Why Kevin O’Leary Says Every Teen Should Invest Part of Their Summer Job Income
If you're in the market for a new car, one of the biggest decisions you'll need to make is whether to lease or buy.
Though there are a number of factors to weigh when making your choice, Kevin O'Leary, O'Shares ETFs chairman and judge on CNBC's "Money Court," says the first thing you should consider is how long you think you will have the car. The longer you plan to keep it, the more sense it makes to buy, he says.
"If you're going to keep it long-term or you're a collector of cars, I get it," O'Leary tells CNBC Make It about buying a car outright. "But if you're short-term and every three years you want a new car, lease is the way to go."
O'Leary employs both strategies himself. He owns a vintage Porsche that he says "there's no point" in leasing because he plans on driving it "another decade or 20 more years," but has other cars on 36-month leases.
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He says consumers should make sure that their lease lines up to the car's drivetrain warranty. The drivetrain connects the car's engine to its wheels and allows it to move around.
"The minute [the car] goes off warranty, all of the sudden you have the lease payment and every year you're investing $200 to $500 into maintaining the car," he says. "So I try to tie those two things together."
In addition to O'Leary's advice, shoppers should also consider how much they can afford to spend when deciding whether to lease or buy. Monthly lease payments are typically more affordable than auto loan payments because they don't require you to pay off the vehicle's full purchase price.
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The downside to this is that even though you are paying less, there's no hope of recouping your money years down the road by reselling the car because it doesn't belong to you. If you buy, on the other hand, once you resell the vehicle and get money back, you will likely have spent less money overall.
You should also consider how much you plan on driving. Leased cars come with mileage restrictions, often an average of 1,000 miles per month. Going over this amount could cost you surcharges that can be as much as 20 cents per extra mile.
If you plan on driving more than 250 miles per week — which would put you on pace to surpass 12,000 miles in a year — do the math with your potential lease terms to see if it will still save you money over buying.
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