Have you ever heard a financial guru suggest leasing a car is a good idea? Me neither.
And they may be right, but like most financial axioms there should be attached a disclaimer: it depends.
Fans of car leases will tell you they get to drive a new car every two years. That aspect of leasing appeals to me, too, given the amount of advancements in technology, fuel economy and safety that seem to happen with each new model year.
But who wants to shop for a car every two years unless you have a service like Vroom who brings the car to you?
Pros and Cons of Leasing a Car
Again, there are advantages to leasing a car, despite all of the bad press leasing gets in the personal finance world:
- If you lease a car for business you may be able to write off the lease expense on your taxes
- Turn in vehicle for a new model every 36 months
- Those leasing a car only finance the depreciation rather than the entire value of the car
There are also some drawbacks to leasing a car:
- You may be limited to 10,000-15,000 miles per year or face penalties
- You’ll always have a car payment
- Clauses against excessive “wear and tear”
But I Want To “Own” My Car
If you finance your car for 60 months you don’t own that car until it paid for. The lien holder owns the car.
If you don’t believe me just try not paying your car payment for a month or two and see what happens.
For this reason the argument for owning the vehicle right off the lot is a moot point, unless you wrote a check for the car.
I Don’t Want To Keep a Car Payment Forever
This is the reason I have avoided car leases to this point. I generally like the idea of buying a car or truck and driving it for 10-plus years. However, in reality, I have never done that.
I tend to finance cars, pay on them until the loan is paid off or nearly paid off and then I trade the vehicle in for a new(er) one.
If I held my vehicles another 3-5 years the decision would be a no-brainer: financing a vehicle would be the way to go.
A Real-World Lease Vs. Finance Decision
It just so happened the night I was preparing this article I received in the mail a post card from our local Honda dealer.
The “Honda Upgrade Program” included a couple of lease options.
Let’s take a look at a lease and buy option for the 2017 Honda CR-V LX 2WD Automatic:
2017 Honda CR-V: Lease vs Buy
|Yearly Mileage Allowance||12,000||Unlimited|
|Residual Balance (After 36 Months)||$13,149||$10,340|
*Monthly payment calculated on a 60-month financing term with nothing down
It’s All About Cash Flow
You can see from the table above that the biggest benefit to leasing a vehicle is the lower monthly payment – $259 for 36 months sounds a lot better than $442 for 60 months.
Sure, the lease option requires more money up front, and at the end (assuming you decide to keep the car and buyout the residual amount due).
However, here lately one of my biggest motivations has been to protect my monthly cash flow. From canceling unused subscriptions, paying off the balance on my cell phone and refinancing our mortgage I have been working diligently to reduce our monthly outgo.
Bottom line: I’m perfectly happy to continue driving the 20 year-old pickup truck I bought when our debt free journey began.
I’m not happy with the constant repairs, but for now not having a car payment is optimal for our situation. Like I said, it depends.
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The Family CFO: Managing Your Household Like a Business