Should you lease a car?

Should you hire someone to mow your lawn? This seems like an innocuous question, right? But the answer to this question can teach you a great deal about personal finance. Here are the classic answers to the, “Should I hire someone to mow my yard?” question:

  • Of course, your time is worth more than what you can pay someone else to mow it for you.
  • No, it’s an absolute waste of money, and you can do it yourself.
Neither of these classic answers are actually the best answer. In my opinion, you earn the right to make this decision. If you are broke and/or are in debt, then you haven’t earned the right to make this decision. So therefore the answer is do it yourself. If you have earned the right to make the decision, then I still don’t think it’s a money decision. I think it’s a lifestyle decision. You don’t want to mow your lawn? Cool with me. Pay someone to do it. I don’t think it’s a poor financial decision at all, as long as you’ve earned the right to make the financial decision. I feel the same way about leasing a car.
I received this email the other day. Check it out:
Soooo…. I was having a vehicle discussion with my brother yesterday and I mentioned to him that I might look into leasing my next vehicle and my mom chimed in to say that was a terrible idea because in the end, you don’t own anything.  I’m not that concerned about having something of “my own.”  Should I be?
I’m 30 yrs old, not married, and the thought of a newer vehicle (aka maintenance-free vehicle) sounds pretty good to me!  Others I know lease and the idea of having something newer every couple of years for that reason of having less maintenance with a newer vehicle would be nice (I probably have to have something “major” done every year, if not every other, i.e. new brakes, electrical issues, steering column something or other, new tie rods, etc.).  I don’t necessarily need a brand new vehicle for looks or anything — I’m not concerned about that.
My current vehicle is nearly 10 years old (I’ve had it for about 5), has 137K miles on it, and I will have it paid off this year.  I plan to drive it as long as I can but want to have something in mind for when/if I have to look at a “new” vehicle (rather than be in a fire-drill situation where I have to make a fast decision if something happens to my current vehicle and in the end not knowing if I made the best financial decision for myself or not).
Can you identify some pros & cons to leasing vs buying for me please?  I’m trying to educate myself on this topic so I know what to do in my situation when the time comes.
Thanks for your help in advance!

Lauren

There is a not blanket answer for the question “Should I lease a car?” Whereas some financial experts will tell you that it’s a waste of money to rent a car, I completely disagree. That being said, I personally will never lease a car. I hate having a car payment. I don’t care whether the car I’m driving is “under warranty” or not. And I don’t care about having the latest, greatest car. I’ve earned the right to feel this way.
If you constantly want a new car, want it under warranty, and don’t mind having a car payment, then consider leasing…if of course you have earned the right to choose. If you have a ton of debt, several other monthly payment obligations, and you don’t know what the level of your financial stability will be in the near future, then you gotta stick with the car you have.
The reality is that, in a vacuum, you shouldn’t lease. The down payment plus the renting plus the constant payments equals generally not a good idea. But we don’t live in a vacuum. I don’t think that leasing makes financial sense. But having helped thousands of people over the last 14 years, I know that “it doesn’t make financial sense” isn’t always the divine directive that it should be. I can tell you that it doesn’t make financial sense, but if you value a low monthly payment, a relatively new car, and a car that’s consistently under warranty, do you really think that I’m going to convince you to not lease with a simple “it doesn’t make financial sense?”

I don’t think you should eat red meat. I don’t think you should smoke. I don’t think that you should use recreational narcotics. So what am I supposed to do, say screw you and wish you luck? No. I need to help you operate your financial life within the constraints of your lifestyle preferences. It’s the financial abstinence conversation. I’m never going to convince you that not driving a new car is better than driving a new car. It’s not going to happen. Therefore my solution is simple: earn the right to make the decision. If you don’t earn the right, via sound financial principles, then you don’t get to indulge your preferences.

So it looks like this. If I got to choose your car acquisition method, then I would choose the following in order:

  1. Pay cash for a used car.
  2. Pay cash for a new car.
  3. Buy a used car with a loan.
  4. Buy a new car with a loan.
  5. Lease a new car.
  6. Don’t ever lease a used car.

This list is based on what I value in a vehicle. It also happens to make the most financial sense. But if you value different things in a vehicle, then just be smart. Earn the right to indulge your preferences. Otherwise, you will be forced to drive what you are driving for much longer than you want to drive it.

6 thoughts on “Should you lease a car?

  1. Your answer wasn’t what I thought it was going to be in light of your recent post about renting vs home buying.

    But I suppose the difference is that I can easily save up a couple thou to toss at a used car, therefore have no car payment, and put the value of the car payment into a safe place for later.

    I can’t easily save up a couple hundred thousand dollars to put towards a house purchase though, therefore rent or mortgage depending upon your situation.

    I have bought two new cars in my lifetime because my parents taught me not to buy someone else’s problem. Two used cars later, I’ve since shifted my opinion to “let someone else pay for the drop in value.” I too, don’t think I’d ever lease because I’m paying a premium for a depreciating vehicle.

    BTW, I love renting. But am currently buying a house.

  2. Also not what I expected your answer to be. There are other variables that factor in… for example, I pay someone to mow my lawn because a) I don’t own a lawn mower, b) I don’t have anywhere to store a lawn mower even if I did own one, and c) there’s no one else at my residence to mow, so if I don’t have time one week (or two), my yard goes to crap.
    But I suppose the car acquisition method of steps makes sense — so I’ll go with that. :o) Thanks for your help, Peter!

  3. I’m not surprised at all, Pete. Great advice. Earn the right to make that (and any) decision. I did want to follow-up on one thought. Given that you’ve “earned the right” to decide whether to lease or purchase a car, is there any huge point in “owning” or “trying to own” a car (or any rapidly depreciating asset)? Seems like I’ve been told that I need to “own” stuff, rather than “rent” it, but if the value is depreciating, maybe I’m missing the point.

  4. I’ve never had a car payment in my life. Seems almost unAmerican to say that. But I’ve earned the right to pay cash now for most any new car I would want! But, because of lifelong financial principles that put me in this debt free position, I do not see value in brand new cars and simply pay cash for a 2 year old model with approximately 24,000 miles on it and some existing OEM warranty so as not to buy someone else’s problem. I keep my vehicles until 115K and sell, donate or give them away before the 120K major scheduled maintenances are due and the interior wear and tear starts to show. I bought my current vehicle, a $52,000 Cadillac CTS, when it was 2 years old for $25,000 or about half price with 24K miles. I’ll get 91,000 miles of usage for less than half the original new price versus only 24,000 miles of usage the new owner got for their similar expense.

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