Question: Should I buy or lease a new car?

Answer:  This is actually relatively straight forward of a question.  First you should understand the mathematics and economics of leasing.

Basically whe you lease you are renting the vehicle.  So you have nothing left when turning it in.  That nice big down payment is paying off the decline in value for driving it off the lot and using up the new car smell.  The monthly payment then covers the monthly imputed decline in value  (plus some profit for the firm).  And that nice big “return payment”?  That cover the rest of the decline, some maintenaince, and profits.  Oh, and then they get you for all the dings, and overages, and little things that add up on the bottom line for them.

Car companies make money on leases because they know people like the shiny new things.  And they know people like new vehicles every two to three years if they can afford them.  So it creates turnoverf of inventory, and then they can have their dealerships re-sell the returned vehicles.

Contrast this with a purchase that you hold for five years or so.  You typically need a down payment too (unless you get zero percent down, not so common these days), and you have a higher payment per month, but on the far side you have residual value.  You can then use it as deposit on next vehicle (instead of paying for the joy of getting rid of the car).  Or you can hold the vehicle for well past the time it is paid off and save the cash flows (other than maintenance costs).  My 9 year old Volvo (hey, it only has 175k on it!  It can go another 75.  It’s a Volvo!) is needing some repairs but hasn’t had a payment in four years and will still be worth over 10% of the cost of my next car.

Now also remember that unless you are self employed you can not deduct the costs of your vehicle.  This can make leasing more attractive financially, especially if you need to show some flash because you are in sales.  But outside of that, leasing is generally NOT the right financial move.