To lease a car or not to lease a car? That is the question all frugal car consumers must ask themselves as they explore the car dealership lot. There are trade-offs, whether you lease or purchase outright: If you lease, you don’t need as much cash to buy your new set of wheels outright. But then again, you’re essentially paying for a car you’ll never own.
Most people never consider these 4 financial moves — and they’re leaving thousands on the table.
Making that call involves careful math and decision-making about what’s best in the long-term, which is hard enough on its own, let alone at a time where you may be feeling some anxiety about paying for your new ride. For a clear, logical assessment, why not enlist some digital reinforcements? Enter ChatGPT.
Using ChatGPT, you can crunch numbers tailored to your personal situation and explore prompts to help guide your decision-making. Recently, GOBankingRates turned to ChatGPT to run a hypothetical scenario to help readers determine whether leasing or buying a car is more cost-effective over the next 12 years.
The 12-Year Scenario
To start the conversion, we asked ChatGPT whether it’s cheaper over the course of 12 years to lease a new car every three years or purchase a used car with no more than 20,000 miles on it and own it for the full 12 years.
We asked ChatGPT to suggest questions that would help refine our parameters — such as the make and model of the car and relevant rates “in a way that would make sense to a person who is getting conflicting advice about which option is more money smart.”
Prompts for Leasing a New Car Every Three Years
ChatGPT first asked us to consider the make and model of the car, noting how costs can vary widely based on those factors. It then asked us to identify key leasing specifics for consideration in its calculations, such as monthly payment, duration, down payment or upfront costs, annual mileage allowance, excess mileage fees if you go over that allowance, and whether insurance is included in the lease. We may also want to consider the residual value, or the buyout price at the end of the lease.
Prompts for Purchasing a Used Car With Up to 20,000 Miles
When exploring the option of buying a used car, ChatGPT again asked for make and model preferences, as well as the potential upfront payment. We were asked if we’d finance the car, and if so, what the interest rate, loan term, and amount financed would be. Our AI buddy went even further, inquiring about a general estimate for maintenance costs, insurance payments, and depreciation rates.
Time To Crunch Some Numbers
We asked ChatGPT to run a lease vs. purchase comparison for two different vehicles: the notably dependable Toyota Camry and a popular family SUV of the AI’s choosing. Our prompt requested standard terms, including a 36-month lease, average mileage, standard due at signing amount, and the assumption that the driver wouldn’t go above mileage or want to purchase the car at the end of the lease.
For the purchase terms, we asked for a five-year term at today’s average car loan rate, assuming average maintenance costs. For insurance costs for both scenarios, we asked ChatGPT to assume the most financially practical options for a 40-year-old male driver with a clean driving record — though obviously, you’d input your own details if you were running a similar comparison yourself.
For our second vehicle, ChatGPT selected the popular Honda CR-V to compare alongside the Toyota Camry.
Toyota Camry: Lease vs. Purchase
Factoring the above considerations into its calculations, including an annual mileage of 12,000 for most leases, as well as a lease payment of $340 a month, a due-at-signing payment of $2,500 for each lease, and insurance at $1,200 annually, ChatGPT determined that the total lease costs over 12 years came to $73,360.
For the purchase option, we assumed a price of $27,000. Using a car loan formula, ChatGPT calculated that with $2,700 down and a 5-year loan at 6.5% APR, the monthly payment would be $469. Factoring in $500 a year for maintenance, $1,200 per year in insurance, and a resale value after 12 years of around $10,800, the total cost came to $37,740
Verdict: Buying a used Camry saves $35,620 over leasing.
Honda CR-V: Lease vs. Purchase
Assuming a lease term of 36 months with an annual mileage of 12,000, a monthly lease payment of $400, a due-at-signing payment of $2,500, and $1,300 annually for insurance, ChatGPT determined that, over 12 years, leasing a Honda CR-V would cost you $83,200.
How does that compare to buying a used model with a purchase price of $30,000? With a down payment of $3,000 and $517 in monthly payments, maintenance costs averaging $600 a year, and a resale value after 12 years of around $13,500, the total cost came to $40,320.
Verdict: Buying a used CR-V saves $42,880 compared to leasing.
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Bottom Line
In the end, whether you choose to lease or buy depends on your financial priorities. In both the Toyota Camry and Honda CR-V scenarios, purchasing a used car and keeping it for 12 years is far more cost-effective than leasing. While leasing offers the undeniable appeal of getting to drive a new car every few years, buying and maintaining a used vehicle offers significant long-term savings.
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This article originally appeared on GOBankingRates.com: Is Leasing Really Cheaper? ChatGPT Crunches the Numbers for Buying vs. Leasing Over 12 Years
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
