Why is leasing a car a bad idea?

[disneysteve]

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

I had that same thought, but I don't think a lease is a debt. If I rent a car for a day or a week, I'm not taking on debt. I'm just paying an agreed upon price for a service. Leasing is just a fancy term for renting, but instead of renting for a day or a week, you are renting for a few years. Same goes for renting a home. There is no debt involved. You are just paying a monthly fee for the right to live in the property.

[maat55]

I had that same thought, but I don't think a lease is a debt. If I rent a car for a day or a week, I'm not taking on debt. I'm just paying an agreed upon price for a service. Leasing is just a fancy term for renting, but instead of renting for a day or a week, you are renting for a few years. Same goes for renting a home. There is no debt involved. You are just paying a monthly fee for the right to live in the property.

Would not a contract bound by time be considered a debt? You can't just walk away from a lease without a debt to pay. You're basically buying the car or rental property for a time period by financing.

[disneysteve]

Would not a contract bound by time be considered a debt? You can't just walk away from a lease without a debt to pay. You're basically buying the car or rental property for a time period by financing.

I don't know. As I said, I wondered the very same thing. If I sign a contract agreeing to pay $300/month for 36 months for the use of a car, is that a debt? I do owe those payments. eisor, how does your church feel about renting and leasing? Do they treat that as debt? I'm guessing not because otherwise life would be very difficult. You have to live somewhere until you save up enough to buy a house for cash. Everyone would have to stay in their parents' homes until they could buy their own place, which I suppose is possible though rather unusual. Of course, not permitting debt of any kind is already quite apart from the norm.

[maat55]

I'm all for people and churches striving to be debt free. I think they miss the mark on leasing. Saving and paying cash is not that difficult. Buying used and moving up, has worked fine for me.

[moneybags]

I'm all for people and churches striving to be debt free. I think they miss the mark on leasing. Saving and paying cash is not that difficult. Buying used and moving up, has worked fine for me.

I agree. I think the "lease" is just a technicality, when in fact it is really debt that is worse than a car loan.

[eisor]

I don't know. As I said, I wondered the very same thing. If I sign a contract agreeing to pay $300/month for 36 months for the use of a car, is that a debt? I do owe those payments. eisor, how does your church feel about renting and leasing? Do they treat that as debt? I'm guessing not because otherwise life would be very difficult. You have to live somewhere until you save up enough to buy a house for cash. Everyone would have to stay in their parents' homes until they could buy their own place, which I suppose is possible though rather unusual. Of course, not permitting debt of any kind is already quite apart from the norm.

Leasing and renting are ok. We have an apartment lease.

I completely agree that you are bound by a contract and are obligated to pay back the amount you owe. So in essence, it is really a debt you are going to have to pay.

But, the way they put it is if you are paying interest on it it is a debt. With leasing, you aren't paying interest. Well, sort of. Hehe.

I agree that buying used is the way to go. It just wasn't really an option for us. We were stuck between a rock and a hard place. We are finally getting things on track financially. It'll probably be the ONLY new car we ever buy.

[disneysteve]

Saving and paying cash is not that difficult. Buying used and moving up, has worked fine for me.

The "buying used and moving up" part is something that is often overlooked. One magical thing about cars is that once they reach a certain age, depreciation slows to almost nothing. As long as a car is in working order, it will never depreciate to zero. You can use that fact to your advantage.

Let's say all you have is $2,000 and you can afford to save up $100/month. You can go out and find an old, but working, car for $2,000. Keep it for a year. You can then sell it probably for about the same $2,000 that you paid. But in the meantime, you've also saved up $1,200, so you now have $3,200 to spend on the next car. Repeat that a few times and in 4 or 5 years you'll be driving something pretty decent.

[simpleyme]

I know mentioning Dave Ramsey will get always get big groans but he has a excellent video that explains how to buy a car , someone else is talking on it not Dave (the only thing in the video I scoff at is the idea that somehow we are all making 12 percent on our investment I hope you all are but I am not )

Drive Fr&#101 ;e. Retir&#10 1; Rich.

[MiikeB]

Leasing and renting are ok. We have an apartment lease.

I completely agree that you are bound by a contract and are obligated to pay back the amount you owe. So in essence, it is really a debt you are going to have to pay.

But, the way they put it is if you are paying interest on it it is a debt. With leasing, you aren't paying interest. Well, sort of. Hehe.

I agree that buying used is the way to go. It just wasn't really an option for us. We were stuck between a rock and a hard place. We are finally getting things on track financially. It'll probably be the ONLY new car we ever buy.

Although I understand the importance of religious obligations, I think it is ridiculious that you plan to buy the car from the lease at the end. The amount of money you lose doing this is crazy. The payoff for the car at the end of the lease is probably more than you can find the car used.

To the thread in general though, at this time I feel leasing may not be a bad options It provides you with a car that you are not obligated to after 2-3 years, which in these times of rising gas prices and constant innovations in alternate fuel sources will put you in a much better spot if electric cars or ethanol becomes viable in the near future as you could just buy one of these cars without having to worry about selling your car which probably would not sell for much if people are moving away from gasoline.

[maat55]

I know mentioning Dave Ramsey will get always get big groans but he has a excellent video that explains how to buy a car , someone else is talking on it not Dave (the only thing in the video I scoff at is the idea that somehow we are all making 12 percent on our investment I hope you all are but I am not )

Drive Free. Retire Rich.

Great video. Dave uses the 12% figure based on the lifetime average of the stock market. There are many Stock Mutual Funds(DS approved) that average this over the long term.

[disneysteve]

Dave uses the 12% figure based on the lifetime average of the stock market. There are many Stock Mutual Funds(DS approved) that average this over the long term.

Yep, we've had that discussion before. I think I posted a partial list of funds that have done so. Of course, in reality, very few investors actually achieve a 12% return for a variety of reasons. Most folks aren't 100% in stocks. Even if they are, not all funds earn 12% or more. Just a handful of the over 9000 mutual funds do so. You'd have to be rather lucky to happen to have all of your money in those select funds, but it certainly is possible.

I own at least 4 funds that have long term averages of over 12% (from 13.26% to 17.64%) and the S&P 500 fund is off that pace by a bit at 11.36%. And I have a fifth fund with a 10-year average of 21.88%. I haven't achieved those exact returns personally because of how long I've been in each fund, but I've gotten over 12% from a couple of them and over the next 20 years, I hope to get it from all of them.

[aida2003]

DS, where can I find your post with your 'approved' mutual fund achievers? Just curious to take a look because I never came across it.

[disneysteve]

DS, where can I find your post with your 'approved' mutual fund achievers? Just curious to take a look because I never came across it.

I'll have to try and find where that discussion was. It was a couple of months ago. maat, do you remember?

By no means was I "approving" anything or recommending any specific funds. I was just trying to show that 12% returns are possible. I still think DR using 12% as an expected portfolio return is overly optimistic. I'd stick with 8% when doing any planning.

[maat55]

DS, where can I find your post with your 'approved' mutual fund achievers? Just curious to take a look because I never came across it.

In case you are refering the (DS approved) I put earlier in this thread, that was refering to putting Stock in front of mutual fund. I was advoiding one of Steve's pet peeves. I can't remember when we had that discussion, but we did have it quite a while back.

[disneysteve]

In case you are refering the (DS approved) I put earlier in this thread, that was refering to putting Stock in front of mutual fund. I was advoiding one of Steve's pet peeves.

That went totally over my head, maat. I get it now.

aida, I tried to search back and find that discussion, but I have no idea how long ago it was, or what the topic of the thread was, so I couldn't come across it. All I had done, essentially, was scan the performance numbers from a few fund companies and pointed out that there are numerous funds with 12% or greater long-term returns. It isn't hard to find that kind of data.

For example, Vanguard has 5 funds with 10-year averages over 12% (the highest is 26.48%).