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Should You Lease or Finance

beware of depreciation
So what is the value of a new car?

You can lose thousands once you drive your new car off the dealer's lot. Why?

Because the price you paid for the car is the retail price (not counting the taxes and licensing that are sunk costs).
  • If you drove that new car back to the dealer, the most the dealer will pay is the wholesale price (the same price he would pay the manufacturer).

  • So your value drops instantly from the retail price to the wholesale price once you take possession. That drop could be in the thousands depending on the type of car and model.

So why not buy used?

You will be paying for the market value of the car instead of dealer markup.

Some 1 year-old cars are great values that can save you thousands in financing costs.

Beware of depreciation (which can vary by car)

How depreciation works?
A car loses about 15-20 percent of its value each year. For example:

  • Let's start with a 1-year old used car worth $15,000 that loses 15% of its value each year.

  • At 2 years old, the car value is worth $12,750 (85% of $15,000).

  • At 3 years old, the car value is worth $10,838 (85% of $12,750).
should you lease to reduce costs
Leasing is simply a 3-yr or more rental agreement
You are renting the car for a period of time that you will return at the end of your leasing agreement.
  • The advantage of leasing is that the monthly payments are significantly lower than financing.

  • The disadvantage of leasing is that you will not be building any equity value. You don't own anything.

The financial advantages and disadvantages of leasing

will vary by person and circumstances.

  • If you are a person who must drive a new car every 1-3 years, then leasing may be your best financial option.

  • If you are a person who likes to replace your car every 5 years, then either leasing or financing will be your best financial option.

  • If you a person who likes to drive the same car for 7 or more years, then financing would be your best option.

    For more information about leases: click here

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