Photo: The 2016 Ford Mustang is a beautiful car, but I wonder how many people purchase this car using a car lease?
The best way to win with money is to get out of debt. So, I am big on getting rid of car payments, student loans, credit card payments, and any other type of debt payments. Once you get out of debt, then you free up tons of money for saving and investing. A car lease is different than debt correct? No, because you still have monthly payments and you don’t own the car. Car leases are bad ideas and I will give you four reasons why they are such a horrible idea.
You Don’t Own the Car
The car is still owned by the dealer, so you must answer to the dealer. People will try to say that the dealer pays for all expenses of the car, so it’s a good deal because you don’t have to worry about maintenance. First of all, there are not many maintenance issues on brand new cars that they lease to you. Brand new cars are normally under a warranty, so you don’t deal with maintenance costs that much anyway. Thus, this is a false sense of security.
Second of all, maintenance costs are not that expensive on a car that you own. My own car (which is paid for) only costs me $99 per month in maintenance costs. This cost is high due to one $600 repair and one $400 repair last year. The rest of the costs were just routine maintenance costs. Therefore, I spent less on my car with maintenance than anyone who leased their car last year from a dealer. That’s a fact.
One more example, last year, my wife’s paid off car only cost us $13 per month in maintenance costs. These costs are only for routine maintenance, like an oil change. This expense is much lower than the average cost of $350 per month for a car lease. Because my wife and I don’t have car payments, we spent less on cars in a full year than the average American and we own our own cars.
The car lease industry sets a limit on the amount of miles you can put on a car over the duration of the lease. These limits put a stress on the lessee that does not need to be there. If you go over the mileage allotment, then you pay extra money per mile that you go over. This is an added cost that is not calculated into the car lease. Since, we own our own cars, there is no mileage limit to worry about, there is no dealer to answer to, so we are less stressed about our cars.
Lifetime Waste of Money
I was talking to one of my co-workers, who recently got into a car lease. They stated, “They offer you an up-front cost of purchasing the car after the lease is up and they will give you a discount on a future lease, because they want you to continue leasing.” My thought is that if they want you to continue leasing, then this must be a pretty good deal for the dealer. That’s why they will give you a discount to keep you leasing cars. This discount keeps people in leases for their lifetime.
By leasing the car over a lifetime, you are throwing money away that you could be investing for your future self. I personally like to keep my hard earned coin working for me. So, let’s look at the numbers. As earlier stated, my monthly maintenance costs were $99 per month and my wife’s monthly maintenance cost was $13 per month. This gives our family a total of $112 per month. Let’s look at another family, who has leased both of their vehicles. Each lease costs them $350 per month for a total of $700 per month. The two families have a difference in car costs monthly of $588. My wife and I can invest this $588 monthly. So, let’s plug the numbers into a future value calculator. The data below will be calculated by investing $588 monthly and allowing the investments to grow at a 7% interest rate.
The data shows great news to anyone who does not have a car lease. The extra money going towards investing will give you a large amount of money, and that’s only if you invest just the car payment. You can earn much more if you invest more monthly, so it is better to free up your income for investing. Therefore, the car lease is a bad idea, because you are throwing money at a car dealership, instead of at your future self.
A Sense of Peace
With a car lease or any type of payment, there is no sense of peace or freedom. You are a slave to the car dealership. You have to make monthly payments, and you have to stay under certain mileage limits. There is worry and stress associated with this type of situation. I don’t have to worry about this type of stressful situation. I have a sense of peace, because my car is paid for, I have an emergency fund for any unexpected car expenses and I get to invest the difference. Having a car lease takes away some freedom, and I like my freedom. Therefore, I suggest getting out of a car lease as fast as possible and begin living a life of peace and freedom with no dealership breathing down your neck.