Lately ive been interested in buying a new car but ive heard that leasing is better and cheaper. Is leasing a car really that much cheaper than buying as far as monthly payments.
The answer is that it's complicated. For companies its cost effective to lease - but you're not a company, so moving on.
If you can find a lease where the dealership guesses badly about the depreciation of the car you can come out ahead on the lease. If your payments on the lease were 350/month with a $1500 down payment and a $3000 balloon payment at the end that lasts for 3 years, you'll end up paying a total of $17,100 to own the car for 3 years and (probably limited to) 36000 miles TOPS. That's a lot of money to own a car for a very short period of time.
Now let's say you bought the car for $35,000 (cash). That menas you can't make interest on that $35,000 while it would have been in the bank (or, more likely in your case, it means you'll lose interest on it because its borrowed). Either way you're behind by (lets say) 5% or so on that money for 3 years. That means that you could have made a little over $5,500 on that money in interest over 3 years, but you didn't because you had it tied up in the car. So by purchasing, you're behind by over 5 grand in interest, but you're also behind by the amount the car depreciates. Let's say that after 3 years and 36k/mi you could sell the car back to the dealership for $22,900 - that's a loss of $12,100 dollars in the value of the car. Add the $5,500 you lost in interest to the $12,100 you lost in car value and you get $17,100 dollars as the total cost of owning the car. Exactly the same amount you would have paid if you had leased the car.
Now, those are ugly calculations becuase there is really more to it than that. You also have to take into account that your down payment and monthly payments on the lease could earn interest as well - but these are the main factors.
So in this hypothetical you broke even between the lease and purchasing. The bottom line is, do you think the value of the car will be higher than $22,900? If so, you should buy the car to save money. If not, then the lease isn't priced well and you can actually save money by leasing (the dealership loses the money).
So in the end its a gamble. You have to wonder what the depreciation of a car will be when you have no way of knowing - but neither does the dealership. You can estimate it based on previous years' models (and the dealership will certainly do so). Most of the time the dealership will stack the deck so that you'll lose money on it. Sometimes you'd actually gain money on it. You also have to guess what the market is going to return on your investments - if you could have made 12% for example you should totally have leased. There are software programs that are supposed to help you calculate whether it is a good lease price or not... if you're thinking about leasing I would recommend getting one of those.
All in all, I don't recommend leasing unless you've got lots of money to play with and you really want to have a new car every three years and rarely put miles on them... or if you have a company.
I'm the type of person who gets cars all the time, I think my truck is the longest I've owned a vehicle...2 years. I've never onced leased a car, it's just better to find a slightly used car and pay 5 grand under the new price of the car. Works everytime.
As best I can tell, this is the most cost effective way to own cars. Buy them with about 30k mi on them and about 2 or 3 years old. Then sell them before they get too close to 100k or the value will drop and you'll have to start paying for repairs.
(new to me, anyway) Funny thing is, in some real estate markets where there is a crazy housing boom, you still end up making loads of money because the value of the home can double over 4-5 years-- equity that's still all yours, even though you've paid nothing but interest in the original loan amount. Not that I'm a fan of the concept or anything...
