Leasing cars has gone through some ups and downs in terms of popularity over the past several decades.  There was a time when it seemed that everybody leased a car as the rates were unbelievable.  Then, leasing lost popularity as it came out that the reason for the low rates was because manufacturers were charging too little, so they had to raise prices, which led to the market falling out.   I admit, I leased two cars during the leasing heyday.

Now, it seems that leasing is making a comeback.  But, since automakers have learned mb-201402carstheir lessons and are not going to take losses on the lease, I’m here to tell you that leasing is a bad idea, and I present five reasons why an auto lease is a bad idea.

  1. You don’t own anything – After you purchase a car, that car will decline in value.  If you take out a loan on the car, you’ll pay for it all while the value goes down.  Paying for a depreciating asset is not a great financial move, but paying for one that you don’t have any value into is an even worse one.  At least with a car, once you’re finished paying for it, you have the value of the car that’s yours.  With a lease, you never have a single cent of that car that you can count as your own.
  2. Yet you’re responsible for everything – The automaker acts as if they’re doing you a big favor by letting you borrow their car for a ‘modest’ monthly payment, but you’re responsible for everything to do with that car.  You have to do all the maintenance (and have the records on hand to prove that you did it), make any repairs, and fix anything that gets damaged.
  3. You’re held to an unknown standard – Can you turn the car in with a small ding in the door?  What about a minor chip in the windshield?  Is that matted spot in the upholstery considered regular wear and tear or do you have get it detailed?  These are things that only the manufacturer knows and they’re not going to tell you, meaning that you’ll likely pay for things done that you wouldn’t have been charged for anyways or you’ll turn it in without fixing things that they’ll charge you for, likely at much higher rates than you would have paid.  Either way, it’s your wallet that takes a hit.
  4. Any variance on what you drive comes at a cost to you – Say you have a 24-month lease that allows you 20,000 miles.  Everybody knows that if you go over that 20,000 miles, you’ll get socked with a pretty hefty per-mile rate.  But, what they won’t tell you is that if you turn it in with less miles driven, that’s costing you as well.  How?  Because you paid for the miles that you’re not using.  Drive over or drive under the stated mileage, and you lose either way.
  5. The first lease sets a cycle that’s hard to break – One of the lures of leasing is that you can typically get a pretty low rate…on your first lease.  See, they’ll give you a decent amount for your trade-in.  Throw in a little up-front cash, and you’re driving a pretty sweet ride for $300 a month.  You laugh at the guy that bought his car and is paying $500 for the same car.  Only here’s the problem.  After your lease runs out, you don’t have another car to trade in, yet you’re going to need something to drive.  That ‘savings’ is only a one time thing. You’ll likely lease again because it still works out a bit cheaper, but you’re now in a cycle that’s very difficult to get out of.  And that’s exactly what the car makers want.

I think that leasing is a bad idea.  I think that the best approach is to buy a car, pay the car off, and work toward a goal where you can pay for a car without having to have a car payment at all.

Do you lease or own?  Do you have a car payment or are you paid off?  What do you think about car leases?  Are they the trap I’ve described or are there benefits that I’m not seeing?