ACCOUNTANT EXPLAINS Should You Buy, Finance or Lease a New Car

If you are in the market for a car - you probably asked yourself whether buying vs. leasing is the best option. Or more importantly, what is the best option where you can really get the biggest bang for your buck? In this video, we are going to go over the three main ways to purchase a car, the cheapest option, and as well as important considerations you should know. So, let’s get right into it!

00:00 Intro
00:33 Main Options
01:32 Cheapest Option (Calculations)
11:09 Other Considerations
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WHO AM I:
Gabrielle is a CPA and Tax Expert, as well as the founder of Balance + Wealth CPA, a licensed CPA firm that specializes in Tax. Prior to starting her business, worked as a Tax Manager at one of the Big 4 Accounting Firms for 7+ years, working with Fortune 500 companies. Gabrielle posts weekly videos on personal finance, business finance, and tax tips.
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Disclaimer: Note this video is not financial nor accounting/tax advice and should be used for entertainment purposes only. Consult with your own financial advisor, accountant and/or tax advisor for specific advice related to your business situation and needs.

*This description contains some affiliate links, meaning that I may earn a minimal commission if you click through and use these links (at no additional cost to you).

[CIST]

I did a similar analysis when I considered how to purchase a new car. In the end, I chose to purchase the least expensive car that met my needs and was reliable. I didn't buy a luxury vehicle. I didn't get the highest trim level (even though I wanted it.) I paid in cash and love not having a monthly payment. For me there is a lot of psychological value to not having the weight of debt. As much as possible, I try to live a debt free life. It may seem unsophisticated, but I sleep well.

[patlilburn]

We can absolutely go back and forth about what rates and costs are realistic, but the great value here is the analysis, the takeaways, that allow us to figure out for ourselves and our realities what is the best choice. Very excellent video! Thank you for making it.

[-eNnY-]

1.99% is pretty unrealistic for most people who are financing. Extremely rare. 3%-4% is already a very solid/good rate for most people. Just avoiding 5%-8% interest for most people is the goal, if possible.

[Aaron.Dharma]

When leasing a car you partially pay for sale tax because it is usually based on the amount of each rental or lease payment. In the case of $48486 Wrangler purchasing sale tax is $5196, but you would pay around 50-60% of $5196, $2598 to $3437 when leasing. Overall, cost incurred is about $15000, less than $17132 as mentioned in the video.

[theamazingspiderman]

WHERE DID YOU SEE 1.99% APR FOR FINANCING?!?!??!?! I haven't seen that ANYWHERE.

[tristanblackwood]

Ex auto finance manager now certified financial planner here, good video. Some things to consider: if your car is owned outright or financed and you are in an accident and repaired, the accelerated depreciation will be borne by the owner. If it’s leased that is borne by the leasing company as the residual is guaranteed on a closed end lease. Also pay attention to residual values, if the residual value is higher than you think the car will be worth at lease end, consider leasing. Also if you are using the car solely for business then the whole lease payment will be tax deductible up until the maximum of about 900 per month. If it’s owned you will be able to deduct interest costs and depreciation logging kms used for business

[mitchellmackinnon]

This is a great breakdown, I would add one thing. The opportunity cost will always be more than the interest amount for finance. The interest rate on finance is calculated on a depreciating balance, whereas the interest earning potential should be calculated on an appreciating/compounding balance. I know it's more complicated, but I have seen circumstances where interest rates on earning can be half that of finance rates and the customer still earns more than they pay over the same length of time.

[michaelmiller]

Cool to see the various scenarios here. It would have been fun to see a few real world examples in the sense that most people financing don’t have perfect credit and won’t get that 1.99% rate. Additionally, most people finance their cars for 5-6 years now. It would be beneficial to show people how drastically these change the cost of ownership numbers.

[financenumber]

As an Accountant myself, kudos to you for keeping the numbers simple. It’s clear that Financing is always cheaper than leasing. If you keep the car for around 7-10 years, then it’s more cheaper. Only lease if you have extra disposable income and want a new and shiny car every few years. But for most of middle class people, financing or buying used is the way to go.

[TH-ucji]

lease Germans and finance/buyout Japanese cars 🙃

[nafslee]

Not sure if this was included in your lease calculations but on-road running costs, maintenance, registration, road side assistance etc are all covered in the monthly instalment so that's a benefit worth noting. Also, in Australia we have GST (Goods and Services Tax) and the lease excludes GST so calculations for Australians would be different since the price of the car is lower.

[luciik]

Lease vs financing depends on your finances and the brand/ model car. Some dealerships allow you to lease cars for 48+ months, and offer a maintenance package so you don’t have to worry about car troubles. Personally, I prefer to lease luxury cars, and buy low maintenance cars.

[dq]

I haven't had a car payment for several years, and it feels amazing

[LLD]

Stumbled acrossed this video and absolutely loved it. You explained everything so well and enjoyed how informative it was. Subbed!

[BigD]

One other factor to consider is whether rebates are based on how you choose to pay for the car. When i offered to pay cash, dealer said i would lose one of the rebates if i paid cash. Obviously this was many many years ago when cars were routinely sold way below MSRP. So instead of paying $25000 cash for the car, i financed it for &23500. I then paid it off after a couple of months. Sure i paid interest on those two months but i came out way ahead by financing and paying of early than buying cash.

[RichFlair]

When comparing lease to purchase, you can also include the residual value of the lease and can capture the delta between residual value and resale value — lots of companies will give you cash to buy your car out at the end of your lease

[seek]

Great comparison on 36-month timeline costs. However, if you extend out the length of time (48+ months) lease vs ownership, the numbers will greatly skew toward ownership.

[gamingsaint]

It really comes down to what condition of car you need, and your personal situation. Older reliable car bought outright is always best. But if you need a specific model and year finance. If you need to keep up with having a new car lease. Its that simple.

[leje-zjdr]

I could split hairs on how low that opportunity cost is, but I’m just glad it was included. The only flaw I can see is the payments in the financing option have to be discounted. Today, that discount rate would be enormous

[ScotiaDroning]

In Canada, if you have a business, you can expense the cost of a lease and only write off the depreciation of a financed purchase and interest costs. Leasing for certain circumstances is very advantageous. You also have to consider that while you lease the vehicle is under warranty, without buying an extended warranty for a financed purchase.