In this section we have covered the six possible scenarios for keeping or selling a used vehicle at the end of four years. Look at the table below for a summary of the results. In three of the scenarios, leasing and purchasing came out basically equal. In the other three scenarios the person that leased the vehicle came out ahead. Notice that there is no scenario where the person who purchased the vehicle came out ahead. This locking in the value of your vehicle at the end of the lease period is one of the major benefits of leasing. It is similar to a stop-loss in investing. If you purchase the vehicle there is no stop loss. If you originally purchased the vehicle and want to get rid of it at the end of four years, or some similar time period, you are hostage to market forces. You are potentially facing thousands of dollars in losses if the resale value is less than you expected.
Whenever you are performing a lease vs. buy analysis, make sure that you take this information into account. Even if leasing comes out a little behind, the hedging factor may make it worthwhile to lease anyway. You could look at it like an insurance policy.
Let’s say that you perform a Lease vs. Buy Analysis, and purchasing comes out $500 better than leasing, and you typically keep a vehicle four or five years when you purchase it. You may want to purchase the insurance (pay the extra $500 to lease) in order to insure against the possibility of losing thousands when you trade-in. And remember, when you do this, you don’t give up any of the upside if the vehicle is worth more than expected at the end of the evaluation period.