To Buy or to Lease? How to Choose the Right Option for You, Ep #194

Replacing an automobile is an inevitable and recurring life event. Many of my clients struggle with the question—buy or lease? If you buy, should you buy new or used? What would Dave Ramsey say? He does not want you to borrow money, lease a car, or even buy a new car.

Do not get me wrong, I love being able to pay cash for a car. But I have been in situations where I have been presented with 0% or 0.9% financing. I went to a dealership with cash and was told if I got a loan—even for 3 months—I would get a percentage off the car.

The bottom line is that the preferences and needs of each individual must be considered along with the overall costs. Many competing factors bear differing degrees of importance. Fortress Planning Group has a flowchart to cover the key things to consider: cost, cashflow, mileage, safety, technology, depreciation, and flexibility.

In this episode of Best in Wealth, I want to help you identify the best course of action for you. Let’s walk through the questions you need to consider to make an informed choice.

Outline of This Episode

• [1:29] Did you buy your kids a car?
• [4:30] Should you buy or lease a car?
• [6:46] Factors to consider when making the decision
• [8:55] When you should consider leasing a car
• [11:32] When to consider buying a new car
• [15:55] When to consider buying a used car
• [18? Revisiting the pros and cons of each option
• [20:04] What is the most important thing for you?

When you should consider leasing a car

Many people are working from home because of Covid. People are traveling far less. If you like a new automobile every few years and you don’t drive a significant number of miles, you could consider leasing.

Secondly, are you a business owner? You may be able to deduct leasing and operating costs associated with the business use of your vehicle. It can be done on a per-mile basis or you can break down your costs—the lease that you are paying, the depreciation, the gas, and the maintenance.

Leasing offers several advantages, including a short-term commitment, warranty coverage, and temporary use of a depreciated asset. The worst part about a new car is that the moment you drive it off the lot, depreciation sets in.

Do you drive a significant number of miles each year? If yes, then leasing—even with a high mileage lease—may not be advisable due to mileage limits and the expensive per mile overage and wear and tear fees. You have to consider your driving habits when you make a choice.

When to consider buying a new car

If safety is a large deciding factor, consider buying new. Safety features and technology quickly become obsolete. I bought my wife a brand new Subaru Outback a couple of years ago. The safety features are considerably different from my 2015 vehicle. But if new safety features and the “new car smell” are not a big deal, do you want flexibility in how long you keep it and what modifications you can make?

If you want flexibility, explore financing options that work for your budget, including paying cash or low financing rates. There are many options out there. I bought a minivan when my two youngest were little. I thought I was buying that van with cash but it was better financially to get a loan and pay it off six months later. Do not be afraid to explore financing options when you buy new—but stick with your budget.

If you are building wealth—already have an emergency fund, are contributing 15% to retirement, and are debt-free—then you can consider splurging on a new car.

When to consider buying a used car

If you want to minimize the immediate costs of deprecation and minimize the purchase price, buy used. Take advantage of the depreciation that has already occurred. There are plenty of vehicles you can buy that are just a couple of years old. I am driving a vehicle that I bought in 2015 that was brand new in 2014. I may not get that brand new car smell but I sure saved a lot of money.

It was a point in my life where my company was still getting off the ground. I was not in the position to buy a new car. If you have other debt or want to retire in five years, do not buy a new car. On the flip side, if you are just getting started in the workforce, do not buy the new car when you could buy a perfectly fine used car and start investing in your Roth IRA.

I dissect more of the pros and cons of leasing, buying new, and buying used in this episode of Best in Wealth. If you’re in the market for a new—or new-to-you—vehicle, do not miss this one!

Resources Mentioned

• Buy or Lease a Car Flow Chart

Connect With Scott Wellens

• Schedule a discovery call with Scott
• Send a message to Scott
• Visit Fortress Planning Group
• Connect with Scott on LinkedIn
• Follow Scott on Twitter
• Fortress Planning Group on Facebook

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About the author, Scott Wellens

Scott Wellens, CFP® is an investment advisor and founder of Fortress Planning Group. After earning his Bachelor of Science degree from the University of Wisconsin-Oshkosh, Scott quickly ascended to become a Vice President of North American Sales at a major regional provider of telecommunications infrastructure. While financially successful in this role, Scott searched for ways to pursue his passion related to financial literacy and providing financial freedom for both his own family and others. During his search, Scott became curious about the significant gap he found in the financial services sector: he was unable to find a comprehensive financial planner that maintained a family stewardship lens without being attached to financial products. Scott decided to fill that gap by creating his own planning firm that maintains a strong passion for comprehensive, unbiased wealth planning that is genuinely client-centered.

Scott resides in Menomonee Falls, WI with his family. He is the father of three active and independent daughters who keep him on his toes. Scott is an active community member, serving on the Hamilton Education Foundation Board, serves as a Dave Ramsey Financial Peace facilitator and leads the All Pro Dad’s group at their local elementary school. Scott enjoys spending his free time visiting state parks with his family, reading, and watching the Milwaukee Bucks and the Green Bay Packers win ball games.

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