Does it Make Sense to Lease a Vehicle?
I am frequently asked if leasing is ever a good idea. The answer is no.
Before you get all excited about tax credits and buying a depreciating asset and all that stuff, let me qualify my statement. If you are a CPA or have an MBA and earn at least $100,000 a year you can make your own financial decisions without consulting with anyone. If you are anyone else, the answer is still no.
People lease because they can’t afford to buy. They get a shiny new car and the payment is $100 less than if they purchased. They will pay for most of the cost of the vehicle and then give it back. They have nothing to show for the lease even though they paid a bunch and covered the cost of insurance, taxes and maintenance. And when they return the vehicle they have to pay for any damage to the vehicle and write a check for “excess” miles. Excess miles are miles that exceed the limit the lessor stated. This can be as low as 10,000 miles per year.
That means that if you commute more than 19 miles one way to work you cannot drive “your” car anywhere but work. And you sure can’t use a leased car for a long vacation trip! If you ignore the mileage charge, you could end up paying almost the entire cost of the vehicle and still have no vehicle!
So what should you do? Buy a car that has the same payment as the lease. It may be used but after a few years it will belong to you and you can trade it for another car or drive it while you save up for a down payment. No, you won’t impress anyone with your car, but after 6 months that leased car won’t impress anyone either.