What they won’t tell you: Leasing car a car is now the smartest car choice for most people
Allow me to explain.
Americans are keeping their cars longer these days – this we know. The average we keep our financed cars before running back to a dealership is going on almost 6 years.
But you know whats also true? A. New cars are getting more expensive and B. we’re taking out longer loans than ever to pay for them.
This means that those who buy new cars are paying on average $472/month over…you guessed it….72 months. (6 years)
Yes, that car you were so dead set on owning has been going down in value over those same 6 years while newer cars being created are going up in value every year.
So once its time to trade up, years after your warranty and maintenance plans have expired, the car you trade in is worth less (not “worthless”) and your payments become, again, $472/month. (we’re going to give you the benefit of the doubt and say you aren’t one of the many actually trading up with negative equity in your current car, read about that here –> https://thisiswhyubroke.wordpress.com/2012/01/02/the-lost-decade/ )
Now lets take the average lease for a lower mid priced sedan on the other hand via a typical national offer: $270/month (with downpayment averaged and taxes factored in).
Quick math shows us we’re dealing with about a loss of about $200 in cash-flow for the “owner” vs the leasee.
We’re not factoring in the effect of having a more fuel efficient car every 3 years (data shows autos get more efficient yearly), not factoring in lack of maintenance (this is huge) and not factoring in the intangable mental benefits of (typically) always driving a worry free car….
But guess what investment gain that translates into for the lease holder?
**$1,074,171.90 over 40 years.**
Yes, thats a million you’re giving away for listening to what others tell you – without doing the math for yourself.
The secret is and always has been monthly cash-flow.
Yes, time is important but its not necessarily just about time, but cash-flow as well.
A couple caveats –
- As you’ll always hear us say, centrally locating yourself and using a creative mix of public transportation/personal non motorized transportation and/or Uber is the best transportation for city dwellers.
- For those who feel they must have cars however, and you are purchasing cars every 6 years, financially you’d be better off leasing. Leasing a car that holds its value is literally killing all other new car options right now.
- The best way to lease a car is to pre-pay the lease for those 36 months in advance (commanding a discount and forcing you to buy only what you can afford).
- You do not need credit cards, mortgage loans or any other FICO score tricks.
- Simply do the first lease (which you will pay more initially – you can do as little as 24 months if you like) and the second, third, fourth lease is based on keeping that lease in good standing.
- If you are paying on student loans consistently and without deferment, then its that much easier for that first lease.
- Absolute smartest way to lease is through a business entity you operate so its not attached to your name in the first place.
- None of this applies if you keep your car for 10 -15 years, then yes leasing is exponentially more expensive. *But then again, no matter what you say to yourself at the car dealer, the data shows you’re not keeping your cars for 10 -15 years. And nowhere near it in California. And that is why you’ll find in the first sentence of this post – “most people”.
Now you know.
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