Lease or Buy Your Next Car? The Million Dollar Question

Lease or Buy? Lease and Lose.

This topic gets me in trouble every time I get drawn into the lease or buy argument.  If you do not have the goal of ending up with more money at the end of 10 years, then go ahead and lease.  If you are truly looking for the least cost option while having a car to drive, then lease or buy is an easy decision.

“The worst car accidents happen on the showroom floor.”  –Dave Ramsey

  1. Cars don’t make you rich.  In fact, new cars decline in value about 70% in the first 4 years.  If you are a new car recycler (you get fleeced on a new one every 3 years or so), then you are going through life at the most expensive pace.  Lease rates are very high.  You never see the rate, just the payment, right?  So you are ‘renting’ at a high cost; you still have to pay for normal costs of driving, and after 3 years, you do it all over again with a newer, maybe higher payment car.  Meanwhile, you have a harder time saving money because you always have a ‘car payment’.  If you are doing this to keep payments down, you need to examine WANT vs. NEED in your choice of cars.
  2. Think like a dealer. Most car ads only show the monthly lease rate.  Why?  Because the dealers make the most money by leasing.  In fact, they make more on leasing than in sales & repairs together!  Dealers try to recapture that 70% decline in the 3-year lease.  Then they can make a little money on the resale.
  3. Buy the car outright. Americans are so brainwashed to accept debt that we never think about saving money for major purchases.  Poor people look only at payments.  The wealthy look at total cost over a long period.  Pay yourself a car payment for 10-12 months, and buy a used car outright.  Then keep saving and next year trade it up for a better model.  You can sell an older car for almost what you paid for it (less depreciation).  Repeat until you get the car you want.  You’ll never pay a dime in interest and you will have far more money that you can then invest.   Yes, you may have higher repair bills on older cars, but how many cars need $300-$500 every month in repairs?  It will be far more embarrassing to grow old and run out of money than it will be to drive a basic car for a while.
  4. Never buy new. Because of the huge up-front depreciation of vehicles, the sweet spot to buy a car is usually around 3-5 years old.  Look for lower mileage and fewer owners.  Negotiate the best price and pay cash.  All the major financial magazines will tell you this.  Don’t be sucked in by the Safety Story of new car manufacturers.
  5. Take a step back. Consider why you have a car at all.  Maybe public transportation is a far better option if you pay now for lease or loan, gas, tolls, parking, insurance, maintenance & repairs.  Uber and Lyft have made car ownership optional in many areas if your need is sporadic.  If you need a car to earn income or get needed medical care for instance, then ownership is more than just a convenience.  And, do you really need one for every driver in your house?  Just think objectively about it.

If you buy used cars, pay cash, and invest what the “payment” would be, you can accumulate over $1 million dollars in your lifetime.     –AssetBuilder.Com

In our country, it is often the case that the more flash you see, the more debt lies under the surface.  Don’t try to keep up with flash.  It’s not the same as wealth.  If you want to understand how real wealth is born, take your tips from the classic, The Millionaire Next Door.

Your health and peace of mind are worth every step of this journey.