Lease vs. own to save money short term?
February 26, 2012 8:40 PM   Subscribe

Should I lease a car in order to lower my monthly car payment and have an extra $100 a month or suck it up and pay off my car in three years? A local lease special I qualify for would have my paying approx $200/month to lease a sedan which I neither love nor hate. I know leasing is not a great long-term financial plan, but would trading in my current car for a lease to have a little breathing room be worth it in the short term? My current car I've had for two years and it's "right side up" by about $1500. My payment is $330 with a 3.5% rate (In November I refinanced down from 7%). I like this car a lot. Aside from some dings, it's in good shape. Runs well; loan is up in 3 years. *Snowflake stuff inside*

*Snowflake Stuff*

-I'm trying to throw every spare cent at a credit card I need to pay off and that's where I'd put the extra $100/month.

-I HAVE TO have a car. I work in mental health and do crisis work so I need to be ready to go anywhere in the county quickly.
posted by ShadePlant to Travel & Transportation (19 answers total) 1 user marked this as a favorite
If you really want to get traction on your debt, sell your existing car and use the money to buy a used car free and clear. Sure it will suck to have to drive a kinda scruffy-looking car for a year or two, but it's your best way out.
posted by ErikaB at 8:43 PM on February 26, 2012 [2 favorites]

When you finish paying off your car, you'll own a car with no payments. Why in the world would you lose that to lease a car?

More details needed - but my gut reaction is: cut up your credit card, and pay off your car asap with extra payments. Then work on your credit card, which you have cut up. Interest rate doesn't matter much. Full ownership of your car will give you a peace you seem like you've never known.
posted by caclwmr4 at 8:45 PM on February 26, 2012 [3 favorites]

Response by poster: I understand that the budgeting is important; I've already paid off one card and am living pretty frugally... So much so that I get made fun of at work, which must mean I'm doing it right!
posted by ShadePlant at 8:48 PM on February 26, 2012

Best answer: That's good and keep going. Getting out of debt totally is the goal. Getting out of debt and owning your own car which you need for your work is the real goal.

Owning your car and being able to pay your credit card off in full each month isn't being frugal, it's being safe smart and secure. You can do it.

When you get there, you can privately laugh at anyone who snarks at your "frugality" as they drive their underwater or leased cars with their credit cards at their limits. LOL LOL LOL

And when you get out of those debts, it is amazing how even more money flows to you. A good part of that is the removal of the waste of time and nagging bugging stress in your head that you have those bills to pay.
posted by caclwmr4 at 8:58 PM on February 26, 2012 [2 favorites]

Agree you should keep your current car: it's an asset, no point in losing that.

Don't agree you should pay off your car loan before your credit card balance. (1) Your credit card balance is likely to be a lower amount than your car loan and therefore easier to pay off. (2) Its interest rate is no doubt higher, no point wasting money paying interest.
posted by NailsTheCat at 9:07 PM on February 26, 2012

Best answer: How much is the yearly maintenance on your car? Is it likely to go up as the car ages?

I have a friend with a particular year Mini Cooper - $2000 a year, it's always in the shop.

I had a roommate with an American made sports car known for certain expensive troubles at the 5 year mark - she dumped it for a Mercedes just in time.

I have a 2002 Jeep Grand Cherokee Laredo - it gets shitty gas mileage but is low miles and sound - I plan to drive it into the ground. I own it outright. The first year I bought it (2009) it cost me maybe $900 total in maintenance because the first owner drove it little, but did not love on it. Once I paid to have incidentals corrected, it's cost me less than $150 per year to drive, this includes oil changes and registrations. As of this moment, it has no problems. Tires are in fab condition.

My husband has a 2002 Honda Civic that needs a timing belt, but we'll unload it this year for what we paid for it, used, back in 2008 ($4,000+.)

We don't pay monthly payments on cars because that is dumb unless you have certain private business breaks, or you can otherwise write off a lease.

Get a leased car if you can write it off. Otherwise, sell your current vehicle and buy another outright before it loses significant value - Or - hold onto your current vehicle if it is not predicted to lose significant value and doesn't cost lot$ to keep running.

That is all.
posted by jbenben at 9:22 PM on February 26, 2012

What's the actual situation of your credit card debt?
posted by J. Wilson at 9:29 PM on February 26, 2012

You'll be able to make an extra $1200 a year in credit car payments, which which saves you a few hundred dollars in interest over 3 years. That's not a huge amount of money to give up on a car you like which will be a great asset to you 3 years from now when you're done paying it off.

Your car debt is only slightly bad, especially at 3.5%. It's a productive asset that it allows you to get to work and make money, as opposed to credit card debt which is just dead weight. Your current car also puts you in a good long term position to have a dependable, non-ancient car with no car payment a few years down the road. That's probably going to make a bigger long term difference to your net worth than saving $100/month for a 2 year lease and ending up with no car.

Also, no car dealership is going to give you a great deal on a trade in, that's just not what they do. So if you do trade in and lease you're going to lose a chunk of the car's real value.
posted by skewed at 9:30 PM on February 26, 2012

Best answer: Agreeing with the crowd that you should keep your current car and not dive into a lease. Leases are, largely, bad deals for consumers in the medium-long term. Leases are generally best for businesses who can write off the lease payment effectively. Essentially, with a lease you are paying for the depreciation on a car over the 2-3 years you have it, and at the end have nothing to show for it. Keeping your current car for three more years means at the end you will have a car free and clear with an actual value. You can then sell it, trade it in, etc. and get something in return.

Specifically, here's the quesiton: at the end of the 3 years, which would be the better value? Would it be better for you to lease something and have $3600 to pay off credit cards and save on interest, spread amongst the next 3 years or would it be better to have the car worth $X, minus the difference in maintenance (new lease vs. your car for next 3 years). Don't forget to add in the lease signing fees or large initial payment. You can roughly estimate the value of your car by looking at Blue Book values of your car's previous model years or similar types of cars. My bet is that holding on to your current car is the better value proposition over the entire stretch.
posted by Mister Fabulous at 9:32 PM on February 26, 2012

Response by poster: Credit card debt is 6k with 9% interest. Am currently trying to pay 300-500 a month. Min. Payment is $120ish. I get the message though; looks like I'll stick with my car and my slow but eventually productive debt reduction plan.
posted by ShadePlant at 9:38 PM on February 26, 2012

Can you do a balance transfer to a card with a 0% special offer? That would save you the interest for a set amount of time, usually 6-12 months.
posted by JenMarie at 9:55 PM on February 26, 2012 [1 favorite]

Best answer: Leasing is not necessarily a bad idea as long as you are putting the saved money toward savings or other debts. There are a handful of positives to a lease, the most important being that you're not going to have a single worry about auto maintenance aside from oil changes. You always have a new(er) car to drive. Your monthly payment is likely smaller than what you would pay for a financed car of the same quality. Leasing (or financing) a vehicle builds your credit, while buying a cheap car flat-out does not. On the flipside, you're probably going to have to carry a larger amount of insurance on a leased vehicle, which will cost money, and you're not investing in anything.

One bright spot, however, is that there are certain makes (Honda, Toyota) that usually hold their value more than the lease depreciation. I have turned around two Civics and a Corolla by financing the vehicles after the lease expires and then turning around and selling the car privately for a decent amount more than what I've financed it for. To answer what you may be asking: No, I don't come out of the lease and the sale with more money than I started with; however, in eight years I have never had to worry about maintaining my vehicles -- so the savings there are all relative to your experience. If you have good luck with cars and haven't ever had to drop a few grand on a new transmission or distributor or alternator or whatever else can go wrong with a car, then this may not seem a big enough positive for you.
posted by erstwhile at 9:56 PM on February 26, 2012

If by "right side up by $1500" you mean you owe less than the current resale value of the car minus $1500, an alternative would be to free up that $1500 in order to put it onto the credit card as a lump sum. You could do that by privately selling this car, and then buying a different one that is worth $1500 less than your current one. Presumably that would keep your car payments the same (I don't know: I buy cheap used cars outright: debt scares me).
posted by lollusc at 12:17 AM on February 27, 2012

Skip leasing a new car, keep your current car and keep paying down that debt: continue doing what you've been doing. Leasing may make for lower monthly payments for the next three years or so, but at the end of it you'll probably incur MORE debt when you need to replace the leased vehicle --- $$$ down for either a new lease or purchase, plus continuing monthly payments. Whereas if you keep doing what you're currently doing, in three years you'll own your car outright (no payments! yay!) and can always sell if if needed --- if things got desperate, you can't get out of a lease without penalties!

One problem a lot of people seem to get into with their cars is, for lack of a better term, a sense of entitlement: 'I deserve a giant SUV, I want a BMW, I should always have a fancy new car, *I* shouldn't have to drive an older car,' when their budget says they should keep their paid-off and functional old subcompact. Your current car is only two years old, it'll be paid off in a couple years, and with decent care it should last for at least a decade more.
posted by easily confused at 3:27 AM on February 27, 2012

If you lease there are mileage limits. You'll pay for every mile over a certain amount. You can negotiate more mileage, but you'll pay extra for that, too. It sounds like your job has you driving long distances. Do you drive less than 12,000 miles a year? That is what a lease starts out with.
posted by narcoleptic at 3:50 AM on February 27, 2012

Response by poster: Some more follow up: My current car is a used Subaru, which should hold it's value well AFAIK. I also *do* drive a lot for work, but less than I used to. Lots of repetitive short trips within the metro. Thanks for the feedback!
posted by ShadePlant at 5:09 AM on February 27, 2012

If you drive a lot for work, will you be able to keep a leased car under the 12K mileage limit that that special offer surely comes with? I think staying with your current car is the best idea regardless, but the mileage limit may make the lease idea a no-go anyway.
posted by COD at 5:19 AM on February 27, 2012

Don't lease--it's a mug's game. There's a reason dealers love to give leases, and it's not for your benefit. Take REALLY good care of your current car, and then drive it till it dies an unholy death. Even if you have to put in a new engine, consider the cost of that versus car payments. Eventually you'll get to the point where you no longer feel like it's worth putting more in it, but then as long as it runs, you can still get a couple hundred out of it.

We've always been about to get 200000 miles or more on our vehicles, and they NEVER owed us a cent.

Dealers give you next to nothing on a trade in, and selling it outright gets you more, but you don't know for sure what your're getting.
posted by BlueHorse at 1:16 PM on February 27, 2012

I would look very closely at the mileage limits on the lease before you do anything because I had a leased car when I started doing case management and I was only halfway through my lease when I hit my total mileage limit. I ended up getting rid of the car early and buying another car outright. The lease was a waste of my money.
posted by whatideserve at 5:48 AM on March 8, 2012

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