Advice from Nashville's Financial Guru Dave Ramsey
Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
10/6/2004
Is leasing throwing your money away?
Dear Dave,
We have leased our last couple of vehicles and to me it seems like we’re just throwing our money away. At the end of the three-year term we have nothing. What is your take on buying new cars or leasing? What is the best way financially to go about getting a vehicle?
Anna
Kankakee, Ill.
Dear Anna,
Well, to start with I’ve got to tell you that I’m a boy and I love cars. However, I have found as I run the numbers on cars that they are the largest purchase Americans make that goes down in value. We buy a larger purchase with our home, but typically it goes up in value. Kiplinger’s Personal Finance Magazine says that a new car will lose 60% of its value in the first four years. Well, that doesn’t work. Turning $30,000 into $11,000 is not a good plan. So financially speaking, and common sense agrees, if you’ll pay cash to buy a two-year-old car with very low miles in near perfect condition, you will let someone else take the bulk of the value loss. That is what the typical millionaire does. Very few millionaires lease cars – or as we call it, fleecing a car – because it is the worst deal on the car lot. Consumer Reports, Consumer Federation of America and Smart Money Magazine have all done articles on the “fleece” and the fact that it’s a rip-off. It is good only for the dealership. It is a high rate of interest; of course the interest rate is never disclosed.
The bottom line is that you’re buying a new car that’s going down in value and you’re financing it expensively, but they offer a low monthly payment, which is all a lot of people look at. You’re almost renting your car and at the end you turn it in and you have nothing. So I would buy a two-year-old or older vehicle – whatever I could get paying cash.
Dave
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