Episode 36.
Car Leases

Question:

Key Points:

• The short answer is that the car is not being advertised to be purchased for $157? It's a lease of $157/month.
• This particular car (which was a 2019 Chevy Trax) was $157/month for 24 months and a $1000 down payment.
• There are 3 standard demographics: People who buy new cars, people who buy a used car which doesn't have that many miles on it, and people who buy an old car, which already has a decent amount of miles on it
• Per Your Mechanic.com, the average cost of maintenance is $1500/year for cars that have less than 75,000 miles on it and $2500/year for cars from 75,000 - 150,000 miles.
• The average American drives 15,000 per year (for people ages 20-55), so we are going to use that for our analysis
• We are guessing that a $20,000 car would be able to be sold for $3000-$5000 in 5 years with 75,000 miles on it.
• For a $20,000 vehicle. The costs for the different options came out to be:
  • Purchase New: $20,000 - $3000 = $17000/5 years = $3400/year
  • Lease (New): $200/month for 2 years + $1000 down = $5800 = $2900/year
  • Purchase Used: $10,000 - $3000 = $7000/3 years = $2333/year
  • Purchase Old: $5000 + $1000/year = $10000/5 years = $2000/year
• So, buying new is quite a bit more expensive
• Purchasing the old car is the least expensive, but there is a lot of hassle because of needing to have the car go into the shop
• And, the old car is older...so it doesn't have all the latest technology
• Let's do it again with a $40,000 car:
  • Purchase New: $40,000 - $5,000 = $35,000/5 years = $7000/year
  • Lease (New): $400/month for 2 years + $1000 down = $10,600 = $5300/year
  • Purchase Used: $20,000 - $5,000 = $15,000/3 years = $5000/year
  • Purchase Old: $7000 + $1000/year = $12,000/5 years = $2400/year
• It is cheaper to get an older car, but you have to deal with all the maintenance issues
• When the price tag is bigger, the difference in each option gets farther apart.
• Most people do not pay cash to buy a car; they finance it
• The average car is purchased for $36,000 with a 4.2% APR loan