Lease vs buy vs finance a car

[teachermike]

With interest rates on financing being as high as they are, what's the best option on the long run?

Leasing rates:
36 mo: 8.19%
48 mo: 8.49%
60 mo: 8.79%

Financing rates:
Up to 84 mo at 6.99%

To me, at least on the short term, I'm doubtful that something like S&P 500 will beat that. Am I better off cashing out some TFSA and paying cash? Or should I go long over 7 years, and hope that the markets will end up surpassing that rate of return on the long run?

I'm also really not understanding some advice I'm reading about how you're better off leasing than buying. How does that make sense? It seems like the opposite. I don't have a business to write off the expenses.

Even if I decide to trade cars after 4-5 years, am I not better off buying then selling vs leasing and returning it?

I know it's a bit vague, but any help is appreciated here.

EDIT:
I wrote a follow-up where I did the math:

https://www.reddit.com/r/CanadaFinance/comments/190m6bh

 

[rockwell21hr]

@teachermike You provided a very good analysis of your current situation I would advise cashing out some of your TFSA and buy cash. I did the same thing, I was supposed to return my lease and lease a new one or finance. But when I saw the rate I’ve cashed out some stocks to pay the balance. I set my base line at 6%, for something above or around 6% I always pay cash. Around or below 3% I always finance. Specially furniture at 0% !

 

[teachermike]

@rockwell21hr You don't get those 0% anymore

 

[rockwell21hr]

@teachermike Bought a tv at bestbuy for 0% on 24 months 2-3 months ago. It’s backed by fairstone, so if you miss one single payment you go to 27%. But it’s set automatically at the bank so all good. Just wish fairstone wasn’t it the picture. But at this point it’s free money.

 

[jord]

@teachermike Usually advertised as 0% but fine print states 0.9%

 

[colin44]

@teachermike I'd either pay cash or finance at 6.99% but pay off early. Anything over 48 months is too much interest. Expected recession will lower investment income expectations. Last time I bought a car was 2016. Leasing seemed expensive at the time as I thought I was paying too much for the amount of time I had the vehicle. I paid cash by taking out of my investments because everyone was predicting a recession. Donald Trump drove the markets higher and my investments were back up to original balance in 24 months. Certainly not my usual car buying story as I usually feel I got my ass kicked as I drive off the lot

 

[teachermike]

@colin44 Not sure I understand the reasoning behind financing but paying it off early as possible. I'd expect the decision to be to pay cash or go as long as possible.

If I'm assuming that I'll beat the interest rate with my investments, then it's in my best interest to keep as much capital in my own investments for as long as possible.

If I'm assuming that I won't be able to beat the interest rate with my investments, then I should pay cash.

6.99% seems high, considering the forecasted recession, but the market has been really unforeseeable. I for one don't think we're in the 10-20% per year average growth anymore for a bit.

 

[mttyhu]

@teachermike IMO it's finding the balance that works for you. If you like rotating into new cars maybe lease, if you tend to hold onto them, finance it at the best rate you can find. Cash only if you are swimming in it. Some manufacturers have some models on at 0% (depending on model, region, etc) so they can move out inventory. History has shown us that cars generally depreciate ~10%/yr, and new car purchases are a leading indicator of the overall economy. Depending on where you think the economy is headed might help you decide on a finance rate that works for you. Historically when the buying public stops buying cars due to other purchasing pressures, auto manufactures have offered below market interest rates to move inventory, equals opportunity.

 

[teachermike]

@mttyhu These are the rates for the model I'm getting, there is no room for negotiation on the price or rates. It's a high demand car.

But what does my financial situation have to do with the decision? I have enough to pay cash if I dip into my TFSA like I mentioned. But the question is what option is the best financially. I will be buying the car, it's only the way I pay that I'm wondering about.

Hope that narrows down the problem.

From the responses I got so far, it sounds like there aren't any hidden benefits in financing vs leasing vs cash. I'll just plug the numbers in an excel sheet, assume the 10% depreciation per year and see what scenario is optimal.

For cash vs finance, the car's depreciation won't make a difference.
For leasing, assuming I'll return the car and get a new one, it might.

 

[admissioninfo]

@teachermike If you can pay cash for it, pay cash for it. If you can't pay cash, look for a cheaper car and pay cash for that one.
Avoiding vehicle debt is your best option.