Updated March 28: Car leases tend to get a bad rap, but leasing a car isn’t any different than renting an apartment. Depending on your situation, it makes financial sense.
When my wife and I decided to lease a new car last year, we started crunching numbers. Once I started graduate school that fall, I would be driving more than an hour each day to attend my internship in the morning and classes at night. It was more than my 2001 Honda Accord could handle and at $10 per ride, taking Lyft everywhere would cost nearly $1,000 per month.
Leasing a car was the perfect solution. It ensured we got an incredibly safe car with blind spot sensors, a back-up camera and Apple CarPlay, without certain hassles of owning. With an international move happening in the next few years, we knew we didn’t want to deal with selling a car. Plus, after driving a 2001 Honda, I no longer wanted the inconvenience of an old car or the responsibility of paying for repairs. Showing up to meetings covered with sweat due to no air conditioning and having a tire explode aren’t the most enjoyable experiences.
After looking at the math, the decision seemed straightforward. We signed a 36-month lease for a 2018 Hyundai Elantra. Here’s how much it cost.
Down payment: $3,000
Car dealerships advertise low monthly payments, but the payments are only low if your down payment is big. When you’re leasing a car, the equation is simple: The higher the deposit, the lower the monthly payment.
We decided to put down a higher monthly deposit to secure a monthly payment of $100. We paid $2,000 in cash from our savings and an additional $1,000 from the sale of our old Honda on Craigslist.
Tip: Dealerships are often trying to get rid of certain models or colors. For example, when we were shopping, a local dealership was running a special on an upgraded model. It was actually cheaper to get a fancier car that month because they had ordered too many in one color. Find out which dealerships are running the best special. Next, chat with a representative online and get the discount in writing before you visit. You’ll save time, (hopefully) some money and a few headaches.
Car tax: $14.99 per month
Once we determined the basics of our lease, we learned about taxes and fees. Even though our car payment is $100 per month, we are also responsible for taxes and fees. What we actually pay each month is more than $100. Our taxes and fees rang in at $14.99 per month.
Tip: Your monthly payment isn’t actually the monthly payment you negotiate with the car sales representative. Plan to pay an additional 15% every month on tax. For more on how car leases work, go here.
Registration & other DMV fees: $0 (sort of)
One of the perks of leasing (or buying) a brand new is car is that all additional fees, like registration, are included in the price. Even though we did technically pay the Department of Motor Vehicle fees, it was included in our down payment. IWe paid our deposit, signed the paperwork and drove the car home that night. Our license plate and registration came in the mail a few weeks later.
Car insurance: $129 per month
Car insurance is the final major cost you need to consider when you lease a car. Because we were in a bad accident last year, our insurance costs are higher than normal. Regardless, it does typically cost more to insure a leased car. (Here's why.) It’s important to account for those costs when you’re deciding whether to lease a vehicle. Find out what car insurance costs in your state.
Tip: Don’t be afraid to shop around for car insurance quotes. Leasing (or buying) a new car is the perfect time to change your insurance provider and get a better deal.
Total: Almost $12K over 3 years
Over the course of our 36-month lease, we will pay a total of $7,139.64 to the dealership for the pleasure of using their car. With insurance, DMV fees and regular oil chances, we’ll pay a grand total of nearly $12,000. For us, it’s worth it.
For other people, buying a car is the way to go. It's usually cheaper in the long-term and the car is yours, so there's no mileage penalties or restrictions to deal with. But buying usually requires a higher down payment and maintenance costs down the line. Read our guide to buying a car.
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Image: Alex Holyoake