I know that most of you already know that leasing a car is not the smartest financial thing a person could do, but I was reading something the other day over at Edmunds.com that just made me laugh. Apparently, the person who wrote the article, makes out on leased cars by just buying them at the end of the lease and reselling them for profit. Who is he kidding? I’d love to see the actual proof of this. Of course, there isn’t enough information in the article to verify any of it.
In a buyout, at the end of the lease, you may typically pay the residual value + some buyout fee. Unfortunately for most leasing customers, the residual values on their vehicles are much greater than the market values of their cars. Now add the extra charges and you have a car that will cost you significantly more than the market price you could get if you were to sell it.
The reason residual values are almost always much higher than the real market value, is that many banks and financing companies boost up the residual values of leased vehicles. By establishing residuals that are higher than they should be, they can offer lower monthly payments, That is what attracts people to the lease in the first place. People want to drive a car like the neighbors drive, regardless whether they can afford it.
Another big reason you will lose money on leasing a car is that used car values are not constant. SUV prices of late have went down considerably due to the price of gas, yet who could have predicted that when you leased a car 3 years ago. Now that leased Tahoe is worth a lot less than you thought. Oh well, just turn it in and get another on lease. Where does it end?
This is one way people get “upside down” on car loans.
The only way out of this mess is to stop right now. Buy out your leased car, sell it for whatever you can get, borrow the money at your local credit union to pay the difference, then make a vow to never do that again. You can try to get rid of your lease at Swapalease.com. There will always be people trying to justify that leasing is actually a good thing, but listen to them and be broke.
You can buy a car in the US for about $2000.00 that will get you around. You really can! Take the money you would have spent on the lease and either pay off those credit cards and school loans, or invest it in a Roth IRA.
Live on less than you make. Change your future and that of your kids. You can do it.
Get my free ebook on steps to buying a used car. It’s really free, no strings attached, nothing to sign up for, no email to send. Just download it. You can also read the series online here at How to buy a used car.
You may also want to read an article I wrote a while back on getting out of a car lease . I am sorry to say it is difficult to get out of a lease. There are some things to do that may help.
Leave a comment below. I am sure someone will disagree that leasing is a bad idea, since so many people do it. Let’s hear from you. Why is it a smart thing to do, financially? Let me know.