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Why I Buy Instead of Lease a Car

{ Posted on Apr 09 2010 by Marcus Alston }


The decision whether to lease or buy a car is pretty easy for me after considering numerous factors.  I recommend buying and preferably buying used.  While I have had a few cars in my life time since college, I have only owned one new car (a 2005 Honda Pilot SUV for the family).  I think I only bought the new car because it was in a moment of weakness after I had gone through my 1993 Saab 900 (bought it used in 1995), which I had had for 10 years and a family hand me down Toyota Camry, which had low miles, but was not worth repairing.  My wife told me, “Honey, you need a new car,” so I agreed and bought one.  The family was growing as well so we wanted a safe and reliable car.  Nevertheless, using the miser philosophy, I plan on keeping my car for at least 10 years or 200,000 miles, whichever comes last.  Hopefully I will keep it even longer if I maintain it and it holds up.  As you will see below, maintaining a car without a car payment can add up to big bucks, which can help you spend less, reduce debt, save more, and increase wealth.

I bought my 2005 SUV after doing my research on the net, visiting various dealers, and negotiating.  I bought at the end of the year 2004 (December) when dealers typically want to get rid of their inventory to make room for the new models, but still need to make their numbers for the year and the quarter.   My price was under the dealer’s invoice price (much lower than manufacture’s list price) and included many extras.  I ended up getting a 0.5% interest loan for 5 years and paid it off in 4 years.  By the way, I do carpool to work these days, in order to minimize the “gas guzzling” and emissions impact of the SUV.  I am going green.

In 2006, my wife also wanted an SUV after getting a taste of riding up high in my SUV.  Not wanting more than one car payment, I reluctantly agreed.  After doing our research on the net, visiting various dealers, and negotiating, we bought a used 2003 model of the exact same car I have for about $17,000.  It had about 23,000 miles on it.  We saved roughly $16,000 off  my great deal by buying a 3 year old car.  Even factoring in the interest on the used car loan, we saved a bundle.  I do not think we will ever buy new again.  We just paid off this car in March 2010, about 18 months early.  We (stay strong honey) plan to keep both cars for at least 200,000 miles which should mean another 5 to 7 years.  We will enjoy $0 payments per month for these 2 cars and re-focus the money saved on investments and savings.  We will save close to $800 per month after having paid these 2 cars off.  In just 5 years, that is equal to $48,000, not including interest.  If we do it for 7 years, that’s a savings of $67,200.  If you achieve a similar type of savings, what would you use it for?  Pay off credit cards, reduce debt, stop living pay check to check, cut expenses, balance your budget, save more, put more away for retirement or a college education, increase wealth?  Once your car is paid off, don’t use your savings to increase your spending.  Instead, think like a miser or consumer miser, be frugal, and live below your means.

A comment on leasing.  Leasing would be more tempting to me if I could not buy a used car.  Leasing allows cash flow.  For instance, a $20,000 car might cost you $608 per month on a 3 year loan, but only $350 on a 3 year lease, assuming the loan and lease are at 6% interest.  In this example, you save $258 per month if you lease versus buy, which savings I would recommend putting into a more productive investment such as mutual funds or stock.  You should consult a financial advisor.  If you have credit card balances, I would apply the lease savings first to credit card balances, starting with the highest interest rate credit cards first.  Generally, I recommend against using leasing in order to drive a better car than you could afford if you were buying the car or using the lease savings to allow you to  increase your spending elsewhere.  Remember, ConsumerMiser.com is about helping you save more and spend less.  Live below your means my friends.

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