To buy a car with a loan or lease it - what to do?  We have recently
been in the position of replacing our autos, one because it wore out
and the other because it became a learning experience for a teenage
driver.  It used to be that if you didn't have the money to purchase
a car outright you shopped around for the best interest rate and in bits
and pieces owned the thing within 3 or 4 years.  But now there is the
option to lease.

I'd like to examine the figures and see if there is a big difference
in the bottom line between the two plans.  The figures:

               Buy                 Lease
Car Cost:      $12,500             $12,500
Tax:              $500                  $0
Interest Rate:    7.25%                  ?
Down payment:    $1,200                 $0
Term length:    5 years            4 years
Monthly pymt:      $235               $190

At the end of the the lease (4 years) $5300 would be required
to buy the car.  At the end of the loan (5 years) we estimate
the blue book price at $4500.  Is there really much difference
in the end whether a car is leased or purchased on loan?

7 responses total.

All this is contingent on your meeting the mileage restrictions.  If
you drive it more than the lease allows, you gotta pay so much more
per mile you are over the limit.  My parents leased a van, but went
way over the mileage limit.  This made the lease a lot more expensive
than they had planned on.

Yes, I can't lease because I drive 70,000 miles per year. That makes
buying dangerous, too. If I buy a new car the payments outlast the car.

Your best bet by far is to not buy a car you cannot pay cash for.  Even
if you can afford to pay cash for a new car, a 2.5 year old car is
a better deal (depreciation begins to level out around there).

If I were driving 70k/year, I'd be very picky about the reliability
record, I'd use synthetic oil, and I'd look for used but low
mile cars.

To answer the original question, in most cases, buying is better than leasing.

I buy a 2 yr old Tempo every 2 yrs or so. The last one, however, was a '91
purchased in Oct '91, with 19,000 miles on it. It now has 117,000 on it, and
all I've had to spend money on was a brake job last Feb. The oil gets changed
every time I turn around!

Me and you should exchange cars.  I put so few miles on them that the body
is long gone before the engine.   You might also look into just
replacing the engine if the body is still really good.

Jon, given a choice between paying $500 cash for a car or paying $500 down on
a $3000 car, would you really buy the $500 car and accept the headaches that
it comes with?

In 1994, if you can buy a 2.5-year-old car for $500, it probably
won't move -- it's more like a choice between $3000 (at least!) and
$10,000-20,000.  A good reliable-mechanic-approved used car has
fewer headaches than a new lemon, too.

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