In this week’s edition of Money Mistake Monday, I am going to talk about car leases. Back in my freewheeling days, I leased cars. Audi’s, to be exact. After driving a Honda Civic into the ground, I decided I deserved better so I leased a brand new Audi A4…man that was a nice car. I felt like such a badass, but little did I know that no one else gave a crap and I was not getting the looks that I thought I was getting. The reason I leased? The car salesman sold me on the monthly payment – and I disregarded anything I had ever heard about the perils of focusing only on the monthly payment. I put down my $2500 cash (off a credit card, to be exact) and drove away in my new Audi, all for the low low cost of $371 a month.
That $371 a month sure seemed low enough, until about 6 months into the lease when it started to hurt bad. It was the first time I had a car payment and I was only making $30,000 a year. It was not easy.
But still, about 2 years into my lease, my salesman contacted me and asked me to come in and take a look at the new Audi’s. And I did, stupidly enough. These new ones were even nicer! For only another $2,000 down and a small jump in my monthly payment, I could get out of my lease and start a new one. Sold! Bad, bad move.
About 1.5 years into that lease, I had an epiphany of sorts – why was I renting a car for $400 a month? I was not building any equity at all and I had to give the car back at the end of the lease. This was quite stupid! So I found out that Audi allowed me to sell my car to someone else and get out of my lease, as long as the value of the car was paid off. I placed an ad in the paper and had several people interested, but they were all a little wary of giving me a check for the car but waiting until Audi cleared it in order to actually get the car. Finally, a woman bought the car, we paid off Audi, and she took my “like-new” Audi away from me and saved me from renting a car for any longer. I was out from underneath the second bad lease I had signed up for, and I was never going to do that again.
Since then, I have only bought my cars. No more borrowing from a credit card for a down payment, no more renting cars only to return it and being stuck with an empty wallet. Sure, I don’t buy my cars in cash like I should, but the next one we buy will definitely be paid for in cash. Ever since buying that first new car after the leases, I paid off all my debt and built up my savings and retirement funds. So the next time I need a car, we will pay for more, if not all of it, in cash and we will not be paying interest to any bank on a depreciating asset.
If you lease cars, make sure you know what you are doing and do not concentrate only on the “low monthly payment” that the dealers try to sell you on. I can see the appeal in leasing as you get a new car every year, but after my two leases I refuse to rent a car at those prices, because that is effectively what you are doing – renting.