Leasing a Car

I prefer buying to leasing. But, there’s something in our human nature where we think in terms of how much we have to put out up front versus total cost. We even think in terms of how much it costs me every month rather than the total cost, which is why they can get us on the lease. Leasing a car on a monthly basis is typically lower than actually buying the car. Plus, you don’t have to put down the larger down payment. It’s a much smaller down payment. You don’t have a loan. You can buy “more car,” which, as a financial advisor, I’m saying, “Don’t do that.” If you can’t afford it at these low interest rates and with the deals out there, I would say, “Don’t do it.”

 

There are disadvantages to having a lease. The first is: The lease does end. There’s the hassle of every two to three years, you have to do it all over again, because you have to turn the car in. And there is no residual value, meaning you have nothing when the lease is up. You can’t trade it in. You just turn it in. There’s nothing left. And there are all kinds of penalties that can come up with a lease. The biggest one of which is if you go over the mileage, and many people will do that who use their car in their work. Typically, ten to fifteen thousand miles per year is all that you’re allowed. So there are penalties for going beyond that. Plus, if you return the car early, you are actually penalized. And, of course, if there are damages to the car—it’s not like owning your own car—you’re going to be penalized for that.

 

If we do the math, in the long run you are really better off buying your car outright—especially with these low interest rates and with the deals on cars right now. And our cars are becoming even more reliable; they’re lasting longer. So just envision that time four or five years down the road when you will have no payment.

 

We had a stretch of time where new car sales were doing better because of the cash for clunkers program, and our used car sales were hurting. But typically during a recession, people will go to used car sales versus new car sales. So when we start to see car sales improving consistently—it doesn’t have to be big improvements, but consistent improvements—then that’s a good sign for our economy.

 

 

 

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