Leasing a car or buy it with cash

Hi everyone,

We decided we need a car for our family which has grown to 3.

  • I planned to buy a 5-6 year old car
  • Budget: CHF 25k

I heard a lot of people decide to lease the car and return it after 4-5 years or buy it completely. I just don’t see the reason for that - is the math for such an approach making sense? Don’t you end up paying more by leasing?

Is buying cash really not making sense?

Thanks

Moneywise as an employed person leasing will always cost you more than buying with cash. The question is what you do with the leftover money if you lease.

If you invest the money in the market you might end up better than paying with cash but if the market doesn’t perform well you can also end up much worse.

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I never lease or buy on credit, I just don’t like it. I hate debts in general and also lots of monthly payments. That’s why I buy all cash.

If you’re lucky and invest all the money you could end up a little better, but since the leasing timeframe is usually very short e.g. around 4 years or so it’s difficult to predict how markets will perform (and they don’t perform always like in the last 10 years), so it is also very likely that you lose money with it because the leasing / credit rates are guaranteed.

So I think leasing and buying on credit is usually not worth it.

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Most people don’t know their numbers…

But generally, if investing the money you have a higher yield than your interest rate, then financing the car would make more sense. Problem is that AFAIK interest rates for cars (Autokredit) or leasing are still quite high?

This is not a huge amount of money, nor is the time period particularly long. The difference between financing the car vs. investing the money won’t be much, as @Patron says, and you might also loose money. I’d buy the car cash and keep it until it falls apart. Take good care of the vehicle and there’s a good chance it’ll last you a long time.

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On a side note: Doug Demuro is a very famous automotive Youtuber and recently made the video linked below. He says that financing the car is always better than buying it cash.

Does anybody know if leasing interest rates are really so low in the US? Or is he simply assuming enormously high market return rates?

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Another aspect to take into account are insurances (casco/partial casco), which you have to take if you lease the car, but can pass on if you buy it outright (or take a loan for it). It may not matter for a car with 25K residual value at the time of buying but for people buying 6-8K used cars, it may factor into the equation.

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I have leased my car since I wanted to configure a brand new car according my wishes and the car is full of electronic devices (it’s more a driveable laptop than a car, lol). Of course, since the probability for the first four, five years of bad events is lower and increases every year, I wanted to have the full service covered (incl. liquids).

So I am paying a bit more than the initial purchase price but I will be hassle free and will be able to drive always the newest car on the market.

Yes, I like to consume :slight_smile:

But to be honest, do it like my parents:
Buy with 25k a solid car (from experience a korean or japanese car) and use it for the next 10-15 years. This makes - in my eyes - most sense.

I am just leasing since it is a luxury good to be able to drive cars which I would NEVER purchase because brand new cars do not make very much sense, in my opinion.

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Check out this calculation for the comparison between:

  • purchase
  • leasing
  • loan

of a new Tesla Model 3/Y:

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Most annoying “car guy” on Youtube. :sweat_smile:

In Switzerland, leasing a car is always more expensive than paying cash. Even getting a personal loan to buy a car works out cheaper than leasing. This isn’t just because of the lease itself, but because you are generally obligated to service the vehicle at specific garages. Collision insurance is obligatory for the life of the lease, and it is expensive. You can calculate the cost of the lease itself (without the secondary costs) here: Leasing Calculator - moneyland.ch

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@Cortana check the comment from @Daniel above. How is it in your case? Any special conditions you have to fulfill for your leasing? I wonder why the loan option is there at all (with a higher interest rate) if leasing is cheaper. It seems intuitively more straightforward for a private person to buy with loan than with leasing.

When we looked at leasing, the deciding factor not to do it was the need to return the car without scratches at the end of the lease.

The dealer would have the right to hit me with lots of deductions for stuff that I would never fix on my own car. And the repairs would be done at Swiss dealership prices.

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Can you lease used cars? Comparing buying a used car vs. leasing a new one doesn’t make sense :slight_smile:

Our experience:
We bought a 5 year old BMW 320d with 160’000 km (obviously “good” kilometers on the autobahn since the previous owner did more then 30k p.a.)

Driving it since 5 years, now about 220’000 km.

Purchase price 9’500.- from a private owner (prices for similar cars from dealers were at about 12’000) plus 75.- for a pre-purchase check in a BMW garage = 9’575.-

Repairs: about 1’000.- since we own it

Fuel: 5.5l diesel per 100k according to the bord computer

Insurance: just the minimum, since we could afford replacing the car

Maintenance: regular service costs

Plus I change the summer/winter wheels myself to save some money. One time cost for the tools was about 150.-

We might buy a “new” 5y old car with lots of km soon since this strategy worked out well.

The risk is of course that you’ll end up with lots of repairs if you’re unlucky but the risk is limited imo

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I think it always depends.

How already mentioned, you have to calculate the rate:

  • Cash (what if I invest this money)
  • Leading (mostly different, sometimes they have some auctions ex. 0.9% or 1.9%)
  • Kredit (mostly high interest rates)
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Plus a set of rims I guess, or where they included in the 9.5k buy price ? I assume you do not have the tool to change the tire on the rim.

Otherwise I am with you on the strategy.

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Yes, a 2nd set of rims was included with the purchase.

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The purchase price and recurring cost is much more decisive for your financial wealth than whether to lease or buy OR buy used or new.

From my point of view, a car is for getting from A to B.
Also remember that we used to drive without the fancy electronics for many years.

If you can save 15’000 when buying a car, this will matter a lot more than if you lease or buy.
Taking depreciation into account, you will decrease your monthly spending by several hundred francs.

IMHO:

  • Look for a current car that fits your needs and that you actually want to buy. Look for the lower end of the price spectrum. Leave away the frills.
  • Take into account operating costs, like petrol consumption, taxes and insurance.
  • Look for used models of its predecessor and find good offers. Compare with the new car.
  • If you can get a loan for 3-4 % APR, I would consider financing because this cost is still tax deductible (you can have a 20-35 % tax discount depending on your marginal tax rate). This way you can still be invested in the stock market with most of this money. But to be honest this looks like micro optimisation on purchase amounts of 10’000-15’000.

I suppose this will get you the most car for the money.
(Edits for grammar, spelling and clarification.)

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Yes.
Lease rates are usually around 5% there.

I’ve made detailed calculations accounting for all costs for leasing vs. buying with a loan vs. buying cash vs. long-term rentals. I accounted for going savings account interest rates (the best available rate). I haven’t yet found one instance in which leasing was not significantly more expensive than cash. With loans it depends on the interest rate you get, but at the best available rates, loans are generally cheaper than leasing.

My calculations were based on the assumption that a car purchased with cash or a loan would be sold after the calculation period (5 years, for my calculations). So the residual value, based on average loss-of-value figures, would discount from the cost.

Could you have a look at my calculation? It contains the official numbers from Tesla website. Leasing comes strongly on top.