Buying vs. Leasing a Car (Pros and Cons)

hey everybody welcome back to whiteboard finance my name is Marco and I'm here to help you master your money and build your wealth in this video we're gonna be talking about buying a car versus leasing a car and which option is better for you so in the first half of this video I'm gonna actually go over a hypothetical scenario using numbers that way you can see how the math actually works and how it plays out and in the second half of the video I'm going to give you an anecdotal point of view from my personal perspective and why leasing and buying is situational for everybody's situation so let's pretend like we're buying a subcompact car okay let's just call it like a Honda Civic Toyota Corolla it's essentially a car to get you from point A to point B right so we have one option of buying the car over here we have the other option of leasing the car and in both these scenarios let's pretend like we're going to keep the car so we have a keep scenario so you can buy it or buy it after your lease is up makes sense okay so the purchase price let's pretend like we're gonna be paying seventeen thousand seven hundred dollars for this subcompact car our down payment is going to be two thousand dollars and since this is actually dealing with real math and interest rates and for the sake of not using a calculator I have this all pre written down so bear with me here so the interest rate is going to be four point two two percent this is typical on a car loan if you're a you know eight hundred credit score it may be a little bit lower than this but this is the average rate right now term let's pretend like we're financing this vehicle over the course of three years and then what our payment is going to be using these numbers is actually 465 a month okay so if we're actually gonna be buying this car let's pretend like we're actually selling it as well so our sales price after three years let's just say we're gonna get 12 grand for it okay now with the lease let me use a little different marker here that way we can actually differentiate let's say the down payment because you're not actually purchasing the car is $2,000 the lease term is going to be the same thing as our buy it's going to be three years the payment for this now remember these aren't loan payments these are just payments that you're using to buy the car and hopefully you guys can see this green marker okay 1:59 a month and then the buyback so at the end of your lease term you actually have the option to purchase the car it's gonna be let's call this 12 - right so twelve thousand two hundred dollars okay so let's run through this scenario very quickly here and again hopefully you guys can see those numbers in green so if you want to keep the car we have the buy scenario we have the least scenario okay so for buying the car how much money do we have into this deal so far well we know we have the down payment which was $2,000 okay we know that we paid 465 a month okay for the course of three years so that's four sixty five times thirty six months for 65 times 36 and this equals a total of eighteen thousand seven hundred and forty okay now we're going to lease the car okay but we're gonna buy it back at the end of three years so how much money do we have out-of-pocket for this lease we have our down payment which was two grand okay we have the payments which is 159 a month times thirty six months okay and then we have the buyback price of twelve thousand two hundred dollars a total of 19 thousand nine hundred and twenty four so we can see here just by keeping this car okay to buy the car out right from the beginning cost us a total of eighteen thousand seven hundred and forty dollars over three years of ownership to actually lease the car over three years and buying it back at this purchase price it's costing us nineteen thousand nine hundred and twenty four dollars so obviously you can see that buying the car is more economical now let's pretend like we're giving up the car because most people in their lease there's a higher percentage that actually give back the car after that three year period let's see how very quickly how the math shakes out on that okay so this is for keeping this is for let's call it giving back so remember we have eighteen thousand seven hundred and forty into it for the buy however we're actually selling it for twelve thousand dollars because we own the car after three years so this actually comes out to be six thousand seven hundred and forty dollars okay because think of it like an internal rate of return if we have a piece of real estate that's giving us monthly rent rent rent rent and we go to sell the house not only did we realize the rent but we also realized the the sale of the house the money that we're getting for the house this is similar obviously you're not getting paid to drive your car but you own it for a period of time but you actually have an asset at the end of the three years to be able to sell so we're actually getting a cost of ownership is six thousand seven hundred and forty dollars after three years okay if you want to lease the car and give it back all you have into it is the two thousand dollar down payment and all of your payments which was 159 times 36 which gives you a grand total of seven thousand seven hundred and twenty four dollars so even in this scenario if you're giving back the car and you do get back 12 grand for it you're still up ahead about $1,000 okay so mathematically this will be the first part of the video mathematically it makes sense to buy a car right but let's talk about people's life situations okay what if you're someone that doesn't like to keep your cars okay and you're someone that needs a new car every three years so in my personal opinion leasing would probably be better for you because if you're someone that's giving up cars every three years you're not necessarily gonna be someone that's sitting there every weekend detailing your car vacuuming your car you know changing the oil you know meticulously and keeping all your service records and doing all that stuff you're not a quote-unquote car person or a car guy if you will on the other hand you have a car guy who knows how to buy a car right and he enjoys his vehicle and he truly takes care of it and he knows he's going to keep the vehicle for a long period of time so that's the key so think about it the longer you own your car okay yes it's going down in value but the less you're paying for it per month okay so if you bought a car for $10,000 okay and you own it for 10 years you can roughly estimate that it costs you about $1,000 a year to own the car right now let's talk about maintenance because the people that lease will always go back to saying hey I don't got to worry about my maintenance you know it's covered it's in the plan blah blah blah some things are some things aren't some things fall back on you so you're essentially repairing a rental car when you're leasing that's just a fancy word for renting okay it's like renting an apartment versus buying a home okay at the end of the day I'm all about ownership even though mathematically sometimes it may not make sense depending on how long you own the car however if you care for your car and you own it for an extended period of time for many years you will definitely be under the cost per month when it comes to a person who's actually leasing now with leases you also have to remember that you're always limited to a certain number of miles every year and for every mile that you go over it's gonna cost you 15 20 25 cents a mile right so if you want to go take a road trip with your friends you have to be cognizant of that you have to watch you know how much you drive every week every month every year so you don't go over those miles when you own the car you can put on as many miles as you want now let's talk about maintenance for the ownership of a car so the IRS is they typically have at range anywhere from 50 to 58 cents a mile is what it typically costs to write off expenses on a car and believe it or not that's actually a very accurate number so given that 50 to 58 cents a mile I believe the current valuation is 58 cents it depends on how much her maintenance really is gonna be in owning these cars so if you own a high-end German car it's obviously gonna be a little bit more expensive than that if you own a rare you know Ferrari it's gonna be you know until they're 50 a mile and maintenance and if you own you know a subcompact car like this Honda Civic or this Toyota Corolla it may even be less so at the end of the day I'm gonna take a page out of Dave Ramsey's book here car leases in my opinion it's the most expensive way to drive a car because at the end of the day it's not even yours and when you do go to actually buy that car the dealership is tacking on fees just because they need to make money somehow on that vehicle right so you're overpaying from the car from the start you're overpaying for the car when you go to actually buy it when you're buying your lease out and then you're always you know while you own it during the lease you're always worrying about miles and maintenance and things like that so now here's the final parts of this video what if you get the ability to finance a car and own it with 0% you also have to realize those promotions with 0% financing although if you may have the budget in the car and you may be able to pay for a day one yeah it makes sense that you know use the 0% financing and invest your money elsewhere however you also have to realize that you're paying full full full sticker price for the car on those promotions you're not getting any money off and you're definitely not getting a deal and since we have human nature instead of using that you know 10 15 20 grand to pay for the car up front we're gonna finance it for 0% and then we're gonna go on a vacation then we're gonna go buy those new speaker systems that we want we're gonna buy the new MacBook etc etc and then guess what oh crap you know the zero percent of financing you know I'm paying more for the car than I originally intended because I'm using my car budget to pay for other things so I hope this helped I know this is oversimplified version but at the end of the day the math definitely is there and I did use a lot of hypotheticals of you know what the sales price is gonna be and things like that however I just use the typical depreciation rate however that is vehicle specific so I know I'm kind of rambling here but it is important to actually understand you know buying versus leasing a car in my personal opinion I'm gonna buy cars all day long because I do enjoy working on them I do enjoy detailing them and I do enjoy finding good deals and typically when I go to sell a car I've never necessarily lost that much money I've always either broke even or made money on the cars that I've owned but that's because I buy right so you make your money when you buy the car guys so at the end of the day I hope this helped you if you're someone that absolutely needs to lease a car and have a new car every three years by all means go for it just know that you are renting a car and you're renting it in the most expensive way possible thank you so much and have a prosperous day [Music]

Channel: Marko - WhiteBoard Finance

Views: 631,925

Rating: 4.7781529 out of 5

Keywords: buy or lease a car, buy vs lease a car, buy or lease a car dave ramsey, should i buy or lease a car, leasing vs buying a car, should you buy or lease a new car, car leasing explained, car leasing tips, car leasing vs buying, car leasing 101, car buying 101, car leasing secrets, car buying tips, car buying, car buying guide, car buying strategies, lease vs finance, lease a car, buy a car, graham stephan, ryan scribner, nate o’brien

Id: BtY9Nmm2z0U

Length: 12min 32sec (752 seconds)

Published: Mon Mar 18 2019