Why Car Leasing is a Scam

I get why you're tempted, but here's why you shouldn't do it.

A few years ago I was living in New York City, where public transportation is the easiest way to get around. Then, I moved to Los Angeles, where having a car is as necessary as having sunblock. Public transportation is not an option in many parts of the country, which means that a lot of us will have to buy a car at some point. But for those of us who don’t have tens of thousands of dollars to drop on a car, how do we pay for it?

Why Car Leasing is a Scam

I get why you’re tempted to lease a car.

If you're on a budget, leasing a car may seem like the best option for you. With most leases, you'll be quoted a lower monthly cost for a leased (and shiny, new) car than you would on a loan for a crappier one. But in most cases, leasing is a worse option—and its disadvantages are sneaky, which makes it one of my least favorite financial moves out there.

First of all: leases were invented by car companies; and why do you think they created them? For funsies? For charity? No. They created them to make money; for them not you. And I’m not on their side, I’m on yours.

Why Car Leasing is a Scam

Here’s why it’s a bad investment.

The research is pretty clear cut on this one. Suze Orman has said leasing a car was, and I quote, “the most stupid thing I’ve ever done with money.”

Here’s the important piece to realize about cars: they are quickly depreciating assets. I know a new car is pretty and smells so good but it’s not a good investment. The second you drive a new car off the lot it loses 20% of its value. That's not hyperbole, that's a fact.

Just think about it: you’re leasing a car that is rapidly losing value, but you’re paying the same flat fee for the full lease contract? Excuse me? That makes no sense.

Consumer Reports backs me up and says leasing is the MOST expensive way to get a car. Why? Because you’re essentially paying for a used car at its new car price!

Let’s assume that you are leasing a car for the national average, $460 a month, and you get a fifty-month car lease. That means you are spending $23,000 before giving it back after those four-ish years. Again: cars depreciate. A lot. According to most depreciation calculators, cars depreciate more than 50% within the first four years.

Car companies will tell you that when they determined your monthly leasing fees, they factored in the amount your car will depreciate over the course of the leasing term. I'd like to check their math on that one. Until that day, I call B.S. The car companies will do what they can to maximize the amount of money they can reasonably make from you.

The most common transportation faux pas is dumping too much money into leasing when you could have used that lump sum to buy a car a couple of times over. Calculate how much you are spending on a lease and think of that full amount as your opportunity cost, or the potential value of your money over time if you were doing something else with it like paying off debt, building savings or investing. Is tying up $460 a month or $23,000 over four years worth it? Would that $23,000 be better spent buying a cheap car, with the rest going toward something else?

Not only do you pay top-dollar every month while the car depreciates, but you also give the car back at the end of the lease term. You have nothing to show for at the end of it. No car. No value. No sellable asset. Nada.

Why Car Leasing is a Scam

And there are oodles of fees!

You’ll have a maximum number of miles in your lease contract, and if you exceed that number? Fee.

If you don’t keep the car in good condition? Fee.

You want to return the car before your contract expires? Fee.

You want to keep the car after your lease is up? Purchase option fee.

You don't want to keep the car after your lease is up? Disposition fee.

There are exceptions to every rule.

  1. If you're a business owner and you need a set of new wheels for work, a leased car may give you more opportunity for tax write-offs.

  2. One of the biggest issues with leasing is that after months of payments, you're left with no asset at the end of your lease. However, you can address this issue if you decide to buy the car you leased at the end of your term.

  3. There is a used car shortage right now, which could make finding a used car at the right price difficult. If there’s high demand for used cars in your area driving car prices up, you should crunch the numbers to see which option actually ends up being cheaper.

My recommendation?

Yes I get that there are some benefits of leasing: like, you don't have to deal with maintenance, and leasing could be a good option if you own a business—but for the majority of us, it is not beneficial. It's just a scam, that you should avoid if you can. Because the most depreciation happens in the first four years of a car's lifespan, my recommendation is to buy a used car cheap and run it into the ground.

Why Car Leasing is a Scam


Why Car Leasing is a Scam

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