Last time, I spoke about the benefits of leasing your car. If you missed it, you can read it here. Since I love a good debate, who better to pit myself against than MYSELF!
(For the record – I never lose a debate. Just ask my wife. Actually…scratch that, don’t ask her.)
Historically, I have been a car owner. From my first car (that baby blue ’87 Buick Regal) to the Red Dragon (still can’t believe my wife married me with that thing), I’ve owned every car I’ve ever had. But last year, I leased my first car. It’s really helped me understand the benefits to owning against leasing.
Let’s get to why you might want to purchase that next car opposed to leasing:
1. You are handy – If you find yourself somewhat more adequate with a banging thing and a turning thing (my father-in-law calls them a hammer and screwdriver, by the way) than purchasing might be right for you. While you shouldn’t expect much to go wrong in the first few years, the real benefit to owning a car is long term. Every year post pay-off is another year without a car payment. If you are able to fix most things that go wrong with a car yourself, you’ll save a lot of money (versus someone like me who relies on mechanics).
2. You take great care of cars– Speaking of my father-in-law, the guy keeps impeccable care of his cars. Although he does lease most of his cars, it’s the nice ones that he buys. Since he takes such good care of them, there are a few major benefits. First, they stay in great shape for a long time. This way he has many extra years of hassle free car ownership (over let’s say, my wife and I who have three little ones destroying our cars). Second, when he goes to sell, it will be worth more. Thus, he’ll maximize his value on the resell market.
3. You historically own for a long time – When people ask me should they buy or lease, I always respond with a question of my own. How long do you own your cars? If they say 7 years or more, I almost always tell them buy. Even though they are paying more in payments those early years, as long as the later years are on track, they’re saving money.
4. You put a lot of miles on the car– I wish I knew before we leased my wife’s car how much adding that 3rd child would add to her driving. If you drive a lot (say 20,000 miles a year or more), buying is your best bet. Big mileage leases can get very expensive. In those cases, you might as well purchase something safe that historically lasts a long time and drive that sucker into the ground.
5. You don’t drive much – I made the argument in my previous blog that this is a great case to lease a car, too. However, it’s also a great reason to purchase. I have some clients and friends who only drive 6,000 miles a year. (They could own a car for 20 years and only put 120,000 miles on it!) For some of these people, purchasing makes all the sense in the world as it can lead to a decade, or more, of payment free car ownership.
6. To own an asset – I certainly understand when you purchase you don’t pay down the depreciation, as you own the car for market price. Also, the longer you own it the less depreciation you have, as the bulk of a cars depreciation is in the first few years. It’s why buying a car that comes off a certified preowned lease is where you’ll usually get your best bargain. Additionally, you can do what you want to the car. With leasing comes certain restrictions.
7. You can sell it – If you own something, you can always sell it. Thus, owning a car gives you the option to sell, if situations change. Owning also gives you an intrinsic value when you go to trade it in–that’s a real monetary benefit and another bargaining chip when you go to negotiate that next car.
8. You want a Jeep Wrangler – A lot of you are scratching your head at this one. I learned this valuable lesson years ago when a good client wanted to purchase one for her husband for his 50th birthday. I asked her about leasing or buying preowned. She said the payments weren’t much different. Of course I was in shock, so I did some due diligence of my own. Sure enough, Jeep Wranglers hold their value better than any car I’ve ever seen. So, if a Jeep is what you want, stop reading now and purchase the darn thing new.
So, vanilla or chocolate? Buy or rent? Eagles or anyone else in the NFC east?
These are all very difficult decisions and may shape what your friends think about you. That said there is no real wrong answer to any of these (the exception of course is liking the Cowboys, Giants, or Redskins). The buy vs. lease question is truly very situational. To be fair, these are not the only questions I ask my clients when they are faced with this question. But, it should provide you with a place to start. As always, don’t hesitate to reach out if you want to discuss your situation personally.
Financial planning and Investment advisory services offered through Diversified, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRA, SIPC. Some associates of Diversified, LLC are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.