What Leasing a New Luxury Car Every 5 Years Really Costs You vs. Buying Used
If you’re in the market for a luxury vehicle, you’re probably weighing the decision of leasing new or buying used. After all, with lower up-front costs, cheaper financing and smaller monthly payments, leases let drivers afford more car than they would be able to purchase outright.
However, there are tradeoffs that skew the long-term numbers in favor of a clear winner. It all comes down to the car’s MSRP, what you pay to own it and what you’re left with after the financing term expires.
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Here’s how the numbers play out for a driver who leases a new luxury car for five years compared to a buyer who purchases a used one over the same financing term.
Sticker Price Showdown: A $20K Difference
Macroeconomic data and analytics firm CEIC reported that the average new luxury car sells for $61,791 in the U.S. — we’ll call it $62,000 for the sake of round numbers. If you’re in the market for a high-end used vehicle, you can shave more than $20,000 off that price tag, as Edmunds reported the market is filled with previously owned luxury cars selling for $40,000 or less.
So, with those two prices as the benchmarks, what’s the long-term cost difference between a 60-month loan to buy a used luxury vehicle and a 60-month lease for a new one?
By the Numbers: The Lease
MSRP: $62,000
Down payment: $5,000
Financing term: 60 months
APR: 6% (money factor equivalent)
Monthly payment: $759
Total payment over 5 years: $45,524
Out-of-pocket maintenance and repairs: $0 (under warranty)
By the Numbers: The Purchase
MSRP: $40,000
Down payment: $5,000
Financing term: 60 months
APR: 7.5%
Monthly payment: $701
Total payment over 5 years: $42,080
Out-of-pocket maintenance and repairs: $6,000
The Lease Wins, Right?
With a nearly negligible difference of just $58 per month, the lease has only slightly higher monthly payments, with a five-year combined payment difference of just $3,444. However, factoring in the presumed maintenance costs for an out-of-warranty used vehicle versus a leased car under warranty, the lease actually wins by $2,556.
The problem is that this calculation — which is what makes leases appear so appealing on paper — is that the lessee essentially rents a new luxury car in perpetuity and closes out each new financing term with zero equity.
Residual Value: The $13K Equity Dealbreaker
Upon turning in the leased vehicle, the lessee walks away with $0 in net equity. The buyer, on the other hand, ends the financing term with an estimated eight-year residual value of $16,000, assuming the used car was three years old at purchase — and that flips the equation squarely on its head.
That mass of retained cash value means the five-year net cost is $50,524 for the lease and $37,080 for the purchase. In the end, leasing a new luxury car for five years costs $13,444 more than purchasing a used one over the same financing term.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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