Better To Lease Than Buy A Car Right Now?

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rsilver41
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Better To Lease Than Buy A Car Right Now?

Post by rsilver41 »

I'm not a huge car guy. They are just a tool for me. Fine with driving Accords or something like that to get back and forth from work.

With that being said, I need a new car after having my last Accord for 14 years. We all know prices are super high right now because of the chip shortage and supply chain stuff.

So here is my question, does it make better financial sense to lease a car for three years rather than buy one right now, with the idea that prices might come in over the next 18 months as chip supply is increased and the supply chain issues are worked out. It also would seem to make sense that this would have the used car market cool off so that the price spread between new and used would go back to a more normal variance as well.

I'd almost rather pay $300 a month right now with an option to buy the car 3 years from now, than pay really high sticker prices that dealers won't negotiate, and then see car prices drop again when there is more supply.

Just thinking about this and thought I'd let others weigh in.
psteinx
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Re: Better To Lease Than Buy A Car Right Now?

Post by psteinx »

1) There are often oddball scenarios where a lease makes sense, especially if the manufacturer subsidizes leases in some way. For regular cars in the current market, that seems unlikely, but maybe for some electrics.

2) That said, in general the monthly price of the lease is going to be based on what the dealer sells the car for (so, mostly at the discretion of the dealership), offset by the residual (what the manufacturer estimates the car will be worth, as a % of MSRP, in 3 years), with an interest rate (MF/money factor) thrown in. Dealers are marking up cars now, but I assume most manufacturers are not raising residual estimates - they presumably think car pricing will normalize over the next 3 years.

So, whereas in normal times, the dealership may sell you the car for 92% of MSRP, and the residual may be ~59% on a 3 year lease, meaning the lease must amortize ~11% of the MSRP each year, plus financing costs, in the CURRENT market, those figures might be more like 104/59/15%. Meaning the lease will be a lot more.

Basically, it's unlikely you can hide in a cheap lease until car prices normalize. But this is mostly just me guessing...
tvubpwcisla
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Re: Better To Lease Than Buy A Car Right Now?

Post by tvubpwcisla »

Purchase a used car to avoid the initial depreciation hit and then and keep it forever.
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JoeRetire
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Re: Better To Lease Than Buy A Car Right Now?

Post by JoeRetire »

rsilver41 wrote: Sat Jan 22, 2022 10:13 am So here is my question, does it make better financial sense to lease a car for three years rather than buy one right now
It might. It might not. "Financial sense" is a matter of assumptions plus math.

Figure out what car you want and can actually get.
Then figure out how much it will cost to buy and how much it will cost to lease.

Finally, do the math.
I'd almost rather pay $300 a month right now with an option to buy the car 3 years from now, than pay really high sticker prices that dealers won't negotiate, and then see car prices drop again when there is more supply.
Can you lease the car you want now for $300 a month? And how much will it cost you to buy the car in 3 years?
Finally, how much is the high sticker price for this car?

You seem to be assuming that the buyout price in 3 years won't also be a high sticker price? Check that assumption carefully. In most cases, the buyout price is set as part of the lease, and is based on the estimated residual value of the car at lease end. Seems unlikely that a high sticker price car would have a low estimated residual value today.

There are few free lunches in life. I would expect car leasing isn't one of them. But do the math and find out.
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JupiterJones
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Re: Better To Lease Than Buy A Car Right Now?

Post by JupiterJones »

rsilver41 wrote: Sat Jan 22, 2022 10:13 am With that being said, I need a new car after having my last Accord for 14 years.
Pshaw! That Accord's just reaching middle age. :D

Seriously, while leasing may or may not be better than buying a car right now, keeping the car you have has got to be a better deal than either of them. I'd tough it out for a couple more years and sock that $300 a month into a downpayment fund the whole time.
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vtsnowdin
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Re: Better To Lease Than Buy A Car Right Now?

Post by vtsnowdin »

rsilver41 wrote: Sat Jan 22, 2022 10:13 am I'm not a huge car guy. They are just a tool for me. Fine with driving Accords or something like that to get back and forth from work.

With that being said, I need a new car after having my last Accord for 14 years. We all know prices are super high right now because of the chip shortage and supply chain stuff.

So here is my question, does it make better financial sense to lease a car for three years rather than buy one right now, with the idea that prices might come in over the next 18 months as chip supply is increased and the supply chain issues are worked out. It also would seem to make sense that this would have the used car market cool off so that the price spread between new and used would go back to a more normal variance as well.

I'd almost rather pay $300 a month right now with an option to buy the car 3 years from now, than pay really high sticker prices that dealers won't negotiate, and then see car prices drop again when there is more supply.

Just thinking about this and thought I'd let others weigh in.
I have owned over forty personal vehicles over the years so have a bit of experience in it.
Two things to consider are your average actual miles driven and the fact that when you go to turn in a lease the dealer has all the power over price. A low mileage lease sounds great but the extra per mile charges make it a deal breaker if you realistically estimate your driving needs all the way down to the bottom line.
If you drive more then say 12,000 miles per year a new car even at these inflated prices is the lower total cost option. Then in three years you will have a car you know has been maintained properly and will last you another seven years or so up to 200K+ miles. That last five years after the payments are done even with a few repairs are the cheapest miles you will ever drive.
Also consider that every time you go to a dealer new used or lease you hand him about $3000 or more today. Do you want to do that every three years or every ten or even twelve?
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rsilver41
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Re: Better To Lease Than Buy A Car Right Now?

Post by rsilver41 »

JupiterJones wrote: Sat Jan 22, 2022 10:54 am
rsilver41 wrote: Sat Jan 22, 2022 10:13 am With that being said, I need a new car after having my last Accord for 14 years.
Pshaw! That Accord's just reaching middle age. :D

Seriously, while leasing may or may not be better than buying a car right now, keeping the car you have has got to be a better deal than either of them. I'd tough it out for a couple more years and sock that $300 a month into a downpayment fund the whole time.
For sure. I'm actually giving it to my daughter.
adamthesmythe
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Re: Better To Lease Than Buy A Car Right Now?

Post by adamthesmythe »

Ask yourself: why would a dealer give you a great deal on a lease if he can sell the car for above MSRP?

(And why would a car manufacturer provide lease incentives if he can sell everything he makes?)
CletusCaddy
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Re: Better To Lease Than Buy A Car Right Now?

Post by CletusCaddy »

There is a key question you need to ask - have leasing companies increased residual values to reflect the abnormal market?

If so, and if you expect the market to return to normal depreciation patterns by the end of the lease, then a lease would be a good deal.

If not, then no.
59Gibson
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Re: Better To Lease Than Buy A Car Right Now?

Post by 59Gibson »

JoeRetire wrote: Sat Jan 22, 2022 10:49 am
rsilver41 wrote: Sat Jan 22, 2022 10:13 am So here is my question, does it make better financial sense to lease a car for three years rather than buy one right now
It might. It might not. "Financial sense" is a matter of assumptions plus math.

Figure out what car you want and can actually get.
Then figure out how much it will cost to buy and how much it will cost to lease.

Finally, do the math.
I'd almost rather pay $300 a month right now with an option to buy the car 3 years from now, than pay really high sticker prices that dealers won't negotiate, and then see car prices drop again when there is more supply.
Can you lease the car you want now for $300 a month? And how much will it cost you to buy the car in 3 years?
Finally, how much is the high sticker price for this car?

You seem to be assuming that the buyout price in 3 years won't also be a high sticker price? Check that assumption carefully. In most cases, the buyout price is set as part of the lease, and is based on the estimated residual value of the car at lease end. Seems unlikely that a high sticker price car would have a low estimated residual value today.

There are few free lunches in life. I would expect car leasing isn't one of them. But do the math and find out.
I agree with all of this.. there's probably some lease out there that makes sense financially, but for you? I think you need to be open to nearly all types of vehs and just run the #s.
MikeG62
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Re: Better To Lease Than Buy A Car Right Now?

Post by MikeG62 »

Whether you lease or buy, the process of negotiating the sales price (aka capitalized cost when you lease) will be the same.

Will the manufacturer offer a lease deal? Doubtful, IMHO. After all, most dealers can sell every single vehicle they can get their hands on. So where is the incentive for them or the manufacturers to offer incentives to move vehicles. Maybe on some less desirable vehicle, otherwise I doubt it.

To your question about not overpaying, it is true that when you buy you are paying for 100% of the vehicle cost (and yes you have an asset at the end of three years), where when leasing typically you are paying for around 45% of the vehicle cost (and have nothing but a purchase option at lease end). So the lease allows you to avoid the other 55% of the (inflated) cost, which cost may depreciate more than usual due to the current situation with vehicle prices (dealers asking full price or over msrp).

The lease offers you an option. See what happens three years from now. Maybe you’ll want to exercise the option then or maybe you’ll chose let it expire and to purchase something new if the market goes back to normal. Be sure to look at the major drivers of the lease price aside from cost (RV and MF). I have found that manufacturers are using depressed RV’s and inflated MF’s to drive lease costs up (this aside from higher capitalized costs). It’s a trifecta of bad news for leasing.

Here is my most recent story replacing a vehicle during these crazy times.

Leased my DW a BMW X5 in Nov of 2019. Lease was set to expire in Nov of 2021. Negotiated a deal on a new X5 in the late summer and was fortunate to finesse a discount from msrp. Anyway, the purchase option on the existing vehicle was around $39,000 (59% of the msrp). The current FMV was however in the $50’s. So we ended up transferring (selling) the bargain purchase option to a different dealer (not the one who we leased the current one from or were getting a replacement from) for $53,000. Upon turn in they cut us a check for $14,000.

While I was going to lease the replacement I changed my mind when it arrived and decided to purchase it. I had the discount I negotiated ($2,000) plus received a hefty ($3,250) rebate because I do business with a credit union that BMW has a relationship with (such rebate was only available for purchases).

Add in that the current lease dynamics were not good. First, the RV (which sets the depreciation factor) was low at around 54% - this despite the fact that the current leased vehicle had a RV of 59% and ended up being worth 80% of the original msrp. Then add in that the money factor was on the high side despite being in a zero interest environment. Netting it all out, we were coming out of the current lease at a monthly cost of ~$650 and going into a new lease at close to $1,000 per month. And while the replacement vehicle had a higher msrp than the old one, that difference accounted for only 20% of the incremental cost.

We used the $14,000 from the equity in the existing lease to help reduce the cost of the replacement.

In all, I got a better deal than otherwise would have been the case had we not been in this weird situation.
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mnsportsgeek
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Re: Better To Lease Than Buy A Car Right Now?

Post by mnsportsgeek »

There's nothing good about buying a car in this climate. The better choice is drive your car to the ground and hope supply is better in 2023.
02nz
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Re: Better To Lease Than Buy A Car Right Now?

Post by 02nz »

When you lease, you're also buying the car (or rather, having the finance company buy the car). Generally you should be able to negotiate the same price either way from the dealer, who gets paid either way. There can be differences in manufacturers' incentives that can tilt things in favor of leasing or buying. But there aren't many of those right now.

Bottom line, leasing is not some magic way around the current shortage of cars.
Cruise
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Re: Better To Lease Than Buy A Car Right Now?

Post by Cruise »

mnsportsgeek wrote: Sat Jan 22, 2022 12:44 pm There's nothing good about buying a car in this climate. The better choice is drive your car to the ground and hope supply is better in 2023.
Supply may be better, but demand will be higher.
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Watty
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Re: Better To Lease Than Buy A Car Right Now?

Post by Watty »

Better To Lease Than Buy A Car Right Now?
You won't know until you get the actual numbers.
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Re: Better To Lease Than Buy A Car Right Now?

Post by Sandtrap »

rsilver41 wrote: Sat Jan 22, 2022 10:13 am I'm not a huge car guy. They are just a tool for me. Fine with driving Accords or something like that to get back and forth from work.

With that being said, I need a new car after having my last Accord for 14 years. We all know prices are super high right now because of the chip shortage and supply chain stuff.

So here is my question, does it make better financial sense to lease a car for three years rather than buy one right now, with the idea that prices might come in over the next 18 months as chip supply is increased and the supply chain issues are worked out. It also would seem to make sense that this would have the used car market cool off so that the price spread between new and used would go back to a more normal variance as well.

I'd almost rather pay $300 a month right now with an option to buy the car 3 years from now, than pay really high sticker prices that dealers won't negotiate, and then see car prices drop again when there is more supply.

Just thinking about this and thought I'd let others weigh in.
Buy.
Many others feel the same as you do, which leaves you with better deals.

There is always a good deal (below "Moroni" factory sticker price OTD) to be had as long as one is:

Patient
A Diligent and persistent shopper doing homework. (a boglehead)
Flexible (IE: Honda Accord or Toyota Camry, etc. . . does not have to be Chartreuse in color)
Able to shop in a wide area (state wide)
A ruthless bargainer at the dealership
Able to walk away from any marginal deal and not "have to buy the car". (dealers sense this).
All cash in hand (sometimes helps, or not).
No trade in (sometimes helps get a "clean deal", sometimes does not).
Trade in (sometimes helps get a great deal, sometimes not).

Give it an earnest try and see. Nothing to lose by trying.
j :D
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Outer Marker
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Re: Better To Lease Than Buy A Car Right Now?

Post by Outer Marker »

What is wrong with your Accord that compels the need for a new car "right now" ?

As others have noted, the car should have many years of useful life left. If there are repairs needed, I'd be inclined to spend more than I might otherwise invest in an older car to avoid being a buyer in an absurdly skewed seller's market.
bberris
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Re: Better To Lease Than Buy A Car Right Now?

Post by bberris »

adamthesmythe wrote: Sat Jan 22, 2022 11:32 am Ask yourself: why would a dealer give you a great deal on a lease if he can sell the car for above MSRP?

(And why would a car manufacturer provide lease incentives if he can sell everything he makes?)
A car lease is a sale, just with different financing terms. With the current shortage, agreed you won't get a good deal on either sale or lease. If you believe the current shortage is a short term episode, and that cars will be plentiful in three years, the lease has an advantage of giving you the option to return the car for a known residual value. You might not be able to sell the car for that price in three years.
rich126
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Re: Better To Lease Than Buy A Car Right Now?

Post by rich126 »

We ordered a car about 7 weeks ago with no real obligation to buy it ($500 deposit, refundable) at MSRP+$500. It actually arrived a few days ago and we picked it up yesterday. If we had 2 decent cars we would have waited longer but we moved recently and the other car was quite old (15+ years with over 250K miles on it) and would have had issues making it through the car inspection process. We lived with 1 car for months and it wasn't too bad. The biggest issues were scheduling medical appointments around work and hoping not to have any car issues with the one car.

Since we aren't getting any younger, we expect to have this car for a good decade any may only have one more car purchase after that.

Personally I would never lease a car. And used cars, unless you are lucky, seem even more overpriced than new cars.
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Re: Better To Lease Than Buy A Car Right Now?

Post by jpelder »

tvubpwcisla wrote: Sat Jan 22, 2022 10:44 am Purchase a used car to avoid the initial depreciation hit and then and keep it forever.
Have you seen used car prices these days? Anything newer than 3 years and 40,000 miles costs as much or more than new.

Now is a time when buying a new reliable car of a "regular" brand and keeping it 10-15 years makes the most sense.
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Re: Better To Lease Than Buy A Car Right Now?

Post by Wannaretireearly »

rich126 wrote: Sun Jan 23, 2022 8:17 am We ordered a car about 7 weeks ago with no real obligation to buy it ($500 deposit, refundable) at MSRP+$500. It actually arrived a few days ago and we picked it up yesterday. If we had 2 decent cars we would have waited longer but we moved recently and the other car was quite old (15+ years with over 250K miles on it) and would have had issues making it through the car inspection process. We lived with 1 car for months and it wasn't too bad. The biggest issues were scheduling medical appointments around work and hoping not to have any car issues with the one car.

Since we aren't getting any younger, we expect to have this car for a good decade any may only have one more car purchase after that.

Personally I would never lease a car. And used cars, unless you are lucky, seem even more overpriced than new cars.
Good thread and good question from the OP. Mind telling us the type of car? I was thinking carmax could be a good option nowadays
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rich126
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Re: Better To Lease Than Buy A Car Right Now?

Post by rich126 »

Wannaretireearly wrote: Sun Jan 23, 2022 9:45 am
rich126 wrote: Sun Jan 23, 2022 8:17 am We ordered a car about 7 weeks ago with no real obligation to buy it ($500 deposit, refundable) at MSRP+$500. It actually arrived a few days ago and we picked it up yesterday. If we had 2 decent cars we would have waited longer but we moved recently and the other car was quite old (15+ years with over 250K miles on it) and would have had issues making it through the car inspection process. We lived with 1 car for months and it wasn't too bad. The biggest issues were scheduling medical appointments around work and hoping not to have any car issues with the one car.

Since we aren't getting any younger, we expect to have this car for a good decade any may only have one more car purchase after that.

Personally I would never lease a car. And used cars, unless you are lucky, seem even more overpriced than new cars.
Good thread and good question from the OP. Mind telling us the type of car? I was thinking carmax could be a good option nowadays
My wife prefers SUVs and needed something that works for her short height. We looked at several small to midsize suvs and felt the best bet for her was the Hyundai Tucson Hybrid. She previously had a Toyota RAV4. The Sante Fe was a bit too big. Just the 2 of us.
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Wannaretireearly
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Re: Better To Lease Than Buy A Car Right Now?

Post by Wannaretireearly »

rich126 wrote: Sun Jan 23, 2022 5:05 pm
Wannaretireearly wrote: Sun Jan 23, 2022 9:45 am
rich126 wrote: Sun Jan 23, 2022 8:17 am We ordered a car about 7 weeks ago with no real obligation to buy it ($500 deposit, refundable) at MSRP+$500. It actually arrived a few days ago and we picked it up yesterday. If we had 2 decent cars we would have waited longer but we moved recently and the other car was quite old (15+ years with over 250K miles on it) and would have had issues making it through the car inspection process. We lived with 1 car for months and it wasn't too bad. The biggest issues were scheduling medical appointments around work and hoping not to have any car issues with the one car.

Since we aren't getting any younger, we expect to have this car for a good decade any may only have one more car purchase after that.

Personally I would never lease a car. And used cars, unless you are lucky, seem even more overpriced than new cars.
Good thread and good question from the OP. Mind telling us the type of car? I was thinking carmax could be a good option nowadays
My wife prefers SUVs and needed something that works for her short height. We looked at several small to midsize suvs and felt the best bet for her was the Hyundai Tucson Hybrid. She previously had a Toyota RAV4. The Sante Fe was a bit too big. Just the 2 of us.
Thanks! Enjoy the new car. That is a good deal on a new Hyundai imo
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BruDude
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Re: Better To Lease Than Buy A Car Right Now?

Post by BruDude »

www.leasehackr.com is your friend. Lot of good info there and on the forums.

To answer your question - sometimes yes, sometimes no. Lots of variables.
onourway
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Re: Better To Lease Than Buy A Car Right Now?

Post by onourway »

As a few others have said, it entirely depends on the numbers of your specific deal. Unfortunately a lot of the advice here still seems to be anti-lease from people who don't understand how a lease works or why it might sometimes be a better deal than a purchase.

There are some cars still going out the door at MSRP, and the only thing that matters in a lease is the difference between what you pay, what the residual value is, and the money factor. Money factors should still be low, and residuals have the potential to be very high right now, so it's possible you could find a combination that makes for a good deal.
sureshoe
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Re: Better To Lease Than Buy A Car Right Now?

Post by sureshoe »

Rather than have this turn into a religious debate over straight purchase or leasing, the first thing you need to decide is: What type of car do you want?

There are people on this forum for whom leasing will always be evil. There are people on this forum who think you can find secret money hidden in leases and constantly drive new cars for a profit.

So your first step is to pick a car (or group of cars) and how long you plan to keep it - specifically whether you'd keep past the lease term. Then, price those cars out. The nice part about buying new is that you can do legit apples to apples comparisons of same models and near 0 miles.
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Re: Better To Lease Than Buy A Car Right Now?

Post by dknightd »

You are trying to time the car market. I think most of us here agree that trying to time any market might be a fools errand.
This is a bad time to buy (or presumably lease) a car. But if you need or want a new car just do it. Lease, or buy, is up to you. I have never leased a car. But I'm sure there are times when it makes sense. I don't think the currently crazy car market should make much difference in that decision.
Who knows, 3 years from now might be an even worse time!

Disclaimer: We recently decided to buy a new car. We really only "need" one car. We probably do not even need that. But we wanted a second car. So, we've ordered a new car, have agreed to pay MSRP. Have not been able to drive the car, or one really similar to it. Not sure if we'll be able to get exactly what we want, or when it might actually arrive. Talk about crazy times! For me the strangest part was not actually being able to drive the car I was about to buy. But they had nothing on the lot we really wanted (else we would have done that) and since it was a want, not a need, we took our chances. I honestly don't mind paying MSRP. Over the life of the car the difference between what I might have been able to negotiate and list price comes in at the noise level.

If I needed a new car. I'd go buy one that was on the lot and for sale/lease. Feel happy if I paid MSRP. Actually, this might be a good reason to lease. Lease one that is available to drive off the lot, today, even if you did not really like it much. That gives you 3 years to regroup, and in the mean time you have something to drive.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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