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To Lease or Not Lease Your Car

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To Lease or Not Lease your Car

One of the most commonly asked questions I get is: should I lease or buy a car?

As I sit here staring at my wife’s lease (which we are way over the mileage), I thought this might be an opportune time to make the case for and against it. As you’ll find, there isn’t a one-size-fits-all answer, but hopefully this article can help steer (pun absolutely intended) you in the right direction.

Currently, my wife and I both lease our cars. This is drastically different from the Andrew Rosen of ten years ago. Then, I always bought used cars–that is until the Toyota Prius came bursting onto the scene. It was the first new car I ever purchased.

My wife, on the other hand, has always leased cars–beginning before we met and continuing until present day. I was always a big fan of her leasing and me owning.

The Case for Leasing:

Having a lease means you are “renting” a car for a certain period of time. During, you are paying the dealership the depreciated amount that renting will have on the car. That way when they get the car back and sell it, they haven’t lost a thing.

To lease a car?

The following reasons are benefits to leasing a car:

1. Finances are tight – Typically, leasing a car is much cheaper than purchasing. Of course you don’t own anything when you lease, but for some that’s OK. If you need to get a car and don’t have a lot saved, leasing is a great way to go. It will allow you to get a car while saving up to purchase one in a few years.

2. Transient lifestyle – As a planner by trade, I recognize not everyone has mapped out the next 30 years of their life like I have. Plenty of people aren’t sure what city they’re going to be in over the next few years. If you don’t want to commit to purchasing an immediately depreciating asset, than leasing might be right for you. I see it all the time. An individual is living in Philly and is trying to get to New York City. They may need a car now, but want to remain flexible for when the big job comes knocking.

3. Safety – This is the main reason my wife leases her car. She practically lives in that car, schlepping three kids all around town. The last thing I want is that call about her car being broken down. Leasing does not guarantee that I won’t get that call, but it does mean she’ll always be driving a car three years old (or newer). Thus, the probability is that fewer issues will arise. Also, the car will always be in warrantee. So, if something does go wrong it’s on the dealership to fix. She’ll also always have some of the newest safety features on the market, a big plus.

4. You don’t drive a lot – An argument can (and will) be made for both sides here. Today, however, I’m speaking to the lease side. If you don’t drive that much, you can get a minimum mileage lease. This can provide you with a pretty decent car at a low price.

5. You’re unsure what you want – This is exactly the reason I decided to lease my current car. I’m not a car guy. But when we had our third child, I knew I needed something bigger than a sedan. Not only that, but with all the deer running around (literally my greatest fear in life) I wanted something bigger and safer. Although, I didn’t want to commit to some big expensive payment and end up hating the car. I also didn’t think a few test drives around a dealership could seal the deal. This is why I made the conscious decision to lease. It’s allowing me to test a car and see if it’s something I want to buy. Looking back, I would 100% lease this vehicle again.

6. Personal life changes – Life can change in different ways. My wife has had three leased cars since we got married. The needs of our family since then have changed drastically. We first had a small little crossover which was perfect for one child. However, that car wouldn’t come close to satisfying our needs today with three children.

7. Because you can – Not every decision in life is about what’s financially best. I have many friends/clients that are well-off and are big into cars. They love getting a new car every few years, as they get sick of their latest toy quickly. It’s as much a hobby as anything else for them.  Let’s be honest, who doesn’t spend a little more than what is “advisable” on their hobbies? I know I do, as my red wine collection is getting out of hand. For this person, why not indulge and lease? It beats getting crushed constantly buying and selling vehicles.

Do any of these items seem like they fit your story? As you know a few of the reason are why I currently lease. Will it be a forever thing? Probably not for me, but I have time to figure it out without a lot of pressure. Now don’t go rushing to a decision, as next week I’ll follow up with my argument for purchasing a vehicle. If you can’t wait the extra week, give us a ring, and we’ll do our best to steer you in the right direction (there I go again)!

Historically, I have been a car owner. From my first car (that baby blue ’87 Buick Regal) to the Red Dragon (still can’t believe my wife married me with that thing), I’ve owned every car I’ve ever had.  But last year, I leased my first car. It’s really helped me understand the benefits to owning against leasing.

Let’s get to why you might want to purchase that next car opposed to leasing:

1. You are handy – If you find yourself somewhat more adequate with a banging thing and a turning thing (my father-in-law calls them a hammer and screwdriver, by the way) than purchasing might be right for you. While you shouldn’t expect much to go wrong in the first few years, the real benefit to owning a car is long term. Every year post pay-off is another year without a car payment. If you are able to fix most things that go wrong with a car yourself, you’ll save a lot of money (versus someone like me who relies on mechanics).

2. You take great care of cars – Speaking of my father-in-law, the guy keeps impeccable care of his cars. Although he does lease most of his cars, it’s the nice ones that he buys. Since he takes such good care of them, there are a few major benefits. First, they stay in great shape for a long time. This way he has many extra years of hassle free car ownership (over let’s say, my wife and I who have three little ones destroying our cars). Second, when he goes to sell, it will be worth more. Thus, he’ll maximize his value on the resell market.

3. You historically own for a long time – When people ask me should they buy or lease, I always respond with a question of my own. How long do you own your cars? If they say 7 years or more, I almost always tell them buy. Even though they are paying more in payments those early years, as long as the later years are on track, they’re saving money.

4. You put a lot of miles on the car – I wish I knew before we leased my wife’s car how much adding that 3rd child would add to her driving. If you drive a lot (say 20,000 miles a year or more), buying is your best bet. Big mileage leases can get very expensive. In those cases, you might as well purchase something safe that historically lasts a long time and drive that sucker into the ground.

5. You don’t drive much – I made the argument in my previous blog that this is a great case to lease a car, too. However, it’s also a great reason to purchase. I have some clients and friends who only drive 6,000 miles a year. (They could own a car for 20 years and only put 120,000 miles on it!) For some of these people, purchasing makes all the sense in the world as it can lead to a decade, or more, of payment free car ownership.

6. To own an asset– I certainly understand when you purchase you don’t pay down the depreciation, as you own the car for market price. Also, the longer you own it the less depreciation you have, as the bulk of a cars depreciation is in the first few years. It’s why buying a car that comes off a certified preowned lease is where you’ll usually get your best bargain. Additionally, you can do what you want to the car. With leasing comes certain restrictions.

7. You can sell it – If you own something, you can always sell it. Thus, owning a car gives you the option to sell, if situations change. Owning also gives you an intrinsic value when you go to trade it in–that’s a real monetary benefit and another bargaining chip when you go to negotiate that next car.

8. You want a Jeep Wrangler– A lot of you are scratching your head at this one. I learned this valuable lesson years ago when a good client wanted to purchase one for her husband for his 50th birthday. I asked her about leasing or buying preowned. She said the payments weren’t much different. Of course I was in shock, so I did some due diligence of my own. Sure enough, Jeep Wranglers hold their value better than any car I’ve ever seen. So, if a Jeep is what you want, stop reading now and purchase the darn thing new.

Jeep Wrangler

So, vanilla or chocolate? Buy or rent? Eagles or anyone else in the NFC east?

These are all very difficult decisions and may shape what your friends think about you. That said there is no real wrong answer to any of these (the exception of course is liking the Cowboys, Giants, or Redskins). The buy vs. lease question is truly very situational. To be fair, these are not the only questions I ask my clients when they are faced with this question.  But, it should provide you with a place to start. As always, don’t hesitate to reach out if you want to discuss your situation personally.

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