Leasing or buying: the real calculation, item by item

The comparison between buying and paying for usage is almost always done the wrong way, by putting a monthly payment next to a purchase price. Those two numbers are not comparable. Here is the method that makes them comparable, a fully costed example you can redo with your own figures, and the items that almost everyone forgets.

The starting mistake

Putting €1,200 per month next to an €80,000 purchase means nothing, for two reasons.

First, because those two amounts do not cover the same thing. A subscription's monthly payment includes insurance, servicing, tyres and vehicle taxes. The purchase price covers only the car. 

Second, because buying is not an €80,000 expense. It is an expense equal to the value the car will have lost while you keep it, plus everything you will have paid to keep it on the road. If you sell it for €44,000 three years later, the car itself cost you €36,000, not €80,000.

So the only comparison that makes sense is this one: how much does this car cost me in total, over the period I use it, in both cases.

What to count on the purchase side

Seven items, and at least three of them are always missing from calculations done in your head.

1. Depreciation. Price paid minus resale price. By far the biggest item on a high-end car, and the only one that never appears on a bank statement.
2. Insurance, with comprehensive cover if the vehicle is recent, which is the case here.
3. Servicing, including the manufacturer's scheduled maintenance.
4. Tyres, two sets if you run summer and winter.
5. Vehicle-related taxes, whose nature varies from country to country.
6. The cost of tied-up capital. Eighty thousand euros parked in a car are eighty thousand euros not working elsewhere, or borrowed and bearing interest. This item is invisible but real.
7. Risk and time. A failure outside warranty, a resale that drags on, a buyer who negotiates. This item is not easy to quantify, but it is not worth zero.

On the subscription side, the list is shorter because the first five items are already in the monthly payment: the total of the monthly payments over the term, any down payment, and the variable items, namely fuel or electricity, kilometres beyond the allowance, and delivery depending on the country.

A costed example, to redo with your own figures

The amounts below are invented for the exercise. They correspond to no actual offer, they serve only to show where the calculation tips. Replace each line with your real situation.

Assumptions: a car listed at €80,000, kept 36 months, 24,000 kilometres per year, resold at 55% of its value.

Purchase, over 36 months Depreciation (80,000 then resale at 44,000) €36,000
Comprehensive insurance €6,300
Servicing €3,200
Tyres, two sets €3,400
Vehicle taxes €1,500
Cost of tied-up capital €4,800
Total €55,200, i.e. €1,533 per month

The first is that the gap is far smaller than you would imagine as soon as you count both sides honestly. The feeling that buying is clearly cheaper almost always comes from forgetting depreciation.

The second is that the result depends entirely on the resale line. Change the rate from 55% to 62%, and buying moves back ahead. Change it to 48%, and the gap widens the other way. Yet that is precisely the line nobody knows in advance. Buying means betting on that value. Paying for usage means refusing to bet.

The three items everyone forgets

Cash flow is not cost. A cash purchase goes out all at once, a subscription spreads out. Two solutions with the same total cost have a completely different effect on your ability to seize something else within six months.

Time has a value. Searching, negotiating, registering, insuring, servicing, then reselling represents a number of hours nobody counts and everybody endures.

When buying clearly keeps the edge

This has to be said, otherwise the article becomes a plea rather than a guide.

If you keep your cars for a very long time, eight or ten years, buying almost always wins, because depreciation slows down sharply after the first few years and you keep driving with no monthly payment. If your annual mileage is very low, the allowance logic works against you. And if you attach importance to ownership itself.

Conversely, if you change car every two or three years, if you want a stable expense, or if you prefer to keep your capital available, the comparison leans clearly the other way. The actual amounts per car and per country are on the catalogue pages, for example the one for the Mercedes-Benz GLC 200d.

FAQ: leasing or buying

• Does leasing cost more than buying in total? Not necessarily, and the gap is smaller than people think. It all depends on the actual resale value, which is precisely the unknown figure at the moment of deciding.
• What should you count on the purchase side to compare honestly? Seven items: depreciation, insurance, servicing, tyres, taxes, the cost of tied-up capital, and the time you spend on it.
• Why is depreciation the main item? Because a car loses a significant share of its value during its first years, and that loss appears on no statement until the day of resale.
• Over what period does the calculation tip? There is no universal threshold. The useful rule is that beyond several years of ownership, buying regains the edge, because depreciation slows down while the monthly payment carries on.
• Can I buy the car at the end of the contract with Turismo? No for a private customer. The vehicle belongs to the fleet and returns to it at the end of the term. For a company, the question can be reviewed with an advisor.