There is No Good Reason to Lease a Vehicle

That's right, no matter what kind of math I run, or what reasons I hear, there is absolutely zero reason you should ever lease a car. I was stunned to find the link below that shows that 77% of BMW drivers lease their car, that's right 77%. Now that I think about it the excuses I hear tie directly into this reasoning.  

The number one reason that I hear is regarding maintenance since during a lease the repairs for the most part are covered. Counter to that a lease term is typically 2-3 years or 24-36k miles, meaning if you purchased the car new you would have the same term. This leads to the next major reason...lower payments. You see the commercials all the time, lease now for $350 a month, of course, because you are going to make payments on a vehicle for 2-3 years and own nothing at the end of it. 

Now, let's break down that math. Since BMW is the leader among leased cars, let's run the numbers on a standard 330i. MSRP on this vehicle is $44,500, plus tax and tags, using 6% tax and a $400 documentation fee, the total price is $47,570 brand new. In Pennsylvania, we pay 6% sales tax, plus with a lease you are going to pay a 3% motor vehicle tax. A quick search on BMW's website shows me this will cost anywhere from $589 to 609 per month, plus another $5,059 due at lease signing. Now the fun part, let's run the numbers and see how this works out.

First, I'll set the record straight and say the best way to buy this car is cash upfront. If you do not have the cash, you should not buy it. The total cost for this vehicle is roughly $47,570, with no other charges. For financing, I know some dealers run specials of 1.9, 2.9, etc. But today, I do not see any, so I'm going to take a 5.64% rate, which is on the low end of what I found, but to be fair, I'll show you the cost at a special 1.9% offer so you have a full picture.

Lease Payment, I'll use the lower $589 per month (assuming tax is included)

5.64% APR Payment = $911.72 (60 months, but I noticed BMW is now kindly offering 72-month terms, which would bring that down to $780.31)

1.9% APR Payment = $831.72 for 60 months or $699.59 for 72 months)

For this I'm going to focus on a 60-month term, I cannot imagine making a car payment for 5 years, let alone 6 years on an asset that is depreciating. Still, cash wins out.

In 3 years of a lease or financing here is how this breaks down.

The lease payment total is equal to $21,204, plus the 5,059 for lease signing for a total of $26,263 and you own nothing. You do now have the option to buy a 3-year-old car though. That car sells for about 30,000 today, so let's assume you can pay that price for it now, and if you happen to have the cash you just paid $56,263 for a $44,500 car (assuming you stayed within your mileage guidelines and other factors). But if you now need to finance that, you can convert that to a loan for the next 5 years for 30,000, plus tax.

Alternatively, financing this vehicle from the start gets you a higher payment as noted above and after 3 years, the car is still yours with a value of about 30,000. During those 3 years, you will have accumulated a total of $5,898 in interest, but your loan is down to $20,646, meaning you could turn around and sell that car after three years and walk away with about $10,000. Or continue paying on it, and after 5 years pay $7,133 in taxes and own the car after 5 years, worth about $22,000 to 33,000 depending on mileage, etc. 

Hopefully, that is enough to convince you, but just to share one more thing, if you decide to go ahead and purchase that vehicle it is going to take you another 5 years, with a payment of $617 a month (assuming the same 5.64% interest as above. For the next 5 years, with taxes and tag fees, you will pay another $4,828 in interest costs. But now instead of having a 5-year-old car, your car will be 8 years old and sell for between $13,000 and 26,000 depending on condition, mileage, etc.  

In total for a lease, you will end up paying about $8,500 more for the same car. That is why the payments are lower and that is why dealerships love for you to lease. They simply make more money.  

Do me a favor, do not lease a vehicle! I would much rather you save and buy a vehicle that you can afford, instead of overpaying just to have a nice new car that other people will look at. Use your money wisely, save for the future, and be content with what you are given and what you have.

Article on Leased Vehicles: https://cartelligent.com/which-car-brands-are-most-often-leased/