Dear PoPville – Wondering about Buying vs Leasing a Car


Photo by PoPville flickr user philliefan99

Dear PoPville,

My wife and I own a 2003 car that has nearly 100k miles and is on its way to needing several engine repairs. We are not enthused about the idea of a needing a new car, but we understand from the persistent engine noises (as well as mechanics estimate) that we will need to invest in spendy maintenance to extend its life. At some point it will just be cheaper to part with the 10 year old car and find a new one. The problem is we do not have enough money to purchase a new car (or used with low millage) and are not interested in using car share options for a variety of reasons. We don’t drive more than 10k-12k miles per year, but still require our own car.

I would be interested to hear from PoPville about their collective experience of financing a car to own vs. leasing a new car. Specifically, what are the pitfalls of leasing a car that I should be aware of (I have never leased before). If we go with the lease option do you need to register the car with DC (and thus pay expensive registration fees) every 2-3 years when you lease a new car or is it possible to transfer. Lastly, could you recommend good local options to finance/lease a car?

57 Comment

  • The main questions when considering buying/leasing come down to:

    1.) How long do you plan to keep/drive the vehicle
    2.) How much can you afford

    1.) If you plan to keep the vehicle for over 3 years and drive over 10-12k miles it is in your best interest to finance. Financing has higher monthly payments but will be cheaper in the long run vs. leasing a comparable vehicle. This is because of the upfront costs associated with leasing which typically run between $2-3k.

    2.) Typically, leasing a vehicle can save you a considerable amount on your monthly payment, this is why so many people lease entry level luxury cars. For the same cost of financing a $20-25k vehicle you can lease a $35-40k vehicle. Again as mentioned above, in the long run leasing will ALWAYS cost more.

    I would recommend determining your budget and taking the time to go to the car show (this friday 1st through next sunday 10th) to see what you can comfortably afford. Also, if your budget does not allow for a new car you can always go to a place like Carmax and see if they have options for you.

    As an additional note, you should only replace your current vehicle if the total maintenance expenses you incur over a year are higher than your monthly car payments would be. (i.e. if you pay $250/month then you would want to replace your car if your repairs were over $3000/year).

    Hope that helps

    • Who has the time to live at the dealership/mechanic as well? Depending on your financial situation sometimes paying a little more for no headaches is worth it.

  • I just leased a car recently so I have some first hand experience. First of all, you have to register any car you buy in the state that you live, but for leased cars all of those expenses are included in the lease payment. You get your tax, tags, and plates all included and mailed to your residence. After you initial lease term you have a few options…

    1. Most automakers will allow you to buy the vehicle outright at the depreciated value. Sometimes this is a good deal, sometimes not.
    2. You can give the car back pending an inspection by the dealer to insure the car’s normal wear and tear is ok and that their isn’t any excessive damage. Then you can walk away.
    3. Sometimes you can extend the lease depending on the lease agreement you sign at the start of it.

    We were able to haggle down quite a bit of money on the lease. I had to cosign with my partner so that she could get a better rate and then I haggled them down quite a bit of money. Initially they quoted the lease payments at $450, by the end of the day we ended up paying $280.

    Just do the math. Compare car loans and how much interest you will pay with how much a lease will cost.

    • And in reference to the up front fees you pay for a lease… We traded in an old 2000 Honda Civic and they knocked off the majority of up front fees. Which would have been $2-3k.

    • Whoa – nice! Would you mind sharing the make/model of the car you leased? I’m curious how you were able to negotiate close to 40% off the monthly lease.

      • 2013 Acura ILX with Premium and Technology Package. $33k sticker price

        After some initial numbers I said it was to high. They came back with a $350 dollar a month lease payment and I flat out said “$280 and we can have a deal.”

        • You also happened to pick a car that isn’t selling. It depends on how successful the model is doing. And the ILX has been selling horribly.

          • That is the best strategy to 1) pick a poorly selling car and 2) pick a car that has low demand used. Currently the used car market has been hotter than normal – but that likely won’t be true in 3 years.

        • That sounds like a really good deal. It’s a new model, so Honda/Acura is probably trying to get these on the road to increase their presence.

          When deciding to lease, were you not concerned about dinging up the bumpers? Seems that most cars I see in DC have their share of dings from folks bumper-car parking their vehicles. Or does that amount to normal wear and tear?

          • You will likely get dinged (ahem) when the lease is up for those cosmetic damages. I would not lease a car that I had to park on the street in this city.

  • There are arguments for both depending on your situation, the primary being: how long do you intend to keep the car? For instance, have you been in that 2003 since new? With that ownership timeline even with a 5-6 year note you will generally come out ahead of the game by buying because at some point during it’s life you will have possession of a paid-off (albeit depreciating) asset. If you are the type of person that wants a new car every few years and wants a lower monthly payment leasing is the way to go. Just know that you will *always* have that car payment. But for that payment you will be able to upgrade more often. Be aware of the terms of lease; mileage overages and “excessive wear” can bring big penalties when the lease is up.

    If you have good credit and some cash to put down you can get ridiculous rates on new car loans right now

  • 2003 and needing “spendy” engine repairs? Sounds like some one failed to properly maintain their vehicle.

    Speaking on lease vs financing – if you ever plan to own your next vehicle long term do not lease.

    The only way I’d lease a vehicle is if I knew I’d only want a car for a short period of time.

    As for buying – if you don’t have a lot of money saved then it would be stupid to purchase a new car.

    Buy something old but in good condition – a well maintained Honda accord/civic can last 200k+. So whatever you get read the manual and follow what it says in regards to factory recommended service.

    A $100~$200 in maintenance a year is a lot easier to swallow then waiting and getting stuck with a $2000+ bill for a engine overhaul.

    • A 10-year-old car needing expensive repairs isn’t necessarily all that unusual.

      • I wouldn’t jump to the conclusion that the 10-year/100K car was poorly maintained. Depends on the make and model of car and how it is driven.

        My first car was a Saturn that I kept for about 12 years and 120K miles. For the last two years it was a money pit. And I had had every recommended and scheduled service performed at the Saturn dealer. The last straw was a recommendation for simultaneous replacement of the brakes, tires, suspension, clutch, and a/c. Those repairs would have cost triple the blue book value at that point.

        The author should rough out the costs of the next few years of repairs, assume that money goes into a down payment/upfront lease payment, and then do the math to see what option is most affordable.

        • I had similar experiences with a Volkswagen Golf. It was well maintained and flawless for the first nine years of ownership and about 135k miles, but in year ten, I ended up putting a few thousand dollars into some major engine repairs. That told me it was time to sell it.

    • +1 for Ben

      “You are posting comments too quickly. Slow down.”

      so annoying to get this message

    • That surprised me too. City driving puts a lot of wear and tear on vehicles, but my cheap Hyundai has over 100k miles and I haven’t needed a single repair yet. Knock on wood I guess!

  • Just another benchmark, car ownership is just expensive period, and I think I’ve heard that $3K in repairs in 12 months is where is starts to make sense to think about replacing your car.

    I’ve had the same worries since I have a ’98 camry with 170K miles. Every time it needs a non-regular repair I think it’s time to replace it, but actually I’ve been lucky enough that for each time it’s been the right decision to just pay for the repair.

  • Whatever you do, don’t go to Alexandria VW. Their sales manager is an asshole. Good staff/support, but that guy is a huge prick.

    If you’re in the market for a VW (and they have great leasing specials!), go to Stolhsmann in Tysons. Good service, good prices, good people.

    • Are they related to Passport Nissan of Alexandria? Don’t go there either.

    • I had the opposite experience with Alexandria VW. They worked with me to get me into a car (’12 Jetta) and on my way home after my ’06 Passat had a catastrophic meltdown on the side of the road. They also went the extra mile to roll my underwater loan into the new lease, which only added $100/mo to what I would have been paying for those three years.

      Martens VW, on the other hand, was pushy, overpriced, and were more than eager to tell me one thing (sure, we’ll fix that minor cosmetic issue while you sign the paperwork) and do another (you can bring that back and give us $300 and we’ll “fix” it again).

  • I felt more cheated by the folks trying to lease me a car, so I finally just bought. There seem to be tons of hidden fees and uncertainty about the cost at the end of the lease. The advertised rates on leases are generally for models they don’t have available and are never actually the price out the door. The best car buying experience I have had was at Carmax.

    If you are going to lease, please plan to do a lot of haggling. Although I ended up not leasing, I did spend a lot of time trying to negotiate a lease. I got at least 20% off the initial lease offer from each company I tried to deal with. Also, you can get out of paying any additional dealership fees. In the end, I still felt like I was being taken for a ride.

    • In the same vein, NEVER say “My budget is $XXX/month” to a salesman. Never EVER. Sure, they’ll get that number for you, but only by jacking everything up and spreading it out. When buying, get a target price for the vehicle (TrueCar is *great*) and negotiate the payments around that, including any dealer fees/taxes/etc. Make them put the out-the-door price in writing as you haggle. Some selling services use TrueCar and will negotiate directly with dealers that way (I know USAA has a really good new car buying service). Even if you don’t negotiate beyond that price you will get from that you are coming out much better than average.

      • TrueCar WAS great, then manufacturers and dealers started getting pissed and the guy sold out. Now it’s just an advertising tool. Look it up on The Truth About Cars blog.

        • Ah, I’d used it 3 years ago and it was a great tool. Is there anything out there that comparable these days? It saved a lot of digging piecing together hold backs/incentives/etc. on dealer price

  • My personal experience with leasing – as long as you turn the car into the same dealership you bought it from and lease again you won’t have any issues as long as you didn’t drive over the allotted miles.

    If you want to turn it in and not lease or buy from them you will get dinged for every little mark that is on your car. That extra money you pay for going over the miles does not take care of this. These dings are considered “wear and tear” and they will charge you for these on top of the excess milles and it can add up to a lot!

  • I’m not too keen on leases. You’re just just paying the car company for the opportunity to “use” the car. If you buy a car, at the end of the loan terms, your car has some value, yes a car is a depreciating asset, but it still has some value if you sell it. With a lease you’re locked in to 3-4 yrs of payments and have nothing in the end besides memories (good or bad).
    Also be careful since many leases are hard to get out of if you come across bad times. At least with a purchase you can sell the car and walk away, with a little money or none at all (depending on down payment).
    Also, a thing to be careful with leases, you have to keep the car in good condition, any scratches dings or damage will have to paid or fixed upon returning the lease. All I say is do your research and caveat emptor.

  • Suze Orman would tell you to never lease.

    I’ve been successful with purchasing cars that are 4-5 years old with 30-60K on them. CarMax rocks BTW!

  • Are you sure you can afford to have a car? Is it really a requirement?

  • I always buy used and only with a top notch carfax report. Most cars lose 30-50% of their resale value after 2 years so it always seems to make the most sense in the long run as long as you build up a maintenance budget.

  • I always thought the only people it made sense for to lease were salesmen or other business people who needed a perpetually new-ish car.

    maybe if the poster can tell us why they aren’t interested in car sharing or what kind of driving they do we can help with better options than leasing.

  • I recommend http://www.truecar.com/. I used the site to buy my last car — Subaru & I got a really really really good price. I worked Matt at w/ Beyer Subaru in Alexandria. I also recommending using: http://www.edmunds.com/tco.html

  • I don’t know the first thing about leasing a car but what scares me away from the idea is having very little control over “normal wear and tear” while living in DC. We were hit three separate times in 2009 through no fault of our own (twice while stopped at a red light and clipped another time by a zealous cabbie at a 4-way stop.) We stopped repairing our bumper after the second hit. Coupled with the grit, salt and sand in wintertime, the inevitable cracked windshields and potential for being side-swiped always present, I’d lose sleep over leasing a vehicle!

    • Yeah, DC seems like a terrible place to lease a car because there are so many things that can happen to it. I know a guy who was in an absolute panic when the hood of his leased car was stolen, and that wasn’t even in DC but Fairfax.

  • Putting the financial questions somewhat aside (and someone may have hinted at this), the manner in which you use the car is a huge factor. If you don’t have young kids/pets and essentially use the car to drive to work and the grocery store, then leasing can make some sense, especially if you negotiate and get a lower monthly than you would pay with purchasing (taking into account the upfront lease payments). My wife leases her car and uses it pretty much to drive to work, run errands, and visit her folks down in Lorton.

    But it you (1) foresee putting lots of miles on the car over a three-year period, (2) have kids or pets, (3) have an outdoorsy/active lifestyle, and/or (4) do not place priority on keeping a clean car, forget leasing. The penalties for overmileage, damage, and excessive wear and tear (the kicker being that “excessive” is a pretty low bar) will make your head explode.

  • The only real reason to lease is if you are someone who wants a new car every 3 years or if you want to drive a more prestigious car than you can afford to buy. Otherwise BUY.

    I always buy used. You can get very good used cars (3-5 years old) for 40-60% of what they originally sold for.

    If you do lease, I believe DC leasing laws are favorable in that you only pay taxes on the monthly lease payment (MD and VA make you pay the tax on the entire vehicle price which really drives up the cost)

  • I’d tend to fall on the side of buying vs. leasing, particularly if you’re the kind of folks who keep cars for 10 years and can’t go without a car in your lifestyle. A lease payment comes every month, but eventually you pay off an owned car.

    Lots of websites aggregate the manufacturer deals for new cars, so if you qualify for financing, perhaps keeping an eye on those 0%-financing deals would alleviate your apparent lack of up-front cash. Also keep in mind that what a manufacturer is offering on the vehicle is a separate matter from what a dealer might offer you on top of that.

    If you do consider buying new, once you decide the models that interest you, I’d recommend you go online and do a dealer inventory search. If there’s a lot of your model on the lot of a particular dealer, basic economics says you’re likely to get a better deal. I’ve found this plays out in practice.

    One final thing to consider is the cost of insurance. My understanding is that most leases contractually require a fairly expensive policy (I can’t say for certain, but maybe somebody who leases will weigh in on this), whereas you can roll the dice with a cheaper, high-deductible policy if you own. I’d think you really want to consider the overall monthly cost, as others have noted, to make an apples-to-apples comparison.

    • New car purchases require relatively high levels of insurance as well. (More reason to buy used?) Don’t know if that’s different from leased cars versus purchased, however.

      • New car purchases don’t _require_ any higher level of insurance than a used car purchase. You only need the minimum required by law in your jurisdiction. You may (wisely) however be inclined to obtain better coverage for a new car than used.

  • since the comment I responded too was deleted (rightfully so as it was a little ridiculous), allow me to contribute something more productive.

    If you drive significantly less than the allotted mileage, leasing may turn out to be a better deal if you plan on buying the car at the end of 3 years. This is because the residual price is predicated on the “forecasted” depreciation of the car. For example, if Honda is assuming you drive 15k miles a year and you only drive 20k miles in 3 years, you’re buying the car for less than it’s true “market value”.

  • Buy. I look at it like I do with housing. Rent is going nowhere fast, but paying off a mortgage is equity. You can easily get a good used Honda/Toyota that will last you for years for between $10,000 and $15,000. I got a used ’04 Civic for $7200 and have only spent around $1500 in the two years I have had it, and that was because it hit the big 100k maintenance marker.

    Like everyone else said, leasing is mainly for those that want a car they can’t normally afford, and if you aren’t going to drive it heavily, why do you need an Acura, Caddy or BMW? Get some used, reliable car with a few dings and scratches and you basically have few worries besides some routine maintenance and those (much) smaller car payments.

    • It’s a lot different than housing. You can (usually) take a car with you if you move. Buying a house also requires a great deal of money up front that can be prohibitive for many. Buying a car, on the other hand, often requires _less_ money up front than leasing. There are perfectly good reasons for renting an abode versus buying, just like for leasing a car versus buying.

  • Don’t forget insurance costs. While you’ll likely get full coverage on a new/late-model car purchase as well as a lease, the older the car gets, the less the insurance costs. And if you own a ten year old car you might consider higher deductibles or dropping collision/comprehensive to further lower your payment. You definitely save a lot of money if you’re in it for the long haul and buy.

  • I’m on my second leased vehicle. If you’re not overly fussy and have good credit, it’s easy to find a good lease deal. I don’t drive much and, as a single woman especially, do not want to deal with repair issues on an aging vehicle. But I do need a car because I regularly visit folks and run errands in places that are not easily accessible by public transit. I like small hatchbacks/wagons because you can transport lots of stuff or larger items.

    That being said…I’m currently leasing a 2012 Scion xB…love it and will think seriously about buying it when the lease is up because it meets all of my needs. I had a good experience at Jim Coleman in Bethesda.

  • I’ve worked on a number of car fraud cases and I’ve seen some nasty lease disputes. If you intend to keep the car for more than a few years it makes sense to buy. Leasing a car is like renting — you don’t build any equity in the property. It’s best for people who like to have the latest cars, gadgets, etc. I recommend buying a new or late model used car and obtaining financing at no more than 36 months to protect you from being underwater. You should always contact your bank or credit union first to obtain a loan quote before accepting the dealer’s financing. The dealer has a conflict because they often make more money by putting you in a more expensive loan. If you buy a used car check it out at http://www.vehiclehistory.gov first. It’s a website like Carfax but run by the US Justice Dept and more thorough. I’ve never purchased a car in the area but both Carmax and FittsMall have good reputations. Finally, I strongly recommend that you purchase the car at a dealership in MD, not VA since MD’s consumer protection laws are much stronger. Good luck.

  • novadancer

    The only way I would ever consider a lease is if I could lease the car for less than a car payment, thereby allowing me to save for a future car. Otherwise, you are tied to a payment forever. If you purchase, like others have said, you will eventually own it and have no pmts for some period of time (perhaps years). I am another for Suze Orman’s rules: never lease and a loan should be 3 years max. Otherwise you can’t afford it.
    There are great used cars for really reasonable prices – a good honda civic, etc.

  • Something else to consider when financing a used car: many banks won’t finance a car that’s more than 5 years old. This leads to a bit of a price disparity at the cutoff, wherein an affordable, garage kept, low mileage car will languish on the lot next to more expensive, worse maintained newer cars.

  • PDMtP

    There are buy vs. lease calculators online that are useful. When you lease, you are essentially buying the depreciation over the term of the lease. In other words, if the car is worth $25,000 today and the dealer thinks it’s going to be worth $10,000 in 3 years, you’re paying $15,000, plus interest, and you’ll have an option to buy the car for $10,000 or walk away at the end. It’s that simple. You’re not getting any more or less “equity” in the car; if you buy it at the end of the lease, it’s going to cost you exactly the same $25,000 in total, plus your costs of financing (and what you’re really doing is comparing the cost of financing a lease versus financing a purchase). What you should be looking at are 1) the fees for the lease; 2) the interest rate on the lease – which will not be expressed in simple numbers, so check out one of the online guides to interpreting things like the “money factor”; 3) incentives on a purchase vs. a lease (we just got $2500 knocked off the car’s price by buying instead of leasing and using Ford Credit – and we financed the minimum amoung possible and plan to pay it off in 90 days); and 4) cashflow. I agree if you’re doing it just to get a lower monthly payment, though, you’re probably buying more car than you can really afford.

    By the way, the $25,000 to $10,000 example isn’t way off reality, which tells you what the real financially smart decision is: buy the 3-year-old car for $10,000 instead.

    Good luck.

  • I’ve had both leased and owned cars and agree owning is better value. That being said, I have to mention that $0 down leases are back and might be a good value with no up front costs. You essentially are paying for privilige of use for 3 years, but dont have to worry much about maintenance (except oil changes/ tire rotation) and dont have to worry about getting ripped off at trade in for the equity you have in your car. Hyundai and Honda have good deals. the honda accord LX and hyundai sonata is $245 and $300/ month respectively. I’ve owned recent models of both of these and they are great dependable cars, roomy, and offer lots of standard modern features galore. Finally regarding wear and tear, if there are extra bumps and scuffs, you can either opt to get those repaired before inspection/ turn-in, or just turn them in with the minor damage and they usually include an allowance of $xxx damage with the lease. mine was about $1500, with no more than $400 in each spot for example. any accidents and stuff are repaired using your insurance provider paid funds immediately following the incident and are fine for turn-in when lease is over as long as they are fixed using a dealer or oem parts.

    here is the breakdown of $0 down leases that might be of interest at the dealer.
    http://best-car-deals.buyerreports.org/0-zero-down-car-leases-2

  • It is almost *always* more adventageous to repair what you have than to buy new. That said, I agree with some posters who have said that the hassle and time involved with repair have to be figured in. I drive about 7000 miles a year, live in DC, and have a 1993 Plymouth Acclaim. I found it on eBay three years ago with 42,000 miles and paid $2200. In three years I’ve put about $2000 into it for maintenance and repairs. I have driven it up and down the east coast with no worries. It has A/C and cruise control and I put in a modern stereo. When something needs repairing the cost is very low, as it’s simple to work on. If you can afford the cash outlay, it’s cheaper in the long run to fix what you’ve got.

    • I drive a 97 corolla that just passed the 100,000 mile mark and absolutely love it. Hopefully it will last 5 more years because it is all the car I need in the city and I definitely don’t have to worry about it being stolen or scratched up.

  • It is almost *always* more adventageous to repair what you have than to buy new. That said, I agree with some posters who have said that the hassle and time involved with repair have to be figured in. I drive about 7000 miles a year, live in DC, and have a 1993 Plymouth Acclaim. I found it on eBay three years ago with 42,000 miles and paid $2200. In three years I’ve put about $2000 into it for maintenance and repairs. I have driven it up and down the east coast with no worries. It has A/C and cruise control and I put in a modern stereo. When something needs repairing the cost is very low, as it’s simple to work on. If you can afford the cash outlay, it’s cheaper in the long run to fix what you’ve got.

  • I lease a 2011 Kia Forte for $157/month with a down payment around $1500-2000. It was some kind of special or deal and I did it because I know nothing about buying a car, had to do it alone as a single woman, and couldn’t afford a higher down payment. Because it was a special, there was no negotiation involved. It was still a pretty awful experience, doing it alone, because I worried that they would find a way to trick me into something bad and cheat me … but 1.5 years later, that doesn’t seem to have happened.

    In summary, I leased because I didn’t have much money, help from others, or expertise (and limited time to gain that expertise)…it is pretty overwhelming to try and make a purchase like this in that situation. If you have even slightly more money and/or expertise (or a network of some kind with people who do to help you) – and I’m guessing you do if you are already a car owner and not a single person buying alone – in the long term another solution would work better for you.

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