How to Buy a Car Without Using Credit/The Truth About Financing vs Leasing

NOTE: This post has been updated into a much easier to comprehend post here:

How to Buy a Car Without Using Credit/The Truth About Financing vs Leasing

Most people trying to obtain a car in CA are in a different predicament than people in many other parts of the country. Californians tend to go through cars and “Trade up” more frequently than the non flashy and non hollywood states across the US. I have to stress to you, this is EXTREMELY important to factor in when you’re making your car purchasing decisions.

Now that we got that out of the way, I’m going to say something that will probably mess you up for a long time.

If you are paying on a car, and you keep it under 4 years, no matter if you are financing it or leasing it, every single one of you is leasing.

What? Not possible. Yes. Let me explain.

Johnathan has just walked into the local Ford dealership and decides to finance a brand new 2010 Ford Mustang V6 automatic. The sticker price on the window says 22k. John decides to allow one of the salemen to take him into his office and discuss numbers. John has already done his own calculations on what he can afford, undertands that he has great credit and decides to aim for a monthly payment of about $400/month and nothing down.

While in the office, John and the salesman go back and forth on accessory additions, taxes, warranty,loan term and downpayment until John is presented with a monthly payment of $500/month for 48months…nothing down. John gives in and the salesman goes to his finance manager to try and get John approved for financing. The snake salesman then comes back and informs John that they’ve run his credit and according to Ford lenders, he doesnt qualify for tier 1 financing at 3% (normally a lie). The only monthly payment they could offer is based on a 7% loan at $586/month unless he wanted to come up with a large downpament.

(As an FYI-the more cash they can get you to come up with upfront.. the bigger the bonus for the salesperson).

The $586 a month brings the total cost of the Mustang to $28,160 for the full 48 months he will be paying on it. Knowing he loves this Mustang but also that he doesnt have money for a downpayment, John agrees, signs the paperwork and takes home the bank’s new car. (yes you read that right)

Fast forward to the end of John’s 4th year in his loan where he has decided to trade up and get something else more matching of where he thinks he is currrently in his life. However, before he sells it, he decides to do the math. Ontop of the $28,160 John paid to outright own it over 4 years, he factors in an average depreciation rate of about 15% of the cars value each year. This shows that the car depreciated $8489.25 over 4 years and is now worth only $13510.75. After that, he once again takes the total cost he paid (28,160k) and subtracts how much the car is now worth ($13510.75). He then realizes he just spent $14,649.25 in four years to drive the bank’s car. And no he really doesnt “own anything” because the rate in which he switches out his car, he has just paid the financing company $586/month to rent a car.

He then begins to wonder what the numbers would have been like if he had leased straight out. When leasing, the number one mistake most people make is trying to base what monthly payment they want SOLELY off the cars sticker price. In all actuality, the amount you pay in a lease is based on how much the car depreciates (goes down) in value at the end of whatever term you’re looking at.

Lets say the Mustang John wanted had a sticker price of 22k and was expected to drop in value to $13, 510 (its residual value) at the end of four years. Subtracting the sticker price from the estimated 4 year value leaves you again with the -$8489.25 in depreciation. If you divide the $8,489.25 the car lost in value by the lease term (48 months), John’s base payment should be $176.85. Now factor in interest and taxes, you get about an additional $150 and giving you a total of $326.85 per month. We’re also basing this off placing nothing down so we dont make the scenerio too complex. The monthly payments equal a total of $15,688 he would have paid to the leasing company to drive the car for 48 months. He then factors in possible lease-end fees such as excess mileage, dings and other body damage and gets an additional $1,500 hypothetically spent, thus bringing his grand total to now $17,188.

So now most people would look at that and say, oh $17k to lease when the car cost $22k to buy? I should just finance the car outright! Where their mistake lies is not factoring in the true total cost of financing with interest ($28,100) and depreciation of the car once you own it (-$8,489.25). Remember, it cost John $14,649.25 total (after subtracting deprecation) to finance the car for 48 months. Now on the other hand, with the lease option, it costs $17,188 for 48 months leaving a difference of $2,538.75 that the person who financed the car wouldn’t have had to pay.

But still, why would you pay $2,538.75 MORE to LEASE?

Well besides the fact that you are freeing up more of your cash every month to spend on other bills ($586 car payment vs a $326 lease payment), the following is what it boils down to.

You are about to awaken and realize Tyler Durden doesnt really exist and was a figment of your imagination all along (Fight Club). This is the most important part of all so please pay attention.


Thats right. You would NEVER lease a damn Mustang. The secret to leasing is in the understanding that all you are really paying for is how much the car is estimated to lose value. The more the car you are leasing is expected to go down in value, the more you will pay due to depreciation of its value.

For example, if you are leasing a Hyundai with a terrible resale value, you could potentially be paying twice as much than you would have for leasing something that holds its value much better like say a BMW. THIS is why if you check the employee parking lot at the Ford dealership, the jackass who would have sold you the lease on a $22k mustang (which is expected to lose a third of its value in 4 years), is secretly driving an Infiniti G37 coupe. But he’s leasing the Infiniti for the SAME cost of John’s Mustang monthly payments. This is because even though the Infiniti is 15k more expensive in its sticker price, its still only set to lose about $8k from its value in 4 years. Yes…the same $8k your Mustang is going to lose.

Lets pause here for a minute. I want you to seriously ask yourself…if a car company made more money on consumers from leasing than from financing…why would they only reserve leasing for those with above average credit? If leasing was such a scam, in CA, wouldn’t these car companies’ M.O. be to push leasing programs to every family in Compton? Ahhh…now you understand why. They want you to keep believing its a scam. Besides buying in cash, leasing is the only other way to come close to beating the system. THIS is why when all of the trucks and SUVs that people bought lost half their value last year as gas prices skyrocketed, the first thing these companies did was suspend their leasing programs. All of the people paying a set depreciation value were benefitting tremendously while people who actually financed these trucks were stuck with an automobile that now depreciated twice as much as had been foreseen. All the people had to do who had leases was give the cars back free and clear at the end of their term. Those that were financing were stuck. Lets also not forget leasing is a tax write off for these wealthy business owners.

Ofcourse we could go into how the person leasing has to worry about mileage, dents and dings to the car’s body, and how if you are a serial leaser, you will never own anything. Also if you ARE disciplined in keeping your car for close to 10 years, financing ofcourse beats leasing. But we are talking about knowing yourself and being honest. So if you are constantly preaching car ownership yet you really fall into the constantly upgrading your car category, do not try and kid yourself any longer about leasing.


Why are we continually investing in things that depreciate in value, paying all sorts of interest, fees, high insurance premiums and even deluxe car washes for cars we stopped liking 3 years ago?? Why would anyone need a car that costs over $12grand or if you want to push it, 15 grand?? But if you HAVE to buy something like a $22k Mustang that is depreciating in value every second of the day, the only real way to play the game and take it for what its worth is to buy a car in cash. This isnt even going to be long or complex at all. Why? Because complexity is set up to cost you money so you get confused. Buying in cash is simple. Heres how he could have done it. (even though in reality you would be better off doing this on a MUCH less expensive car. We are keeping the examples equal to be fair)

John walks into the Ford dealership with 22k cash and looks at the sticker price on the Mustang. He had been using a combination of sacrificing, working extremely close to home and utilizing public transportation or ride sharing to save the 22k over the last 3 years. Knowing how hard he worked for this 22k he starts thinking to himself “do I really want to do it this way because as soon as I drive this car off the lot it will lose about 20 percent of its value?”. So again just like the example with real estate, John decides to profit off of someone elses f*ck up and then promptly walks out. He looks in the paper and online for people who got into hard times and are deciding to sell their car after only 2 years of driving it. The same 22k car with pretty much the same body style is now available to him for $17600 cash from a private party (20 percent off of the 22k the car cost from a dealer). He then takes 17,600 and buys the car outright, leaving $4400 in savings.

We now have to factor in the time value of money. Lets say in a typical situation, he could have been earning 3% interest on that 17,600. That equals $2112 in interest he could have earned at the end of 4 years. He adds that as a cost onto the $17,600 giving him a total car cost of $19712. Yes the car still depreciates at the same rate of 15 percent a year for 4 years. However, not only does he have the option to sell it before a typical loan term would have ended without being upside down in a loan, he also just saved over 8 GRAND (the 28,100 it woulda cost in financing minus the $19,712 total it cost to buy in cash). With that 8k he saved, he now has the option to invest it, use it as emergency money, let it grow slowly in a high yielding savings account or atleast benefit from never having to worry about the bank repossesing his car.

Any questions?

(FYI- the Mustang was used just for an example so I could show how someone’s affinity for a car can influence bad decision making. I would never condone buying a car that costs over $15k again…ever. Under $12k is much more preferable. Everything else just boils down to the same thing at the end of the day..wheels, seats and paint. If you REALLY think you need a luxury car then lease it.)
-J.P. Lynn

Learn how to drive free cars here:

Learn more on how to defeat the 12 most dangerous areas in your financial budget by reading my new book:



10 thoughts on “How to Buy a Car Without Using Credit/The Truth About Financing vs Leasing

  1. Ari

    Wow u broke it down so eloquently, what I love is that its simple and the numbers don’t lie! P.S. “REFUCKINGSTUPID” was classic, when do we get to see the financial fuckery dictionary/thesaurus??


  2. This is honestly one of the best blogs I’ve read.. I’m a young person graduating next year and have NO clue what I am doing once I’m in the ‘real world’. Glad to have people like you out here breaking it down in the simplest of laymen’s terms. Any posts on becoming a better saver? Lack of savings has been the bane of my existence for years now, and I need a plan!!!


  3. Pingback: The “Lost Decade” «!

  4. Big fan of this post! Keep up the good work breaking down a common misconception most have on the distinctions between “owning” vs. leasing a vehicle. It’s virtually the same misconception they display when you hear them say, “I’m buying a house because I need a tax write-off.” Drives me insane!


  5. Hi! I could have sworn I’ve been to this blog before but after reading through some of the post I realized it’s new to me.
    Nonetheless, I’m definitely glad I found it and I’ll be book-marking and checking
    back frequently!


  6. Hasiyna

    I feel like a real dummy all these years thinking backwards. I only wished I read about you years ago when I was younger before all the credit mistakes.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s