The Lease Option
The average lease payment in 2016 was $432. But this isn't what Leo would have to pay. Since most luxury vehicles are leased, they drive up the average. Instead, let's say he's considering a $34,000 non-luxury, top-of-the-line midsize sedan. We found a lease for a car like this for a monthly payment of $315 with $2,315 due at signing. There was another offer for $355 a month, with only the first payment of $355 due at signing.
Leo doesn't want to put down $2,315, so he goes with the second lease. When we factor in 8 percent of his take-home pay for fuel and insurance costs, he'd be spending about $639 per month on this car, which would be about 18 percent of his monthly income.
In this scenario, he'd be paying less per month for a leased new car than he would for a used car. He'd have more in his pocket because of the smaller down payment. That said, Leo would have to start the process over in three years when the lease is up. But that's not necessarily a bad thing: He'd have spent those three years in a new car rather than six years in a used one.
What's the Best Option?
There's a case to be made for each of these approaches. If you plan to buy a car and keep it for years, finance a new car. If you want to own a car but you can't quite swing the new-car payments, buy used.
If you want to have the least impact to your monthly budget and want to drive a new car every three years or so, consider leasing. The most important things are to know your budget and realize there is more to owning a car than just that monthly payment.