Why is leasing a car a bad idea?

[hopefulfirefly]

I have always leased my vehicles (I'm only 25, so I guess it really hasn't been that long), and I was putting about 30,000 miles on my car every year and I really believed that trading in my car with 60+ miles on it was the perfect time to get rid of it, because I had no maintenance expenses aside from oil changes.

My lease is up again next year, and now I only travel about 15-18K per year. I always hear finance people say that leasing is a very bad idea. Under what conditions is that considered true? How long would I need to keep my "owned" vehicle for it to be a better deal than leasing? I just don't see myself as someone who will keep driving the same car for 7 years. Is that what I need to condition myself to do?

Also, I have to have an SUV. My dh is almost 7ft tall, he literally does not fit in cars, a truck or larger SUV are the only options for us to be able to travel in the vehice together. Not sure if that makes a difference in my decision to lease vs. buy. Thanks for your thoughts!

[jIM_Ohio]

Generally speaking if you lease, you have a car payment every year, and that payment is probably between $200 and $700/month. That expense will never go away and probably increase (because of inflation) with each new lease.

If you buy the car (and finance it), you have 5 years of a payment (between $200 and $700), then another 5-10 years of NO PAYMENT. That is between $2400 and $8400 in your pocket pet year- over 10 years that is $24,000 to $84,000 in cash available to you.

That being said, my wife leases her cars- she travels for a living and puts close to 30,000 miles on her car per year. We decided to lease because she can turn car in at 100k miles, get another one, and have reliable transportation when she is 75 miles from home in middle of rural Ohio.

[momof1in150]

If you can write it off then lease it but if not then buy it. I can write off part of my car because I am a Realtor but we still own it because I can't write all of it off.

[hopefulfirefly]

[quote=jIM_Ohio;176233]
If you buy the car (and finance it), you have 5 years of a payment (between $200 and $700), then another 5-10 years of NO PAYMENT. That is between $2400 and $8400 in your pocket pet year- over 10 years that is $24,000 to $84,000 in cash available to you.
QUOTE]


That assumes that I keep the car for 10 years AND it doesn't factor in the cost of maintenance. (Sidebar: I'm a girl-and although it's slightly stereotypical, I don't ever maintain my car (I realize not all women are this irresponsible with their cars). I know it's bad, but I don't rotate tires or do any other maintenance besides oil changes). Fixing a car is expensive...I wonder how much I'd really be saving once the cost of maintenance and repairs are factored in. Plus, keeping a car for 10 years? That seems like a very long time! I would expect almost anyone's vehicle needs change in a ten year time. I'm not trying to argue your point-I just have heard this argument before (about not having a payment for x number of years), but I don't quite know if I fully understand that logic-once maintenance and repairs are factored in.

[momof1in150]

You do realize that if you lease a car you need to perform the routine maintenance of the car. You need to turn in those service records as part of the final inspection. Just because you lease a car doesn't mean you don't take care of it. The final inspection of the car can cost you a lot of money when you turn the car in. We had to replace 3/4 tires, the windshield and pay for a touched up scratch. It cost well over $1000 to do this.

[noppenbd]

It's easy to wave your hands and point to things like repairs and maintenance as justification when you don't use real numbers. Here is an example using Edmund's True Cost to Own data for a 2008 Toyota Sequoia.

Assuming a 60 month lease vs a 60 month loan. Payment for the lease is $403 a month, for the loan it's $569. Assume you pay $29500 for the car and put 10% down ($2950), and it's worth $15000 after 5 years.

During the 5 years, you will have the following expenses on the leased vehicle:
$403 payment * 60 payments = $24180

During the same 5 years, if you bought the car instead:
Depreciation: $14500
Financing: $5000
Maintenance & Repairs: $5100
Total=$24600

So the cost over those 5 years is almost identical. However, in the case of the purchased vehicle, at 5 years you now OWN the vehicle. So even if you decide to get rid of it, you can still pocket the $15000 value of the vehicle towards the purchase of your next car. If you choose to keep driving it you are going to be even more ahead with the purchased vehicle.

[Scanner]

If you can write it off then lease it but if not then buy it. I can write off part of my car because I am a Realtor but we still own it because I can't write all of it off.

Even then. . .check with your accountant. Even with the write-off, you rarely come out ahead IMO.

I have had a business for years and always bought and depreciated the car vs. lease.

You always get screwed on the lease. I don't know what the leasing companies are smoking on the "lease end values."

[jIM_Ohio]

[quote=hopefulfirefly;176239]

Originally Posted by jIM_Ohio

If you buy the car (and finance it), you have 5 years of a payment (between $200 and $700), then another 5-10 years of NO PAYMENT. That is between $2400 and $8400 in your pocket pet year- over 10 years that is $24,000 to $84,000 in cash available to you.
QUOTE]


That assumes that I keep the car for 10 years AND it doesn't factor in the cost of maintenance. (Sidebar: I'm a girl-and although it's slightly stereotypical, I don't ever maintain my car (I realize not all women are this irresponsible with their cars). I know it's bad, but I don't rotate tires or do any other maintenance besides oil changes). Fixing a car is expensive...I wonder how much I'd really be saving once the cost of maintenance and repairs are factored in. Plus, keeping a car for 10 years? That seems like a very long time! I would expect almost anyone's vehicle needs change in a ten year time. I'm not trying to argue your point-I just have heard this argument before (about not having a payment for x number of years), but I don't quite know if I fully understand that logic-once maintenance and repairs are factored in.

10 years for a honda or toyata is expected. I know someone with a corrolla, 15 years old 350k miles and still running strong.

Maintainance costs pennies on the dollar.

I look at it like this- my car (truck) payment is $700/month

In August of 2010 that truck is MINE. Assuming it costs less than $700/month to change the oil, rotate the tires and calibrate the brakes, then I come out ahead.

So a $1000 repair is 1.5 car payments for that year. Assuming I have less than "12" car payments, I come out ahead.

Most people finance cars for longer, so their payment threshold is less (for example if your car payment was $350/month, that $1000 car repair is worth 3 car payments to you).

My first car I financed for 5 years, the next one for 4, the next one for 3. My next car will be financed for two and the next one I will attempt to pay cash for. When you get to this level (where payments are $1000+/month), then you realize that a $200 maintaince bill or $1000 repair is nothing.

[savingmama]

Why not buy a nice used SUV? Right now is the perfect time because people want to get rid of the gas guzzlers, with gas prices being so high.

[disneysteve]

Originally Posted by hopefulfirefly

I just don't see myself as someone who will keep driving the same car for 7 years.

Originally Posted by hopefulfirefly

Plus, keeping a car for 10 years? That seems like a very long time! I would expect almost anyone's vehicle needs change in a ten year time.

Ah, you are young, Grasshopper.

(So young that you probably have no clue where that reference comes from.)

I currently drive a 1998 Toyota Camry that I purchased 1 year old as a dealer demo in August 1998. So I've had it for 10 years and it is 11 years old. It has 105,000 miles. It has been paid off for many years. I have no plans to replace it. Yes, I spend money on maintenance and repairs but generally no more than $1,500-2,000/year, or less than $200/month. If you can find me a comparable new car for under $200/month, let me know.

My wife drives a 2000 Toyota Sienna that we purchased used in September 2002. We paid cash. So we've had it for nearly 6 years and it is 9 years old. It has 109,000 miles. We have no plans to replace that one either.

My medical assistant at my office has a 1998 Toyota Corolla. Last time I checked, she had 279,000 miles on it and she has no plans to replace it.

noppenbd gave you a very nice breakdown of the advantages of buying vs. leasing a new car. Do as savingmama suggested, though, and buy a used car and the scale tips even more in favor of buying over leasing since used cars depreciate at a much slower rate than new cars.

Leasing is a good deal for one person - the dealer. It is a lousy deal for the customer.

By the way, I'm of the opinion that if you need to finance a car for more than 3 or maybe 4 years, you can't afford it. Buy something cheap enough to pay off in 48 months or less. That may mean buying something older or smaller (though smaller might not be an option for you).

[hopefulfirefly]

Ah, you are young, Grasshopper.

(So young that you probably have no clue where that reference comes from.)

Lol, you are so right! My dh is 8 years older than me, I had to ask him!

Thanks for everyone's advice and suggestions. I really never knew that cars would last that long and people actually kept them that long. You've definately convinced me to buy instead of lease. Thank you!

[disneysteve]

Originally Posted by hopefulfirefly

I really never knew that cars would last that long

I should introduce you to my cousin. He has 3 cars:

1. 2000 Toyota Avalon
2. 1960 Chevy Corvette
3. 1955 Pontiac Safari

So his oldest car is more than twice as old as you. He isn't the original owner but he has had it for nearly 20 years.

[Snave]

A used SUV would be a steal right now. I would look for a 3-4 year old Tahoe or Yukon or something like that with fairly low miles and you can probably name your price. I'd find several in your area and call the dealer and just low-ball an offer. If they don't bite, call someone else. I'd let them know you are calling around and just looking for the best price. They know they are just going to sit on the lot. Or, go to craigslist. I watched someone in my area drop the price of a Tahoe drastically over a couple week period.

[simpleyme]

my son just bought a 2003 Yukon Denali (SP?) for 3500 dollars cash! it is nice leather seats Boise sound system not dents a couple small scratches low miles it is a great time to buy used SUV;-)

[Pitman]

Originally Posted by disneysteve

Leasing is a good deal for one person - the dealer.

Quoted for truth.

[psaysofavril]

I've never completely understood people who lease cars. Thanks to all who posted on here. Now I know that, for me, it is definately NOT an option.

[samonwheels]

Leasing a car is not a bad idea. Who says??????

[simpletron]

Originally Posted by noppenbd

It's easy to wave your hands and point to things like repairs and maintenance as justification when you don't use real numbers. Here is an example using Edmund's True Cost to Own data for a 2008 Toyota Sequoia.

Assuming a 60 month lease vs a 60 month loan. Payment for the lease is $403 a month, for the loan it's $569. Assume you pay $29500 for the car and put 10% down ($2950), and it's worth $15000 after 5 years.

During the 5 years, you will have the following expenses on the leased vehicle:
$403 payment * 60 payments = $24180

During the same 5 years, if you bought the car instead:
Depreciation: $14500
Financing: $5000
Maintenance & Repairs: $5100
Total=$24600

So the cost over those 5 years is almost identical. However, in the case of the purchased vehicle, at 5 years you now OWN the vehicle. So even if you decide to get rid of it, you can still pocket the $15000 value of the vehicle towards the purchase of your next car. If you choose to keep driving it you are going to be even more ahead with the purchased vehicle.

you forgot that you have already paid the 15k value of the car to loan company that you could have save/invest that while leasing, thus making leasing the better option. leasing will almost always have slightly cheaper cost(few hundred dollars) over the term of lease/loan because you are financing only the projected depreciation in leasing while finance the entire price in a loan, so less interest is paid out of pocket.

leasing makes sense financially, if you HAVE to change cars regularly. the problem is most people WANT to change cars regularly and don't save/invest the difference.

where i work, people have to go overseas to the on-site location for 3-6 months. I have only have had to do this once for 3 months and i leased a car instead of shipping my car or buying a new/used car and selling it at the end of my stay. shipping would have cost about 1k more than leasing, and buying then selling would have taken a lot more time, risk and more expensive than leasing. so leasing was the best move financial in this fairly exotic circumstances.

I just wanted to show that leasing a car has it place, but it is not for most people because it is worst over the long run as others have shown.

Originally Posted by hopefulfirefly

(Sidebar: I'm a girl-and although it's slightly stereotypical, I don't ever maintain my car (I realize not all women are this irresponsible with their cars). I know it's bad, but I don't rotate tires or do any other maintenance besides oil changes).

my mom knows nothing about cars. she bought a pad of price stickers, which is kept in the recommend maintenaince guide. she puts a sticker with the next maintenaince mileage next to the odometer, and when it hits that milage, she calls up dealership and reads the next maintenaince item from the book. after the maintenaince is done, she writes the next one on a sticker the puts it over the old one and compares the itemized bill to the maintenaince guide. if the dealership says there is something else wrong or wants to do extra work, she says I'll have to talk this over with my husband and my dad will call back later because he knows cars. my mom's most recent van was 12 years old and had 237,000 miles on it when it was trade in for a smaller car(VW rabbit). It was still running fine but with all her kids in college or moved out, she wanted a smaller car.

[noppenbd]

simpletron is correct, I did forget to include the payments toward principal in my example. So I guess 5 years is more of a break-even point in my example. If you keep a new car longer than 5 years you are probably going to come out ahead versus leasing.

[eisor]

We are leasing a car right now, but we are also saving up money to purchase the car in the end with cash. DH's car died on him and we weren't in a financial position to purchase a used car. Financing a car wasn't an option due to religious obligations. So, we needed to lease one. But, we don't plan to trade it in. We are purchasing the car at the end of the lease.