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Leasing vs buying a car

By Terry Savage on September 07, 2019 | Wild Card

Hi Terry. I have followed and gained a lot of knowledge from your advice for many years. Thank you so much. I was somewhat disappointed however on your take on leasing vs buying a car. I believe that the leasing option depends totally on ones situation, circumstances and temperament. Provided that you have an excellent credit rating, you can lease a car with no money down where if you were to purchase the exact same car , it would require a $12,000 down payment to achieve the same monthly payment for 36 months. ( in my case). That’s a lot of money that can be used to pay down debt or to invest. Yes, at the end of the lease you don’t own the car, but the options are yours, re-lease,purchase, or walk away. If the car turned out to be a great vehicle you could purchase it for about $3500.00 less than what you’ll see on a dealers used car lot. Think of it as a three year test drive. Conversely, if the car was troublesome then you will be glad you didn’t purchase it and continue to pay for repairs for who knows how long after you’ve paid it off. Just give the leased car back and walk away. It happened to me only once and would have needed expensive repairs soon. Just saying, it can be a win win situation for some of us. Like you said, “ use the money you saved wisely “ Thank you Terry for great advice as always.

Terry Says

Thanks for your take on the issue of leasing.  Obviously, there is a huge market for leasing cars.   And in some circumstances, leasing does make sense — especially if you can deduct a portion of the lease payment as a business expense.

But please go back to the video on my website to hear my response.  This question came from an adult son, who was advising his MOTHER!  While I acknowledged that young people might want to lease because they can get “more car” (read, a more impressive, expensive vehicle) for less money since they are only “renting” the car for three years, this was NOT a strategy designed for a presumably middle-aged woman!   The best financial strategy for her was to pay off the car fully and then drive it for another few years (perhaps even paying to extend the warranty).

And, in my experience, the pre-agreed lease/purchase price is almost always as high, or higher, than you could purchase a used car.  Of course, if you buy your own car off lease, you have the satisfaction of knowing its maintenance history– and the fact that is was carefully driven by a “little old lady”!

Meanwhile, enjoy your car lease, and the thrill of a new car every three years.  And put that $12,000 down payment you didn’t need into a Roth IRA so you will at least have something worthwhile at the end of your leasing cycle!

 

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