When does buying a used car make more sense than leasing a new one for the average consumer? Well, almost always; as in, nearly every time, more often than not and 99 out of 100 times.
Don’t get us wrong, there’s nothing sinister about leasing, particularly when you’re attempting to bring monthly car payments in line with your budget. There are just more sensible ways than leasing new to drive the vehicle you need. Need being the operative word.
Why Do Most Leasers Lease?
If you ask the average Joe why he leases, he’ll probably tell you some version of more bang for the buck. And, it’s probably true. Because you’re really just renting the vehicle from the leasing company for a fixed amount of time, you only pay for the value it loses (plus some assorted fees) while it’s in your hands.
A new 2016 Audi A6 Premium Plus 3.0 retails for $58,325 with a destination charge. After $5,740 down, Audi will lease the car to you for $605 per month for 36 months. They’ll finance the same car with the same downstroke for 60 months at $966 per month. No question, $361 is a huge monthly savings for most of us. So, as far as monthly payments go, leasing new beats financing new.
Get Over Yourself
The first thing you need to do when you consider replacing that old heap in your driveway is have a good ol’ heart-to-heart with yourself about living within your means. Unless you’re a one-percenter, who could pay cash for the car of your dreams if you wanted to, you’re going to have to finance or lease. You’re an average Joe, remember.
While cruising around in a brand-new $58,000 luxury sedan would be cool, does it make sense for you, even at $605 per month? If you find yourself trying to figure out which current extras in your life you might be willing to do without to come up with the monthly lease or loan payment, you’re looking at too much car. Period. If you consider giving up your weekly date night with your spouse, or washing and ironing your clothes rather than sending them to the dry cleaner, you’re looking at too much car. Period.
Leasing Is Renting
We won’t wade into all the details of leasing here, but just keep in mind, leasing is renting. You pay to use the vehicle, and at the end of the contract period, if you managed to keep within the 12,000-miles-per-year mileage limit and the vehicle is in as good of shape when you return it as it was when you drove it off the dealer lot, you turn in the keys and walk away. That $5,740 down payment and $21,780 in monthly payments simply disappear. You’ve got nothing to show for it and nothing to put down on your next car.
Lower Your Sights
Try this on, instead. Buy certified pre-owned (CPO). These used cars are certified by the carmakers, usually with some type of carmaker-backed warranty. Used? That’s not cool! Maybe not, but it makes sense. You can find a CPO 2014 Audi A4 Premium Plus for about $28,000. With a down payment of $2,800, you’re left with $25,200 to finance. According to Bankrate, the current interest rate on a 60-month, used-car loan is roughly 3 percent. Your monthly payment would be about $453.
It’s less car, and it’s a used car, but at the end of 5 years, you’d own it, and it’d still be worth about $7,000. This is equity you can use as a down payment on your next car.
What it means to you: If you’re considering leasing to drive more car than you can afford to finance, step away and think about buying CPO instead. Less car with lower payments and some equity on the back end. What’s left to think about?