Photo: EveryCarListed P on Flickr

A new car is one of the most exciting and highly anticipated purchases. As a large, long term investment, it can also be one of the most stressful. Since there's really no ceiling marking how high car prices can go, the buyer's budget is usually the primary limiting factor, before extra options or aesthetics. Once you have your budget, there are two main questions to ask; new or used? And, perhaps the more impactful of the two, buy or lease? These questions go hand-in-hand and all four combinations (yes, it is possible to lease a used car) are important to explore because your choice could swing the overall price significantly. Below we'll help you compare the long term effects of each.


Leasing: the shiny option

Most commonly, someone who wants to lease a car will lease a new car—that is, after all, the point of leasing for most people. While it is possible to lease a used car, it's uncommon and not offered by every dealership. Leasing is the shiny option because you drive away with a brand new car by, basically, renting it for two or three years. You pay the costs of using the vehicle for the term of the lease instead of paying for the whole vehicle. This often results in lower monthly payments than those of someone buying a new vehicle through financing.

There will likely be a down payment and fees due up front, followed by a schedule of monthly payments. The lease might also end with additional fees. It's important to understand the terms of the lease, including any mileage limits and wear and tear fees.

Your lease deal is based on the difference between the transaction price (cost to buy) of the car and its residual value (what it will be worth when the lease is up). The dealer will divide the difference into your monthly payments. The other major factor influencing the lease is your credit score. Leases sometimes call for large down payments, and this will only increase with poor credit.

Buying: costly but financially smart

You want that new car but you can't afford to buy it, so leasing seems like the perfect option. But as in most life decisions, the financially smart option requires some sacrifice. In this case, being smart with your money probably means buying, rather than leasing. And that probably means buying a lower-cost new car, or a used car.

Some quick math, courtesy of average prices from Edmunds, shows that buying used is usually the best option in the long term.

If you lease an SUV that costs $27,142 (according to the Edmunds average), after fees and interest your monthly payment will be about $330 over 3 years. Out of pocket, then, leasing a new SUV for a total of six years will cost $27,836, or almost $3,000 more than buying a used SUV. However, leasing would be cheaper than buying the same new SUV (with financing plus down payment).

The problem is that, even though you saved on monthly payments by leasing rather than buying the new car, you don't own anything after the lease ends. So after six years and two leases, you've spent $27,836 on a vehicle that you still don't own. On the other hand, a purchased car can be traded in after those six years. After its trade-in value is subtracted, the same new SUV would cost only $23,882 to buy. In the long run, buying is the better choice.

That's a large savings, and it comes without the limits put on lessees by the contract they'd have entered into with the dealership. Yet, it's still not the most frugal option. New cars face immense depreciation and, despite warranties and promises by the dealership, will probably require several part replacements or repairs in six years. Buying used remains the wisest choice, though it might not be the advice you want to hear. In this example, buying a similar SUV used and trading it in after the same six years would cost almost $9,000 less than leasing the new one.

The truth is: buying used is hardly a loss. Certified preowned vehicles are often in outstanding shape and most vehicles don't change significantly in three or four years, anyway.

Although monthly payments on a lease might be lower than those for financing a new car, buying the new car is the better value in the long run. And, of course, buying a used car is your best option overall.


Tom Twardzik is a writer covering personal finance, productivity and investing for Paypath. He also contributes pop culture reviews for Popdust and travel writing for The Journiest. Read more on his website and follow him on Twitter.

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I thought I had a pretty good handle on my finances out of school. I worked several jobs while attending university and had little to no problem managing my income. However, once I graduated, I realized how much more complicated personal accounting could really be.

There were so many variables I needed to keep track of. Biweekly bills, monthly charges, and general necessities amounted to a heap of confusing numbers that were often impossible to decipher. The funniest part was that I was actually trying to do this by hand (I don't know what I was trying to prove to myself, either).

After messing up for the 17th time, I decided to give Microsoft Excel a shot. I used Excel a bit in school and I knew all the big-wig finance people used it, so what could I possibly have to lose? The answer is about six hours of my precious time. Excel isn't much of an improvement over handwriting and it's still dependent on the user to manually input all of the information. It's like doing everything by hand with the slightest help, meaning that it still required a tremendous amount of time and concentration. Well that was all for nothing, I guess.

It's sort of funny. I was certain that I could manage my personal finances with ease, when it's practically a full-time job. I was already stressed out enough with my first job and I knew I didn't have enough time to give my finances the attention it deserved.

That's why I decided to try out a budgeting app. My best friend told me that he uses an app called Truebill to manage his finances. "What does it even mean to manage your finances?" I asked him. He told me that Truebill was the personal financial assistant I wished I could have. It could aggregate all of my account information into one place and give me specific insights and actions.

I loved the idea of having full control over my finances, especially during a time of financial uncertainty, and I realized that Truebill would be the easiest way to accomplish this. The user interface is incredibly simple and intuitive, so it doesn't even feel like a finance app! Truebill offers a multitude of features, with their most popular being the ability to cancel subscriptions with the press of a button.

Okay, I had no idea how many subscriptions I was still subscribed to. In fact, I wasn't even using a quarter of the subscription services I was signed up for. Subscription boxes, streaming services, my old gym, and even an old subscription to my favorite magazine--it was all there and I was livid. How could I let myself waste all of this money and how did I never catch this? Thank goodness for Truebill.

Truebill also offers bill negotiations. There is a 40% fee based on how much you save and Truebill even claims that there is an 85% chance that they'll be able to lower your bill once a negotiation is requested. Why wouldn't I take them up on this? There was zero risk and I would only have to pay once my bill was lowered (which means that I would be saving money regardless).

More standard features of Truebill include the ability to generate a credit report on-demand and even request a pay advance. I only used the pay advance feature once when I wanted to buy a gift for my mom, but didn't have enough cash in hand and Truebill automatically reimbursed itself when I got my next paycheck.

The credit report is another fantastic feature and practically taught me what good credit meant. Truebill's credit report basically shows you which financial decisions have the most significant impact on your credit score and ways that you can improve your credit month-over-month. I've never had such control over my credit and it feels good.

I'll be the first to admit that I was extremely naive coming out of school. I figured that as long as I was attentive, I could manage my finances with ease. We manage money to some extent throughout our entire lives, but once you're thrown out on your own, it's a completely different story. With Truebill, I've finally been able to take control over my finances and stay on top of all of my responsibilities.

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