Addendum: What if I don't have debt? Is buying still a bad option?
Just as I wrote on the bottom of the post if you can find a good yield on your money then it might be worthwhile to invest instead of tying up your money in a vehicle that depreciates.
For my $30K car example, if you do a 48 month loan versus a 48 month premiere purchase with the 1.9% versus 2.25% and 48% residual value, you'd be saving $290 a month on monthly payments. If you invest it in a monthly compounded investment that has more than 3% yield, you are still better off doing the premiere purchase.
That way after 48 months you'd have $14,880 ($290x48 at 3% APR) in the bank that you could use to pay off the vehicle if you wanted immediately as the premiere purchase is up, or you can just turn the car back in and get another one while your trade in is guaranteed at $14,880 (that is what residuals are for). Yet if you just wanted to sell your car that you financed the conventional way, if you could not get $14,880 for it you'd be already losing money (and I pretty much guarantee that you would not be able to sell the car for the residual value). And $14,880 in the bank is a LOT better than tied up in a quickly depreciating asset such as a vehicle.
And all of this still didn't include the chance of an unfortunate event when your car gets totaled after 2 years of ownership.
For that illustration I just quote a post that I posted earlier regarding cap reduction on leases. The same applies here with different numbers (it's late and I don't want to re-run those numbers tonight, but you will get the point)
Let's say you buy a car for $25,000 and you either put nothing down and lease for 48 months for $323/month or you put $5000 down and lease for 48 months for $211/month.
The difference between the two monthly payments is $112 which seems like a lot. Multiply that by 48 months (number of payments) that is $5376. So you will end up paying $376 more over the term of the lease by not putting anything down and keeping your $5000 in your pocket. I am not going into details that you can actually earn interest on that $5000 and keep taking $112 out of it every month making the $376 difference even less, or that you could have used the $5000 to pay off a higher interest debt with it.
So if nothing goes wrong with your car during the term of the lease you will be out of $376 more by going this route. that is about $8/month (not counting other interest earning possibilities on your $5000).
Now let's look at the other scenario when your car gets totaled or stolen after a year. After 1 year that car will worth about $20,000 due to depreciation. If you paid no money down, after the first year your payoff would be about $22100. If you put no money down up front then you insurance will pick up the gap (GAP insurance) between what the car is worth ($20,000) and what you owe ($22,100). So the gap insurance will pay $2100 while the rest will be paid by the regular car insurance. You walk away clear and free and with $3656 left of the $5000 that you put aside (you made 12 payments of $112 from it towards the car)
However if you put down $5000 up fron on this car as a cap reduction by the end of the first year your payoff would be about $18,200. Since the car is worth $20,000 at this point and you owe $18,200 the insurance would pay the lender $18,200 and give you $1800. So you would end up with no car and $1800 in your pocket.
So if you compare the two numbers you can see that if your car is stolen or totaled after 1 year you would be losing over $1850 just because you put money down up front. This number would get smaller as the years go by, but you will be pretty much uspide down throughout the entire lease.
So even if you can't make 3% yield on your spare money it is still a good security to do a premiere purchase versus a conventional loan when the interest rates are so low and close to one another on the premiere purchase/lease and conventional loan.
In closing let me quote a really good investment advice:"Buy what appreciates,rent what depreciates". Cars are clearly depreciating faster than you can count, so they are never a good purchase.