User:Fyre4ce/Cars

This article describes the financial considerations surrounding buying (or leasing) and owning cars.

Costs of car ownership or leasing
Depreciation Opportunity cost of equity Interest/cost of money Transaction costs Registration and taxes Fuel Maintenance Insurance Parking

Leasing
Basics of leasing

Advantages
For those who have already decided to purchase a brand-new car every few years, leasing streamlines the process

Lower down payment and monthly payments Streamlines the process Lower transaction costs compared to buying and trading in Deprecation risk transfers to the dealer

Disadvantages
Locks the lessee into the most expensive way to own a car - turning over a new car every few years Can lead buyers to lease a more expensive car than they should Difficult to terminate Mileage limitations - low-mileage drivers pay for miles they don't use, high-mileage drivers pay steep penalties Expensive repair for scratches, dings, dents

"Don't buy a depreciating asset" myth
Some people, usually those trying to sell a car lease, claim that you should lease rather than purchase because you should "buy an appreciating asset, lease a depreciating asset" or something similar. This sounds like wise financial advice, but is actually highly misleading. Whether you own an asset outright, or lease it at a fair price, you pay for the deprecation costs either way. If the rate of deprecation is known with confidence (dealers have access to pricing data for millions of cars, so it is), the depreciation is baked into the lease rate, so this is not an advantage of leasing. In fact, leasing maximizes the depreciation you pay, because you have the car for the period of time when depreciation is highest. Buyers concerned about depreciation costs should either buy a used car, or buy a new car and drive it for longer than a few years.

A more accurate version of this advice could be, "lease, rather than buy, an asset you only plan to need for a short time, and which has high transaction costs." This is why it's better to rent a home than to buy one if you know you're only going to live in it for one year. Cars have lower transaction costs than houses, but if you know you're going to want a new car every few years, leasing can be slightly less expensive than buying new and trading in, due to lower transaction costs.