Why is leasing a car a bad idea?

[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]

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.

(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.

[disneysteve]

Financing a car wasn't an option due to religious obligations.

That's interesting. Do you think leasing is more prevalent among your religious peers for that reason? If you are restricted from borrowing money, I could see where people might be more likely to lease.

Does the financing restriction include home mortgages? If so, how does that work? Do people just continue to rent? It isn't so easy to save up cash to buy a home.

[eisor]

That's interesting. Do you think leasing is more prevalent among your religious peers for that reason? If you are restricted from borrowing money, I could see where people might be more likely to lease.

Does the financing restriction include home mortgages? If so, how does that work? Do people just continue to rent? It isn't so easy to save up cash to buy a home.

Our church teaches no debt, period (including mortgages). This isn't a requirement or anything. Many people in our church have loans & mortgages. But, since we are also in charge of a bible study group, part of our commitment is to stay out of debt. It's a commitment we have chosen. And yes, it includes mortgages.

We put a lot of thought into leasing the car. We never thought of it as a lease. We are BUYING the car. We are saving money now to pay for the car at the end of the lease. It'll probably be the ONLY new car we ever buy. It is a Scion so it'll last us a long time. We plan to keep it for 12-15 years.

As for the home mortgages, there are many people who go to my church who have mortgaged homes. But, I also know people who have purchased homes without getting a mortgage. My husband and I plan to move around a bit while we are younger and don't have kids. Also, he is getting his masters, so his new job will most likely require relocation. This will give us time to save up our money to build the home that we would like. We plan to live off one income and invest/save the other one.

[maat55]

Dave Ramsey explained some of the pitfalls today on leasing.

When a dealer sells you a car, you know what the interest cost is on the financing. With a lease, they are not required to tell you the amount they include to the payment for financing. He stated that the average lease has a 13% financing cost involved on top of any other charges associated to leases that are not a part of a normal purchase. My guess is that there are surcharges included with leases, not to mention milage requirements that can affect the finish price.

Buying a slightly used car with cash is by far the most economical way to own a car. Cars are a horible investment and leasing is the icing on the cake.

[disneysteve]

He stated that the average lease has a 13% financing cost

Cars are a horible investment

As I posted earlier on another thread, most people don't look beyond the monthly payment. They really don't care, or probably even understand, what the interest rate is or what it means. All they care is if they can handle the monthly payment. Since the payments on a lease are typically lower than the payments on a purchase of a similar car, they think the lease is the better way to go. The lease could have a 50% interest rate and many people wouldn't care, as long as the monthly payment was affordable.

Cars are NOT an investment. They are a purchase. For most of us, owning a vehicle is a necessity. It becomes part luxury when you buy way more car than you need to get to and from work and wherever else you have to go. But unless you are at Barrett-Jackson buying creampuff vintage cars, they are not investments. They don't appreciate in value and you don't buy them with the intent of making money.

[maat55]

As I posted earlier on another thread, most people don't look beyond the monthly payment. They really don't care, or probably even understand, what the interest rate is or what it means. All they care is if they can handle the monthly payment. Since the payments on a lease are typically lower than the payments on a purchase of a similar car, they think the lease is the better way to go. The lease could have a 50% interest rate and many people wouldn't care, as long as the monthly payment was affordable.

Cars are NOT an investment. They are a purchase. For most of us, owning a vehicle is a necessity. It becomes part luxury when you buy way more car than you need to get to and from work and wherever else you have to go. But unless you are at Barrett-Jackson buying creampuff vintage cars, they are not investments. They don't appreciate in value and you don't buy them with the intent of making money.

Technically they are. They are an asset, just a horrible investment. Because there are different levels of how bad you can buy them, I use the word investment. It doesn't make sense to say: Cars are a horrible purchase. And in some cases they do go up in value. (Classic Cars) I think we know what I mean.

[LivingAlmostLarge]

Leasing works if your company pays for it! Or you are leasing it as a company (Business owner). So I've heard but no experience.

One of our friends has a leased prius his company has "given" him while he works for them. Nice perk.

[disneysteve]

Technically they are. They are an asset, just a horrible investment.

I know what you meant, but this is one of those semantic things that is a pet peeve of mine. So forgive me for beating this point to death.

Asset and Investment do not have the same meaning.

Asset: a single item of ownership having exchange value

Investment: the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value

An investment is typically an asset, but an asset is not necessarily an investment.

When I buy a car, I do not do so in order to get a positive return, interest, income or value appreciation. I know that the value will steadily fall for as long as I own it. Thus, it is not an investment.

When I buy shares of a mutual fund, the value may rise and fall, but my intent and expectation is that over time they will grow in value. That is an investment.

So technically, I don't think it is correct to say that buying a car is a bad investment because it isn't an investment at all. It would be like saying that buying a gallon of milk is a bad investment.

[maat55]

I know what you meant, but this is one of those semantic things that is a pet peeve of mine. So forgive me for beating this point to death.

Asset and Investment do not have the same meaning.

Asset: a single item of ownership having exchange value

Investment: the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value

An investment is typically an asset, but an asset is not necessarily an investment.

When I buy a car, I do not do so in order to get a positive return, interest, income or value appreciation. I know that the value will steadily fall for as long as I own it. Thus, it is not an investment.

When I buy shares of a mutual fund, the value may rise and fall, but my intent and expectation is that over time they will grow in value. That is an investment.

So technically, I don't think it is correct to say that buying a car is a bad investment because it isn't an investment at all. It would be like saying that buying a gallon of milk is a bad investment.

Do I have a big bullseye on my forhead? In order to advoid another long winded useless argument, I yield.

[moneybags]

Our church teaches no debt, period (including mortgages).

Wouldn't a lease be considered a debt also? You are obligated to pay a certain amount no matter what.

[disneysteve]

maat, I wasn't directing that just at you. The terms get misused a lot around here. I also don't like when people say "tax return" when what they actually mean is "tax refund". Or when they just say "mutual fund" when what they really mean is "stock mutual fund". Follow my postings and you'll see I post those types of corrections regularly. No target on you in my eyes.