Should I buy or lease a car?

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Scott: Hi, everyone, and welcome to the podcast. I'm Scott Benjamin, the auto editor here at, and I'm joined by Ben Bowlin, who is the video editor here at also. How are you doing, Ben?

Ben: I'm doing well, Scott. That was a great introduction.

Scott: It was smooth.

Ben: Yeah, it was. It was smooth, yeah.

Scott: Yeah, but here's something not so smooth.

Ben: Not so smooth.

Scott: Not a very good transition here. I want to talk about Punkin Chunkin.

Ben: Punkin Chunkin.

Scott: I do.

Ben: The show?

Scott: Yeah, the show that's on the Science Channel. It's on Thanksgiving night, and there's a show called The Road to Punkin Chunkin, which is at 8:00 Eastern time.

Ben: Oh, and then Punkin Chunkin itself, which is at 9:00.

Scott: Correct, immediately following it. So Thanksgiving night, an evening on the Science full of punkin chunkin!

Ben: And you'll be full of turkey, so it'll be easy to sit and just watch something.

Scott: Yeah, that's right; try to stay awake, right. Don't overdo it on the turkey, that's what I'm saying.

Ben: Uh-huh. You know, Scott, I will definitely take that under advisement. I wanted to come to you with a question that some people have probably been wondering about. And we have - it is, of course, car related, and we actually have an article about this too, so I did cheat just a little bit on this one. Now, I bought a car and I have got a couple friends who lease cars. And all my friends are under the impression that they are funny people, no offense guys. And they have constantly made jokes to me about buying or leasing a car. And so I wanted to come to you as an expert and ask you which is smarter, buying or leasing a car?

Scott: Which is smarter, I can give you a definite answer. It depends.

Ben: That is a definite answer.

Scott: Yeah, real definite, right. Actually, it depends on your individual needs. It depends on every situation's different, so it's better for some to lease and it's better for others to buy.

Ben: Okay, well, all right. In that case then, that sounds suspiciously like a disclaimer, but it sounds like a very good and a truthful one. So in this situation, I guess the first thing we should do is we should break down what the definition is. I'll do buying a car because that's the easier one. When you buy a car, you make a down payment usually; work out a financial agreement wherein you pay a certain amount each month. I guess if you're at a particular stage in life financially, you might just buy a car -

Scott: Buy it outright?

Ben: Buy it outright in cash or in some other means. You may barter for a car, who knows.

Scott: Possibly, but the outright purchase doesn't happen too often.

Ben: It's relatively rare. Most people have some financing.

Scott: Yeah, usually, and they call that traditional financing as a matter of fact, but kinda the - I want to say the trend, but it's not really a trend. It's been happening for a long time. You can also lease a vehicle and leasing is slightly different in that you're just really paying for the use of the vehicle while you have it. You're not really - you're not buying the overall vehicle, but you are paying a pretty decent sum to use it for that amount of time, whatever that time is, whether its 24 months or 36 months, or I think I've even seen them up to a 60-month lease, which seems like a long time to me. I don't know, the lease terms and vehicle, they vary from dealer to dealer in what they offer. It's just what's out there, what's available, what's possible.

Ben: And they're highly variable, especially in terms of some have mileage qualifications.

Scott: Restrictions, yeah.

Ben: Restrictions is a good word.

Scott: In fact, restrictions also - the mileage restrictions come into play when I'm thinking about leasing a vehicle. I can't do it, there's no way because some of these vehicles, the amount that you're allowed to drive every year is something like 12,000 miles. Now, you can buy up to I think it's about 15,000 is what they're allowing in most cases. And I'm sure there are plans to buy additional miles, or you can buy just additional miles per mile beyond that if you'd like if you know that you're going to drive more. But really, if you're going to drive between 12,000 and 15,000 miles, that's a possibility for you, but anyone above that really, maybe think about buying.

Ben: An easy rider like yourself -

Scott: Yeah, that's right, an easy rider, yeah.

Ben: - who's used to interstate trips, lots of state trips.

Scott: Lots of road trips, yeah. Long miles.

Ben: Okay, well, what - in that case, we understand then that's one of the situations in which it might be better to buy a car is if you are going to be driving over a conventional mileage limit for a lease.

Scott: Yeah, that's right, but it's not the only reason. Mileage isn't the only factor to come into this. There's a lot of factors. In fact, in our article, there is a gentleman that was called upon, his name is Philip Reed, and he's a consumer advice editor at Edmunds. And Philip, or Mr. Reed, his advice is - he says that leasing versus buying isn't just a financial difference, it's a lifestyle choice. And what he means by that is that if you're someone who trades cars often, if you always want a new vehicle, if you constantly want to upgrade, update every couple of years, then leasing is for you. If you lease, your payments tend to be much less than if you purchase a vehicle, and we'll talk about that when we get to it. Lessees, the people who lease vehicles, they're also able to drive relatively nice new cars all the time and, I don't know, maybe a car that they couldn't have afforded otherwise.

Ben: I see.

Scott: If you were going go through the traditional, go through the bank and finance everything, you may not have been able to afford quite that level of vehicle.

Ben: That Bentley will put you back.

Scott: That Bentley will, yeah, that's right. So anyways, there's a lot of positives and a couple of drawbacks to leasing as well, so we can go through those if you want.

Ben: Yeah, let's do the - you know what? Let's do the positives because we already kinda touched on those, and then let's do the negatives, take it down a little bit, and then maybe we'll bring it back up.

Scott: Sure, we can. We've got to talk about buying as well, buying versus leasing, so we'll do that too, I promise. So a couple positives, and I'll just run through these real quick. Again, there's low upfront costs because oftentimes you won't have a down payment required.

Ben: Oh, that you got me.

Scott: Not always, not always though. In fact, take a look at some examples here where usually there's something required upfront. It's not always a heft down payment though, where with a purchase, they almost always require a down payment, almost always. There's always exceptions.

Ben: Do they do maybe trade-ins?

Scott: Trade-ins are another thing and that is with - that's really with buying though, if you're going to buy a vehicle. So we'll get to that too.

Ben: We'll get to that.

Scott: But that'll take money off the top end. Another positive of a lease is that, again, you get lower monthly payments typically when you're leasing versus buying. Leases are also easier to be approved for versus a car loan oftentimes, so if you're going to a bank or another financial institution of some kind, it might even be the manufacturer's corporate, like, GMAC or Chrysler Financial, or whoever. I don't know if they're around any more. Anyways, the corporations leasing center, it may be easier to get a lease versus an actual absolute loan. And the last positive here that I have, at least on the list anyways, is there's little or no maintenance costs for the vehicle throughout the life of the lease because typically you're talking about a 24-month or a 36-month lease, and the vehicle is brand new, still under warranty. You can just about take it back for everything unless you have body damage, something like that that you need to pay for out of pocket, via insurance or whatever. But tires, things like that, expendables of course. Oil changes are often covered. Anything goes wrong with the powertrain, of course, you're probably covered, door handle falls off, whatever. So maintenance costs are really low, whereas if you buy the vehicle, you still get the warranty, but beyond that warranty, which typically ends around the three or four, five-year mark, or the mileage mark, those costs all come right to you. So the maintenance costs do go up after a period of time with a vehicle.

Ben: Scott, Scott, we both know that I have poor impulse control, so right now those sound like a lot of pros. Take me down, man. Talk me down from the ledge.

Scott: All right, here's some of the downsides, I guess. And I don't know if - these aren't really terrible or anything. There is a higher insurance cost. Now the insurance often includes something called gap insurance. Gap insurance is what you pay in the event that - you don't pay in the event, you pay it no matter what, but you pay it based on the idea that if you were to total that vehicle that's, say, valued at $40,000, the insurance company has to repay all of that amount. So you're paying your insurance and, within your payment, it's rolled in your payment, but it's based on the idea that you may total that vehicle and have to pay back - they will have to pay back the full price to the dealer that owns it.

Ben: I think I see where you're going, yeah.

Scott: Yeah, that's a higher cost there. Here's one that's kinda - we just said that there's not often a down payment required, but if there is a down payment - and often there is because I've been watching for this. If you look at vehicles, I'm just going to take an example like a Cadillac or something like that, a lot of times you'll see at the end of - or Lexus, or something a little high end maybe. A lot of times at the end of the ad, they'll say that there's $4,500 required at -

Ben: - at signing.

Scott: - at signing and the down payment is pretty significant. And that's money that just simply goes out of your pocket. You never get that back because, on your next lease, you're going to be expected to do the same down payment or whatever the down payment is for the vehicle that you're getting. So it doesn't come back to you. You're not building equity with a lease as well, which is another point we're talking about in a moment. That $4,500 is just kinda getting you into that vehicle.

Ben: You know what? I'm glad that we talked about this before I called somebody to start leasing a car because - and seriously, those upsides sound pretty good, but if you think about it, is somebody who's leasing a vehicle, are they saving money or are they just moving the cost around?

Scott: Well, it's a bit of - I don't even know if they're saving money. They're just moving around, I guess. They're delaying - I don't know if that's even the right way to say it. It's a tricky situation because we'll talk about time in just a moment, about when we get to cost of ownership over five years for a lease vehicle versus when you're purchasing a vehicle, and then ten years. So you know what? As a matter of fact, we might as well do that right now.

Ben: Yeah, let's just go right to it.

Scott: Why don't you fill some time here while I -

Ben: I would love to tell you a story very quickly, actually, and this is interesting. My mother is the owner of a hybrid and I'm not going to specify which one or which company, but the funny thing that happened on the way to the grocery store, her car had a check engine light or something of that nature come on, which we have an earlier podcast about. And then the car locked up and froze, and she could not, for the life of her, get it to start. So it's still under warranty, so it was taken to the dealership. And then they looked at it and the part of the engine that had malfunctioned was something that would only be there to support the hybrid part of the engine. However, it did not qualify for the warranty because it wasn't considered part of the hybrid system.

Scott: Really?

Ben: Yeah. So there was some fine print there. And warranties oftentimes have a bad reputation, get a bad rep because people say there's a devil in the details, but it's interesting to think that if she had leased the vehicle instead of purchased it, that she would have been more likely to have that covered.

Scott: I don't know how that works. I've never heard of anything like that, Ben, that's interesting. You happen to know what the name of the part was what -

Ben: Again, I don't want to say the names of the make or the model or anything, but it was definitely - I believe it is a harness. It's a part of a harness that only exists in hybrid engines, but still, because it's not directly powered by the engine, I think it's powered by the internal combustion engine to - you know what? I'm going to - our listeners are way to smart. I don't want to misspeak.

Scott: It's a go-between between the hybrid system and the combustion engine.

Ben: Yeah, but it didn't qualify because she purchased it, and it probably would have had she leased it.

Scott: Interesting. All right, I found my notes.

Ben: All right.

Scott: Oh, good, okay, that took me a long time.

Ben: That worked out well.

Scott: Nice filler there, that worked.

Ben: Hey, I've go three more in case we need them.

Scott: You may need them. I'm going to have to search here in just a minute.

Ben: All right.

Scott: I'm going to read this. This almost comes directly from our article, so this is a five-year example, a cost of ownership example -

Ben: Oh, good.

Scott: - of a vehicle that is based on - and this is from Edmunds, really - based on a $20,000 car financed with a three-year loan at 6 percent interest. What Edmunds found was, after a five-year period, the real cost of owning the car was actually slightly higher than leasing. Now, we're going to come back to this in a minute, but with the monthly payments, the down payment, maintenance, i nsurance, taxes, state fees and interest, the total cost of ownership came to $32,388 for five years. So you're paying, with all those extra fees and costs, and interest and everything. Under the same circumstances, the cost for leasing the car during a five-year period of time totaled $32,140.

Ben: So its close.

Scott: Very close. I mean, within a couple hundred dollars close. So in initially, it seems like leasing is a more affordable way to go, right? I mean, that's what -

Ben: Slightly.

Scott: Okay, so here's the thing though. And there's always a, "Here's the rub."

Ben: Here's the rub.

Scott: There's always a rub. In a ten-year scenario - well, because very few people drive a car for just five years if they own the vehicle. So we're taking kinda - it's a skewed look at it, I guess, if you want to say that leasing the car for five years versus owning it for five years because most people own a car for more than five years. So if we take this and extrapolate it out to ten years, which is kinda ridiculous that you're going to lease a vehicle for ten years, but let's do it anyway because that kinda gives you a more clear picture of what you're spending really. Your insurance is going to decrease, your maintenance costs are going to - I'm sorry. The insurance is going to decrease, the maintenance costs are going to increase, and you have to understand that you're not going to have any payments for that last five or seven years of ownership, whereas with a lease vehicle, you'll continually make payments. Even though they're smaller, you'd still make payments for those additional five or seven years depending on how long the term of your lease or loan would be, I guess. So when you add up all the costs and you finally - I mean, this is where you see the benefit of buying versus leasing. Again, a ridiculous scenario, ten-year lease, but maybe it'll happen.

Ben: Possibly has happened.

Scott: Possibly, yeah, it possibly has happened. So with adjustments for maintenance and operational costs, et cetera, the total cost of that $20,000 car is up to $43,000 if you own it for ten years. Now, if you had leased that same vehicle for ten years, $64,000 is what you would have ended up paying for that $20,000 car.

Ben: Which is a whole new lease at that point almost? That's $20,000 -

Scott: It's more than a whole new lease because it's - yeah, you're talking about a $20,000 car that's now cost you $64,000 in ten years, where you could have had three new vehicles in three-year increments for much less. So again, this is - it's confusing as heck when you look at the numbers, but you're paying all these different fees and depreciation, and you don't get the money back for your down payment, which you do sort of in a purchase situation, but you get much less back and that's due to car depreciation.

Ben: In a roundabout way, not to roll over you here, but in a roundabout way, these costs can come back for somebody leasing a vehicle. It sounds like one of our main claim factors here is time, but as you said before, there are some other variables that people need to keep in mind that make it even more confusing. Because we mentioned state fees, which vary on a state-by-state basis!

Scott: Correct.

Ben: We mentioned insurance, which varies widely, depending on your MVR, I'm sorry, your record.

Scott: And it also just depends on what county you live in. It depends on if you live in the inner city or if you live in a suburban, or if you live way out in the country, or if you live in a state that has lower insurance rates overall. There's a lot of different factors to look at here. And percentage rates, percentage rates play high into this because you can get a 0 percent interest loan at times. You've seen those offers before. You've seen 1.9. A lot of these were figured at 6 percent, so 6 percent is just kind of an average, maybe a credit union type loan. I don't know, there's just a million variables, and then depreciation of that vehicle. There's an example of car depreciation in that article. The depreciation - this is that ten-year example. Let's say the bought or leased vehicle was a 1998 Camry, so that was about ten years let's just say. The MSRP on that car, so brand new, the car, the base price was $21,000. And after ten years or, let's see, I guess that would be nine years, that vehicle was valued at $4,075.

Ben: Wow.

Scott: That's a lot, and that is in excellent condition. So if you kept your car in excellent condition for ten years, which it's pretty difficult to keep a car in excellent shape for ten years, that vehicle, I mean, you're only getting $4,000 back on a $21,000 initial investment and then you can take that. But what you can do with that $4,000 is that you can trade that in on the next vehicle if you were to purchase it. You can say, "I've got $4,000 worth of trade-in here. Knock that off the top end of my next $21,000 car," and now you've only got $17,000 to finance, which dramatically lowers your payments and that makes it even better. So if you get in the cycle of buying, it's better if you have something to hand back to them at the end. If you're leasing, that money's gone. It's like you're starting - it's exactly like that, you're starting over again every three years or every four years, or whatever your lease term is, so you're not building any equity. But if you're buying, you are building equity.

Ben: Scott, I'm going to ask you something that sounds left field, but just go with me here because we're going to get back on track pretty quickly. Have you ever seen The Shining?

Scott: I have.

Ben: Stanley Kubrick movie, kid in there has the shining, or he's psychic or whatever.

Scott: Yeah, the kid's nuts.

Ben: Is he, Scott? Because I have a little bit of the shining.Scott Do you really?

Ben: Just a tad.

Scott: Do you talk to your finger like that?

Ben: No, no, I outgrew that last summer, but no, I've got a little bit of what they call the shinning on the Simpsons. And that little tingle, that little extra sensory perception there is telling me that this is very confusing for somebody to just hear and try to follow up on their own. So somewhere out there, I can just sense it, there's somebody who wants a very clear explanation. Maybe a way to just figure out. Is there some way they can go?

Scott: There are a lot of places you can go, as a matter of fact. I'm glad you brought that up because I probably would have forgotten that in this pile of notes I that have here, but there are all kinds of buying versus leasing calculators that you can go to. Oftentimes, the manufacturers will even have them on their sites. Banks and other lenders have them as well. What it does is it spells out very clearly for you what your payments would be based on the rate of the loan, the length of the loan you're looking for, the length of the lease you're looking for. It tells you exactly what the state - the taxes and other information would be. It gives you very clear if you have a trade-in vehicle what that buys for you. Very clearly it'll tell you what your lease payment is versus what your purchase payment would be based on the money that you're willing to front and, as well, the specific make and model, the year, model of the car rather. I don't know, just really clear calculators and they're real simple. Easy to fill in information, four or five lines each, but they give you a very precise idea of what you'll be paying buy versus lease.

Ben: And that's a really important step to take before because any kinda vehicle you get, any expense like this, is really a commitment and you're probably going to buy or lease a vehicle that you will rely for transportation, probably for your livelihood, so it really pays off to do the research. To reiterate what Mr. Reed said, it's kind of a lifestyle commitment. I was skeptical at first, but you kinda sold me.

Scott: It is, it's a lifestyle commitment. The thing is, I've got a bunch of examples here, but I don't even think I want to go into them because I think we've kinda exhausted this one. Really, it depends on what you - just to wrap it up I guess kinda concisely here, is that when you're leasing, you're starting over again every couple of years. You're starting over with a new lease. If you're buying, you're building equity. You're continuing the cycle of buying and selling back vehicle in whatever way you choose to do that, whether it's to another person to get the money to use for your down payment, whatever. Again, it varies from person to person, from situation to situation, so it's different for everyone and there's a lot information available online. Just make sure that you're making an informed decision because there's a lot of choices out there.

Ben: Well, I guess that does wrap it up. That was pretty good, man. That was the talking points.

Scott: I appreciate it.

Ben: Those were the talking points, to be a little bi t grammatical. So I guess then we're done with this. Thank you for talking me out of leasing a vehicle. I'm sure my -

Scott: No, see, I didn't mean to talk you out of it. You need to look into it yourself. You need to find out if you qualify. If you do, have at it. If you don't, then buying is the right way.

Ben: Oh, okay. Well, hopefully, our listeners there are better with impulse decisions that I am, but you guys, thank you again for tuning in. It looks like it's about time for Scott and me to head out to the wild frontier of the Internet. And we will see you again later this week. In the meantime, send us email if you like at

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