💰 Leasing vs buying a car: pros and cons, plus the true cost

Deciding whether to lease or buy a vehicle isn't just about comparing monthly payments. An apples-to-apples comparison requires accounting for the time value of money. As Accounting Instruction, Help, & How To (Financial & Managerial) puts it, the time value of money can have an impact on these longer term decisions the longer the term decisions the more you know out in the future the decision is then the more that time value money is going to be and of of importance.

Buying a car usually means higher payments up front and monthly, but you gain a tangible asset. For example, a $30,000 car might retain $15,000 in resale value after 3 years.

As Accounting Instruction, Help, & How To (Financial & Managerial) notes, at the end of the lease we no longer have the automobile at that point in time so that's going to be one of the differentiating factors.

Leasing typically offers a lower barrier to entry. You might pay $2,000 at signing instead of $5,000, leaving more cash in your pocket today.

However, you walk away empty-handed and often face a final termination fee (commonly $400) when handing the keys back.

Because purchasing front-loads costs while leasing spreads them out, you must consider what else you could do with that cash. As Accounting Instruction, Help, & How To (Financial & Managerial) explains, inflation might be between like one and five percent and then you're also using basically your your opportunity cost in the consideration of what the percent would be meaning what else you know could i be doing with my money.

If you earn 6% on your investments, keeping cash longer saves you money. As Accounting Instruction, Help, & How To (Financial & Managerial) points out, even though this is lower because we kind of front loaded the cash flows it could have a significant difference in terms of the timing difference.