Buying versus Leasing a Vehicle
The day I purchased my first new car begat data collection which continues today. Fifteen years of data, you may agree, should be enough to draw some conclusions on this topic.
Some years ago my Uncle Ron was always driving newer vehicles. He leased them, arguing that leasing was the way to go, because you never had to fix them, and they never let you down. He may have suggested it was cheaper to lease than to buy, in the long term, because owning your vehicle means you also own the associated problems as it ages. That is what I got out of it, at any rate.
I wasn’t even of driving age when I was listening to these ideas, so I may not have all the finer points remembered faithfully. Regardless, when I bought my first new car I set a goal of proving for my own satisfaction which is better: Lease a new vehicle every few years, or buy new and drive it until it dies.
Death means failure due to an inability or unreasonable cost to maintain a vehicle such that it is safe to drive and can be relied upon to start and faithfully carry you daily to your destination on normal roads, in all seasons. I concede that a vehcile’s end of life could also be the age at which, no matter how well it has been maintained or how low the number on the odometer, one could not expect to get any more than scrap value for selling it. A person might reasonably deny maintenance expenditure on a vehicle worth next to nothing.
Reasonable upkeep cost I shall define as fewer than $2000 annually. You could trade that sum for a used vehicle at auction that could reasonably be expected to last at least a year of daily driving. It is approximately 77-percent greater than my actual cost of maintenance to date, but I could call it affordable if I was being sentimental, or otherwise stubborn about keeping my car.
Feel free to define your own limits within your own comfort zone, but
understand that such changes may mean you cannot take my data and purport to
right answers for your own situation.
Giving credit where it is due, my pal Martin is directly responsible for my writing this page. Right about now he would be asking for my point. Pass the gravy; Here come the meat and potatoes.
I Say Buy It
Why rent when you can own? You might argue with me on this and
claim it is better to lease because your vehicle is used for your business, and
write more off your income tax1.
You’re wrong, I’ll then say, because you would be. Writing more
off your income tax does not equate to having more money left in your pocket, if
in fact you paid more out just to be able to write more off.
Still not convinced? I record every quarter I plug into a meter for the
privlege of parking my car. Those numbers have their own category in my
spreadhseet (aptly called
parking). I have a lot of data that favour my
version of reality. May we move on?
|Year||Distance travelled (km)||Fuel Cost||Cost of Maintenance||Other Driving Costs||Fuel Cost Average|
|2002||16 399||1066.81||2004.26||1628.35||Annual Maintenance Average|
|2005||9716||892.89||218.65||1621.15||Annual Distance Average (km)|
|2006||11 549||1054.63||2525.48||1307.18||14 328|
|2008||15 415||1469.74||4.62||2186.65||Vehicle Financing Cost|
|2009||17 999||1434.70||2295.78||1820.75||40 462.80|
|2011||14 818||1564.68||804.76||886.00||Total Cost of Ownership|
|2012||11 298||1281.39||239.50||827.00||99 311.22|
|2013||14 040||1639.85||2945.59||1584.05||($18.28 per day)|
The numbers in Table 1 do not exactly add up because not all my data are presented there, but the total cost of ownership is accurate to 15 Dec 2014. Nearly $100 000. Ouch.
Total driving costs for each of the first 15 years are shown in Chart 1. Two accidents (in 2002 and 2014) and the repair costs associated with them are included. In 2002 it was cheaper for me to do the repairs than to pay the increase in my policy over 5 years. I learned a tremendous amount about my car in the process.
In 2014, I had no collision coverage, leading to more backyard mechanic adventures. I am now certain that the best policy is simply not to get into accidents.
What About Leasing?
Leasing involves restrictions on your freedom, as defined by the contract you sign. Should you stray, you would pay. Extra, that is. So why pay more? I have better things to do than give my money to a dealership for nothing in return.
Had I leased instead of purchased, maintenance costs would have been much lower. All I would have had to do was buy a set of tires before I turned in each leased vehicle, conservatively priced at $6002. I would have had to pay overage for a few of those years, too. I understand that cost varies, but since I see some USA estimates of between $0.10 and $0.30 per mile, I don’t think it a stretch to say that $0.05 per kilometer is a conservative number.
I went on vw.ca and built a car that cost as near as makes no difference the same as what I paid for my car when I drove it off the lot at the turn of this millenium. (Okay, it was actually pricier to the tune of $40.55, but that was close as I could get it.) $6637.80 per year is what I got for a 3-year lease cost. Assuming all costs of driving other than maintenance would have been the same might be a stretch, but it’s the best option available for this approximation.
If you’re keeping track, here is what we are working with in a nutshell:
- – Lease payments are $6637.80 annually, over 15 years for 5 vehicles
- – Maintenance cost for leasing vehicles includes only tires, amortized at $200 annually
- – Overage charges will cost at least $0.05 per kilometer, which is $670.50 for the distances I travelled over 15 years3
- – Insurance would be at full rate each year, versus about $400 less without collision coverage after ten years 4
- – All other costs of driving would be the same as were recorded for owning
Table 2 shows the leasing costs as best I could project them to be.
|Year||Distance travelled (km)||Fuel Cost||Cost of Maintenance||Other Driving Costs||Fuel Cost Average|
|2002||16 399||1066.81||200.00||1648.30||Annual Maintenance Average|
|2005||9716||892.89||200.00||1621.15||Annual Distance Average (km)|
|2006||11 549||1054.63||200.00||1307.18||14 328|
|2008||15 415||1469.74||200.00||2186.65||Vehicle Leasing Cost|
|2009||17 999||1434.70||200.00||1920.70||99 567.00|
|2011||14 818||1564.68||200.00||1286.00||Total Cost of Leasing|
|2012||11 298||1281.39||200.00||1227.00||127 732.67|
|2013||14 040||1639.85||200.00||1984.05||(23.51 per day)|
So is leasing all it is cracked up to be? That is for you to decide for your situation, but I cannot stomach the cost difference between the two, just to be always driving a new car. Feast your eyes on chart 2 to see what I mean.
I could have bought myself a brand new one and paid cash for it if I had paid myself the difference between owning and leasing over all those years! Oh well, a missed opportunity, maybe.
What is that, you say? Leasing on 4-year terms costs less? Oh yes, it does indeed! Because you would likely need to replace tires and brakes before turning in your leased vehicle after 4 years, I have doubled the cost of maintenance for the calculation. Due to the 4-year lease term, the lease cost drops by about $11 500. It all looks pretty good, but still not come close to the relative bargain that is ownership. Check chart 3 for a one-stop summary many varying options.
You can immediately see that a 4-year lease term is a money-saver versus a
3-year term, and also that owning is always less expensive. I assumed that all
off-lease purchases would be for 3-year-old vehicles. The price used was
$24 000, and the expected resale price was taken from that.
Without getting too granular about the numbers from there, it should suffice to say that everything resembles my own recorded costs as closely as possible. That is why, for example, the fuel cost is the same across the board. All other numbers were pulled right from my recorded values, and where necessary, averaged out to an annual cost and multiplied by 15 years to get a normalized data set. Declining resale values are reflected in the data for the older vehicles, as well. It is not perfect, but the general trend is clear.
What I Will Do Differently
Carrying forward what I have learned over the past 15 years as a car owner, and extrapolating a bit from the data I presented here, I will do things a little differently going forward.
For one, I will never buy a new car again. Well, winning the lotto jackpot would likely change my mind on this point, but since that is such a slim chance, I will be driving old vehicles forever.
The sweet spot seems to be to buy a 3- or 4-year-old vehicle and drive it for 10 years. Sell it, buy another, drive for ten more years, repeat as necessary. This depends upon the vehicle of course, but try to stay focused, okay?
The disadvantages of this are right up front: Usually a car of a few years, especially one off lease is in need of maintenance. New tires if nothing else, but probably a brake job, and all the engine fluids and filters should be changed so you at least know that last time that work was done. Maybe something a little more expensive, like a timing belt or cylinder head, depending upon the vehicle and how far it was driven. This can scare people quickly in the lease direction, but fear not!
The good thing about buying a slightly used vehicle is that the price is right. Technically if you bought a 3 year old vehicle and had to pay $4000 in maintenance the first year you owned it, you would still be ahead and you get to skip the side effects of that toxic new car smell!
Example: My car cost about $33 000 with taxes (cash price) to purchase. At the 13-year-old mark, purchase cost plus maintenance was $44 560. If I had purchased the same car 3 years later it would have cost me only $23 200, plus required maintenance. About a year after purchase, the car would have needed a timing belt and water pump ($1200 at the dealer), tires ($600), and brakes ($300). I need rust protection for the climate I live in, so add $140 annually for that.
That is about $25 500 for a 4-year-old vehicle that I have driven for a year already, and should get another 9 years from. Assuming my worst case maintenance cost limit of $2000 annually (average) I would end up paying $43 500 for the same car at the 13-year mark, when it would be time to sell it and start over again. That is still $1000 cheaper than what I paid for my car buying brand new. If I were to be so bold as to use my recorded maintenance costs in this example, the total cost would be only $34 820.58, which is nearly $10 000 cheaper than buying and driving the same car new to the same 13-year-old stage.
I was surprised after extrapolating the numbers that reselling the car at the 10-year-old mark and buying another ended up costing more than driving for an extra 3 years and selling at 13 years of age. There is not much difference in terms of resale between those two ages, and the cycle of major maintenance expenditures is primarily to blame. The take-away lesson then, is to figure out the numbers for your particular vehicle so you can find the right time to sell.
Oh, and what about the fact that with a leased vehicle you never have to have it sit in a shop for repairs? What about the time and money involved there? Simple, for what you saved by buying over leasing, have your closest exotic car rental agency on speed dial, and rent yourself something swanky for a few days! With the money you saved by buying your vehicle, you can afford it each and every time, and still have lots let over to see Victoria Falls, or climb Machu Picchu, perhaps both!
Keep your wheels pointing down, and enjoy your new found wealth.