Is it better to lease or buy a car? Car by car breakdown
One of the first and biggest decisions you’re going to make when you embark on the new car process is this: should you lease or buy a car?
The best answer we can give you is this: it depends.
The biggest point of differentiation when deciding to either lease or buy is that a leasing price is primarily composed of depreciation costs and residuals. You can think of depreciation as the ticking clock that reduces your car’s value the more it is driven. Basically, the way leasing works is that the leasing company or bank will pay for your car in full, and then you pay the leasing company back in the form of monthly payments. Now, the cool part of leasing is that you are only paying for what you use, so you never end up paying for the entirety of the car. When you return your car to leasing company, they try to sell your car at auctions for its value at the end of the lease. Think of residual value as the worth of a car after a lease is over, or how much money the bank will make back when they auction off the car after you’re done using it. They estimate this amount when a person begins a lease utilizing the agreed upon number miles the leasee is going to drive for the duration of his/her lease term, along with other moving parts that make the vehicle itself go down in worth throughout the years (which we will break down below):
Residual generally appears as a fraction of your MSRP. Let’s say you’re looking to lease a car with an MSRP of $28,000 and a residual value of 40% after a 36 month leas term (which is pretty standard as far as lease terms go). That means that this car is expected to hold 40% of its value after you’re done with your lease. 40% of $28,000 is $11,200. If you take the flip side of residual, you’re looking at a 60% depreciation cost. So, to do the math, 60% of $28,000 is $16,00 – which is the dollar amount of use you’re getting out of this car.
SO, to sum it up, the key takeaway is that the best cars to lease have a higher residual, and therefore have lower overall payments.
Another crucial thing to note is that residual values are estimates of what a car is going to be worth in the future. Sometimes, those estimates are wrong, for better or for worse. Residual values never change though – once the number is projected, there is no going back. So, another method when choosing the best cars to lease is looking at cars with over 60% residual value, as those are going to have the lowest monthly payments no matter what*
*By no matter what, we mean no matter how the market changes. There are, however, exceptions to the high-residual rule. Interest rates and fees could spike your car’s payments regardless of residuals, which means you’d probably be better off buying than leasing those. Below you’ll find a short list of cars with their residuals, MSRP, and our opinion of whether or not it’s better to lease or buy these.
|Mazda CX-9 Sport (2018)||56%||$33,125||B|
|Nissan Titan SV KC 4×2 (2018)||54%||$38,445||L|
|Infiniti QX60 Pure (2019)||60%||$44,995||L|
|Toyota Tacoma SR5 (2018)||73%||$29,318||B|
|BMW 320i Sedan (2018)||60%||$38,695||L|
|Toyota Camry SE||53%||$26,494||B|