So your car is dying, and you have decided that you need a new one. You’ve looked at buying used, you’ve looked at buying new, and then you’ve also thought of leasing. Is leasing right for you?
Table of Contents
1. You want to drive a new car without outright purchasing it
A car is usually a person’s second largest purchase in their life, with the first being a home. The average new car in the U.S. is around $36,000 these days, which is a little more than half of the median household income in the U.S.
Buying a new car often, but not always, requires a large down payment, and if you don’t have that, that will put a new car out of reach for you.
2. You want to switch out your car every few years
You’d rather be caught dead than in a car from 2004. And the new cars have so many more features than those older cars, even ones from a few years ago.
And while a new car is shiny and will make you look good now, in a few years, when the newer cars come out, the shine will be gone.
When leasing, you never need to worry about that. After a few years, you return the car, and get to start the process all over again with a brand new car. Continually leasing of cars will ensure that you never have to drive an older car.
3. You care more about the monthly cost over the total cost of ownership
Discussions about how much you will spend on a car over the next 20 years feels a little academic, doesn’t it?
What doesn’t feel academic is how much you’re going to spend on your car this very month.
With that in mind, the lower payments of a leased car over a new car are much more relevant. If you want to spend less right now, this month, a leased car might be a better option.
4. You don’t mind paying mileage surcharges and repair costs after you return the car
A lease contract mandates that you have a maximum permitted mileage, and if you go over that, you will be charged a per-mile fee, often 15 to 20 cents per mile.
Also, since you’ll be returning the car after a few years, you need to make sure that there aren’t too many surface dings and other issues plaguing the car. So you’ll need to pay for that.
But hey, that’s a small price to pay for having a new car every few years, right? It’s just the cost of doing business.
For balance, here’s a reason not to lease a car
It’s a terrible financial decision. Buying a car is pretty much always going to be a better deal.
Imagine a situation where you pay for 60% of the depreciation of an asset, and get none of the long-term benefits of ownership (such as years of owning it outright without payments).
Imagine a situation where you voluntarily set yourself up to have a car payment forever, without end.
Imagine a situation where the primary benefit is how something looks, how you look in that something, over the cost, when that cost is the second largest purchase you’ll ever make.
The average new car loses 60% of its value in the first five years. If you buy a new car, and especially if you take out a car loan, you are immediately underwater, in that the amount you owe is immediately greater than what the car is worth.
But at least in that scenario, you could theoretically keep the car for 20 years, and have 15 or more years of that where you didn’t have a car payment. That would even things out a bit.
But in a lease situation, you are paying for the car during its most depreciating years, and then giving it back right when it might become a good deal.
And for what? So you can look good?
Do you think it’s about safety? You think a car from a few years ago is any less safe than a car made today? I don’t buy it.
You cannot become wealthy if you care too much about how you look to people, especially if your aim is to look “successful” to other people. You will spend money you don’t have and you will trade future earnings for today’s benefits.
Yes you will look good. But that won’t help you when the bills start piling up, or when there’s no money in your retirement account.
If you have a large net worth, and don’t mind parting with thousands of dollars worth of equity in the name of convenience and shine, then okay fine. But most of you don’t fit into this case.
Personally, I believe the best way to own a car is buy a slightly used one, maybe 3-5 years old. You’ll buy the car for 40-50% of its original value, and have it for 75% of its lifespan. That’s a good deal. Even a 10 year old car has plenty of life in it these days. And you’re not exactly slumming it with a car from 2008.
But hey, it’s your choice. You now have four arguments for leasing a car, and one argument against.
But enough about me. Have you leased a car?