Leasing a Car: One of the Dumbest Financial Moves I’ve Ever Made

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A few years ago, I fell victim to a common scenario: Jones-itis.  Surely you know someone who has come down with this ailment?  The symptoms are: feeling inadequate around your neighbors and friends, desiring to “fit in” with the crowd, a general feeling of wanting more than you currently have, for no other reason than other people have those things.

Familiar?  I figured as much.  Most of us have fallen prey to this disorder at least once in our lives.  Here is my long story.  (If you just want to know my opinion about leasing versus buying, skim to the end!)

My story begins on the front porch of a very fancy mountain resort in the Appalachian Mountains.  My husband Greg and I were there with a couple dozen of the top financial advisors in the firm with which I’m affiliated.  The premise of the meeting was to share ideas about our financial practices and spend some time enjoying each others’ company.  (Which pretty much means talking shop the entire time, because that is what we enjoy, ha!)  The long weekend was very rewarding: it was both relaxing and invigorating, due to all the great ideas I gathered.

We were on the front porch at the conclusion of our time together, waiting for the valets to bring around our cars.  (This was a purely regional meeting, so everyone drove to the destination.)  As we all stood there waiting for our cars, we chatted amiably about the fun time we had had and about how much we had learned.  Car after car pulled up.

Or should I say, luxury car after luxury car pulled up.  REALLY nice cars.  Expensive cars.  Shiny, CLEAN cars.

And then our car pulled up: an older, small-sized, moderately-priced (but fully paid for), and dirty SUV.

I turned to grin at Greg and spotted his look of abject horror.  I was experiencing two very different reactions at once: pride and joy at our choosing thrift over status, and complete, utter embarrassment and concern over what everyone else must be thinking about us.

We decide to upgrade

When it comes to vehicles, Greg is far more interested and concerned than I am.  He’s the one that takes care of our cars, and he’s the one that is eager to upgrade every few years due to newer technology and safety features.  And to be frank, he just enjoys new toys.  I, on the other hand, worry endlessly about things.  I like to keep things nice, and so new cars make me extremely nervous.  I worry about getting door dings or otherwise messing up a nice vehicle.  Cars need to be reliable and safe, from my point of view.  Get me from Point A to Point B in one piece, and I’m happy.

Nevertheless, during the ensuing months after the holy-smokes-look-how-much-we-don’t-fit-it-here experience, we talked a bunch about replacing my car.  I had already expressed interest in having a somewhat larger SUV, since I had recently rented one for a work-related road trip.  The larger car was nice for hauling several people around.

We also discussed image.  In all my working years, I had never been particularly attuned to portraying the stereotypical image of a financial advisor.  Quite the opposite, actually.  I have never been the typical financial advisor, and I wore that fact like a badge of honor.  From my choice of hobbies, vehicles, and the clothes I wore to work each day to the way I ran my planning practice, I was far from the mainstream in my industry.   Being the black sheep was mostly a source of pride for me, but there was always a niggling worry (mostly small, but ever-present) about how I was viewed by my peers and clients.

Greg’s argument was that not only was a nicer car more in keeping with the expectation for someone in my position, I had earned the right to have a nicer car.  I had worked so hard for so long, I deserved a nicer ride.  Lest you think I am about to make my husband the bad guy in this scenario, I am not.  He made good points, and I had those same thoughts myself.  The only difference was that I also was having thoughts about how this upgrade would shatter the image (the real me) I had been building for years.  I was conflicted between being true to myself and rewarding myself.

One thing led to another, and our conversation led us to talking about potentially leasing a car.  The rationale?  To be able to get more car for the money.  Or more accurately, to get more car for the monthly payment.

Our decision to lease

I know quite a few business owners who choose to lease their car and write off the payments as a business expense.  This was not our motivation.  I couldn’t justify leasing a car as a business expense because I don’t drive my car mostly for business.  No, our decision to lease boiled down to two reasons.  The first reason was that we could easily adjust our budget to cover the monthly payment for the car we really wanted.

The second reason was the fact that our pattern had shifted to owning cars fewer years than when we were first married.  Everyone knows the logic that a new car loses significant value during the first year of ownership.  If you are only going to own a car three years before trading, you are really getting killed on depreciation.  In that case, if we knew we would want a different car in three years, didn’t it make sense to lease instead?  Well in OUR minds, of COURSE it did.

Leasing is not categorically bad

Let me be clear: leasing is not a terrible financial decision for everyone.  But I am definitely of the opinion that leasing is only best in a few situations.  As mentioned, people who use their vehicle primarily for business can definitely benefit from leasing a car versus buying one.  In addition, people sometimes choose to lease in order to avoid expensive repair bills later in the vehicle’s life.  Chances are, if you only have a brand-new leased vehicle for three years, you won’t encounter any mechanical issues.  Lastly, if you are a person who desires a new vehicle every few years, leasing might be a good bet, since you would likely have a monthly payment either way.

The best way to approach car leasing is from a goal and budget perspective.  If your goal is to run the lease through your business, then you want to look at the budget for your business to determine the target payment amount.  If what you want is to minimize repair bills and the cost of driving a car over the course of a year, then find a lease amount that fits your budget.  If you know you are going to flip cars every few years anyway, then pick a monthly lease that fits.

BUT . . . Be sure you are factoring the entire cost of the vehicle.  Shopping for a car to lease based solely on the affordability of the payments is a mistake.  Often a hefty down-payment is required to get a lower payment, and beware that luxury cars require premium gas and specialized maintenance.  At the end of your lease term, you might also be on the hook for repairs that exceed what is contractually determined to be “normal wear and tear.”  The more expensive the car, the higher those repair costs will be.

Just because you COULD afford it, doesn’t mean you SHOULD afford it

For us, leasing made sense only from the standpoint of the likely three-year-only relationship we’d have with the car.  Beyond that, it was a dumb decision.  Why?  Because if the argument was to only “rent” a car for three years, we could have chosen a hell of a lot cheaper car to do so.  Instead, we let the siren song of the Joneses influence our decision.  In reality, we could afford the lease payments just fine.  In fact, if we had opted to BUY the car (at a higher monthly payment), we could have afforded THAT payment, too.

But just because we COULD have afforded it, doesn’t mean we SHOULD have afforded it.

That is a lesson that is well worth noting: just because you CAN afford something, doesn’t mean you SHOULD buy it.  It was clearly so much more car than we needed, and the entire time we owned it, I was conflicted.  I mean, I would see the car in the parking lot and think what a freaking cool car!!  But in the next breath, I would be worried that so-and-so would see me driving that car and judge me.  Geesh.  It was three years of that, I’m embarrassed to say.

The bottom line lesson for us was that leasing is not the right choice.  For me to be happy and true to myself, I need a modest car that we can afford to buy with little or no financing that doesn’t stand out in the crowd (sorry, honey!).  My preference is to keep a car enough years to bring the average cost of owning it down to a more reasonable rate.

The bottom line for YOU is to do your homework.  Don’t be sucked in by the seemingly lower lease payment: there are more costs to a lease than the payments alone.  And don’t purchase or lease a vehicle that is out of your range just to keep up with those dumb Joneses.  They won’t care, and you’ll regret it.

What are your experiences with buying versus leasing a car?  And what lessons have you learned as you battle those infernal Joneses?  Share below!  Or if you want to start a discussion with some like-minded friends, join the free SimpleMoney Community on Facebook to share your thoughts!

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2 responses to “Leasing a Car: One of the Dumbest Financial Moves I’ve Ever Made

  1. “Leasing is not categorically bad” – I totally agree! I had my first car for 10 years. Then I decided I wanted to have new cars more often, so I leased my next three cars. I lived 10 miles from work, so did not go over the mileage, and I take good care of my cars, so had no unanticipated repairs. I was lucky that my company started talking about moving before my last lease was up. I decided to buy a new car, which worked out well since the new location more than doubled my commute! Not everyone can do it, but it worked for me at the time.

    1. Hi Liz! Great example of a GOOD reason to lease. Sounds like you did it just right. It’s just like the conversation about renting vs buying a home. There are reasons to choose each way – it all depends on your goals and lifestyle. 🙂

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