Buying or LEASING -- what % of income?

[SarahKate]

The "promotion" payment amount for the Odyssey was going to be $259/month. It included 15k miles a year (unusual for leases, usually it's 12k!) for 36 months. We did have to put money down, including a security deposit (which we got back at the end) - I think it was a few thousand bucks all together. It was an EX model which had the DVD player....VERY cool van. This was all about 6 years ago so I don't remember all the exact details.

We were trading in our P.O.S. Grand Caravan, which we were upside down on so that is why our payment went from 259 to 321 a month.

At the time I lived a few blocks from work, so the lease worked out well for us. At the end, they inspected it, then I just dropped it off along w/ the keys at the dealership. It was a VERY easy process.

I also extended my lease by a few years. At the end of the 36 months, they sent me a letter saying we could keep it at the same terms and then it would also be month to month in the event we ever wanted to terminate. So we had it 2 more years after that.

I probably could have kept it and actually made some money on it if I sold it afterwards because the residual was LESS than what the van was worth. But I didn't want to mess with it and just turned it in.

 

[MrsPete]

Holy $#@%!!! I see the numbers, but that seems awfully high to me! I'm sure it is a reasonable number, but many...I wouldn't want to be spending that much of my income on a vehicle. Buy a good one, take care of it, keep it forever, avoid permanent car payments.

I thought the numbers were odd too.
Is being debt-free just not a goal anymore?

 

[MrsPete]

Would never do it at 9%, no way. The interest rate is about 4.75%. Again, much of the payment will be reimbursed, actually more of the % of it will be covered since it will be smaller payment per month. It will also *free* up additional cash each month.

Well, then, I guess the reimbursement part was what threw off my math and made it look like 9%.

Don't think about JUST the per-month cost.
Also consider the total pay-off. You want to OWN the car -- as in, every bit of it is yours and you owe no more money on it -- as soon as possible.

 

[joliesmom]

I thought the numbers were odd too.
Is being debt-free just not a goal anymore?

I actually spend the 10% of my monthly income on auto including car payment (one of our cars is paid off), gas, insurance, tolls, and maintenance. I don't have debt beyond mortgage and car so I put that money into savings and living. So debt free living is a reasonable goal.

 

[bonoriffic]

You should negotiate the price of the car first, then worry about buying or leasing. Leases like to draw you in with a low monthly rate, but you are accepting the dealers price for the car. You should get the best possible price for the car first, then introduce finance terms.

Of course the lease rate may depend on your credit rating, as would any dealer provided financing, which ultimately can artificially raise the price of the car right back to where the dealer wants it. Mystery fees and other tricks can also be added to inflate the price of the car and should be watched for.

Your best option is to bring outside financing to the table. Be it a loan from your bank or a large sack of cash. Your first priority should always be securing the best price for the car, and the internet has a wealth of sites such as edmunds.com or kelly blue book to help you determine the "reasonable" price you should pay.

My only advice is walk in knowing the true cost of the car. Never begin the conversation with monthly prices. Always discuss the final cost of the car. Any decent salesman can make a car "fit" your monthly budget through finance terms.

 

[Noreen411]

Hi

I think the question to lease or buy depends on your personal situation.

I like to lease. I drive from Northern NJ to NYC everyday for work. Often in bumper to bumper traffic which is very bad for the car. I like to get a new car every few years. My maintenance is covered. I don't have to worry about the car breaking down. I get 15,000 miles a year on my lease and expect to go over it a bit and know I will pay 20 cents per mile over. Similar to what someone else said, the car company expects regular wear and tear on the car and won't charge you for each little ding/scratch as long as they are reasonable.

My lease payment is currently $635 a month

Again, it's all about your personal situation.

 

[bettymae1121]

My rule of thumb is that if you can't pay it off in 3 years, you can't afford it!

That said, sometimes longer payments can't be avoided. Personally I'd never go beyond 4 years unless I was desperate. I had a 5 year loan once and that last year of payments was the longest year of my life (and the payments were quite reasonable). My DH's truck and a 6 year loan (bought it just before I met him) and we just paid it off last November. God, I was never so happy in my life than when I sent off that last payment!

At any rate, leasing is also rarely a good idea. It's almost always cheaper to buy. The beauty of buying is that once you're payment stops, you can keep making that "payment" to your savings account, this will allow to be able to afford repairs, or a down payment on a replacement car. These days most cars last a lot longer than they used to. I have a '98 Saturn with over 150k miles on it that runs just fine. Just needs new tires every few years and other basic maintenance. I haven't had a car payment since 2003!

 

[TnTWalter]

Dave Ramsey says not to buy into that, but he isn't working for a living like the majority of Americans are!

So whats a person to do!! They get you either way!!

I read a book a few years ago called 'The Millionaire Next Door'. It is very eye opening.

The average millionaire didn't come from money. They were average joes who 'worked for a living'. They just did things differently than the average person

Trish

 

[tlbwriter]

First, when you think about the cost, you are only thinking about the monthly payment, and you need to get beyond that.

Second, if your cars are only lasting 6 years, either you aren't maintaining them, or you are buying really, really unreliable cars.

Either way, leasing (unless you can write it off as a business expense) is generally a much more expensive way of owning a car. And honestly, most people *I* know who lease do it because they want a particular car and they cannot afford to buy it. Is that where you are?

 

[mafibisha]

OP here - How funny to see this thread at the top again! Its from February!!
Not sure why it was bumped up?

We DID buy this time, and love it.
Not saying we'll never lease again - its often better for us - but for now in our family, buying made the most sense!

 

[chrissyb2411]

Well I guess I will be the odd man out. After buying used, buying new, and leasing, we have decided we are lease people. And actually, I saw a news story not too long ago about how leasing is becoming more financially appropriate for lots of people because when you buy new the car depreceates so fast.

When we bought used we always ended up upside down when we were ready to trade in. We prefer to have newer cars, and twice traded in because our situation changed and we needed to upsize/ down size. My first lease was going from a higher payment in a car we had purchased, to a lease, smaller car, less payment. We did this when our first child was born so I could stay home with him. Once he was a little older and I went back to work I upgraded to something a little bigger, bought used and the payment was higher. That was a mistake. 2 years later our second came along and I needed a bigger vehicle. Trying to get out of the used vehicle purchase without loosking tons of money was VERY difficult.

In the end we did. I think if you are going to lease, you need to take somebody with you who plays the game really well. Car sales is a big game, and my DH is good at it. We now have a car with a sales value of $30,000, we were upside down almost $2000 in our trade in. We put down about $1500, and our monthly payment is $369

DH also recently got a Toyota camery, loaded except leather, for $250 a month nothing down. Toyota is still hurting from all the bad press so you can get a great deal.

Anyway, if you know you won't keep the vehicle for the duration of the loan, don't buy. And that includes considering if you family gets larger and you will need a larger vehicle. If you can't stay within the millage of a lease, don't lease. IMO in this world it only makes sense to buy a car if you are paying cash, and are going to drive it until it dies. Most people don't.

Oh, and our cars total about 25% of our monthly budget, but we own a home with no mortgage, and have no debt. Well, except the disney vaca that needs to be paid off, lol.

 

[jodifla]

and take care of it, it should last much longer than six years.
We've had our car for 10 years. It has 135,000 miles on it. It is still going strong. We did just put some repairs into it for a total of $950, but we hadn't put a dime into this car (other than oil changes, new tires) since we paid it off 6 years ago.

Yes, this. We have a 15-year-old car and a 14-year-old car. We just bought a 2008 Mercury Mariner, and plan to sell our 14 year old vehicle as it has almost 190,000 miles on it and is a 4 cylinder car.

We plan to keep the 15-year-old vehicle at least another 3 years, until the Mercury is paid off.

We could have kept them both and not bought a newer vehicle, but we wanted a car that was better in the snow and higher off the ground. It's also nice to have all the bells and whistles of a newer car. While our older cars run fine, they are NOISY to drive.

 

[windycitymom]

All the personal finance guru's out there (Dave Ramsey & Suze Orman to name a few) do NOT recommend leasing. They recommend buying used. If you are a millionaire, go ahead and buy new since the money won't hurt your bottom line. However, most millionaires buy used themselves (read The Millionaire Next Door by Dr. Stanley). Financial freedom means living within (or under) your means.

I had a SIL who years ago mocked us for driving a minivan, and said she would only be seen in a SUV. Flashforward 10 years, the bounty hunters show up at her house to repossess their latest SUV because they couldn't afford to make the payments (my inlaws bailed her out). Meanwhile, we are driving two vehicles that are paid for! We will drive them into the ground. I have neighbors driving Escalades and Lexus' and then complain they have no money to send their kids to college.
Life is about choices.

 

[ranthony]

When I was younger my father hated to spend $ on a new car. He was handy and thrifty so the need for a new vehicle didn't come up too often.

I remember a friend of his at the time saying "Man, if your car was a horse, you'd ride it until it died...and then you'd eat it!"

I didn't really 'get it' at the time, but I sure do now.