1/16/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Car lease almost up, now what?"


Dear Dave,

We leased a minivan, and now the lease period is almost up and we’re not sure what to do. Should we buy the minivan, buy a new car or buy a used car? My husband and I have a combined income of $80,000 a year, and we’ve got about $26,000 in savings right now.

Sherry

Dear Sherry,

Aside from “fleecing” your minivan, it sounds like you guys are doing alright. Leasing a car is the most expensive way to operate a vehicle. That’s why I call it “fleecing.” You’re literally renting your car, and it’s still going down in value. It’s a really bad deal.

Also, NEVER buy a brand new car. New cars lose 60 percent of their value in the first fours years, according to Kiplinger’s Personal Finance. In other words, if you buy a new car for $28,000, it becomes worth $11,000 in four years. You just can’t get rich doing that. If I tired to sell you on some investment by telling you I’d turned $28,000 into $11,000 you’d think I was nuts! A two-year old car is the best buy around. You get a ton of car for your money, you pay cash and you don’t have this big, depreciating lump sitting in the middle of your driveway. 

When it comes to cars, Sherry, you’re always better off buying slightly used. You guys have the cash to buy a great two-year old car outright and still have the bulk of your savings in place. Do that and let someone else take the butt-kicking in depreciation.

- Dave

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