This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Friday, October 19, 2007

Is Leasing Really Fleecing?

Posted By Paul

Let me start of by saying I'm biased against leasing cars for two reasons:

1) As I mention in my article "Know Your Indulgence" I'm not a "car person" I don't really like driving so I don't really care all that much about cars, for me it's really just a way to get from point A to point B.
2) My first exposure to leasing was right after college when I was shopping for my first new car. I was in this one dealership and the salesman told me about how if I leased a car I could "drive a car that would normally be beyond my means". That statement struck me as so odd that I remember it to this day.

So in my view, leasing a car is essentially like renting an apartment. When you lease a car you:

1) Don't generally have to come up with a down payment (the same way you don't have to come up with a down payment for an apartment, but you generally do for a house).
2) Pay a smaller monthly amount compared to your payment if you bought the car (which is like how renting an apartment is generally cheaper per month than buying a home).
3) You don't really have to worry about the long term care of the car (just like with an apartment you don't have to worry about upgrading the water heater, or putting a new roof on it).
4) When you are done with the lease, you have no ownership of the car (just like when you move out of an apartment you don't "own" any part of it).

It seems like leasing is essentially a life style choice. Some arguments for and against leasing are:

Arguments For Leasing:
-After the lease is up, you can just turn in the car and get a new one, you never have to drive a car that is more than a few years old.
-Because your car is always fairly new, it's unlikely that it will break down unexpectedly.
-Also because your car is fairly new, any major problems are probably covered by the warranty. -You can often lease a car for a smaller monthly payment than you would have if you were to purchase and finance it.

Arguments Against Leasing:
-Yes, your monthly payment is smaller, but it NEVER ends.
-If you plan to keep the car for more than four years or so, then buying it is considerably cheaper in the long run.
-Many leases have mileage limits. If you accidentally drive too many miles during the lease period, you get penalized.

I know quite a few people who lease cars. A very small few of them really do like having fancy cars and are willing to live with the monthly payment for the sake of driving a cool car that they could not afford otherwise. A more common reason is that the person doesn't like taking care of cars. To them a car is something they want to pay for and never have to worry about. The lease option in that case works for them.

For me, my car is 13 years old, and still runs great. I haven't had a car payment for a LOOONG time and I don't miss it. I doubt I'll ever choose to lease a vehicle.

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