Does leasing vs. buying make sense when it comes to Chevrolet vehicles? Or any vehicle for that matter. Ultimately it’s a personal decision but I love sharing the details to help you weigh the options.
In recent years, leasing vs. buying has been on the rise. And for lots of good reasons. For instance, who doesn’t like getting a new car every few years?
Also, always having a newer car that’s covered under a factory warranty offers a great feeling of protection. And then there’s the element of being able to afford a little nicer car for a little lower payment… the list of ‘pros’ to leasing versus buying goes on.
However, there are cons to leasing versus buying. Personally, I don’t think the cons outweigh the pros… but I used to. That’s why I love sitting down with experts to discuss this very topic.
In this iDriveSoCal Podcast, we get the lowdown on leasing versus buying from Lewis Cook, General Manager of Martin Chevrolet. Click play below to hear the details. (BTW – I think this report is a listen rather than a read… but consume it as you wish. I also lease instead of buy! :0))
Recorded at Martin Chevrolet, Torrance, CA
Benefits of Leasings vs. Buying
Lewis Cook: You ultimately are paying less interest, that’s cool, for a lot of people – for everybody.
On a lease, you don’t pay the tax up front. It’s another huge part of the savings that you get from leasing.
“…paying less interest… you don’t pay tax up front… an option at the end of a lease to purchase the vehicle if you want.”
You have an option at the end of that lease to purchase the vehicle if you want. When you come and you’re going to lease again, you find, if you are over mileage… there’s a good chance that the dealer can absorb some of that.
Tom Smith: Welcome back to iDriveSoCal, the podcast, all about mobility from the automotive capital of the United States, Southern California.
Tom Smith here and I am very excited to be sitting down and recording a podcast with my friend, Lewis Cook, who is the General Manager here at Martin Chevrolet in the Los Angeles suburb of Torrance, California, right off of Hawthorne Boulevard. Not too far away from where I live, actually. I’m in the South Bay.
“When you come and you’re going to lease again, you find, if you are over mileage… there’s a good chance that the dealer can absorb some of that.”
So I’m really, really excited to be working with Lewis and Martin Chevrolet for the proximity reason, but also because these guys are just awesome, and Lewis is a fantastic human being!
Lewis: Wow! Laying it on pretty thick, huh, Tom?
Lewis: Your intros are getting better and better!
Tom: Can we do that again? [Laughs] It just feels good. Don’t worry, we got it recorded.
Should You Buy or Lease?
Lewis: Human being…great. I like it! [Laughs]
Tom: [Laughs] This podcast, it’s going to be good advice. You know it’s going to be good advice because you have that authentic introduction.
Lewis: Good to me.
“What we love to do here with iDriveSoCal is bring insider information, literally, the coaching that I gave for Lewis for this podcast is hey, it’s just whatever you would tell your daughter to do.”
Tom: Right, because it’s the wonderful human being!
Lewis: [Laughs] Just kidding.
Tom: Right, because it’s the wonderful human being!
This podcast, we’re going to do—we’re going to talk buy/lease, right?
Tom: And it’s a big thing, right? Do I buy or do I lease? What we love to do here with iDriveSoCal is bring insider information, literally, the coaching that I gave for Lewis for this podcast is hey, it’s just whatever you would tell your daughter to do. He’s got, two beautiful daughters.
Lewis: I was going to say the coaching is a little light. It was more like, buy versus lease, you want to do that? Yes. Okay, good. Let’s go. Clap.
Tom: [Laughs] Aw, yeah, good stuff.
Leasing vs. Buying – the Former Bad Reputation
But we bring you behind the scenes with iDriveSoCal and really, you know, buying versing leasing, I used to be the hardcore buyer and I switched to leasing, I don’t know, about five years ago or so, six years ago or so, and I love it. Because, well, for a lot of reasons.
I love being under warranty, not being overly concerned about where I park in the grocery store and getting dings and what not because I love my cars, right? And I’m going to take care of my car regardless but when I know that I bought it and I’m not just bringing it back at 36,000 miles or whatever—whatever the mileage is I bought—I’m over the top.
Tom: I don’t know if I’m going to leave this in, but I’m anal retentive. I don’t really know how else to describe myself, but I mean, I love cars! And I’m not alone. I got buddies that are the same way.
Lewis: It’s okay to get that out there. Leave it in.
Lewis: I tell my daughters, “I’m making the payment, here’s your car.” No, I know what you mean though. Leasing had a bad—I mean, when I got into this business, we talked about that a little bit before when we talked about the years, but there was definitely a stigma, right?
New Lease Contracts Changed the Game
Lewis: “I’m not leasing a car. I’m not renting a car.”
“You know what you’re going to pay for the car at the end of the lease and there are no hidden fees, there are no surprises…”
Lewis: Nowadays we have closed-end leases, which means that you know what you get at the end of the lease.
You know what you’re going to pay for the car at the end of the lease and there are no hidden fees, there are no surprises, I guess you could say.
Tom: You know what you’re going to pay for the car if you choose to buy it at the end of the lease.
Now the Residual Value is Set – Leasing vs. Buying Makes Sense
Lewis: Well, yeah, okay, if you choose to buy it at the end of the lease, correct.
We call that the residual value, that’s set by the bank now. It used to not be, a long time ago, I’m dating myself. But that’s set by the bank now and the cool thing—here’s the cool thing about a lease—there are a few things, where do I start?
“Typically, they are factory-sponsored. Meaning that the cost of money that you are going to pay on a lease is typically less than a normal interest rate.”
Typically, they are factory-sponsored. Meaning that the cost of money that you are going to pay on a lease is typically less than a normal interest rate.
Especially nowadays. I mean, interest rates are 4 or 5%, great credit on a purchase.
Carmakers Finance Arms Help the Cause
Well, the factories subvene the leases. They buy down that rate. They invest in the cost of the money, which gets the payments lower. You ultimately are paying less interest, right? That’s cool, for a lot of people. For everybody.
Tom: For everybody that likes money!
Lewis: Yeah, that’s true. Believe it or not, there’s somebody, they don’t care.
Tom: Well, yeah.
“They invest in the cost of the money, which gets the payments lower. You ultimately are paying less interest…”
Lewis: But yeah, you’re 100% right. If you want to save some money in that category, it’s a good way to go. Different strokes/different folks, is that trademarked?
Tom: No, you can use it. You can use that. I don’t think we owe anybody on that.
A New Car Every 3-Years – Leasing vs. Buying
Lewis: [Laughs] Like my wife, for instance, she wants a car every three years. That’s the bottom line.
Three years comes and goes, I’m in the car business, I drive demos and I bring home a new car all the time—that I don’t pay for, perk of the business, right? So, she wants a new car all the time.
“On a lease, you don’t pay the tax up front. It’s another huge part of the savings that you get from leasing.”
I’m not going to invest and pay all that sales tax and license up front. On a lease, you don’t pay the tax up front. It’s another huge part of the savings that you get from leasing.
I just don’t want to be committed for longterm, with her, especially. That goes with my kids. I have a 22—well, can we edit that? [Laughs] A 22-year-old and a 19-year-old and, you know, they want to be cool and drive the newest cars. It’s really all about a payment for me when it comes to them. I lease their cars as well.
Some distinct differences in leasing versus buying, if you want to break it down to some basics, it’s a three-year term, typically. A lot less then that, five or six-year term that you got on the purchases nowadays.
“So, you’re committed less. You have an option at the end of that lease to purchase the vehicle if you want…”
Lewis: So, you’re committed less. You have an option at the end of that lease to purchase the vehicle if you want. Like you had mentioned, that’s the residual value. The cool thing about that is that’s set by the bank. So, the bank says, “Okay, this $40,000 car in 3 years, based on the mileage that you’ve chosen to drive, is going to be worth 20 grand.”
Financial Institutions Assume Risk – Leasing vs. Buying
At the end of that, now you come back in three years and we’ll do an evaluation on the car, let’s say. If the car is worth 25 grand, well, good for you.
And that happens typically. Maybe 5 grand is a little bit of a stretch there, but typically, the bank tries to put a residual value on the car based on the market because what happens is, if you don’t want that car at the end of the three-year lease, they’re on the hook for that 20 grand, that residual value.
Tom: So, the bank is gambling a little bit, right?
Lewis: Gambling a lot of bit.
“…you stand back and look at it, it doesn’t look like the bank is gambling a lot, but they really are.”
Tom: On what the value is going to be, right?
Lewis: Yes. Yeah, I mean, just overview, I mean, if you just look at it from, you know, you stand back and look at it, it doesn’t look like the bank is gambling a lot, but they really are.
Leasing vs. Buying – Issues in the Rearview Mirror
I mean, there’s a lot of manufacturers that got in a lot of trouble back a few, maybe more than a few years ago now, but these residuals are so high because they’re trying to drive down the payment and now the car is not worth that at the end of the lease. They own it for that, right? The car goes to the auction, whatever, they take a loss.
Tom: The bank takes a loss.
Lewis: Yes. Listen, I think it’s better than me taking a loss, the bank taking a loss.
Tom: Sure. The customer doesn’t want to take a loss.
Lewis: No, of course not.
Tom: Dealer doesn’t want to take a loss.
Making Leasing vs. Buying Work for All
Lewis: No, of course not. But now, they’ve got it down to a science. They can get really close to that value at the end of that three years and then you have the opportunity to purchase the car if you want to, or you can give the car back to the bank. Your contractual obligation is satisfied, and you lease another car.
“…now, they’ve got it down to a science. They can get really close to that value at the end of that three years and then you have the opportunity to purchase the car if you want to, or you can give the car back to the bank.”
I mean, there are some things to take into consideration. Wear and tear on the vehicle, that definitely comes into play when you’re talking about value. If the car has bald tires, that value has lessened, so you’re going to get charged for that kind of stuff.
There are ways around it. You can purchase pretty inexpensive warranty packages that will cover that, so you don’t have to do it. There’s a solution for that. But I think, all in all, short term, less interest, typically. You pay tax as you go for the usage of the car and not all up front. You’re not paying a ton of interest on all this tax. The ease and the ability to get in and out of cars after three years, like my wife and children.
It’s definitely beneficial now, it’s not like it used to be. For sure. It’s good for the dealers, you know? I like seeing people back here every three years, let’s face it.
Tom: Sure! Absolutely, of course.
When Leasing vs. Buying Doesn’t Make Sense
Lewis: Yeah, as far as a purchase goes, as I said, different people want different things. You may be ready to—I mean, at some point I’m going to stop leasing and I’ll buy my car and I won’t have to worry about it. Hopefully, that’s a long ways from now.
Tom: You mean, like when you get into retirement age kind of thing, like all right, I’m just going to buy this one and I’ll ride it out?
Lewis: Yeah, that’s where I was going with that, yes.
Tom: [Laughs] I wasn’t sure.
Lewis: Yeah, no, I got that. There’s a reason why you weren’t sure. I was trying to avoid the age comments.
Tom: I think me and you are pretty darn close in age.
Steady Stream of Safety & Technology Innovation
All the tech and innovation, I mean, cars these days are rolling computers. One of the reasons that I love leasing right now is because I have the latest, greatest safety features embedded into my—okay, fine, it’s embedded into the monthly payment that I have to write a check for every month.
Lewis: It is whether you purchase or lease it.
Tom: That’s the other thing, too. I’m getting all the safety and safety, tech and innovation and what-not. But look, when I’m buying a car, I own it. I own the problems after it’s out of warranty. But I don’t really own it until I finish paying it off with the bank, right?
Tom: Which is, these days, five years solid away from the time that I drive it off the lot. I don’t know, and maybe, I think I’m probably right there with you in that maybe later on in life, I’ll say, “Okay, I’m just going to buy and I’m not going to worry about that,” but I’m a huge fan of leasing now.
I joke a lot in saying that talking to people about buying versus leasing sometimes is asking them to switch political parties.
Leasing over Buying is on the Rise
Tom: I know it’s gotten more popular in recent years, what percentage? Just out of curiosity, are you guys buying/leasing?
Lewis: This store specifically, we’re in the high 30-percentage. 38, 39%.
Tom: Or leasing?
Lewis: Leasing versus purchase.
Tom: Wow, okay. But that’s up, I’m assuming in recent…
Lewis: Yes, it’s up.
Tom: What are the common pitfalls in leasing? I think there’s a stigma about leasing from way back and there are some commonalities to why people feel that way and way it’s a polarizing, kind of political party thing. What are some common pitfalls and how do you avoid them?
Common Misconceptions of Leasing vs. Buying
Lewis: Well, I think the biggest misconception is—and I just get this from talking to customers, so many, “Well, I don’t own the car.” Right?
“…if you think about it, if you’re on a five-year purchase and three years in, do you own the car?”
Lewis: I mean, if you think about it, if you’re on a five-year purchase and three years in, do you own the car?
Lewis: You don’t. You don’t own the car, right?
Lewis: You don’t own the car until you get that pink slip, right? You have that ability to do that on the lease. If the car is 40 grand—I’m just using round number—and in 3 years, you owe 20 grand. Typically, residuals are 50% of that MSRP. You’ve paid off, you’ve invested, you now own 50% of that car. You’ve paid that much into it.
Lewis: I think the misconception is, well, I’m renting the car, where does that money go? That money goes to the principle of the loan. I mean, it’s as basic as that. So, it’s a $40,000 car 3 years later, now you owe $20,000. If you break it down, if you purchase a car, 3 years later, if it’s 40 grand, in 3 years, how much do you owe?
The Reinvention of Leasing vs. Buying
Lewis: It’s really close, right? It’s really close, if not better. Typically, you’re in a better position on a lease after that three-year term, than not.
Because in a purchase, you’re paying for all that tax and license up front. All that is built in and you have to pay that. That’s part of your principle and now you have to pay that down.
“Leasing got reinvented, for the most part. Now, that residual is on the contract, you know, and everything is laid out for you. I think a lot of people are very open to it.”
That’s one misconception. I think that’s the biggest misconception and I think people are more educated nowadays than they were before.
Leasing got reinvented, for the most part. Now, that residual is on the contract, you know, and everything is laid out for you. I think a lot of people are very open to it. I mean, we’re dealing with a different generation now, too.
Lewis: What is it, Millennials?
Tom: I think we’re even… even the generation after Millennials are now getting old enough to drive.
Lewis: Yeah. And they’re looking for a low payment on a nicer car and that’s really how you do it. And typically, they want—they’re looking at just the cost of ownership. That’s what it’s more about to them.
Estimating Your Lease Mileage
Tom: Some of the stories that I’ve heard of issues with leasing have surrounded around just being unrealistic about the miles that you’re going to put on a car.
Me, personally? I go 15,000 miles a year and I do that for two different leases that are spread out about a year, year-and-a-half apart for my car and my wife’s car. My model is that as I’m getting closer to bringing a car back, whichever, mine or my wife’s, I start driving the heck out of that one because I’m always way under my miles.
One time I brought a lease back with 10,000 miles to go, which is ridiculous. But any advice on that topic?
Lewis: Here’s the cool part. It’s all relative. It’s like you have a big pie. We’re going to cut that pie in half. Well, how we cut that pie in half is based on the mileage. If it’s 10,000 miles a year, you’re going to owe more on the car at the end of that three years because the car is worth more.
Don’t Penalize Yourself when Leasing vs. Buying
Tom: Because you pay so much.
Lewis: Based on less mileage. If it’s 15,000 miles a year, you’re going to owe less on that car, which makes that first three years of payments higher because you’re paying off more in the first three years. Follow me?
“My opinion on that is to go with the middle of the road kind of mileage, as long as you’re comfortable with that. Don’t penalize yourself up front because you’re going to pay for that.”
Lewis: It’s all relative. I say to the customers that come in and have these kinds of questions, I think the bank will have programs better on a 10K or a 12K or a 15K, so you might be able to get a better payment on a 12,000-mile lease, versus the cost of ownership on a 15,000-mile lease.
My opinion on that is to go with the middle of the road kind of mileage, as long as you’re comfortable with that. Don’t penalize yourself up front because you’re going to pay for that.
Leasing vs. Buying – What You Don’t Know!
Lewis: Nowadays, when leases are up because the bank has done such a good job of getting the value of the car so close to where it is, I mean, you’re talking—it’s relative. It’s a few hundred bucks, really.
“The dealerships have a lot of power at the end of that lease, too. Whether to absorb some of that mileage for you or you can use that as part of the negotiation. “
So, I wouldn’t penalize myself up front and don’t ask me—no, I’m just kidding. The dealerships have a lot of power at the end of that lease, too. Whether to absorb some of that mileage for you or you can use that as part of the negotiation. That’s why I was kind of hesitant on saying that.
Tom: Come on! Hey, we’re here to take everybody behind the scenes.
Lewis: It’s all good.
Tom: This is what you would be telling your daughters. If you weren’t making the payment, if you weren’t buying a car for them, this is the insider scoop. That’s what we give on iDriveSoCal.
Lewis: I’m kidding around mostly. But yeah, I wouldn’t penalize yourself. Unless you’re going to drive 15K and you’re for sure going to drive the 15K, I wouldn’t penalize myself up front for that.
Leasing vs. Buying – Begin with the End in Mind
Tom: Meaning don’t over-buy miles?
Lewis: Yeah. Yeah.
Tom: Okay. Interesting.
“The biggest thing is, don’t be scared. Don’t let it hang you up. People overthink it a lot.”
Lewis: If you know you’re going to give the car back and your lifestyle is—you know your lifestyle is not going to change and this is the miles I’m going to drive, then base it off of that, really, is all I can tell you. That’s probably the best advice. The biggest thing is, don’t be scared. Don’t let it hang you up. People overthink it a lot.
But because now, the way that leases are structured nowadays, it’s not as bad as it used to be. 20 cents, 25 cents a mile, 15 cents a mile, depending on the brand. Again, there’s so many incentives coming back into leasing another car from the manufacturers, from the dealer. It’s a very easy thing to get around.
I sound like a car salesman.
Lewis: It is. I honestly, everything I lease is 10K a year.
Tom: 10,000 a year?
Lewis: Yeah, absolutely. When you come and you’re going to lease again, you find, if you are over mileage—I’m typically not, that’s why I do it—there’s a good chance that the dealer can absorb some of that.
Lewis: Can’t believe I’m saying that. [Laughs] This is true insider information.
Should You Lease with Intention to Buy at the End?
Tom: Thank you for that. That’s excellent. Now, you touched on one other thing that I want to kind of unpack a little bit further and that is the buying at the end of the lease.
Is buying a good strategy—or is buying at the end of the lease, leasing with the intention to buy at the end, when is that a good—
“…why not give yourself an opportunity to make a decision based on the market at the end of the three years”
Lewis: It’s never a bad strategy. I mean, if you think about it, if you know that you’re going to buy the car—here’s the deal: They’re machines. They break down, right?
Lewis: So, what if the scenario is, I got a lemon, or I have a car that is constantly breaking down? Well, you have three years to figure that out.
Lewis: You’re not going to pay any more for the car. Yes, I mean, if that’s the case, why not give yourself an opportunity to make a decision based on the market at the end of the three years, than not? I mean, if you follow me.
More Benefits of Leasing vs. Buying
If I purchase the car and in three years, getting out of it is going to be much harder than it is if I lease it because I paid all that tax and license up front.
“I like the fact that hey, in three years, let me make a decision about it. Let’s figure this out. Let’s look at the value of the car.”
Lewis: Follow me? If you were going to intentionally buy the car, you lease it, you pay less interest up front, you’re happy with the residual at the end, you get to the end of the lease, the car’s a great car, I’ve maintained it, I’ve done all of it. I don’t have any dings, I don’t have any dents, I’m happy. Okay, let’s buy it.
Tom: It’s like dating before engagement.
Lewis: There you go. Really, I can’t believe I didn’t think of that. But yeah, that’s a great way to put it.
Tom: All right.
“It’s like dating before engagement.”
Lewis: And then you pay tax on that residual, so it’s not like you’re going to pay more or less, it’s all relative. I like the fact that hey, in three years, let me make a decision about it. Let’s figure this out. Let’s look at the value of the car.
Tom: I like that. I like the concept.
Lewis: Yeah. I mean, it’s just because the way leases are structured nowadays, you can do that.
The Downside of Leasing vs. Buying
Tom: Is there a downside to it? I mean, I see the upside no problem, but is there a downside?
Lewis: I mean, no. Not to sound like a car guy, but there really is not a downside. I mean, you got to come back and see me in three years, I don’t think that’s really a downside.
“…I don’t think that’s really a downside.”
Tom: I think you’re a pretty good guy.
Lewis: I’d come to see you anyway.
Tom: I think everybody should lease just for that fact alone. Just come see me!
Lewis: They have to come back and see me in three years. But no, I guess if you want to call a downside, you have to go through the process again. You know, you have to come back into the dealership. They actually have to purchase the car from you for that price because they’re a deal and they’re licensed, and you can’t do that. There’s no way to do that.
And then we inspect the car at that point in time and then you basically buy the car back from us for that same dollar amount. Sometimes dealers charge fees and they’re minimal though. But we have to make sure that the car—because we’re buying the car from you and then I’m selling it back to you. I still have to make sure it’s in good working order.
Demand Transparency Like @ Martin Chevrolet – Or Just Go There!
Lewis: You have it inspected and you go from there. You know, maybe that’s a downside, that you have to do the process again in three years. Some people don’t like being here. I mean, let’s face it.
Tom: Well, but that’s the whole, you know, old school, car games that other dealerships play. That doesn’t happen here at Martin Chevrolet.
Lewis: Of course not!
Tom: That’s why we’re here with iDriveSoCal at Martin Chevrolet.
“…we’re all about. Transparency, making the buying process fun. You know, just information is key.”
Lewis: I shouldn’t even kind of make fun of that though. It does not happen here. I mean, that’s what we’re all about. Transparency, making the buying process fun. You know, just information is key.
Tom: Anything else on buying versus leasing at this point in time? I think we’re going to circle back on this particular topic sometime down the line. I’m not sure when, but I just like talking to you about it because you’re an open book on it.
Behind the Scenes with Martin Chevrolet
Lewis: Sure. Are we going to clap now?
Lewis: Just kidding.
Tom: I would like to clap here, guys. All right, we recorded a podcast earlier. Now I need to explain it.
We recorded a podcast earlier and we’re doing the audio, but we’re also doing this on video. Maybe you’re even watching on video, I’m not sure. But in order to sync up the audio and video, there’s a clap. The first clap that I did made Lewis laugh, so he’s actually been doing the claps since then.
We’re going to wrap this one up. Lewis Cook from Martin Chevrolet. Thank you so much for all the great information. Thank you for being an iDriveSoCal partner. Come on down here to Martin Chevrolet for all of your Chevy needs, buying and servicing. Martin Chevrolet is in Torrance, California on Hawthorne Boulevard.
Thank you again. For iDriveSoCal, I’m Tom Smith. Thank you, as always, for tuning in, and Lewis is going to clap.
Lewis: Appreciate you.
Martin Chevrolet is on Hawthorne Boulevard in Torrance, California and at MartinChevrolet.com. Chevrolet! Find New Roads!