Financial Freedom

Is Car Leasing Stupid?

This is a topic that gets people angry. I mean, folks coming after you with pitchforks and torches in the middle of the night, angry—especially financial gurus.bmw-1783573_1920

Have you ever heard this wise adage of the successful and wealthy?

“If it appreciates, buy it. If it depreciates, lease it.”

Well, apparently that pertains to everything except cars. Or so they say. You see, they’ve crunched the numbers and found that if you buy a slightly used car you will end up paying less over time than if you lease a new vehicle every three years (you can only lease new cars).

Regardless . . . . I lease my cars. This is based on years of experience. I used to buy cars, but they always started having problems after four or five years. Lots of repairs, thousands of dollars, fun times. Maybe I just chose bad cars, or had bad luck, but it doesn’t matter.

When I lease, I don’t have to worry about that. Some dealers even provide free maintenance (oil changes, tire rotations, etc.) when you lease. Even if you don’t come out ahead in terms of dollars (debateable when comparing my past repairs), you have less headaches. I’ll talk about this more in future posts, but being smart with money doesn’t mean you can never have or do anything nice. It means being VERY SELECTIVE about what is worth spending extra on. For me, it is worth it not to have to worry about breaking down on the highway, and to not get stuck with a particular car since I can just turn it back in at the end of the lease.

Another aspect to this is that I’m a huge proponent of investing all the spare money you can. So instead of paying for a used car with a giant lump of cash up front (like the finance experts insist), I’d rather put that money to work earning passive income. You do have to be honest with yourself about whether you would really invest that money though. Most people would spend it, and many are not aware that the historical average yearly return of money in an S&P 500 index fund is 10%.

Factor all that into the number crunching and leasing starts to look pretty smart. Not to mention, new vehicles get better gas mileage and have the most advanced safety features. But I digress.

Of course, leasing isn’t for everyone. It works for me. Weigh the pros and cons to determine what works best for you.

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