You may have heard some variation of the phrase that it’s always better to own. There’s no doubt that this is true about a wide variety of different items, from homes to flat-screen televisions, although it’s true for very different reasons with those two items.
But it’s never automatically true for cars. Besides buying a home, purchasing a car is likely to be the second largest investment that most Americans make in their lifetimes. It can be a huge decision, and it should, therefore, be very carefully considered.
There is no doubt that car ownership has some benefits, and it may be the best choice for some people. But it almost certainly isn’t for many more. For many Americans, the downsides of leasing simply don’t apply to them. Let’s take a closer look at a few of the reasons that leasing a new car can be a much better deal than buying one, for a large percentage of Americans who need a new car.
Cars depreciate both steeply and relentlessly
The single biggest reason that almost any financial expert will tell you that owning is superior to renting, when it comes to your primary residence, is that houses constantly rise in value. But the exact opposite is the case for cars.
In the United States, cars lose an average of 11 percent of their value, the instant they leave the car lot. Within three years of rolling off the assembly line, the average car in America will have lost half its value. From there, the depreciation curve is a little less steep but not by much. Approximately 15 to 20 years after being sold for the first time, most cars in America will have lost almost the entirety of their value.
So what are the benefits of owning an asset that is guaranteed not just to lose value, but to become nearly worthless in the not-so-distant future? The first benefit is that you can drive the vehicle as many miles as you want. With most leases, there is a cap imposed on the maximum number of miles that can be driven. This is referred to as the set miles. But don’t worry. On the low end, you may see leases that “only” allow 12,000 miles per year to be driven. But 1,000 miles a month is far more than most people drive. However, if you really need to rack up miles on your car for work, leases may be available with twice that many miles or more. But if you’re actually going to put 50,000 or more miles on your car, each year, it may be better to buy.
The second benefit, the one that almost everyone considers the main reason to own, is that you get to sell your car when you are done with it. But for most average consumers, this is an illusory incentive.
Selling cars is hard work, and there’s a ton of risk involved. Sure, if everything goes perfectly, you may be able to sell your car for exactly what you’re asking, while only spending 10 hours of your own time. But things don’t always go perfectly.
A good rule of thumb would be to allot 50 to 100 hours to selling your car. If you haven’t gotten things in tip-top shape, you might also mentally earmark $1,000-$2,000 for getting the car ready to sell. One of the things that people often severely underestimate is how hard it can be to get what you want for your car, especially if you’re not a highly skilled mechanic. That dent in the door that you assume may be able to be punched out might require the door or its skin to be replaced. Can you put on a new door, even from a junkyard? Can you match the paint? If not, a simple dent in a door can lower the car’s value by over half. Dealerships can take care of problems like these in half a day. Most consumers can’t take care of them at all, at least not without spending thousands.
But the biggest problem with trying to sell your own car is the time it will likely take you. If you’re a first-rate sales rep or first-rate nurse, why would you take 100 hours of your time trying to be a third-rate car dealer? Better to spend that time doing something you know you can make money at, rather than something where there’s a better-than-even chance you’ll actually be losing money.
Leases save you massive amounts of money
But leases also save you huge amounts on the monthly payment. All else being equal, a lease payment can be as little as half that of a loan payment, for any given car.
These are just a few of the reasons that leasing is a far more attractive option for millions of Americans.