According to Experian, the percentage of consumers who chose a lease when purchasing a new car jumped from less than 27% a year ago to a record high of 31.4% in the second quarter of this year.
I can’t be clearer: leasing is a horrible financial move. It is the auto industry’s way to get you to buy a car you can’t really afford. I don’t blame the auto financing folks, that’s their job. But it’s your job to make smart decisions with how you spend your money. And leasing is just a lousy deal.
The big problem is that when you lease there’s the temptation to keep leasing forever. So every three years-the standard lease length-you turn in your car and lease another. That means you are signing on for never-ending monthly car payments, all because you want a fresh new car every three years? C’mon.
Let’s keep this simple: Needs v. Wants. I get you may want a new car every three years, but do you need a new car every three years? Of course not. And don’t tell me you deserve a nice car. Please. You deserve financial security. You and your family deserve a lot more than a fancy car.
Please Please Don’t Lease
Let’s say your car lease is $350 a month. I would much rather you choose a car that you could pay off with a 3-year auto loan. Yes, it will be a less fancy car. Good! Cars are a lousy investment; they never rise in value. The less you pay for a safe reliable car, the smarter you are.
With the loan you will no longer have any payments starting in year four. If you are leasing, you are likely looking at a new lease for even more money than your current lease.
Now let’s assume that you keep driving your car for another five years after paying off your loan. So that’s five years where you could redirect the $350 you no longer have to pay on your car, to something important: like building your emergency fund, or contributing more to your retirement. Or saving for a bigger home down payment. Drive your loan-free car for another five years and you will be able to save more than $20,000. That only happens if you skip the lease.