BlackFIBlack: Forget Everything They Told You About Leasing a Car

Forget Everything They Told You About Leasing a Car!

When you are in the market for a new vehicle, you typically have two main options…

• Finance = Take out a loan and pay it back every month for 5-10 years with interest
• Lease = Sign an agreement to ‘borrow’ the car and make payments for 2-3 years

Most Americans need a private vehicle because 45 percent of Americans have no access to public transportation at all, while others want the flexibility to get around without being tied to a timetable. 

So, if you don’t currently have a vehicle or your car is barely hanging on by a spark plug, you need to decide whether you want to purchase or lease your next vehicle. 

People who are adamant about not leasing a vehicle under any circumstances often cite reasons like, ‘it’s more expensive’, ‘they’re restricting your driving’, of ‘you’ll never own the vehicle outright’.

And for many people, financing a vehicle may be the way to go.

But when I considered my personal experience financing the purchase of a car in the past, along with the numbers I discovered while considering how I’m going to eventually replace my 210,000-plus-mile car…

Here are 4 reasons why leases are a better option than financing when getting a new vehicle…

1. You avoid (most of) the expensive maintenance and repair costs associated with an older vehicle. When leasing, most of the repairs and maintenance are covered under the manufacturer’s warranty, instead of paying out of pocket. That could save you hundreds, if not thousands of dollars in additional costs each year.
2. You can invest your cash into opportunities that generate income, rather than an item that will lose 20 percent of its value in the first year. Unlike real estate, a vehicle rarely increases in value, so that down payment is gone once your vehicle depreciates. 
3. With a shorter commitment than financing, leasing allows you to move on from a vehicle at the end of the term without bringing money to the table. If you were trying to sell a vehicle with a loan amount that is greater than the value at the time you need to get rid of it, you would definitely have to bring a check to the table.
4. If you are a business owner, leasing allows you to deduct the entire payment amount on your taxes, versus financing the vehicle. However, you must work with your own licensed tax professional to confirm what works with your specific situation.

When I did a side-by-side comparison on a 2024 Volvo S90 Hybrid full-size sedan, which was priced at $63,560, with the features I selected. 

Here is how it came out:

• • Finance:
    • Loan Term: 60 months (5 years)
    • Down Payment: $12,712 (20 percent)
    • Trade-In: $0 (none)

• Monthly Payment: $1,018

• Lease:

• • • Lease Term: 36 months (3 years)
    • Cash Down: $0
    • Trade-In: $0 (none)
    • Annual Mileage Allowance: 12,000

• Monthly Payment: $910

To make the monthly payments for financing the same as the lease amount, you would need to either extend the monthly terms to 72 months (6 years) or make a higher down payment of $18,100 (28 percent of the purchase price).

With that amount of cash, you could purchase a modest residential rental property in some areas, and receive a few hundred dollars in cash flow each month OR you could invest it in the S&P 500 and potentially get an 8-10 percent return. 

So, when considering how you will acquire your next new vehicle, if paying all cash is not an option or your preference, run the numbers for yourself.

And don’t automatically rule out leasing a vehicle just because you’ve heard almost everybody else say it is a bad idea.  

It may turn out to be a financial win for you in the long run, despite what ‘they’ told you.

When getting a new vehicle do you prefer financing or leasing and why?