Leasing vs. Buying

By SRT-Tom · Dec 4, 2019 ·
  1. SRT-Tom
    How does the cost of leasing a Challenger compare to buying it, in terms of out-of-pocket costs? Or if you decide to buy a used Challenger, how much more will you save? And finally, what do those costs look like in the long run?

    These are important questions for buyers who want to carefully manage their automotive expenses over the years. It's hard to give one answer that covers all people and all situations. But the question can be divided into two parts:

    1. An analysis of the hard costs of three different ways to get a Challenger- leasing, buying new and buying used.
    2. A discussion of some intangible, non-monetary issues that might affect your decision.


    One Car, Three Financing Methods

    In the first analysis, you can look at an average car ownership period at almost six years. You can then look at Edmunds.com transaction data for the financing information on a Challenger SXT, like the one pictured above. For each category (leasing, buying new or buying used), the averages are based on thousands of recent transactions across the U.S. These reveal the average cost of the car, interest rate, down payment and monthly payment.

    Since most people lease for three years, two lease cycles are compared to one buying cycle for new and used cars. In other words, in the buying comparisons, the person purchased the car, financed it for five years (60 months) and then had one payment-free year of ownership.

    Here's how the different deals were structured:

    Leasing: The average lease is based on a Challenger SXT that sells for $24,775 (discounted) with drive-off fees of $1,154. This results in a $294 monthly payment for three years.

    Buying New: When buying the same car, the average down payment on a five-year loan is $4,104. The average interest incentive rate is 1.64%, resulting in a monthly payment of $400.

    Buying Used: The average price of a similar 3-year-old Challenger SXT is $15,688. The average interest rate is much higher: 6.04 percent. The average down payment is $2,304. The monthly payment is $301. (Fewer low-interest deals are available for used cars, and the credit scores of people shopping in this category are lower, according to Edmunds data.)

    After six years, here are the total out-of-pocket costs of each financing method:

    Leasing- $23,476
    Buying New- $28,104
    Buying Used- $20,364

    In terms of out-of-pocket expenses, leasing costs $4,628 less over six years than buying a new car, excluding any repair costs the new car might incur. The out-of-pocket cost of buying a used car is $3,112 cheaper than leasing and a whopping $7,740 cheaper than buying a new car. Again, any costs of repair for the used car are excluded here.

    Here is something essential to remember about the apparent lower cost of leasing versus buying new. At the end of two leasing cycles, the person who leases a Challenger doesn't own the car. He or she has to start a new lease-or-buy cycle. Meanwhile, the person who bought a new car now owns a 6-year-old vehicle worth about $9,687 on the private-party market, according to Edmunds data. The person who bought the used car now owns a nine-year-old car worth about $4,794.

    When you deduct the current value of the new and used car from the out-of-pocket costs, the long-term cost picture changes:

    Leasing- $23,476
    Buying New- $18,417
    Buying Used- $15,570

    In this basic comparison, it appears the person who leased the two Challengers paid $5,059 more to drive these cars for six years than did the new-car buyer. Buying a used Challenger saved the purchaser $7,906 as compared to leasing during this six-year cycle. Buying used rather than buying new saved $2,847.


    Related Expenses

    It should be pointed out that the person who leases escapes the repair and maintenance costs- and related hassles- that owners typically encounter with aging cars. It's true that the person who leases has to pay for routine maintenance, but that is usually just oil changes and tire rotation. (Some people avoid maintenance costs altogether if they lease a new car that has a free maintenance program).


    The car leaser also might have to buy a new set of tires, which could cost about $1,000. Of course, the new-car buyer typically has to pay for maintenance, too, as does the used-car buyer. The used-car buyer might have to foot the bill for some additional repairs, as well.

    On the other hand, leased cars may require the driver to carry higher levels of insurance, which might offset some of the repair and maintenance costs that car leasing avoids.

    Leasing's Other Advantages

    While it is true that the people who lease have no car at the end of the lease, they do have the opportunity to purchase the car at a preset price (i.e., residual value) that is often the current market value of the vehicle. The finance company sets the purchase price for the leased car at the beginning of the lease. This offers the person who leases a car several advantages:

    First, leasing protects against unexpected depreciation. If the market value of the car drops due to unforeseen circumstances, such as rising gas prices, this drop in value doesn't hurt the person leasing the car. Conversely, if the lease car holds its value especially well, the consumer can buy the car at a bargain price, and either keep or resell it. In some cases, people can leverage equity in leased cars.

    One other big financial advantage to leasing is that it can offer an attractive tax deduction for someone using the car for business. An accountant is the best resource for more information on this subject.

    There are aspects of leasing that are more difficult to monetize, but which appeal to some shoppers:

    • Leasing provides the enjoyment and prestige of driving a newer car more often.
    • Leasing provides a new car that has the latest performance, safety, technology and comfort features.
    • Leasing in three-year cycles means the car is always under the manufacturer's bumper-to-bumper warranty.
    The Appeal of Ownership

    It's hard to put a price tag on the pride of owning a new Challenger. But beyond the abstract enjoyment of possessing a highly desirable car, ownership offers several other advantages:
    • You can modify your Challenger exactly as you want without fears that you will break the terms of your lease contract.
    • Excess wear and tear, which can be charged on a leased car, is not a concern for the car buyer.
    • You have the flexibility to sell the car when you want to, not when the lease is up.
    • Once the car is paid for, you're free from the weight of a monthly car payment. You can convert that money to savings, apply it to other household expenses or set it aside as a repair, maintenance or mod fund.
    • Finally, owning a Challenger, versus leasing one, allows you unlimited driving with no mileage penalty. Leasing includes only 10,000-12,000 miles per year. After that, each mile typically costs 15 cents.
    While there are many factors to consider when making the lease-or-buy decision, the best place to start is with the numbers. Do your own calculations, factor in the intangibles and the best decision for you will emerge. If you decide to buy, be sure to take advantage of great incentive deals, like Power Dollars. But whatever decision you make, you will enjoy the thrill of driving the hottest retro-styled muscle car on the road!


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