Reader Question: Expensive Outback Lease?

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Here’s the latest reader question, along with my reply!

Warren asks: Subaru of Little Rock wants $446.00 per month for a three-year lease at 15,000 miles per year with $842.50 down. I am totally clueless on the value of this information. My salesman this morning emailed me to say they’ll wave the $842.50 down and not charge me for the optional tow hitch that I had asked for to tow my 1,400 lb. pop-up camping trailer. The cost of the dealership tow hitch was already factored into the rates expressed . This Outback is a 4 cylinder version not the six cylinder.

My reply: When you lease, you’re essentially renting the vehicle for a period of time, with the cost of the rental based on a variety of factors, including the price of the vehicle and its expected depreciation over time.

In your case, the dealer wants about $16,000 to rent you the car for three years. This figure does not, I assume, include “acquisition fees” and so on. But it may.

In any event, let’s take the $16k rental and consider…

The 2019 Outback’s base price is $26,345.

So, you could buy an Outback for about $8k more than the cost of leasing one. I don’t know all the details of the lease deal you’ve been offered; it may be the numbers you gave me are based on a loaded Outback. But $446/month seems haltingly high for a car that – even with a few options – ought not to cost you more than about $30,000 or so to buy.

A rough calculation of a six-year purchase on a principal of $30,000 works out to about $416/month (assuming zero interest).

More people than ever are leasing – because (usually) the payments are lower than they would be if they bought the same car. But $446 per month to lease an Outback?

Nothing wrong with the Outback – I like this car – but it’s not a Lexus and spending nearly half a grand each month to lease one seems a little much to me.

. . .

Got a question about cars – or anything else? Click on the “ask Eric” link and send ’em in!

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3 COMMENTS

  1. Editor’s (Eric’s) note: This is Warren’s reply to the reply above!

    Thank your for your thoughtfulness and thorough response to my inquiry about my Outback leasing offer. May you offer a guess what would be a more mutual lease price between myself and the dealership? The numbers were based on a Premium style with 17 inch wheels, non-leather, power driver’s seat only. The Limited style with 18 inch wheels, leather interior, both front seats are powered with memory chip based on the two driver’s size comfort setting. Both have the 8 inch dashboard electronic screen, space-saver spare tire. Based on their high price for leasing I am now thinking about a purchase over 6 years with a possible zero interest rate. I am impressed with your articles on Lewrockwell.com over the years, hence , I knew to contact you with my question. My wife is retiring this June and Ii am a generous man to non-communist/pro-freedom venues, including a monthly contribution to Lew . If I can add you to our support, I will.

    • Hi Warren,

      Leasing is usually a poor decision, financially – unless you can claim the lease as a business expense. A lease is just revolving debt – and you build no equity.

      Some people just like the idea of a new car every three or for years – and never having to worry about repairs not covered by the warranty. Nothing wrong with this.

      But this comes at a high cost.

      If you buy, you will have payments for longer – but not forever. And after six years (or whatever the term is) you will no longer have payments – but you will have the car. Which will – or ought to be – only halfway through its useful service life, which means a largely free car for as many years as it remains generally reliable. Sure, you will have to pay to fix it every now and then – but that beats a guaranteed payment every month.

      Also, you will have equity in the car. Yes, it will have lost value – but it will still have value. Value which is fungible. It can be converted into cash, used as trade-in value or as transportation.

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