This weekend I was having an intense conversation with my 19 year old daughter about all of the options for buying a car. In her mind the only option is paying cash for a used car and at her age that is the best option. No one in college or even a young adult starting a family should have a new car with an average car payment of $350. One of the many things that I have realized over my 15 year career is that there are 2 important steps in making all financial decisions: always do the math and do what will work for you personally and not anyone else.
Having said that keep in mind that debt doesn’t work for anyone. Never buy anything that you do not have the money for. This is why the only option, in my book, for a millennial is paying cash for a used car. But as we get older, many of us build up our savings accounts and we end up having the money to comfortably drive a new car. So how do we decide what to do between the two options that are available for getting a new car. The Bible is an awesome book of instructions that God has given us, but no where in the Bible does it tell us to buy a car over leasing or vice versa. However, it does tell us to be good stewards and great managers of what God has given us which is where the math comes in.
The math when it comes to buying vs. leasing has to be looked at long term. For example, if you are planning on owning a car for 10 years, you need to total in the amount you pay for the car in addition to repair bills that will be paid over the course of that time. About 3 years ago, my husband and I were in need of a different vehicle. We had the financial ability to get a new car and so we began the numbers game. The van we had that needed to be replaced had 420,000 miles on it and we had owned it for 9 years. We paid $20,000 for it and had put in at least $5-6K in repairs including a new engine. That means that over the time of owning the car, it had cost us $240 a month to have that vehicle. So we decided to look at both of our options and decide if we wanted to buy or lease our new vehicle.
I want to be up front before I go any further. Leasing is not for everyone and you should never lease just for the low payments. It can be very attractive especially to people who live in a monthly payment, paycheck to paycheck world. And just like deciding whether to rent or to buy a home, you need to do what is going to work for you in a positive way. Leasing is not what it was 20 years ago and there are advantages to leasing, but you must do your research and be honest with yourself about your needs.
Here are a few things to consider when making the decision between buying and leasing:
- When you buy a car, you own it but cars are not investments and they are only an asset to the extent of what they are worth minus what you owe. Don’t pay more for a car just because you will “own” it. Research the car you are looking at and know how well they hold their value. For example, a Honda will be worth more 10 years from now than a Kia will.
- When you lease a car, you have no maintenance and this can be a big deal to many people especially as we get older. An average lease is for 36 months and that is the minimum warranty on most vehicles. And tires and brakes usually last at least 40,000 miles so you would only be responsible for oil changes which many dealerships will throw in.
- As you probably know, new cars lose value quickly in the first year or two. Most leases come with GAP insurance included which will cover the difference should your car become totaled from an accident. This is an additional purchase when buying (if you are financing) and should be included in the math.
- When you buy a car, you can drive it as many miles as you want. However, with a lease you are limited in how many miles you can drive per year (average is 12,000/year or 36,000 total). When your lease ends, if you don’t purchase the vehicle you will be responsible for paying for the miles over at the rate of the lease agreement (usually .20/mile)
I am not one of those money people who says “never buy a new car” or “never lease a car”. I have done the research and there are advantages to both. You can have anything but not everything. This means that in life we have to choose what is important to us and use our financial resources to do those things. God loves giving us the desires of our hearts, but He will never help us get something that is going to hurt us. You work hard for your money and God wants you to enjoy life. A godly life has great balance. That may mean that if you have a new car you can’t travel as much or have as big of a house as some. It may mean that you don’t buy “stuff” everyday. But if having a nice car is important to you, you will be willing to sacrifice in other areas in order to have what adds value to your life.
Let me close with this – new cars are not evil. They are awesome and frankly can give you peace of mind when traveling the highways and byways. But they can also cripple you and take you into bankruptcy if you buy them before you have the ability to pay for them. Debt is not ok – God made that one pretty clear. This is true for a used car or a new car. Anytime you are looking at getting a new car, weigh all of your options, know your true financial situation and always do the math. Do what is going to move you forward, not backwards.
Have a blessed week! Lots of love!