How does the cost of leasing compare to buying the same car new in terms of out-of-pocket costs?

Or if you decide to buy a used car, how much more will that save you? And finally, what do those
costs look like in the long run?

These are important questions for consumers who want to carefully manage their automotive
expenses over the years. It's hard to give one definitive answer that covers all people and all
situations. But here we will divide this question into two parts:

1. An analysis of the cold, hard costs of three different ways to get a midsize family sedan: leasing,
buying new and buying used.
2. A discussion of some intangible, non-monetary issues that might affect your decision.

One Car, Three Financing Methods

In this analysis we look at an average car ownership period, which IHS Inc. estimates at almost six
years. We then look at Edmunds.com transaction data for the financing information on a midsize
sedan such as aToyota Camry or a Honda Accord, like the 2015 vehicle pictured above. For each
category (leasing, buying new or buying used), the averages in this article are based on thousands
of recent transactions across the United States. These reveal the average cost of the car, interest
rate, down payment and monthly payment.
Since most people lease for three years, we compared two lease cycles to one buying cycle for new
and used cars. In other words, in the buying comparisons, the person purchased the car, financed it
for five years (60 months) and then had one payment-free year of ownership. (We don't actually
recommend financing a used car for 60 months but, for purposes of comparison, we have included
those figures here.)

Here's how we structured the different deals:

Leasing: The average midsize car lease is based on a car that sells for $24,775 with drive-off fees
of $1,154. This results in a $294 monthly payment for three years.
Buying New: When buying the same car, the average down payment on a five-year loan is $4,104.
The average interest rate is 1.64 percent, resulting in a monthly payment of $400.
Buying Used: The average price of a similar 3-year-old midsize sedan is $15,688. The average
interest rate is much higher: 6.04 percent. The average down payment is $2,304. The monthly
payment is $301. (Fewer low-interest deals are available for used cars, and the credit scores of
people shopping in this category are lower, according to Edmunds data.)
After six years, here are the total out-of-pocket costs of each financing method:
 Leasing Buying New Buying Used

Total out-of-pocket costs $23,476 $28,104 $20,364

In terms of out-of-pocket expenses, leasing costs $4,628 less over six years than buying a new car,
excluding any repair costs the new car might incur. The out-of-pocket cost of buying a used car is
$3,112 cheaper than leasing and a whopping $7,740 cheaper than buying a new car. Again, any
costs of repair for the used car are excluded here.

Here is something essential to remember about the apparent lower cost of leasing versus buying
new: At the end of two leasing cycles, the person who leases doesn't own the car. He or she has to
start a new lease-or-buy cycle. Meanwhile, the person who bought a new car now owns a 6-year-old
vehicle worth about $9,687 on the private-party market, according to Edmunds data. The person
who bought the used car now owns a nine-year-old car worth about $4,794.

When we deduct the current value of the new and used car from the out-of-pocket costs, the long-
term cost picture changes:

Leasing Buying New Buying Used

Final costs $23,476 $18,417 $15,570

In this basic comparison, it appears the person who leased the two midsize sedans paid $5,059
more to drive these cars for six years than did the new-car buyer. Buying a used sedan saved the
purchaser $7,906 as compared to leasing during this six-year cycle. Buying used rather than buying
new saved $2,847.

Related Expenses
We should point out that the person who leases escapes the repair and maintenance costs — and
related hassles — that owners typically encounter with aging cars. It's true that the person who
leases has to pay for routine maintenance, but that is usually just oil changes and tire rotation.
(Some people avoid maintenance costs altogether if they lease a new car that has a free
maintenance program.)
The car leaser also might have to buy a new set of tires, which could cost about $1,000. Of course,
the new-car buyer typically has to pay for maintenance, too, as does the used-car buyer. The used-
car buyer might have to foot the bill for some additional repairs as well.
 On the other hand, leased cars may require the driver to carry higher levels of insurance, which
might offset some of the repair and maintenance costs that car leasing avoids.

Leasing's Other Advantages

While it is true that the people who lease have no car at the end of the lease, they do have the
opportunity to purchase the car at a preset price that is often the current market value of the vehicle.
The finance company sets the purchase price for the leased car at the beginning of the lease. This
offers the person who leases a car several advantages.
First of all, leasing protects against unexpected depreciation. If the market value of the car drops due
to unforeseen circumstances, such as rising gas prices, this drop in value doesn't hurt the person
leasing the car. Conversely, if the lease car holds its value especially well, the consumer can buy the
car at a bargain price, and either keep or resell it. In some cases, people can leverage equity in
leased cars.
One other big financial advantage to leasing is that it can offer an attractive tax deduction for
someone using the car for business. An accountant is the best resource for more information on this
subject.
There are aspects of leasing that are more difficult to monetize, but which appeal to some shoppers:

 Leasing provides the enjoyment and prestige of driving a newer car more often.
 Leasing provides a new car that has the latest safety, technology and comfort features.
 Leasing in three-year cycles means the car is always under the manufacturer's bumper-to-bumper
warranty.
The Appeal of Ownership
It's hard to put a price tag on the value of ownership. But beyond the abstract enjoyment of
possessing a nice car, ownership does offer several other advantages:
 You can modify the car exactly as you want without fears that you will break the terms of your lease
contract.
 Excess wear and tear, which can be charged on a leased car, is not a concern for the car buyer.
 You have the flexibility to sell the car when you want to, not when the lease is up.
 Once the car is paid for, you're free from the weight of a monthly car payment. You can convert that
money to savings, apply it to other household expenses or set it aside as a repair and maintenance
fund for the car you own.
 Finally, owning a car versus leasing one allows you unlimited driving with no mileage penalty.
Leasing includes only 10,000-12,000 miles per year. After that, each mile typically costs 15 cents.
While there are many factors to consider when making the lease-or-buy decision, the best place to
start is with the numbers. Do your own calculations, factor in the intangibles and the best decision for
you will emerge.
Summary The decision to rent a vehicle vs. using the one in your garage for a weekend getaway is often
shaped by such factors as the need for a different size or a more attractive appearance. But when cost
factors such as depreciation and maintenance are considered, renting frequently proves to be the more
economical choice, as well. Brett Smith, co-director, Manufacturing, Engineering and Technology for the
Center for Automotive Research, performed a cost analysis of driving one’s own vehicle versus driving a
rental vehicle. His analysis showed that, through reduced depreciation and maintenance costs, renting a
car can deliver savings that more than offset the cost of the rented vehicle. And it can do that while
providing the driver with the vehicle he or she needs for a weekend getaway, transporting a soccer team
to a tournament or other special need. Especially as our vehicles age, the fear of breakdown or other
mechanical issues may lead us to forgo weekend or holiday trips. Renting a car provides an alternative
that can reduce the strain, not only on the car and the driver, but also on the driver’s budget. Cost
Analysis – Understanding Variable and Fixed Costs The intent of this paper is to investigate the
circumstances under which a leisure rental—that is, renting a vehicle for a short non-business trip—
might be an economically wise alternative to driving your own vehicle. The starting point for our analysis
is an understanding of the major costs associated with operating a vehicle. In general, these costs fall
into two categories: variable costs and fixed costs. Variable costs are the direct costs that flow from the
number of miles a car is driven – the cost of oil, maintenance, repair and tire wear. Fixed costs are not
connected – or have only a marginal connection – to accumulating mileage. Key fixed-cost components
include insurance, registration, licenses, taxes, depreciation, gas and finance charges. A motor vehicle is
one of the biggest purchases most consumers will make in their lifetimes—often second only to a home.
And operating and maintaining a car can be an expensive proposition. According to Ward’s Motor
Vehicle Facts and Figures, the cost to drive a model year 2010 passenger car for 10,000 miles a year can
be as high as$7,392. About 77 percent ($5,719) of that amount is considered fixed cost. Given that fact,
it’s reasonable to assume that a driver might want to drive his or her own car as often as possible, in
order to lower the fixed cost per mile. From that perspective, renting a car for a few days while your
own sits in the garage may not seem to be the best economic choice. Upon closer analysis, however,
there are circumstances when renting a car instead of driving your own may indeed be the economically
wise choice. Table A characterizes the fixed and variable costs of operating an owned vehicle and a
discretionary rental (not including the cost of renting). As summarized in the bottom row of the chart,
the total operating cost per mile for an owner to drive his or her own vehicle is about 63 cents,
compared with approximately 39 cents when driving a rental vehicle—a difference of about 24 cents per
mile. Table A: Fixed and Variable cost of Renting a Vehicle (Dollars per Mile) Fixed/ Variable Owned
Vehicle1 Discretionary Rental Cost Differential Gas2 Fixed $0.1729 $0. 17293 $0.00 Oil4 Variable 0.0067
0.00 0.0067 Maintenance and repairs Variable 0.0454 0.00 0.0454 Tires Variable 0.0083 0.00 0.0083
Insurance (of owned vehicle) Fixed 0.0687 0.06873 0.00 Registration, licenses, and taxes* Fixed 0.0390
0.03903 0.00 Depreciation Fixed5 0.2369 0.06023 0.1767 Finance charge (of owned vehicle) Fixed
0.0537 0.05373 0.00 TOTAL cost per mile (dollars) $0.6317 $0.3917 $0.2371 1. AAA; Ward's Motor
Vehicle Facts & Figures 2010, 15,000 miles per year 2. $4.15 per gallon, 24 "real world" m.p.g. 3. Even
though these costs appear in the rental column, they are associated with the vehicle that the consumer
owns. Even though the owned car is not being used when the consumer is renting a car, these costs of
the owned car are being incurred. 4. $25 per oil change, 4 times a year 5. The average depreciation rate
per mile from 2000-2010 was 17.63 cents, according to IRSi. Thus the cost of leaving a vehicle at home
(and not accruing mileage) is the “fixed” portion of the depreciation ($0.0602 per mile) This data
suggests that a vehicle owner who owned a vehicle for five years and drove 15,000 miles per year could
save approximately 24 cents ($0.2371) per mile when driving a rental car (not including the cost of
rental). From there, we can factor in the cost of renting the car and the number of miles a driver wishes
to travel. But before we move on to that, it’s important to expand on a couple of points in the above
data. First, this analysis treats a portion of depreciation as a variable cost. All things being equal, a
vehicle with fewer miles is more highly valued in the used car market. Thus, by providing the
opportunity to put fewer miles on an older vehicle, renting can further reduce that vehicle’s rate of
depreciation. Second, the maintenance costs noted above are those associated with the first five years
of vehicle ownership. According to R. L. Polk, the average age of passenger vehicles is nearly 11 years.
Further, according to one study, the average U.S. household’s automobile expenditures rise with age,
peaking around age five, dropping in year seven, steadily rising until year 10, and then dropping againi .
This data points to an important issue that all vehicle owners face: as vehicles age, maintenance and
repair costs increase. By focusing on the average vehicle’s first five years, therefore, the maintenance
and repair cost used in the above cost analysis may be underestimated. If you own a vehicle that’s more
than five years old, these costs most certainly are higher – making the leisure rental option even more
financially enticing. Rental vs. Owned Car for a Weekend Getaway For this analysis, we will use the
weekend rates often offered by Enterprise ($9.99 per day for compact, $19.99 per day for full size). The
rental is for three days (4:00 pm Friday – 8:30 am Monday) ii and assumes the maximum 300 miles
included in the weekend rates. Because there are so many variable costs when renting (licensing, excise
taxes, etc.), we have included an added cost of 15 percent ($4.50 for a compact, and $9.00 for a full size
car). We have not included the cost of optional collision damage waiver or insurance coverage. Table B:
Rental Car Costs Rental Fee Three days (+)Added Costs6 (taxes, licensing fee, excise taxes, etc.) (=)Total
Cost of Rental Cost per mile (300 miles) Compact car $29.97 $ 4.50 $34.47 $0.12 Full size car $59.97
$9.00 $68.97 $0.23 6. Added costs are assumed to be 15 percent of rental fees. When we use the rental
costs in Table B and the operating costs per mile from Table A to make our comparison, the data
indicates that renting a car may actually be the economically smart move. The results are shown in Table
C. Table C: Comparison of Driving Owned Car and Rental Car Per Mile (+)Cost per mile of personal
vehicle (+)Cost per mile of Rental (=)Total Cost for Vehicle Driving own car $0.63 $0.00 $0.63 Rental car
(Compact) $0.39 $0.12 $0.51 Rental car (Full Size) $0.39 $0.23 $0.62 According to the data, based on a
300-mile trip, it would cost $0.63 per mile to drive a personal vehicle, $0.51 per mile to drive a compact
rental car, and $0.62 per mile to drive a full-size rental car. Thus, the cost of renting a car is offset by the
savings in depreciation and variable costs such as maintenance. And, if you rent a compact car, the
savings per mile can be significant. This analysis could be also applied to weekend trips of greater
distances. The weekend rate includes a daily maximum mileage of 100 miles (3 day rental times 100
miles per day equals 300 miles). However, the renter can purchase the unlimited mileage option for an
additional $10.00 per day. Table D shows the additional costs of a higher mileage rental. Given the
additional charges for excess mileage, the cost-benefit analysis becomes even more inviting. A weekend
trip of 700 miles would (again) cost $0.63 per mile to drive a personal vehicle. The longer trip would
result in cost of $0.49 per mile to drive a compact rental car, and $0.54 per mile to drive a full-size rental
car. The table shows that both rentals become much more enticing at the higher mileage rates. Table D:
Comparison of Driving Owned Car and Rental Car Per Mile (700 Mile Trip) Cost of Rental (base fee plus
15% taxes) (+)$10 per day mileage overage charge (plus 15% taxes) (=)Total Cost of rental Cost per mile
of Rental Vehicle (700 miles)7 (+) Cost per mile of personal vehicle (=)Total per mile Cost for Vehicle
Driving own car Not applicable Not applicable Not applicable Not applicable $0.63 $0.63 Rental car
(Compact) $34.97 $34.50 $69.47 $0.10 0.39 0.49 Rental car (Full Size) 68.97 34.50 103.47 0.15 0.39 0.54
7. Although mileage overage is for miles above 300, the added cost was treated as a portion of the
overall rental price, and allocated evenly to all miles driven. A final thought on this exercise: As gasoline
prices continue to rise, it can make a significant difference for a driver who chooses to rent a compact
car. Current compacts get a real-world average fuel economy of about 26 mpg. In the case of a renter
who has an older, larger vehicle, with a real-world fuel economy of 18 mpg, the fuel savings could be
more than $20.00 per 300 miles at a higher price of $4.15 per gallon. Beyond Cost: Qualitative Factors
To this point, this paper has focused on the quantitative factors involved in renting a vehicle for a
weekend getaway. We will now address the qualitative factors that may influence the decision to rent
vs. driving your own car. These factors include: a. The ability to rent ―task-appropriate‖ vehicles (e.g.,
fuel economy, more space, etc.) b. Security of driving a newer vehicle c. Rental car roadside support
system d. Location of rental store e. The ability to make a ―prestige‖ statement The leisure rental has
become an increasingly common consumer practice in recent years. It offers renters the opportunity to
minimize the cost of ownership by owning the vehicle that is most effective for them day to day, and
renting other more task-appropriate vehicles when the need arises. This flexible concept offers vehicle
owners the ability to get a smaller, more fuel-efficient vehicle, or a larger vehicle when they need to
transport more people and cargo. Either way, it can present the chance to keep your own car longer by
putting fewer miles on it. As noted above, the average vehicle on the road today is approaching 11 years
old. Many are driving vehicles that, while safe and reliable, are aging. As their vehicles age, many owners
become less comfortable driving them longer distances. Fear of breakdown or other mechanical issues
may lead to forgoing weekend trips. Renting a car provides an alternative that can reduce the strain on
both the car and the driver. Not only does renting a car offer the opportunity to use a newer, more
reliable vehicle, it also adds the benefit of knowing that a major rental company is there to provide
roadside support in the unlikely event the rental vehicle experiences mechanical troubles. So, renters
are not only driving newer, more mechanically sound vehicles, but they also have a safety net if they
need it. Certainly there is an opportunity cost (i.e. the value of the time lost)in taking the time to go to
the rental location and secure the rental. However, in most instances, because of the option for the
rental company to pick you up, this is a relatively small cost. Finally – and this is perhaps the least
quantifiable factor of all – a rental car can offer the ability to make a ―prestige‖ statement while
traveling. Most people will attribute some positive value to driving a newer, more expensive and
prestigious vehicle, but just how much value depends entirely on the driver and the situation.
Conclusion The decision to rent a vehicle vs. using the one in your garage is often shaped by such factors
as the need for a different size or a more attractive appearance. But when cost factors such as
depreciation and maintenance are considered, renting frequently proves to be the more economical
choice, as well. i According to R. L. Polk, the average age of passenger vehicles is nearly 11 years.
Without a doubt, older vehicles depreciate more slowly than new cars. While depreciation is often
considered a fixed cost, a portion of depreciation is in reality variable. Vehicle depreciation is generally
driven by two factors: age and mileage. One way to isolate the impact of mileage on depreciation is to
consider the IRS average depreciation rate per mile from 2000 to 2010. This depreciation rate per mile is
typically used for calculating the residual value of business vehicles. It includes only mileage driven—the
age of the vehicle is not considered. Because the rate changes over time, the average rate from 2000 to
2010 is calculated and the result (17.63 cent/mile) is deducted from the general depreciation. This
method suggests that up to 74 percent of vehicle depreciation may come from the usage of the vehicle,
and the remaining decline is due to the vehicle age. While far from perfect, this method provides some
insight into the role mileage plays in depreciation and can offer a measure of the value saved by not
driving a vehicle. ii The three-day rental was chosen due to the fact that most neighborhood locations
have limited hours on Sunday. It also allowed for a higher mileage rental of 100 miles per day.
Alternatively, a two day rental would limit the driver to 200 miles. With a $0.20 per mile fee for more
than 100 miles per day (or a $10 per day unlimited mileage option), the three-day rental becomes
economically reasonable for a weekend getaway of any significant distance. Further, timing becomes an
issue. A two day rental (48 hours) limits the ability to take full advantage of the weekend, while a three
day rental (72 hours) allows the vacation to begin Friday afternoon, and return Sunday evening.