If you are like most people, your parents gave you all kinds of advice over the years.
Your dad might have told you never to buy the extended warranty, because it means the company is betting its product will fail. Or your mom might have given you advice on how to select the perfect produce, simply by how it sounds. And chances are, someone, whether your parents or grandparents, told you at some point in time to never lease a car. Instead, you should always buy. But in the present economy, it may be better for you long term to lease your next car instead of buying it.
Why Your Parents Said To Always Buy
So why is it your parents hounded you on always buying a car instead of leasing it? Cars don’t exactly build equity like a home. After all, as soon as you drive off the lot it drops in value. Not what you would call a favorable investment.
The purpose though is to pay the car off in three to five years, so after that you can own your car payment free for as long as you might want, and then when the time is right for a new vehicle, you take the vehicle and sell it or trade it in, which gives you some cash to pay down the new car.
All of this sounds sensible and makes sense, or at least it did back when everyone had high paying jobs and cars cost a fraction of what they do now. But with the modern economy, it may be better to lease instead of buying.
Why Should You Lease?
Should you lease a car or buy it? It really comes down to whether you need more money now or later.
The Value of Buying Doesn’t Add Up
For example, the Ford F-150 sells more units in the United States than any other vehicle. A brand new, bare bones, as cheap as it can possibly get, 2019 Ford F-150 starts at just over $28,000. Add on delivery and other fees a dealership will charge and you’ll probably spend a bit over $30,000. If you want anything more than a stripped down truck you’ll be paying closer to $40,000, if not more. Even if you were to take out a five or six year loan, your monthly car payment would be around $500.
Perhaps you decide to go with a used option. If you can find a well taken care of model that is a few years old, you might be able to knock the monthly payment down to $400, but you’ll still have maintenance and other fees. Yes, when you’re done paying it off as long as you didn’t burn through the miles you’ll have a vehicle probably worth $10,000 or so, but that’s a lot of money to pay every single month.
Leasing the truck will slash the price in half. And you will be able to go for a fully-loaded F-150 for that half price. This will give you more truck for less, which means you’ll have another $200 or $300 in your pocket every single month.
Better Tax Advantages to Leasing
If you’re a business owner and can use your car for 100% business, then the tax advantages for writing off the lease are typically significantly greater than writing off the mileage. Mileage for car owners is usually the highest tax write off for their vehicle. A business owner that uses a lease, however, can typically w
It’s About the Cash Flow and Investing
When you buy a car, most people will make a decent deposit. It could be $5,000, $10,00, or even more if you’re looking at a 4WD F-150 or entry level BMW.
That’s money saved up that you’re going to have to rebuild. And then you repeat the cycle over and over again.
Instead of dipping into your savings (and hoping you get a decent resell value 10 years later), leasing allows you the freedom to invest your money so that it makes more money. The idea is that while you might need a car, you don’t have to take a few steps back in order to get your saved cash to the point where you can make a sizable investment.
What kind of investments would you use that extra money for? Here are a few examples of monthly income investments:
- Grow it in a high yield savings account or CD
- Buy property and rent it out
- Invest in your continued education to grow professionally
You Need To Consider Leasing
Ultimately, you need to decide when you want your money.
Yes, you’ll be able to drive your vehicle once it’s paid off without monthly leasing fees, but that’s if you actually make it that long with the vehicle. With a lease, you’ll save money every month and be able to put that money for better use later on.
1