How to compare the total cost of a car over its life

[WaltKelly]

I am in the market for a new car, an electric (EV). It looks like I have at least 4 options:

1. Buying outright, which means using savings of selling stock.
2. Taking out a loan.
3. Leasing.
4. Long term rental.

With 1 & 2, I own the car, so am responsible for all maintenance costs as well as license fees. With #3, some of the maintenance costs are included, but I still have to pay to get it registered. With #4, my only costs re the monthly rental payment.

With #3, I am pretty much locked in for the term of the lease (2-3 years). With 1 & 2, I can try to sell the car or trade it in. With #4, I can just walk away.

There is a new company, Autonomy, https://www.autonomy.com/, that claims to make renting competitive with (or better than) buying or leasing or renting from a typical car rental company. Their prices and terms seem fairly simple, so I am wondering if there is a catch.

I would love to be able to set up a spreadsheet that would compare apples to apples. I tried but got stuck in the details. I would appreciate any help. Or, if there is a website that has already done the math, I would appreciate a link.

Thanks

[iced]

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@WaltKelly wrote:

I am in the market for a new car, an electric (EV). It looks like I have at least 4 options:

1. Buying outright, which means using savings of selling stock.
2. Taking out a loan.
3. Leasing.
4. Long term rental.

With 1 & 2, I own the car, so am responsible for all maintenance costs as well as license fees. With #3, some of the maintenance costs are included, but I still have to pay to get it registered. With #4, my only costs re the monthly rental payment.

With #3, I am pretty much locked in for the term of the lease (2-3 years). With 1 & 2, I can try to sell the car or trade it in. With #4, I can just walk away.

There is a new company, Autonomy, https://www.autonomy.com/, that claims to make renting competitive with (or better than) buying or leasing or renting from a typical car rental company. Their prices and terms seem fairly simple, so I am wondering if there is a catch.

I would love to be able to set up a spreadsheet that would compare apples to apples. I tried but got stuck in the details. I would appreciate any help. Or, if there is a website that has already done the math, I would appreciate a link.

Thanks

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I would argue that leasing is actually more costly than renting despite likely having the lowest monthly payment. Several reasons I think this:

1. At least with a purchase (loan or buy), you own the depreciating asset and can sell it on your terms. With a lease, you're just paying the depreciation and at the end own nothing. This also snowballs into the next item...

2. End-of-lease costs can quickly overtake any maintenance expenses from owning. In both buy and lease, you're likely (with many manufacturers anyway) to get $0 maintenance so your only outlays from that perspective are disposables like tires, barring some addtional plan or warranty. However, with a lease you're also boxed in with condition of the car: miles, scratches, etc. When you go to hand that car back in, it's quite likely they'll find something to slap you with, be it replacing tires because there's not a new-car level of tread left or scratches, over on mileage, or any number of other things. My last lease was rarely used (less than half my miles allotted) and they still found nearly $2,000 worth of "damage" to the paint and tires per their terms.

You also have to factor in duration:

- If you're buying a car for 15 years, owning is always going to come out cheaper because there is a fixed cost up front for the car. Add in interest if you took a loan, but you will hit a point after 3-5 years where you've paid that car off (6-7 if you take out a more predatory loan). After that, your monthly cost for the car drops to $0 plus whatever maintenance. With a lease or rent, you will always have a monthly payment just to access the car for the entirety of those 15 years, be it a series of leases or rentals. You may see several cars to drive out of it, but in the end you're still looking at a monthly payment for every one of those 180 months just to have the car.

- If you only care about a 3-5 year timeframe, there's parity in the ownership aspect between leasing and owning since it's likely to be a 1-car span. However, over the span of your life, you will pay more if you continually lease/rent versus if you buy and hold; it's a similar principal to owning versus renting a home.

[WaltKelly]

Some good points, thanks.

I am specifically interested in setting up a spreadsheet, or possibly a database, to compare the total costs of the same car if bought outright (cash), bought with a loan, leased, or rented. I think I know how to calculate the "costs" (maintenance, licensing, insurance, etc) -- many of the points you made. What I am struggling with is the cost of money. I want to include lost income from interest, dividends, and appreciation if I pay cash, vs leave most of that cash in the bank or in stocks and take out a loan.

Here's what I am thinking. If I sell stock or take money out of savings, I can calculate the estimated lost income. If it's a lump sum to pay case, the calculation is fairly easy. It's just the amount taken out times the estimated annual income (say 7%). For lease or rent, the lost income is more complicated because the amount accruing interest goes down each month when I make a payment.

Here's what I have now:

Total cost is everything but fuel.

Total Cost = Initial Payment + Monthly Payments + Maintenance + Lost Income – Resale Value
Monthly Payment = Lease, Rent, or Loan + License + Insurance
Maintenance = Service + Replacement (tires, etc)
Lost Income = Income (interest, dividends, appreciation) on money taken out (initial or monthly)

Each of these varies depending on the way the car is acquired. With lease or rent, for example, resale value = $0.

Comments?

[iced]

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@WaltKelly wrote:

Some good points, thanks.

I am specifically interested in setting up a spreadsheet, or possibly a database, to compare the total costs of the same car if bought outright (cash), bought with a loan, leased, or rented. I think I know how to calculate the "costs" (maintenance, licensing, insurance, etc) -- many of the points you made. What I am struggling with is the cost of money. I want to include lost income from interest, dividends, and appreciation if I pay cash, vs leave most of that cash in the bank or in stocks and take out a loan.

Here's what I am thinking. If I sell stock or take money out of savings, I can calculate the estimated lost income. If it's a lump sum to pay case, the calculation is fairly easy. It's just the amount taken out times the estimated annual income (say 7%). For lease or rent, the lost income is more complicated because the amount accruing interest goes down each month when I make a payment.

Here's what I have now:

Total cost is everything but fuel.

Total Cost = Initial Payment + Monthly Payments + Maintenance + Lost Income – Resale Value
Monthly Payment = Lease, Rent, or Loan + License + Insurance
Maintenance = Service + Replacement (tires, etc)
Lost Income = Income (interest, dividends, appreciation) on money taken out (initial or monthly)

Each of these varies depending on the way the car is acquired. With lease or rent, for example, resale value = $0.

Comments?

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The major challenge with that is that unless the money is parked in fixed return assets, opportunity cost becomes an uncalculatable variable that only gets more variable as the time span increases. Because of this, I have historically only calculated the opportunity cost of the money parked in savings vs. the loan interest (no investments estimations of growth/loss or income). To boil it down, if I can gain more in interest by parking that money in savings than I pay in interest on the loan, I'll take the loan and park the money; otherwise, I buy the car.

I just can't assume some 7% or other value to assume because of the reason you cite -- calculating this becomes impossible (and a little dangerous) over a specific period of time. It's fine to work off of a value like 7% for growth towards a goal (retirement) that's going to happen in 20-ish years but is very flexible on exactly when that happens, but it's an entirely different animal to use it to assume growth between now and say Jan 1 2030. Likewise, goals like retirement are also a vague estimation and missing or exceeding the target by 10% isn't going to be a significant change. That is, such estimations don't require precision like this type of calculation you're doing does.

[WaltKelly]

Several excellent points, but I think an estimate with a wide degere of variability is still better than no estimate at all as long as I remember that it can vary significantly.

[iced]

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@WaltKelly wrote:

Several excellent points, but I think an estimate with a wide degere of variability is still better than no estimate at all as long as I remember that it can vary significantly.

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Perhaps, but ultimately what's the point of doing the math on which is better if you're acknowleding that the solution you arrive at has a not-insignificant non-zero chance of not actually being the better option in the end?

If one option is so significantly better as to be the lower TCO option even with market fluctuations taken into account,  it will also likely be so apparently the better option that you won't even need to get into the market calculations to begin with.

[hoosier64]

@WaltKelly What you are looking for is the appropriate risk-adjusted discount rate to compensate for your opportunity cost. If you really want to go down that rabbit hole, here's one place you could start: https://www.investopedia.com/terms/c/capm.asp