MatthewRubenstein.net

Not everybody can lease. Leasing requires excellent credit scores. For high mileage drivers the math just does not work in their favor.

I worked in the automotive sales business for over seven years while attending graduate school to earn an MBA in Finance. Here are my thoughts on leasing a car.

Pros:

Risk Management – Owning your car is gambling in used car futures.

Your car drops in value:

GM Diesel Cars. GM introduced a diesel engine into the Cadillac brand. People who bought those cars were stuck with a lemon and lost equity in their “investment”.

https://www.nytimes.com/2008/05/18/automobiles/collectibles/18RUST.html

Audi Unintended Acceleration.

https://www.thecarconnection.com/news/1020726_a-short-sad-history-of-so-called-sudden-acceleration

No one wanted these cars in the used market and owners lost big.

Your car is damaged but not totaled:

Once upon a time you could repair a badly damaged car with the help of a good body shop and except for automotive professionals no one would know. With the advent of CarFax those days are gone. Now everybody knows the history of a car. If your car is badly damaged but not declared a total loss by the insurance company you end up with a car not only you but no one else wants.

Repair Expenses:

Your car will be under warranty the whole time that you have it. There will be no unexpected costs. Add a maintenance package and you know exactly what the costs will be for the term of the lease.

Opportunity costs:

Your money can be making more money. If you can lease or purchase at a rate of two to three percent leave your deposit in the stock market which returns seven percent on average.

Any down payment you make can be lost if car is totaled. Use GAP Insurance. Do NOT put anything down.

Benefit:

You get use the best part of the car and you get a new one more often.

Monthly payment:

Many people prefer to put money down to reduce their monthly payment. Do not do this. Any money down will be lost if the car is declared a total loss. GAP insurance will take care of this. Take your deposit and put into the bank. Move money into your checking account and withdraw as needed to make the larger payment. Just get over that you are making a larger payment. In the end the cost of the lease is the same.

Cons:

Leasing requires excellent credit. Not everyone can qualify.

May not be the least expensive alternative for those that prefer buy and hold for a long period. The least expensive method would be a cash purchase. The cash purchase however is susceptible to the value losses described above. A risk reducing purchase alternative is to finance with no money down and purchase GAP insurance. Leave cash in market to offset finance cost.

Playbook:

Lease with no money down.

If manufacturer lease does no include GAP insurance purchase from third party insurance company.

Consider maintenance package.

Summary:

Leasing is all about risk management. It may not be the least expensive way to obtain and operate a new car. It is just in my opinion the safest.

Disclaimer: I have yet to lease a car. I have always been the one that drove to many miles to have it work for them. Other family members have used my proposed playbook and have done well.

Just Sharing the Signal!