Real world example – leasing vs. buying
The following example shows how much you would pay per month for a $30,500 vehicle if you leased it or if you took out a loan to buy it:
| Lease | Loan | |
|---|---|---|
| MSRP | $33,000 | $33,000 |
| Negotiated Price | $30,500 | $30,500 |
| Lease Residual | $14,000 | N/A |
| Term (months) | 36 | 36 |
| Monthly Payment | $551 | $914 |
| Total Payments | $19,837 | $32,908 |
Okay, so leasing is cheaper, right? Hold on a sec.
If you buy the car instead of leasing it, after you’ve paid off your loan you OWN the car… in this case it would be worth around $14,000. And if you sold that car at $14,000 then your final expense would be ($32,908 – $14,000) $18,908… that’s almost $1,000 less then the total cost of leasing in this example.
But consider the next three years. You gotta have a car, right? Look at the numbers over six years when you compare a second lease versus keeping the car after you've paid off the loan:
| Lease | Loan | |
|---|---|---|
| 1st 3 years | $19,837 | $32,908 |
| 2nd 3 years | $19,837 | $0 |
| Total Payments | $39,694 | $32,908 |
Better yet, you could invest the money you didn't spend on lease payments during the second three-year period. At a 5% return, those monthly investments of $551 would grow to a cool $21,442 in three years!
Then the full picture would look like this:
| Lease | Loan | |
|---|---|---|
| Payments over 6 years | $39,694 | $32,908 |
| Investment earnings | $0 | $21,442 |
| Net cost | $39,694 | $11,466 |
As you can see, there's a lot to consider. While leasing allows you to afford payments on a more expensive car, there are plenty of restrictions and you don't own it when your payments are complete. It all depends on your situation.
Now we’ve got the nice car down, if only Coach, Armani, and Prada would follow suit, we’d be totally set!
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