Avid readers of this blog will note that I have a strong personal bias towards the first. E.g. buy a gently used car instead of financing or leasing a new one. But I must admit I get quite tempted by the wonderful new EVs that are starting to enter the market. Charging speeds well in excess of 100 kW, roomy interiors, and lots of range can all be had albeit with a $60k budget. Lets look at the financials comparing the cost of buying, financing or leasing.
Whenever considering spending lots of money on anything, think about what you would use it for. My current 2018 Nissan Leaf is a wonderful family car that works great up to 500 km daily route segments. A 550 km run to Mnt. Tremblant is a manageable challenge (see this post). However, driving to the Maritimes from Toronto, would probably be a 3 day adventure, while my buddies gas car does it in 2.
As outlined in this post, we would have to up our budget to 50k from 35k to find anything that speeds things up in an appreciable way, and even so, my Tremblant run went from 10 hrs and 30 min, to 9 hours. At 50k, stretching a little bit more for a new Tesla Model 3, Nissan Aryia, ID4 and more starts to make a lot of sense, particularly given the 5k federal iZEV incentive. So we settle on 60k, buy, lease or finance?
Generally buying outright with cash will be the cheapest option, but 60k is a lot of money. Leasing will offer lower monthly payments compared to financing, while financing allows you eventually own the car. Using some quick Excel math via the PMT formula (an interest rate of 6.25 %), shows some of these tradeoffs in action. Residual value are the proceeds of the sale of our 60k EV at the end of the lease, we assume 30k here (source).
As expected, the cash option is the cheapest, while the leasing option nets the lowest monthly payment. While the 34 k cost of leasing seems attractive, with the other four options, you do own a car at the end of the term. The two financing options differ in their term and down payment, while a 2k down payment sounds a lot better than 10k, you do pay quite dearly for it over the much longer 8 year loan. Check out the spreadsheet using the link below.
Leasing does incur additional risks. The dealer (and thus you to a certain extent), are betting on a certain future resale value of the car. What happens once you reach the end of the lease and your 60k car is now only worth say 15k? Much depends on the specifics of the contract, even if its all on the dealer financially, a “meticulous” post-lease inspection might “allow” the dealer to recover some of that. How about the other way around, what if the value of the car goes up not down? Again, the dealer is going to want to get their hands on your car. My 2018 Nissan Leaf is a case in point: It started out with an MRSP of 36k (source), I got it for 25k in 2020, then it went up to 35k in 2021 (source), and settled to 33k in 2022 (source).
Life is not all about money. Once the lease is up, just return it sounds pretty convenient, but market conditions can be hard to predict. Most dealers charge hefty fees for “damages”, while allowing for “reasonable wear and tear”. With a busy family, dog and all, one look at the crumb infested back seat and I am glad I bought mine, and thus I do not need to stress over a “lease-return” interview. But others in different situations might enjoy the look and smell of a new car, as long as you treat it well, it can work out.
While saving an hour and a half of my Tremblant run is nice, I am having a really hard time justifying the cost, 60k (or even 30k assuming a generous trade-in value for my 2018 Leaf) does buy an awful lot of airline tickets, not to mention car rentals, electric or otherwise for those very occasional trips.
I hope this exercise has helped you understand the difference between buying, leasing, and financing. Naturally, your dealer most likely uses different formulas than I did, and of course I am by no means a finance expert. Its not unusual for dealers to add a “money factor” (source), as we discussed, car prices can go both up and down. Look at the “money-factor” as “dealer-insurance” against these unknowns.
Electric car adventures 