12 Nov Buying Cars: New, Used, or Lease? Cost per Year Analysis

So you want to buy a car? Read this first and decide what is REALLY important to you, and know what you are actually paying for.


Keep Dreaming

This article is going to compare 3 different methods of vehicle ownership (leasing being more of a rental). I am using the average length of ownership of 6 years. So this means (2) 3 yr lease cycles as I am comparing leasing as a method to drive a vehicle. People who lease tend to do so in order to continuously drive new cars. If they wanted to buy back the car at the end of the lease, than they should have just bought it to begin with. This is not comparing someone who buys new and trades it in every few years, because they should be leasing instead. This is comparing those who lease and those who buy. Within those who buy I am using the average length of ownership of 6 years, so they buy the car and have it for 6 years. I will mention these points more than once but I want people to understand the premise. Factors could be changed to fudge results but these are very typical ways to own/operate a vehicle. Those who lease tend to do continue to do so, and those who buy tend to own longer than a few years.


You have probably been told that leasing is a bad deal, yet around 20% of people who purchase vehicles opt for them. Why? The pros of the lease are simple:

  1. You can drive a more expensive car that you really can’t afford
  2. Assuming its covered under warranty, you don’t have to deal with repairs
  3. It’s new
  4. Since you do not own it, if the depreciation hits hard, you are not affected unless you foolishly buy it at the end of your lease for more than it is worth.

Cons of leasing:

  1. No asset, you don’t actually own the car.
  2. Leasing deals are structured to make the dealer money, not you.
  3. They are the most expensive (per year) way to operate a vehicle.
  4. They can be filled with up front, hidden, and not so hidden fees.
    1. Thousands due at signing
    2. Mileage limits-overage fees
    3. Fees for any damages incurred
    4. Higher insurance cost

Financially speaking, leasing is a bad plan for almost everyone. It absolutely cost more than buying a used car, and even buying new, but we have to look at what you are paying for. For people with high incomes, the convenience of the lease is often worth the extra cost to them. That is what you are paying for. There is no difference between the new car you buy or the new car you lease. You drive away with the same car off the lot. The difference between the costs of buying and leasing is the convenience. When you lease you don’t have to worry about selling or trading it in and how much you get for it, when your lease is up you just turn it in and sign another lease. For those with high incomes the thousands of extra dollars spent over buying new and the even more thousands spent over buying used is worth it to them. For the rest of us however, it is a pretty bad financial move to lease a car.  I am going to compare the different types of costs when buying new, buying used, and leasing.

For this comparison we are going to assume the average length of ownership of 6 years. This is because in order to compare apples to apples it needs to be a cost per year over the same amount of time. This is not an article about the cheapest way to own/operate a car, because there is no question the cheapest way is to pay cash for a used vehicle. Unless you are replacing the engine every year your overall costs will never come close to buying new. The difference you pay for again is the convenience and just the fact that you want a new car. This article is strictly to show what you are actually paying for when you lease, buy new, or buy used. It is a luxury to lease a car, while it may seem “easier” (much like buying new) because you don’t actually have to do any saving. You are paying for it in the long run, a lot, and it is undoubtedly affecting other areas of your financial life, such as: ability to save for retirement, pay off debt, or even quality of life issues such as going out to eat with family and friends. Many people are in effect trading living in a nicer house, going out with family and friends, saving for retirement, paying off debt, etc, for having a nicer car. Just doesn’t seem worth it to me. However, if that is what is important to you, who am I to tell you how to spend your money right?  Just understand that is what you are doing. You could make that argument against any other expense people have, but typically a car payment is the second biggest expense people have, so it affects everything else much more.


Say you go to the dealer and you want to know how much it will actually cost you to operate a vehicle over the next 6 years depending on how you choose to purchase/lease it. For simplicity purposes I am just going to round up the numbers, but they come from a real example. I’m being generous and assuming you have good enough credit to get a decent rate, the worse your credit is the worse (financially speaking) it is to take out a large car loan obviously due to higher payment/interest paid.

New Vehicle you want: 2013 Honda Accord EX (middle quality)


Used Vehicle you want: 2008 Honda Accord EX



(Again as a side note, if I was trying to argue the smartest approach to buying, I would argue you should pay cash and buy from an individual, but I digress)

These 2 vehicles are the same make, model, and trim level and close enough in age that it’s hard to use a lot of the tired arguments for buying new somehow saving you money (repair costs, gas mileage, safety, etc).

Buying New

Let’s say you buy the new Accord for $25,000, 3% interest, 5 year loan. It seems like most people don’t put a down payment but let’s assume you put down 10%, so the loan amount is $22,500 and the payment is $404.30 for 5 years. Just FYI, those of you who buy new and trade in every few years, you are effectively leasing and it costs you even more. You don’t really ever own a vehicle if you are financing and trading in every few years. So you will have a payment perpetually. And when you calculate the payment, taxes, insurance, etc you are looking at easily $6000 a year to operate a vehicle in this price range. This is actually the dumbest thing to do, even worse than leasing. Unless you just have money to burn or want a car payment forever I highly suggest stopping this practice. Just try reevaluating what is important in your life.


Let’s assume you get a “great” deal on your lease. No drive off fees (not common), 3 yr lease, monthly payment $350. This payment might be less if you put money down up front, but trust me the dealer will come out ahead either way. In a 6 year scenario this means you would do 2 leases. I will assume a similar model and cost for your second lease. I am also assuming no maintenance costs which is also uncommon. Read the fine print, you are usually responsible for just about everything, as if you own it, except you don’t.

Buying Used

I could argue you could save more and buy from an individual, but let’s stick with the premise you are doing all your shopping at the same dealer. So you pay a dealer price of $13,000, you take out a 4 year loan at 3.5% interest (slightly higher than new), and again pay 10% down. Your loan amount is $11,700 and your payment is $262 for 4 years. I used a shorter term because that is typical with a smaller amount. If I made the terms the same, the difference in payment would be larger. I could also argue you could make a bigger percentage down payment on this vehicle, but we will leave it alone.

After 6 years here is an estimated total out of pocket expense of each approach, including tax and registration fees, and maintenance costs for the new and used options:

Leasing Buying New Buying Used
Total cost $25,000 $29,000 $15,500


Wow, it appears that leasing is cheaper than buying new? Who knew? As Lee Corso would say, “Not so fast my friend”. Remember after 2 leasing cycles you have no asset. You have the option to spend a big chunk of money to buy the car (more than likely not at a good deal for you, if the leasing people estimated correctly), or you can start the cycle all over again. Had you bought a new or used car you would have an asset. So when you factor that in here is what the true cost looks like. I am assuming the value of the new vehicle has dropped to $12,000, and the value of the used vehicle has dropped to $5,000. If you are the type to trade in vehicles versus selling them outright, you would be getting even less for them. (Another reason why paying cash is better, you can sell it yourself much easier, but again I digress) Here is the true cost including equity.


Leasing (no equity) Buying New Buying Used
Total cost $25,000 $17,000 $10,500


In this example, you would pay $8000 more to lease than to buy new over 6 years, and $14,500 more than buying used. And buying new cost $6500 more than buying used. These are all examples and dependent on many factors such as repair costs, insurance, taxes, etc. But keep in mind the newer the car the higher the insurance and taxes, and leases are typically even higher insurance. These offset a lot of the costs in repair of a used car. Especially if your purchase a reliable brand/model. (one could argue that leasing and then buying it when you have the option could be cheaper than buying new, but that is unlikely. They will undoubtedly have priced it higher than what it is worth (if they did their job right), so you would lose a little buying it back. Then you have to add in payments for the next 3 years on that amount, plus maintenance/repair costs we were assuming you would not have. It would most likely end up still higher than buying new.)

Obviously the newer the used car is the closer that cost gets to buying new (although it would also be worth more after 6 years due to less depreciation). A one year old car might not save much at all. However, this is not taking into account paying for a warranty which many people do when buying new (especially if that is the basis for their argument), which would just add a few thousand right on top. Or the fact that there is a lot less room to negotiate on new cars, as most of the dealers make their money on the financing. In used car land the dealers usually paid trade in values to get them and have more room to negotiate.

The lease amounts vary as do purchase prices, but unless someone in leasing makes a big mistake and calculates payments and estimates depreciation wrong, you will never get a deal leasing. Think about it logically, leasing is the easiest (least hassle) way to drive a car, you just “sign and drive” and you turn it in when you’re done. So of course it will be the most expensive. Pre-chopped onions are more expensive than a whole onion per lb right?(Random analogy) In the above example if there were no drive off fees and the lease was only $100/month, that would be a no brainer. It would be better than buying used ($7200 over six years). But they would never structure a deal that way. It makes no sense. Remember, when you finance the lender always comes out ahead. If they didn’t they would be out of business soon. Leasing and buying new could be better options; it all depends on the price points. If the new car in the above example was offered for $15,000, then that would be the deal to go for. That doesn’t mean any new car at that price is good, you have to look at each car individually and factor in the used car price, lease price, reliability, and depreciation. But 99% of the time the examples on any car will be the same. Leasing will be most expensive, followed by buying new, and the cheapest option is buying used, particularly 4 yrs or older. The difference in the cost is what you are paying for to drive a newer vehicle, theoretically have fewer repairs, and in the case of the lease to not have to worry about trading or selling that vehicle.

For example purposes, in order for leasing to equal the cost of buying new, the payment would have to be $236/month on the above example, with no extra fees. By the way, they almost always include extra fees and several thousand due at signing. Keep in mind also there are usually mileage limits, and if you exceed them you will have to pay per mile when you turn the car in. (Not to mention having to pay for any damage done to the vehicle not deemed “normal wear and tear)

Next time you want to buy a car, calculate the true cost to own it based on your different options. Then look at the difference between the options. Is it worth it to you to pay X amount to buy a new car over used, or to lease? Can you justify that based on your income? How long do you plan on owning the car? The shorter the duration the more expensive, especially on a new car. Consider the percentage of your income you are spending just to have a new car. Could (or should) this money be used elsewhere? Does it really make that much of a difference in my life to have a new VS 4-6 yr old car?

In my personal experience I have owned a brand new 2007 Honda Ridgeline (Financed for more than it was worth because I asked how much per month and not how much=dumb) and a 6 yr old 2007 Honda Ridgeline, and to me it is not that big of a deal. Definitely not worth over a thousand dollars a year. And for me add to it that I don’t have a payment (paid cash) and it is that much sweeter owning this vehicle the second time around.

Fact Check

I searched again to double check and I found on the Honda Website the following lease offer for a 2013 Honda Accord EX– $3899 due at signing, $260/month. This amounts to $22288+taxes, tag, insurance which will likely end up at or over the amount estimated in the above example.

They did have a special finance offer of .9% to purchase the vehicle, but it was only if you went through Honda Financial Services, and I’m not sure what all that requires (warranty purchase?). Also, based on that the MSRP was $28,000 as opposed to $25,000, so again the total cost would be pretty similar to the above example.

As for the used prices, I just looked up what 5-6 year old Accords and 11-12 year old Accords are selling for to come up with those values.


There are going to be times in your life where desire trumps reason and logic. You are going to save for months to buy something that (based on your income, which may be $0) is a very lavish purchase (shoes, dress, purse, Jordan basketball shoes perhaps). This doesn’t make you dumb or a bad person. However, the key is to every once in a while ask yourself why you are doing it. Are you doing it for yourself or for others? How often? Are you giving up other things you would rather have (or need)? We are not always going to make the smartest choices, and sometimes we know they are not smart. However, I’m going on record right now, we are not spending thousands on your sweet 16, prom, etc. Same goes for a wedding. Whatever the average price is for a wedding now ($20k, $40k??) is completely insane. It’s one day! You barely even remember it! You will never watch your wedding video again. It’s out of control. I guarantee most people regret what they spent years later. How could you not? Wow I went off on a side tangent there. Sorry, love you. Lets not even talk about marriage again until you’re 25.

Claire's Candy Haul

Claire’s Candy Haul

ALSO, Gabriel turned 1!

Gabriel with his new car (he did not finance it)

Gabriel with his new car (he did not finance it)