We recently looked at some of the best deals on car leases, focused on outgoing models about to be redesigned, and found you could still beat the advertised offers by just taking out a traditional loan and/or buying the car outright. Now, we'll take a look at more conventional leases, to see just how much better the end-of-the-model-year deals are.
For this latest comparison, we looked at two lease deals that gave a comprehensive list of lease terms in a local paper. The first was for a 2012 Subaru Outback, which is replaced by a slightly updated model for 2013. The other is a 2012 Mini Cooper Countryman: a base model with front-wheel drive and an automatic transmission. While Mini considers itself a luxury brand, the base Countryman is reasonably priced, at about $24,000. And with no redesign in sight, the Countryman represents a rather standard lease. Still, neither of these lease scenarios proved a particularly good deal.
As with the previous deals (read: "Car lease ads reveal the benefits of buying"), you can think of these initial lease offers as similar to new-customer rates on credit cards, magazine subscriptions, or cable packages: They're good deals initially, but they're just designed to get you in the door, with a plan to hit you with higher fees later. And unlike the other car deals we examined, which were heavily subsidized to clear dealer lots, these advertised offers are only moderately good deals to start with. Our analysis shows that payments will still go up in the subsequent leases you'll likely need, but not as dramatically. (Learn more about how we analyzed the ads in "Cars lease ads don't always add up.")
Scenario: Subaru Outback
The ad: In August, a dealer advertised a 2012 Outback in the New York Times for $229 a month for 42 months, with $3,391 due at signing. This ad specified a final residual value of $13,330. The car sells for $25,583, and purchasers can get a 0.9-percent interest rate for 36 months. In this case, we compared two 42-month leases with the advertised three-year loan, plus four years of ownership free and clear.
What we found: The Outback was the most expensive lease we studied, in part because of the length of the financial agreement. The comparative loan rate of 0.9 percent for 36 months also pointed out the financial advantage of a shorter-term loan, even with high payments. In our comparison, this scenario gives you four years to own the Outback free and clear of payments. The Subaru's 42-month lease term lasts six months longer than the car's warranty, and the Outback is a relatively expensive car to maintain, costing about $1,100 over the first three years, based on our Annual Auto Survey. After all is said and done, the Outback will end up costing you $11,000 more to lease twice over seven years than to buy outright with a brief low-interest loan, with comparatively painful monthly payments of $611. Not counting repairs, the two new Outback leases will cost you almost 85 percent more than just buying the car. Looked at another way, at the end of seven years, you'll have a middle-aged all-wheel-drive wagon worth almost $9,000, rather than the pressure to go lease all over again.
2012 Subaru Outback--MSRP: $25,583 First lease Subsequent leases Total lease costs Months owned after loan Total loan cost Lease terms, (2x) 42-mo. 42-mo. 42-mo. Loan terms 36-mo.
Advertised monthly lease payment $229 Actual monthly lease pmt. (with tax) $248 $376 $26,201 Upfront/down pmt. $3,162 $3,426 Cap cost reduction (with tax) $3,427 $0 $3,427 Loan pmt. $611 $22,005 Other fees $0 $0 Maintenance & repairs $4,350 Maintenance/repairs (est.) $1,100 $1,100 $2,200 Resale value/equity $8,943 Total lease cost $31,828 Total loan cost $20,254 Loan savings $11,254
Scenario: Mini Cooper Countryman
The ad: The Mini Cooper Countryman was advertised, again in The New York Times, for $279 a month for 36 months, with $2,315 due at signing. The base Countryman with an automatic transmission costs $24,400, with a residual value of $13,746. Mini didn't include a finance rate for purchase in the ad, so we used a national average rate from Bankrate.com of 2.9 percent for 48 months. Thus, we compared two 36-month leases to one 48-month loan (the longest we'd recommend), a scenario that yields two years of payment-free ownership.
What we found: Under that scenario, lessees would pay $6,800 more over six years than those who made the higher $551-a-month payments up front, even after paying for the Mini's relatively expensive repairs.
2012 Mini Cooper Countryman--MSRP: $24,232 First lease Subsequent leases Total lease cost Months owned after loan Total loan cost Lease terms, (2x) 42-mos. 36-mo. 36-mo. Loan terms 48-mo. Advertised monthly lease payment $279 Actual monthly lease pmt. (with tax) $302 $337 $23,005 Upfront/down pmt. $1,311 $1,421 Upfront/down pmt. $1,421 $0 $1,421 Loan pmt. $551 $26,456 Other fees $1,075 $1,075 $2,150 Maintenance & repairs $2,581 Maintenance and repairs $435 $435 $870 Resale value/equity $9,693 Total lease cost $27,446 Total loan cost $20,655 Loan savings $6,791
Bottom line:
Over the course of three blogs, we have explored the cost of leasing versus buying, based on real advertised deals. The extensive data crunching, of which only the highlights are featured here, confirmed our standard advice: Buying is a better long-term financial choice.
Certainly, deals can vary, and the right time to buy changes depending on season, redesign schedule, and your needs. But in general, negotiating a low purchase price on a new car, making a sizable down payment, securing a competitive loan rate, and committing to holding on to the car past the warranty period will reduce your total ownership costs over entering a leasing lifestyle, even with attractive payments.
Leasing has numerous appeals, but lowering the cost of having a car is not one of them.
