Leasing or Financing Your Next Vehicle? Mine Just Saved Me $40,000
George Boelcke FCI
July 15, 2007
Last week, when I picked up a friend for dinner, she actually started laughing and asking why I was still driving this “piece of crap,” as she called it.
You see, there are two kinds of attitudes when it comes to vehicles. Those who believe they should be driving a new vehicle, and that they become somewhat of a status symbol, and those of us who believe a car is nothing more than reliable transportation. My “piece of crap,” as she called it, is an eight-year old vehicle that I purchased in cash for $10,000. Today, it’s worth about $4,000, and has been trouble-free for six years.
In the same time frame, my friend has had three leased vehicles – each one nicer and newer than the last one. She’s in the car business and gets THE best deal you can imagine, and is even disciplined enough to make sure her lease payments never exceed $400 a month.
But tell me roughly when you’ll have your utility bill paid in full? Yea, never – right. Well, that’s exactly the same as having a lease. It’s renting a vehicle and she’ll have payments for the rest of her life – or until she gets out of the vicious and financially disastrous lease cycle of permanent payments.
Her humorous comment turned to a sudden reality check when I walked my friend through the math implications of status symbol versus basic transportation. Never mind her higher insurance costs, possible write-offs, bigger gas bill, taxes or any basic maintenance:
My “crappy” car: A $10,000 purchase with a $4,000 value means it’s cost me $6,000 over the last six years or $1,000 a year to drive it.
Her cool leased vehicle: Six years at $400 a month, $4,800 a year, or a total of $29,000 and continuously growing. Make that over $40,000, with her taxes and higher gas bills taken into account.
So the financial score right now? I’m ahead of the game by almost $23,000. As of today, her leased vehicle is worth $7,000 LESS than what she owes on it, since a lease is never designed to build equity, but rather to just keep us to the depreciation (and it often doesn’t even do that). That guarantees that at the end of this current lease she’ll either be taking the bus home or leasing again – because she’ll just be turning the car into the dealer. Always has – always will.
Sure, I’d like to buy a new vehicle. It’s just that the new car smell and ego boost lasts only for a few weeks, but that $5,000 to $10,000 depreciation, when my butt first hits the seat, isn’t worth it to me. Yet millions of people right now owe more on their car than it’s worth and would rather give up anything else except their cool car.
When I asked families with kids whether their children are more of a priority than their vehicles, every single one of them says yes. But when I ask them to compare how much they’re saving for their kids’ education versus to what they’re spending on their cars, you know the answer. And actions always speak louder than words.
As for me? I LOVE hearing the comments about my car and just smile and think about the tens of thousands of dollars I’m ahead of the game.
You see, there are two kinds of attitudes when it comes to vehicles. Those who believe they should be driving a new vehicle, and that they become somewhat of a status symbol, and those of us who believe a car is nothing more than reliable transportation. My “piece of crap,” as she called it, is an eight-year old vehicle that I purchased in cash for $10,000. Today, it’s worth about $4,000, and has been trouble-free for six years.
In the same time frame, my friend has had three leased vehicles – each one nicer and newer than the last one. She’s in the car business and gets THE best deal you can imagine, and is even disciplined enough to make sure her lease payments never exceed $400 a month.
But tell me roughly when you’ll have your utility bill paid in full? Yea, never – right. Well, that’s exactly the same as having a lease. It’s renting a vehicle and she’ll have payments for the rest of her life – or until she gets out of the vicious and financially disastrous lease cycle of permanent payments.
Her humorous comment turned to a sudden reality check when I walked my friend through the math implications of status symbol versus basic transportation. Never mind her higher insurance costs, possible write-offs, bigger gas bill, taxes or any basic maintenance:
My “crappy” car: A $10,000 purchase with a $4,000 value means it’s cost me $6,000 over the last six years or $1,000 a year to drive it.
Her cool leased vehicle: Six years at $400 a month, $4,800 a year, or a total of $29,000 and continuously growing. Make that over $40,000, with her taxes and higher gas bills taken into account.
So the financial score right now? I’m ahead of the game by almost $23,000. As of today, her leased vehicle is worth $7,000 LESS than what she owes on it, since a lease is never designed to build equity, but rather to just keep us to the depreciation (and it often doesn’t even do that). That guarantees that at the end of this current lease she’ll either be taking the bus home or leasing again – because she’ll just be turning the car into the dealer. Always has – always will.
Sure, I’d like to buy a new vehicle. It’s just that the new car smell and ego boost lasts only for a few weeks, but that $5,000 to $10,000 depreciation, when my butt first hits the seat, isn’t worth it to me. Yet millions of people right now owe more on their car than it’s worth and would rather give up anything else except their cool car.
When I asked families with kids whether their children are more of a priority than their vehicles, every single one of them says yes. But when I ask them to compare how much they’re saving for their kids’ education versus to what they’re spending on their cars, you know the answer. And actions always speak louder than words.
As for me? I LOVE hearing the comments about my car and just smile and think about the tens of thousands of dollars I’m ahead of the game.
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