Wealthy people have better money habits than most people think.
We know that cars in the market often cost a negligible percentage of their net worth. Still, they make lots of calculations before buying or leasing a car.
Thus, a big difference between the rich and poor lies in their good financial decisions.
Let’s look into the frugal habits of the wealthy to see how they make their vehicle ownership decisions.
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Here’s the short answer to whether wealthy people buy or lease cars:
Many wealthy people prioritize purchases over leasing for regular cars. They are more inclined to lease for luxury cars. Ultimately, they prefer buying cars for long-term ownership and leasing for cars they only consider using short term.
Do Wealthy People Generally Lease or Buy Cars?
Wealthy people consider many things before buying or leasing a car. They don’t just jump on any car deal because they have the means to do so.
It is common knowledge that a car is a depreciating asset. On average, cars depreciate by about 10% the instant they are driven off the lot.
Many wealthy people are frugal and would spend less than 10% of their income on a car.
Some of them who can easily afford the luxury and don’t mind the costs will outright buy the car. They believe owning it also allows them to customize the car to their taste, unlike a leased car.
For others, spending so much to own a depreciating asset isn’t a great idea.
Here, they would rather lease a car than purchase one because of opportunity cost.
Locations that provide extremely flexible lease options enable the wealthy to lease their cars at lower costs. For those who live in affluent areas, leasing allows them to upgrade to newer models as they desire.
Leasing is appealing to the wealthy, particularly the business class, for many reasons. It helps wealthy business owners get top clients. This is because swapping cars for new ones every few years would be beneficial to their brand and status.
They also choose to lease rather than buy cars so they won’t be accountable for depreciation loss when reselling the car. Instead, they’d be able to return the vehicle to the leasing company at the end of the contract.
There’s no one-size-fits-all solution for determining whether wealthy people lease or buy cars.
In the end, they’ll choose an option that provides maximum benefits to them.
Why Do People Lease Cars If They Have the Money on Hand?
Most people would love to drive the latest Tesla models each year with newer technology and safety features. It’s the same as how the middle-class people enjoy the luxury of the latest iPhones yearly.
Lease deals run for shorter time periods of 2 to 5 years. This offers the benefit of changing cars frequently.
Another reason is because of opportunity cost. When you purchase a car, you forego the opportunity to invest your money in real estate, stocks and other appreciating ventures. Such investment will pay dividends later on while a car will simply incur more costs.
That’s why some people wouldn’t lock the money on hand to purchase a car. Instead, they’d put a little money down to lease the car and pay monthly for the lease duration.
Monthly payments are typically 30-40% less than purchase payments. This means they’ll only pay for the amount they expect the car to depreciate, not for the entire purchase price.
These cars come with the original factory warranty and most car lease contracts have maintenance coverage.
People who don’t care about building equity in a car would lease, since they like changing cars every few years.
Can You Save Money in the Long Run By Leasing a Car?
From a financial standpoint, it’s never a good idea to spend over 10% your income on a car lease.
Why? Because the upfront cost of a vehicle will not be the only thing you pay for.
The more you drive your car, the more expensive it’ll cost to maintain it, especially after the warranty runs out. You’ll also have to pay for things like gas, interest in financing, insurance, parking and traffic tickets.
The thrill of owning a new car lasts for only several months, but making the car payment will last for years.
Spending much more than your annual income is a terrible idea. Also, maintenance and other hidden costs can eat up your savings.
Unless you have a habit of buying and selling cars every few years, getting a loan is more cost-effective. Consumer Reports recommends you purchase a car as a “long-term hedge” against its depreciation.
It’s cheaper to buy a car that’s a few years old instead of buying a brand-new one. Maintaining and keeping your cars for longer periods will make more financial sense if you want the lowest long-term cost.
Leasing, however, makes great sense for businesses regardless of the mileage. This is logical since you’re allowed to deduct costs such as maintenance, gas or mileage as a business expense.
The insurance and the registration fees may also be included.
This allows companies to reduce the capital expenditure and spend more on growing their business.
Why Are Most Luxury Cars Leased?
Many individuals regard automobiles as a tool for personal expression. The car they drive reflects their social status.
Leased cars are popular among luxury car buyers for a variety of reasons.
One is because luxury cars offer better lease deals than less expensive cars. Luxury cars also keep more of their value.
A higher residual value at the end of lease term means less depreciation from the purchase price of the new car.
This means your monthly payments will be lower if you lease the car. You’d incur higher costs if you purchase the car and take out a loan for the same number of months as the lease.
Most automobile manufacturers often give incentives for leases based on model, holiday promotions, and annual sales targets. Purchases have fewer incentives than leases.
Luxury car manufacturers often provide maintenance for the duration of the lease, including oil changes, wiper blades and brake pads.
As a result, people typically return luxury vehicles in excellent condition. This implies that their residual values are increasing.
In the end, you can drive fancier cars every couple of years for less money.
Does Leasing Make More Sense for Expensive Cars?
Leasing allows you to drive a car you can’t afford at full retail price.
Luxury car dealers offer low leasing payments to make their cars much more affordable. However, leasing entails far more financial wrangling than buying a car and negotiating a lease agreement can be difficult.
There are many ways a dealership can take advantage of your ignorance. That’s why it’s beneficial to become acquainted with commonly used lease terminologies.
The biggest benefit of leasing an expensive car is that the lease period always falls under factory warranty.
It may also be an option for those who don’t want to go through the hassle of selling an older vehicle.
Instead of selling your old car or negotiating a trade-in, you simply walk away at the end of the lease.
Just keep in mind that leasing means you’ll never truly own the car and will always have a car payment.
The dealer will charge you additional fees when you return a leased vehicle in poor condition or exceed your allocated mileage.
Ultimately, look at the benefits and drawbacks to consider if leasing an expensive car is a viable option for you.
Does Buying Make More Sense for Expensive Cars?
A car purchase is ideal for those who think long term and plan on keeping a car for several years.
This allows you to accumulate equity in the car, which you can later use as a trade-in value when reselling.
Buying a car is a straightforward process compared to leasing contracts, which can be complicated by hidden fees.
Owning the car also means you can drive your car for as many miles as you want. While leasing binds the car for the duration of the contract, buyers can sell their cars any time they choose to.
The customer will face early termination fees if he/she returns his/her car before the end of the lease.
Buying a car gives you total control of over the vehicle. It also gives you the ability to customize your car to your desired taste.
When you lease, however, the dealership may want you to undo the changes so that they can sell it to other customers.
They’ll also hold you liable for any damages caused in the car because of your modifications.
However, keep in mind that owning a car comes with the responsibility for maintenance and repairs.
Unfortunately, there’s no universal answer to the question, as it all depends on your finances, preferences, and lifestyle. You’ll need to ask yourself some questions before jumping on any car deal.
What’s your budget and do you value the status of driving a high-end car? Do you want a lower monthly payment or the chance to build equity? How long do you intend to keep the new car and how many miles do you drive per year?
Do you despise the automobile trade-in process, or are you hesitant to sell your used vehicle to strangers?
Your credit score is also important when leasing, as it influences the type of deals you can get. You’d also need to consider how well you can keep your car clean, maintained, and in good condition.
In addition, consider the benefits and drawbacks of both and choose the best option for you. There’s no solution that solves everything. Thus, your goal at the end of day should be to secure convenient transportation at a reasonable cost.