It’s a common question I hear folks asking: “Should I lease or buy my next vehicle?” The decision to lease or buy can have both an immediate and long-term effect on cash flow and emotions. Beyond make, model, and body type, the evolution of automobile technology is changing the motives and philosophy of car ownership. This adds nuance to the decision, making it more than just a financial matter.
Basic comparison of car leases and car ownership
Buying and maintaining a vehicle is a significant expense for folks. Leases are usually the cheaper option in the short term. However, the fees and ongoing nature of the arrangement make leases the more expensive option over time when comparing them with outright purchases for cash or through bank/dealer financing.
With lower monthly payments, it follows that you can lease a nicer, more expensive vehicle than you could otherwise finance. Plus, the leased vehicle will stay under warranty throughout the term of the lease – regular maintenance is all that’s required. When you own your car, you’ll be paying for your repairs out-of-pocket once your warranty expires.
With an outright purchase or a financing arrangement, there is always a point at which you own the vehicle. Alternately, a lease is like an ongoing rental agreement where you get to change to a new(er) vehicle every couple of years without ever owning any of them. This is the point where ownership philosophy and emotions start to weigh in and complicate the matter.
For many, the lower monthly payments, exchanging for a newer car every 2-4 years, never having to worry about major repair costs, and regular technology upgrades all add up to real value in a vehicle lease. A more expensive option for sure, but more desirable given their circumstances and feelings.
DECISION POINTS TO CONSIDER and a resource to help
To help you gain clarity for your decision-making, I’d like to suggest my flowchart, “Should I Lease Or Buy My Next Automobile?”. You’ll find this guide helpful whether you have an immediate, unplanned need or you’re navigating the emotional or philosophical issues involved with the leasing versus buying argument.
Use this flowchart to go over important decision points including:
- Costs and cash flow
- Mileage and use
- Safety and technology
- And more
You’ll be able to weigh many of the competing factors that will bear various degrees of importance given your situation.
What does Dave Ramsey think about leasing?
Dave Ramsey – whose advice I’m very fond of – says that you should never get a car lease. In fact, Dave calls it “car fleecing,” a rip-off you should avoid like the plague. His premise is basically:
- Over time they cost more than buying your vehicles outright
- They are a form of debt – “debt is dumb”
- You never own anything; you’re perpetually renting your vehicles
If you cannot invest the time needed to get familiar with all aspects of car leases so you can make a smart money decision, then Dave’s advice will serve you well. However, this is an issue which is not strictly financial. Given your own unique situation, there will also be philosophical and emotional nuances affecting your decision.
I would like to discuss this topic with you and help you to use the “Should I Lease Or Buy My Next Automobile?” flowchart so you will be able to make the best decision for yourself.