What Leasing a New SUV Every 5 Years Really Costs You vs. Buying Used
When it comes to securing a new vehicle, you may be among the drivers who think leasing is the smart move because the monthly payment is lower than the cost of a new ride. According to Andrew Lokenauth, founder of the blog Fluent in Finance, this is usually a bad idea for your finances.
“When I worked at Goldman Sachs, I saw this pattern repeat with clients who leased new vehicles every few years and then wondered why their net worth wasn't growing,” he added.
Read on to see what money experts said about the real differences between leasing a new SUV every few years and buying a used one.
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Leasing vs. Buying Used
“A new luxury SUV lease runs $650 to $800 a month on average,” Lokenauth said. “Over five years, that's $45,000 to $48,000 in payments and you own nothing when the lease ends. Then you start over. Do that across 15 years and you've spent $130,000 (or more) with zero equity built.”
Buying a 3-year-old used luxury SUV tells a different story, according to Lokenauth.
“Depreciation hits hardest in the first two to three years, so you let someone else absorb that 30% to 40% drop in value,” he said.
An example Lokenauth likes to use involves a used BMW X5 or Lexus RX that costs $65,000 new and might run $38,000 to $42,000 used.
“Finance it over 60 months and your payment lands in a similar range, but this time you're building equity and you own the car free and clear at the end,” he added. “Drive it another five to seven years after that and you're paying next to nothing. Over a 15-year window, buying used can save $40,000 to $60,000 (or more) compared to leasing new.”
Doing the Math for Your Budget
Here’s another example Melanie Musson, an auto industry expert with AutoInsurance.org, likes to share.
If you lease an entry-level Lincoln Aviator, you’re going to pay a minimum of about $750 per month for 36 months. You’ll also need at least $2,000 down. By the end of the 36 months, Musson noted, you’ll have spent just under $30,000 on payments and money down.
“Typically, leases are for three to four years,” Musson added. “Finding a five-year lease can be a challenge. At the end of the lease, you may have the option to buy your vehicle at about 50% to 60% of new MSRP. A base model, like the one in the scenario above, would have a value of about $55,000 new. So, after spending about $30,000 after three years, you may have the option to spend another $30,000 to buy the vehicle or you may decide to sign a new lease.”
If you bought a 5-year-old Lincoln Aviator with under 100,000 miles, you would spend in the range of $25,000 to $30,000. If you put down $2,000 on a $30,000 purchase price and financed the rest, you could expect an interest rate of 8% (although it could be higher) and monthly payments of $570 on a five-year loan. At the end of 36 months, you would have spent about $20,500, plus your $2,000 down payment. You would still owe about $12,000.
So, after five years, you would be about $50,000 in if you leased. After three years, you would spend $30,000 and either have to get a new lease, in which you would spend $20,000 for another two years or pay another $30,000 to buy your lease.
“If you had bought a used Aviator, you would have spent $34,200 over five years and you would own a car that would likely be worth around $15,000,” Musson added. “So, you would be out around $20,000. To simplify, over five years, leasing new would cost at least $50,000 and buying used would cost around $20,000.”
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