing your situation or location, it is difficult to provide targeted advice, but in general it will be advantageous to buy a 1-3 year old car, from a good manufacturer, using your own financing (or even better, mostly with cash). New cars are nice and shiny, and do have the latest safety/efficiency gains, but you will lose a bunch of resale value as soon as you drive it off the lot. Depending on your goals, needs, and the car model, a lightly-used year-old car can give you 95% of the value for a lot less cost. Then, as for financing, shop around instead of using dealer financing. Check with banks and especially local credit unions and see their rates. Then when you have a car in mind, get pre-approved and get the car. I would only recommend a new car to someone with cash to burn, and I would only recommend leasing if it's a car for your small company and your accountant advises it.

loumf 12y ago
There was an analysis done by a respected frugal blog (can't find it now) on new v. used. From what I remember, the result was "new" only won if you intended to get a car and have it for a very long time. Eventually you could overcome the initial depreciation with decreased maintenance. Obviously, there are a lot of assumptions, chief among them, that we were only talking about cars with good maintenance histories. A lot of people would like to not have the same car for 15+ years -- they should get a used car.

wiradikusuma 12y ago

Everyone seems to suggest buying used car. But how about miles "used" by the car and any "abuse/negligence" by the previous owner(s), e.g. using the car for road trips across desert.

dynabros 12y ago

Most people forget to factor incentives and bargaining into the new/old/buy/lease argument. I've leased new cars that cost less than the depreciation on a purchase. You can also buy a used car for an exorbitant amount, spending more than new.

izzomatik 12y ago

http://www.carbuyingtips.com/used.htm http://www.carbuyingtips.com/used.htm This has been around for years and is very in depth with his analysis. I'm in the same vote , i'll be buying pre owned but remember "a car is not an investment." keep your payments low if leasing and lease short term i guess in the end, ask yourself what car would you be fine with for a long period of time with no payments if buying and why