Pros and cons of leasing a new car here in the USA

There is a ton of bad information out there about leasing a car.

It is time to bust the myths…

Here is my unbiased, point-by-point analysis on the pros and cons of leasing vs. buying a car:

Cons of leasing a car

We always have a payment
This is true.

With leasing, we always have a monthly payment.

And if we always lease a car, we have a monthly payment for life.

But:

We essentially have a payment for life when we finance a car, too. Because around year 3, cars break down. Plus they need regular maintenance. And we need to replace “consumables” like tires, brakes, timing chains, etc.

So when we factor this into the cost of ownership, we always have a payment – lease or finance.

“Leasing is fleecing”
Gurus and experts like Dave Ramsey, Clark Howard – even Suze Orman warn us against leasing a new car.

They say that leasing is always more expensive.

But apparently, they have never run a simple spreadsheet to confirm this.

I ran the cost per mile of leasing two Toyota RAV4s for 3 years vs. financing the exact same Toyota RAV4 for 6 years…

And as we see below, leasing is actually slightly cheaper than traditional car financing:

leasing vs. buying spreadsheet

“Can’t transfer out of a car lease”
There is a myth that we cannot transfer out of a car lease.

But this is not true.

We could use a lease-swapping service. But I do not recommend them, because the service can get expensive and unreliable.

Instead, I would simply “flip” out of the car lease…

Each lease agreement shows the “Purchase Option at the End of Lease” amount. This is the fixed amount of money we need to escape the lease agreement (plus the remaining payments owed).

(No car dealer wants to talk about this strategy, because it takes away the dealer’s profit.)

“A leased car is more expensive to insure”
They say leasing a car is more expensive to insure than buying a car. But this is not true. Usually the insurance cost is exactly the same. Sometimes it is even lower, because insurance companies reward us when our newer cars have “nanny” (i.e. self-driving) technology.

Penalties for wear, tear, and mileage
This is true…

If we beat up our new car, we have to pay for the damage.

But:

This is also true if we finance a new car, too.

If we do not “flip” our end-of-lease car for a profit, we might have to pay damages…

I say “might”, because leasing companies give us “allowables.” For example, we can have a dent less than the size of a quarter… a scratch less than the size of a credit card – even stained seats and carpet.

With a financed car, wear, tear and excess mileage lowers the market value of our car.

So it does not matter whether we lease or finance… it costs EXACTLY the same for damages and excess wear.

Oh:

And about leasing and excess mileage. Again, it costs us the same whether we lease or finance a car…

The wholesale “over the mileage limit” is about 9 cents a mile…

So, if we go over the mileage limit, I recommend we “flip” our car – which will decrease our equity by 9 cents a mile…

Of course, financing the same car will decrease the market value of the car by the same 9 cents.

In simple speak, driving too many miles will cost us about 9 cents a mile whether we own or lease a car.

“We need to buy expensive GAP insurance”
Actually, this is a con against financing a car…

Because almost every car manufacturer includes GAP coverage insurance in the cost of leasing their cars. (Toyota is the exception.)

Pros of leasing a car

There are no hidden costs or surprises.
Once we agree upon a monthly price, that is it.

Everything is included or covered against repair costs.

We never have to worry about paying for maintenance or repairs. Because when we lease, we always get the car manufacturer’s full warranty.

In fact, the only out-of-pocket cost we have to worry about with leasing is:

– Windshield wiper blade replacements…
– Windshield wiper fluid…
– The cost of one oil change per 36-month lease.

With leasing, the car manufacturer’s warranty usually covers any problems during the term of the lease.

Leasing cars are usually safer
When we lease for life (which I strongly recommend), we are always driving the safest car at the absolute lowest cost per mile.

Plus:

We are always trading in an older car for the newest car. So, we are always upgrading our ride and getting into safer cars.

Better investment opportuntities
Unlike financing a car, we only pay for the depreciation. So if the average car depreciates 50% over 36 months, we are always driving the car at half the price. Even better, if the car depreciates 70% over the same 36 months, we get the car 70% cheaper. Again, we only pay the inverse of the residual value of a car.

Instead of sinking 10% of our income on a depreciating asset, we only pay for the use of the car. This allows us to invest in appreciating assets that pay back higher returns.

Significantly lower taxes
In all but 3 states, we are taxed on the monthly payment instead of the entire selling price.

This usually slashes the monthly tax payment in half. (Even better, Georgia is lowering their tax calculation on January 1, 2018. That leaves Texas and Virginia as the only 2 states taxing on the more expensive selling price).

Guaranteed higher credit scores
Our credit score improves when we lease a car.

Because only the total of the monthly lease payment shows up on our credit file.

So instead of $24,000 of debt showing in our file, it might be just $8,000. This helps with our LTV (Loan-To-Value) ratio.

The bottom line is leasing boosts our credit score – usually in a significant way.

Bonus IRS tax credits
When we lease a car for business, most of the payment gives us a lucrative tax break.

For example, if we use our car for business 75% of the time, we can use 75% of the entire lease payment as a line-item deduction. (But when financing a car, only the interest amount is deductible.)

Cheaper car insurance
Contrary to the myth, car insurance rates are actually lower when we drive safer cars (not expensive cars). And leasing lets us get into safer cars more often than traditional financing.

Here is how to slash the cost of car leasing

I developed a car leasing system that gets car dealers to compete against each other.

In about 9 hours, we get the lowest car leasing price emailed to us.

Even better, once we choose the dealership, they deliver our new car to our home (or office).

We never step into a dealership. And we never even see our salesman.

But the best part is my service is virtually FREE…

Because instead of having to pay thousands for a down payment, my system gets that waived.

To get access to my system in just seconds, click here to order my KTL USA At-Home Leasing System.