Most personal finance experts would tell you that cars are a terrible investment. Cars are a \u201cnecessary evil,\u201d a steep price to get from Point A to Point B. You\u2019re leaking money on a depreciating asset.<\/p>\n
They\u2019d tell you to avoid debt a car as best you can. Owning a depreciating asset is one thing, but it\u2019s far worse to borrow money against that asset. <\/p>\n
And they\u2019d tell you that leasing a car might be even worse<\/em> because you won\u2019t even own it at the end of the day! <\/strong><\/em>You\u2019ve got all the negatives of purchasing or borrowing, but without the benefit of, you know, owning the car<\/em>. <\/p>\n All of these points are directionally correct. I agree with them. <\/p>\n But I went out and leased a car anyway. <\/p>\n If \u201cleasing\u201d is one of those phrases you\u2019ve heard before but never been sure of, it\u2019s simpler than it sounds: <\/p>\n Leasing a car is a long-term rental agreement that allows you to drive a vehicle for a set period and\/or set number of miles. A lease agreement generally includes: <\/p>\n Just think of it as a multi-year car rental. <\/p>\n A few years ago, I wrote a comprehensive analysis of the cost of car ownership<\/strong><\/a>. Simply put, most car ownership analyses on the Internet are woefully insufficient, and lead to incomplete, incorrect answers. <\/em><\/p>\n The short output of that analysis is that: <\/p>\n **Yes \u2013 a lease involves an interest rate, which means it\u2019s related to your personal credit score<\/em>. <\/p>\n Now, every<\/em> way in which you buy a car \u2013 new, used, or lease \u2013 involves some shared costs: <\/p>\n In my case, I am not paying for maintenance or repairs (nice). But I did pay some extra dealer fees (eww) and the lease agreement involves an interest rate (double eww). <\/p>\n I ran my specific numbers and am undoubtedly paying a premium to lease this car. <\/p>\n The most popular argument against leasing goes like this: <\/p>\n You make all of those monthly payments, and after the lease is all done, you have nothing<\/strong>. You don\u2019t own the car. So of course<\/strong> leasing is going to be a terrible financial deal. <\/em><\/p>\n<\/blockquote>\n The argument is that possessing a car \u2013 owning that asset<\/em> \u2013 simply must be a better deal than leasing. Right?! <\/p>\n Unfortunately, that argument is incomplete. <\/p>\n Because the car that you could<\/em> be owning is, in fact, depcreciating beneath you. The early years of car ownership are the worst<\/em> years of depreciation. Just how bad is it?<\/p>\n CarEdge <\/a>has excellent data about car finances. Since I leased a Hyundai Tuscon, the depreciation graph below is worth looking at: <\/p>\n It shows that, after 3 years, a once-new Hyundai Tucson will be worth 65% of its brand-new value. That\u2019s $12,600 of depreciation for this specific car. There will also be repairs and maintenance over the next few years, though we\u2019d expect those costs to be relatively low for a new car. Perhaps a few hundred dollars per year? There will also be fees and taxes associated with buying a new car \u2013 here in NY, the 8% sales tax alone on a $36,000 car is $2900. <\/p>\n The point is that purchasing a brand-new Tuscon would cost me at least $16,000 over the first 3 years of the vehicle. <\/p>\n That money is gone<\/strong>. If you want to argue that leasing is \u201clighting your money on fire,\u201d then you must accept that buying is the other side of the same exact coin. Leasing vs. Buying<\/em> is simply about which Devil you\u2019re willing to work with. <\/p>\n My leased Tuscon, including monthly payments, repairs and maintenance, fees, taxes, and loan interest will cost $17,180 over the next 3 years. <\/p>\n Yep. $17K for the lease is<\/em><\/strong> <\/em>more expensive than $16K for the purchase. <\/p>\n I still haven\u2019t hinted at a pretty important question: If leasing is a subpar financial move, why even consider it in the first place? Why did I do it? How many times did I fall and bump my head? <\/strong><\/p>\n Don\u2019t worry. I\u2019m lucid. <\/p>\n I believe that<\/strong> particular life scenarios create an intangible, hard-to-measure value for leasing. <\/strong>And my family is living one of those scenarios right now. <\/p>\n We have a 6-month-old baby at home. And, at least for now, we plan to have more kids in the future.<\/p>\n My old car (a Rav4) was 13 years and 170,000 miles old. We wanted something a little more new \u2013 for safety, for comfort, for professional reasons too.**<\/p>\n **While some clients appreciate a financial planner who frugally drives his car until the wheels fall off, other people understandably ask, \u201cThe guy with rusty rims is giving me <\/strong>financial advice?!\u201d<\/em> Put another way: there is a difference between being frugal and being cheap. We each draw that line in a different place. I\u2019d rather not flirt with too many of those lines. <\/em><\/p>\n So, a new car was in the cards. But we didn\u2019t just want to get a car for today<\/strong>. We also asked \u2013 \u201cwhat\u2019s life going to be like in 2025 and beyond?<\/em>\u201d Specifically, what car needs<\/strong> do we have in 2025 and beyond? <\/p>\n Quite simply, I have no idea how to answer those questions.<\/p>\n For all these reasons (and many more), our most significant consideration for today\u2019s car purchase was future flexibility<\/strong>. We want to be able to have a clean slate in three years and rethink our car situation from the ground up. <\/p>\n The finanical question, then, is \u201cwhat cost am I willing to pay for that future flexibility?\u201d<\/em> <\/p>\n I know it won\u2019t be free. If I need extra upside (flexibility), it will come with extra cost. I know that leasing won\u2019t be a cheaper option \u2013 it won\u2019t be both more flexible and<\/em> cheaper.<\/p>\n But for my scenario, the extra ~$1000 amortized over 36 monthly payments** will buy us that flexibility. I\u2019m going in eyes wide open. I can accept that price for flexibility. <\/p>\n **Not to mention, the $36,000 that I otherwise would have spent on buying the car is currently sitting in a high-yield bank account earning ~$120 per month.<\/em> That interest more<\/strong> than covers the extra monthly cost of the lease. So now I\u2019m genuinely wondering\u2026is my lease actually cheaper?!<\/em> <\/p>\n The point is, as with many finanical planning topics: <\/p>\n So if you see a guy racing by you in a new-ish Hyundai Tuscon, well, that won\u2019t be me because I don\u2019t drive that fast. <\/p>\n #fuelefficiency<\/p>\n Thank you for reading! If you enjoyed this article, join 8500+ subscribers<\/strong><\/a> who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters<\/strong><\/a> before signing up. <\/p>\n -Jesse<\/p>\n Want to learn more about The Best Interest\u2019s<\/strong> back story?<\/em> Read here<\/a>. <\/p>\n![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2024\/12\/image-2-1024x683.png\")
<\/figure>\n<\/div>\nWhat is Leasing?<\/h2>\n
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Why is Leasing Such a \u201cBad\u201d Deal? <\/h2>\n
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<\/figure>\n<\/div>\nSome Quick Numbers\u2026<\/h2>\n
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<\/figure>\n<\/div>\nThe Upside of Leasing\u2026?<\/h2>\n
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