Introduction
So I had leased a Nissan Leaf about 1.5 years ago. Right after I leased it, I had learned that Nissan would probably let me extend my 2 year lease to a 3 year lease. Quick recap – I had put $3100 down and would pay $120/mo for 24 months. So I got this flyer in the mail last week. Let’s walk through my options.
Buy the car
This is a ridiculous idea. The reason for that is that if I wanted to buy it outright, I’m sure my residual is something like $15,000. I can get a newer better model for less than $10,000 now. Plus, I think it’s lost it’s novelty. I can’t deal with the range anxiety. If my wife commutes to work, we can’t take the car out after she gets home because we need to charge it instead. Plus, I think I want to get an SUV instead to help me move all of my reselling boxes.
Return the car after 2 years
If I return the car after 2 years, I would have paid $3100 + $2,880 ($120 x 24) = $5,980 not including electricity charges. If I divide $6K / 24 = ~$250 a month is what I would have paid over the 24 months. Since we were paying $150/gas on the other car, that meant, I was paying a $100/mo premium for driving the “nicer” car. This isn’t horrible.
Extend lease for 1 more year
If I extend the lease, that means I would have paid $3100 + $4,320 ($120 x 36) = $7,420. If I divide that over 36 months, I come up with $206 a month. That means my monthly premium over the gas car would only be $56 a month (an even better deal.)
My decision
Initially, I was going to extend the lease another year just to drive my monthly ownership cost down. However, I’ve decided to change my mind for these reasons:
- The range anxiety issue from above
- I really do want an SUV to move stuff and it’s just more convenient to have a ‘bigger’ car
- It’ll be harder to sell the other car since my wife damaged it, so it’s better if she just runs it into the ground.
So because of those 3 reasons, I think I’m just going to turn it in at the end of the 2 year lease.
You need the view the monthly cost over months 25-36 as simply $120/month. The first 24 months are a sunk cost. You aren’t reducing the cost of months 1-24 by electing to extend an additional 12 months.
I’m sure you realize this already; I just wanted to call out that it seems you are over rationalizing and wrongly trying to justify what you want (a new SUV) as making ecomonic sense.
In case that sounded harsh, I should add that I really enjoy your blog!
Bill, no offense taken. You’re right in that the decision to keep the car for next 12 months is based on $120/month and that the first 24 months is sunk cost. I was trying to point out that the 24 month monthly TCO is different than the 36 month TCO due to the nonrefundable deposit that I put down (which was a mistake I learned after the fact.)