Few inhalants are more intoxicating than new car smell. But while new car smell isn’t damaging to your lungs, it can be damaging to your budget. The average price for a new vehicle topped $30,000 this summer, according to TrueCar.com estimates.
Sticker shock may make you ponder leasing a new car — the monthly payments are much lower, after all.
When you lease a car, you are basically renting it for an extended period — typically 24 to 36 months. Automobile leasing allows you to drive a new car for less money upfront. Many leases have no down payment. Monthly lease payments are considerably lower — often 30 percent or more — than monthly automobile loan payments. And you may pay much less in sales tax.
A first blush, leasing seems like a good deal, allowing you to drive a bigger, better vehicle when compared to the cost of buying. But the advantages fade the longer you drive the car. Over five years, leasing is the most expensive way to drive.
Analysts at Edmunds.com crunched the numbers for driving a $29,500 new automobile for five years – the term of the most popular auto loan. It costs nearly $11,000 more to lease a new car over a five-year period than to buy the car, according to Edmunds.
A analysis earlier this year by Consumer Reports reached a similar conclusion. Leasing a 2012 Toyota RAV4 cost $4,800 more than buying the car over six years.
And in both cases, at the end of the term the driver who bought the car still has something to drive without a monthly payment. The driver who leased the car must keep writing a check each month to keep driving.
Personal finance guru and radio talk show host Dave Ramsey calls it “car fleecing.” He may be on to something. If you’re wealthy and inhaling new car smell is important to you, leasing may be the way to go. But most folks who must get the most for their money over the longer term should avoid leasing a car.
If you do lease a car, some tips:
• Negotiate the price as if you were buying. The lease payments will be based on the “purchase” price.
• Avoid leases that stretch beyond the manufacturer’s warranty.
• Give your driving habits a hard look and consider buying extra miles if you expect to drive more than 12,000 miles a year.