Buying vs Leasing Your Car

Hello, Matt with EWA. Chris with EWA. Oftentimes in meetings it comes up, should I buy or lease a car? So we wanted to cover that today. Matt, can you tell us a few points or philosophies that you follow?

Yeah, absolutely. So as a firm, EWA believes that buying versus leasing should have some consideration. Ultimately, in a budget, savings should be the first thing we focus on. Then a car payment or a lease payment should just fit within the budget and the construction of the reverse budgeting mechanics that we put into place.

However, statistically, in the US. The average person buys a new car every 2.9 years. So if this is the case, if you like new stuff for a new car and like to have the feeling of the new technology, then leasing typically makes sense.

If you fall on this average, if you’re going to have a car for less than three years, financially, if we just run the numbers, leasing does make sense over purchasing. However, if you are a person that’s going to purchase a car and then keep it for greater than four and a half to five years, depending on the brand of the car, then purchasing the car actually makes sense.

And every year you were to keep the car after that five year period, for example, it would just be icing on the cake. Just as an example, with a lease, typically you’re going to have a three year lease.

We need to make sure that the mileage constrictions that are typically 1012 or 15,000 miles per year are easily met. We don’t want to be stressed about driving too much and then paying overage charges, but after those three years, you return the car in and typically you can get a new car probably with the cost of living adjustment a little bit higher.

If you purchase the car and paid off in five years and then do not have a payment every year moving forward, typically that’s profit to. If you lease a car for three years and buy a car for three years and then were to sell that car similar to returning a lease, then what’s happened is that even though there’s going to be equity in that car.

Typically, the depreciation that’s occurred and a higher payment, the payment with the lease. If you took the difference and invested that, that investment would be similar, if not higher, than the equity that you would get back in the car.

So some of this does come down to behavior. Or if you’re leasing a car with a lower payment than owning, are you disciplined to invest the difference? If so, then any short term car, three to four years, we’d recommend to lease, if that’s the mindset.

And then any longer term, we would recommend to purchase the car. This is a very specific case by case analysis. It’s heavily dependent on the brand. Are you in a luxury market? Are you in a non luxury market?

And there’s other considerations such as mileage and is it business use? Can we get some tax deductions on a lease payment versus if we take, for example, a Section 179 deduction able to write the whole thing if a business owns it.

So very simply for personal ownership, leasing versus owning, we’re happy to analyze any specific questions that you have. In general, we can tell. For most families, we recommend to lease one car and own one car and own the car.

You’re never worried about taking long trips or vacations and then the leased car. At least every three years, we can get something new and feel good about it.