I have heard it said by Suze Orman among others that leasing a car is a dumb move, but I have never been clear on why that is. Can you enlighten me?
Thanks,
Rob
It’s not always a bad move. Depends on your buying habits. If you’re the type who likes to have a new car every couple of years and don’t mind making perpetual car payments to do so, leasing lets you switch up more often without the hassle of trade-ins and re-financing, and keeps your payments relatively low.
If you’re more of a frugal type who tends to hold onto your vehicles until the wheels fall off, leasing means you have to make a bunch of payments and then give the car back with nothing to show for it.
They’re considered a bad move because if you always lease cars you always have a payment and never have anything to show for it since you never build up any equity. It’s the housing equivalent of renting instead of owning.
Personally, I like leasing. My payments are much much lower, I don’t usually have to put anything down and in the last 2 cars that I’ve leased, I’ve only had to pay for one repair (bad air bag sensor). Even that was only because I didn’t get the extended warranty which would cover me from the factory/dealer warranty of 3 years/36000 miles to my mileage of 45,000.
Personally, I’d rather have a payment every month, but in turn always have a newish car, no repairs, good mileage etc, rather then walking out in the morning late for work and thinking “damn, it’s really muggy out, I hope it starts” or “I really have to get a new clutch on this thing one of these days”.
They only way it’s a good move to own a car is if you buy it, pay it off and sell it (on your own) while it’s still worth something (or more then you owe if you didn’t pay it off). I’d guess that’s at the 5 year 60,000 mile mark or so, while it’s still it good condition. OTOH, that also means you have to do a good job maintaining it. On my lease, if I bring it in to the dealer for an oil change, they’ll catch any other problems and correct them right away if it’s still under warranty…it is still their car and they do still have an interest in it. Also, I’m not sure about other manufacturers, but Honda will let you turn it in with something like $3000 dollars worth of damage without charging you for it.
Yes and no.
If you want to drive a new car every 2-3 years, leases are a good deal. However, you never have any equity in the car.
Because of the way leases work, you will pay a very heavy penalty for mileage over about 12,000 miles/year.
Leasing works best if you can write off some portion of the cost, as a business expense (if you are a doctor, salesman, etc.)
It also is good if you like pricey, expensive-to fix models (like an Audi A4). With a closed lease, you pay a fixed amount permonth, and you get all the maintanence work done for free. Keeping a car like an Audi past 50,000 miles wil expose you to very high repair costs.
If you buy a new car and keep it for 12-15 years, you generally have a much lower cost-but the last 5 years of a car’s life are generally the worst.
It just depends on the terms, which usually aren’t good. I leased a car in the early 80’s and it was a great deal. The back end payoff to own the car was very low, and set without regard to inflation and the reasonable resale value 3 years after the fact, so it worked out fine. I leased again in the mid 80’s and didn’t get such a good deal, but it was convenient since I was writing the majority of the cost off as a business expense. One of the big advantages of leasing was the low down payment, but it seems there are plenty of options for conventional loans that provide that now.
Note that car ads these days always feature leases and never mention the price of the car. This is a sure indicator that dealers find leasing far more lucrative than selling.
The theory is that you buy things that appreciate in value and lease things that depreciate. And if you trade in your car every three or four years, leasing may make sense. But I like keeping a car for 20 years. My current cars are paid off and I haven’t made a car payment this century. Maintenance is far less than a monthly lease payment (add it up – a $200 lease payment is $2400 a year. I’ve never paid more than $1200 in repairs in a year for any car I’ve owned).
You can also come out ahead if you hold onto an owned car for a long time, especially if it’s got low maintenance costs. At some point, the further depreciation becomes lower than the savings of not having a car payment at all.
I’m driving an 11 year old car, that’s been paid off for 7 years. My savings in not having a car payment at all for those 7 years far outweighs the loss in resale value of the car.
It works like this: It’s dumb to keep a car for two years; ergo, leases are bad.
You are not supposed to invest your money like that. You ARE NOT supposed to like new things every year. Stop being who you are, start being less interested in cars, and start buying them to keep them long-term to eventually realize a lower overall cost of ownership.
Eating out wastes money, too, people! ** STOP IT**!
Seriously… **that **is where Suzy Orman is coming from.
F You SUZY. F YOU!
Technically, the long-term ownership case is stronger than the case for leases, but REALISTICALLY… people are people and have their wants and desires… such as new wheels.
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This is my guideline. I always assume that the seller is trying to make the most profit from the deal, and is NOT looking out for my best interest. Now, my best interest and the seller’s are sometimes the same, but usually they aren’t.
Leasing is a good deal for some people. My husband and I tend to the type of people who buy a car and drive it into the ground. My husband and his brother love to tinker with cars, so our repairs are much cheaper than most people’s.
Ah, a fellow Suze Orman hater, pleased to meet you friend.
To the OP… leasing a car is something you want to do if it is for business. You can write off just about everything.
Sure - if you’re a car person, and having a car that has more than the bare minimum is something you enjoy, absolutely, spend your money in the way that makes you happy. No different than any other hobby.
But if you’re not a car person, and your main purpose for having a car is to get you & your crap from here to there reliably, then the economics of the matter should be your main deciding factor. In that case, you shouldn’t let the dealer talk you into a lease, because you’d have been happier keeping a car for a long time and spending the money on something else, like stamp collecting or travel or fine dining or whatever else makes you happy.
I have always approached cars as being appliances instead of hobbies or status symbols. Leasing would not make sense for me.
Sure - and most people are grasshoppers, living from paycheck to paycheck at best.
FWIW Suze Orman has always taken a long-term, safe view, and she practices what she preaches. The last time I saw an update on her portfolio she had 96% of more than $25M in municipal bonds, and 4% in stocks. That’s a textbook definition of someone taking the long view.
Suze Orman has done a lot of back peddling lately. Like now she says there’s nothing wrong with renting for life and the housing market has changed forever so all her previous advice may not apply.
As other posters said, there is a formula out there, I used to know where it was, where you can put in your data and it will tell you at what point it makes sense to buy and what point it makes to lease.
Hey, that was my thread! I’d forgotten I asked the same question before. :smack:
Huh? The long view?
Stocks/equities is only place to be for the LONG VIEW. The S&P 500 index handily outperforms bonds over any 20 year period you care to choose including the Great Depression.
She has some good basic ideas if your financial education is crap (most people are not really prepared to handle money wisely). But that portfolio percentage, if accurate, is upside down to where you should be currently (I am not your financial advisor:)).
The long view in terms of locking up an investment for anywhere from 15 to 30+ years like most munis.
I read that thread, where you claimed that:
However, according to “The Millionaire Next Door,” 94% of millionaires own their cars, meaning that no more than 6% of “the wealthy” lease.
If thinking that most wealthy people lease is a good argument for leasing, does learning that you were wrong change your mind?
P.s., I’m a leaser, even though I recognize that it’s not the most economical way to own. I enjoy driving new cars and I can afford it. I wish they brought back 2-year leases, because I tend to get bored with driving the same car for 3 years.
I’ve not read the book, my suggestion that virtually all wealthy people lease is anecdote, if you don’t believe it, I won’t argue. I don’t see why I should change my mind about anything I posted though.