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Should You Lease or Buy a Car?

Updated on September 3, 2020
Art West profile image

After 43 years as an Accounts Payable Manager, I have learned a lot about finances and how to handle money.

Lease or buy a car?

Should you lease or buy a car

"I'll always have a car payment so I might as well lease a car so I'll always have a new one." I have heard that statement many times but is it really a good idea? My question is why should I pay a bank or credit union AND pay interest to own a car when I could pay myself and EARN interest.

I am going to look at an example of how you can own your own car by paying yourself instead of taking out a loan or lease. The information I am using comes from the Kelly Bluebook website. I am searching for cars in the Indianapolis area and looking at the private party value when I trade them in. I am going to use $55 per week as a figure to save. That means $2,860 per year or the equivalent of a little over $238 per month car payment. The actual average car payment in America is over $400 so I am using conservative figures in this example.

We are going to start from scratch so first you need to get $1,100. You can do this by selling stuff, working overtime or find an extra job. Once you have your $1,100 you can buy a car. I found a 1995 Pontiac Grand Am with 214,000 miles on it for $995. By the time you add taxes and license plates, you will probably use the entire $1,100. Drive that car for 1 year and the value of the car is $700. You will also have saved up $2,860.

You now have $3,560 to get another car. The next car I found was a 1996 Oldsmobile Cutlass Cierra with 94,000 miles on it for $2,994. By the time you add taxes and license it will probably cost around $3,300. That means you still have $260. The value of this car after 1 year is $1,675 plus you have saved another $2,860. You now have a total of $260 + $2,860 + $1,675 = $4,795.

You Can Eventually Get A Nearly New Vehicle

Keep Saving and Trading

Then I found a 1999 Chrysler Cirrus LXI with 94,000 miles on it for $3,988. By the time you add taxes and license it will probably cost $4,390. You now still have $405 left in the bank plus you will save another $2,860. The value of the Cirrus after one year is $2,775. Your total money is $405 + $2,860 + $2775 = $6,040.

You are now starting your 4th year in this plan. I found a 2001 Chevy Prizm with 70,000 miles on it for $5,376. By the time you add taxes and license it probably costs around $5,930. You still have $110 left. Since this car only has 70,000, you can drive it for 2 years.

You are now starting your 6th year. You have saved for 2 years at $2,860 per year, you had $110 left after buying the Prizm and the value of the Prizm is now $2,910. You have a total of $110 + $2,860 + $2,860 + $2,910 = $8,740. I found a 2005 Dodge Stratus SXT with 54,000 miles on it for $7,677. By the time you add taxes and license it probably costs around $8,450. You still have $290 left. Since this car only has 54,000, you can drive it for 3 years.

You are now starting your 9th year. This is where you are really getting where you want to be and you haven't paid anyone but you. You have OWNED each of these cars. The value of the Dodge Stratus is now $3,025. You now have $290 + $2,860 + $2,860 + $2,860 + $3,025 = $11,895. I found a 2006 Chevy Malibu with 37,000 miles on it for $10,168. By the time you add taxes and license it will probably cost around $11,200. You are now going to be able to drive cars for 4 years and then trade them in. After 4 years this Malibu is worth $3,180. You have $695 left in your account plus you are saving $2,860 a year for 4 years.

You are starting your 13th year. You have $695 + $2,860 + $2,860 + $2,860 + $2,860 + $3,180 = $15,315 to buy your next car! I found a 2008 Chrysler Sebring with 21,000 miles on it for $13,477. By the time you add taxes and license it will probably cost around $14,850.

It took you 1 year to get a car with less than 100,000 miles on it. By year 4 you are able to drive a car for more than 1 year. By year 6 you are in a pretty good 4 year old car with around 50,000 miles. By year 9 you are in a good, low mileage 3 year old car. By year 13 you are in a good, 1 year old car and able to continue to trade in for cars of equal value every 4 years!

Remember in this example I only used a $238 per month car payment. If you can afford $400 you can reach this goal much quicker. I also started from scratch. Again, if you all ready have a car, you can attain this goal more quickly.

It is MUCH better to own a car and pay yourself than to lease a car or take out a loan and pay someone else for your car. If you run into some financial problems and are paying yourself, you don't have to worry about missing car payments and losing your car. If your financial problems get really bad, you can sell your car and use some or most of the money to pay your bills. Of course then you may have to go back to the $1,100 car.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2009 Art West


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