Leasing a car: tell me the good the bad and the ugly

[luvmy3]

I'm actually debating on leasing a car now. I own an older minivan and its starting to show its age. I was hoping to get a few more years of driving it because my dd will be driving age by then and I wouldn't need a minivan any longer. Unfortunately I don't think it will last much longer, and since I'm not sure just what type of car I want to own for the next 10 years, a temporary lease seem like a good solution for now.

 

[tlbwriter]

I know leasing is a good financial decision for some people, but it seems the people I know personally who lease tend to do it because they can't afford to buy the car they want outright. And quite honestly, it hasn't worked out well for them.

I also remember a post (here or on another board) from someone who had lost their job and tanked their credit rating after leasing a car. Their lease was up and they couldn't renew it or get a loan at a reasonable rate to buy it (or another car) due to their new bad credit rating. I don't know what ever happened to that person, but it was a good reason (to me) to never get locked into a regular payment for something you need that is guaranteed to end at one point without guaranteeing that you own something at the end of that payment or can easily get it again, kwim?

 

[MrsPete]

A quick rule of investing, you do not invest in assets that are guaranteed to depreciate, it doesn't make sense.

True, but I don't consider a car an "investment". I consider it a necessary commodity -- I put it in the same category as groceries and shoes; that is, something I need to buy, something I will use, something from which I never expect to recoup any money.

Leasing a car is a poor financial decision. What you're literally doing, is buying a car and at the same time, agreeing the sell the car back to the dealer for a predetermined price after a predetermined time; what you pay is the difference between the purchase price and the later buy back price. I may be slightly oversimplifying this, but it's a more accurate explanation than the analogy of "renting" something.

That's a pretty good explaination. From a strictly dollars-and-cents point of view, leasing is an expensive way to go.

See, I never want to do that. I like having a new car every two or three years. So, if I purchase a car, I will have higher monthly payments, I will have to sell the car or give it to the dealer as a down payment on a new car and do it all again. I will always have a car payment, so why do I want to purchase a car? What do I gain buy owning the car?

If you've decided that you want a new car every couple years and will always have payments, you've chosen the most expensive option available. If you buy instead of leasing, however, you will still come out ahead, even with a new car every 2-3 years: If your car is still relatively new when you trade it in, then you'll have some money to "put down" toward the new car. With the lease, you're forced to start fresh every time.

It is, of course, more trouble to you at the time you make the trade.

If you want to retire in comfort, don't buy anything, become a hermit and don't shop, don't go on vacation, don't go out to dinner, etc. There is nothing wrong with good financial planning, but correlating a comfortable retirement to leasing or buying is not very logical.

While this one thing isn't a make-or-break item, transportation is an expensive line in most of our budgets, and if we splurge on new cars every 2-3 years there's going to be less to save for retirement (and other important necessities). When we were young and just-married, we drove our cars as long as possible and made "car payments" into a savings account. Now we're able to pay cash, and we expect never to have a car payment again. This choice (along with hundreds of other small choices) will allow us to pay for our children's college education without loans and retire comfortably. Measuring those securities against the small pleasure of driving a new car every 2-3 years . . . well, it just doesn't compete.

I know leasing is a good financial decision for some people, but it seems the people I know personally who lease tend to do it because they can't afford to buy the car they want outright. And quite honestly, it hasn't worked out well for them.

I also remember a post (here or on another board) from someone who had lost their job and tanked their credit rating after leasing a car. Their lease was up and they couldn't renew it or get a loan at a reasonable rate to buy it (or another car) due to their new bad credit rating. I don't know what ever happened to that person, but it was a good reason (to me) to never get locked into a regular payment for something you need that is guaranteed to end at one point without guaranteeing that you own something at the end of that payment or can easily get it again, kwim?

Yeah, I've known people for whom it hasn't worked out well too. The typical thing seems to be that they end up owing money at the end of the lease (over-mileage fees, etc.). Another thing that turns out to be problematic: When the lease is up, IT'S UP. So you have to find another car (or buy that one) NOW. Doesn't matter if you've just put braces on your child's teeth or if you're spending a great deal on being in a friend's wedding -- you have to buy a new car THIS MONTH. On the other hand, if you own that car, you could say, "I'm ready to trade in, but things are tight right now. I'll do it in 3-4 months when my bank account is a little stronger."

 

[tvguy]

. I elect to pay nothing up front, no tax, no nothing. My lease payment is as high as it will be for my particular auto. I have no skin in the game of a depreciating item.

Yeah, that's not an option in California. The leasee has to pay tax and license up front. That state wants their money now. The rest, is negotiable.

 

[Dan Murphy]

Yeah, that's not an option in California. The leasee has to pay tax and license up front. That state wants their money now. The rest, is negotiable.

All states want their money up front, Illinois, where I am, included. That is whether it is a purchase or a lease. The tax is added to the agreed upon auto price, any fees, etc and becomes the total capitalized cost. When the lease is completed, the lessor pays the tax out to the state, up front. The lessee pays the lessor the tax paid up front over the term of the lease.

 

[manning]

If you want to retire in comfort, don't buy anything, become a hermit and don't shop, don't go on vacation, don't go out to dinner, etc. There is nothing wrong with good financial planning, but correlating a comfortable retirement to leasing or buying is not very logical.

Sorry to disappoint you as I DO buy, shop, go on vacation, dine out, and don't live like a hermit. And I lived nicely while working. Took vacations every year (more than one). Got up to six weeks travel vacations towards the end of my working years. Of course did get a little wild on those two close together trips to Hawaii.

As I pointed out in a previous post the second most expensive thing you buy in life are cars, houses being first. If you take the time and add it all up you will be amazed. The total purchase price for all 5 of my cars is $81,400.00. Paid cash for all of them.

1963 Fairlane 2,400
1969 ford Galaxie 500 3,000
1977 Ford LTD 7,000
1993 Lincoln Town car 30,000
2010 Mercury Mountaineer 39,000

Imagine what it would be if I bought one every 3 years. That would be 16 cars.

All that money not spent on cars compounded nicely in savings until retirement and still is.

My friend who did buy cars about every 3-4 years....still making car payments. About all he does, has no spare money for anything else, and he made a little more money than I did.

 

[antmaril]

Sorry to disappoint you as I DO buy, shop, go on vacation, dine out, and don't live like a hermit. And I lived nicely while working. Took vacations every year (more than one). Got up to six weeks travel vacations towards the end of my working years. Of course did get a little wild on those two close together trips to Hawaii.

As I pointed out in a previous post the second most expensive thing you buy in life are cars, houses being first. If you take the time and add it all up you will be amazed. The total purchase price for all 5 of my cars is $81,400.00. Paid cash for all of them.

1963 Fairlane 2,400
1969 ford Galaxie 500 3,000
1977 Ford LTD 7,000
1993 Lincoln Town car 30,000
2010 Mercury Mountaineer 39,000

Imagine what it would be if I bought one every 3 years. That would be 16 cars.

All that money not spent on cars compounded nicely in savings until retirement and still is.

My friend who did buy cars about every 3-4 years....still making car payments. About all he does, has no spare money for anything else, and he made a little more money than I did.

As I said in a previous post, I, too, am retired comfortably. I shop, travel and eat out in retirement, just as I did when I worked. The fact that I've leased a new car every two or three years has not had a negative impact on my life in ANY way. Everyone's situation and needs are different. When I started leasing cars many years ago, my future retirement was not dependent on that decision. By the way, I was a secretary, retired three years ago and I'm 60 years old.

I cannot be convinced that leasing a car is a mistake for me.

 

[jlewisinsyr]

Sorry to disappoint you as I DO buy, shop, go on vacation, dine out, and don't live like a hermit. And I lived nicely while working. Took vacations every year (more than one). Got up to six weeks travel vacations towards the end of my working years. Of course did get a little wild on those two close together trips to Hawaii.

WOW, you totally missed the point I was making. The point is, for some people buying any car would be a financial burden, for others, it is a drop in the bucket.

All that money not spent on cars compounded nicely in savings until retirement and still is.

But how much more would be compounding in savings if you never went on vacation or didn't buy as new of a vehicle?

My friend who did buy cars about every 3-4 years....still making car payments. About all he does, has no spare money for anything else, and he made a little more money than I did.

Correlation is not causation.

 

[bettymae1121]

Around here you can't buy a late model used car for much less than a new one. I'm looking at buying a Nissan Versa next year, just looking at the prices on Carmax for my area, the used ones are only running about $1000 less than a new one, and they already have 30k miles on them. I may as well pay the extra $1000 and get the new car and the full use of the warrenty!

As for leasing, not for me. I'm still driving my '98 Saturn, after I buy my new car my husband will still drive the Saturn to/from work. He has a long commutte (80 miles round trip) so there is no reason to pound on a new car when we have a old used car that still runs okay. The only reason I want a new car is I want updated safety features, plus I'm tired of sharing my car with DH (who uses it a lot to go to work as it gets better mileage than his truck).

With interest and tax, I paid about $20k for my Saturn 13 years ago, that's about $1500 a year I paid for my car. Even with maintenence (which hasn't been much, it's run very well. New tires, oil changes, brakes, and a few mufflers) there is no way I would have paid less leasing all these years. And having a new car isn't important to me as long as the one that I'm driving is reliable.

Since I only drive about 50 miles a week (at most) now, I did consider doing a lease this time around. But I'd still have to put money down and would have a payment for 3 years, at the end of that I'd have nothing to show for it. If I put money down and just buy it, I'll still have a payment for 3 years, but then I'll own a 3 year old car with low miles that I know was well maintained. That just sounds like a better deal to me.

 

[manning]

Around here you can't buy a late model used car for much less than a new one. I'm looking at buying a Nissan Versa next year, just looking at the prices on Carmax for my area, the used ones are only running about $1000 less than a new one, and they already have 30k miles on them. I may as well pay the extra $1000 and get the new car and the full use of the warrenty!

As for leasing, not for me. I'm still driving my '98 Saturn, after I buy my new car my husband will still drive the Saturn to/from work. He has a long commutte (80 miles round trip) so there is no reason to pound on a new car when we have a old used car that still runs okay. The only reason I want a new car is I want updated safety features, plus I'm tired of sharing my car with DH (who uses it a lot to go to work as it gets better mileage than his truck).

With interest and tax, I paid about $20k for my Saturn 13 years ago, that's about $1500 a year I paid for my car. Even with maintenence (which hasn't been much, it's run very well. New tires, oil changes, brakes, and a few mufflers) there is no way I would have paid less leasing all these years. And having a new car isn't important to me as long as the one that I'm driving is reliable.

Since I only drive about 50 miles a week (at most) now, I did consider doing a lease this time around. But I'd still have to put money down and would have a payment for 3 years, at the end of that I'd have nothing to show for it. If I put money down and just buy it, I'll still have a payment for 3 years, but then I'll own a 3 year old car with low miles that I know was well maintained. That just sounds like a better deal to me.

To state that line in "My Fair Lady"

"I think she's got it!"

 

[manning]

But how much more would be compounding in savings if you never went on vacation or didn't buy as new of a vehicle?

I live a balanced life, save a little, spend a little. And hopefully prepared for the expensive part of life....cost of old age.

 

[jlewisinsyr]

I live a balanced life, save a little, spend a little. And hopefully prepared for the expensive part of life....cost of old age.

And by leasing, you automatically don't have a balanced life, you're unable to save? Do you see how unlogical your statement is now?

 

[manning]

And by leasing, you automatically don't have a balanced life, you're unable to save? Do you see how unlogical your statement is now?

Let's come to an agreement, You do it your way and I'll do it mine. We'll feel we are both right. We'll both be happy.