Why Leasing A Car Makes Sense For Me


leasing a car

I hate pouring money into depreciating assets.  An asset should appreciate over time, not depreciate.  But, as much as I’d like my car to be an appreciating asset, it’s not.  If you don’t believe me, read my dream car article.  And, leasing a car is even worse than owning one since you hold only a liability.  With that said, we’ll explore why leasing a car is the best choice for me.


Before we talk too much about why leasing a car is terrible idea.  Let’s talk about a couple of benefits first.  


leasing a carThe Pros

You get a brand-new car.  To a lot of people this is the most important thing.  Being able to drive a brand new car grants a status symbol that many desire.  You can usually drive a more expensive leased car than you would be able to afford otherwise.  Theoretically, a brand-new leased car should also be more reliable and need to spend less time in the shop with maintenance issues.


The Cons

It is a really horrible deal.  Leasing a car is like renting furniture, which is a rip off since you are required to make monthly payments but are left with nothing at the end.


Mileage Limits

Most lease agreements have a mileage allowance of 12,000 miles a year.  That breaks down to driving 32 miles per day.  Based on the chart below, you can see the average driver drives 13,476 miles or close to 37 miles per day.


Average Annual Miles per Driver by Age Group
Age Male Female Total
16-19 8,206 6,873 7,624
20-34 17,976 12,004 15,098
35-54 18,858 11,464 15,291
55-64 15,859 7,780 11,972
65+ 10,304 4,785 7,646
Average 16,550 10,142 13,476

Source: https://www.fhwa.dot.gov/ohim/onh00/bar8.htm


leasing a carThe dealership knows that most people go over the mileage amount.  In most standard lease agreements, the dealership will charge $0.15 for each mile over the proposed lease life.  This means if you have a three-year lease agreement that you cannot exceed 36,000 miles.  


Based on the chart above, if you leased a car and drove as much as the average American, you would end up owing the dealership an extra $220 each year, or $660 at the end of your lease.  Who wants to constantly be thinking about budgeting the number of miles they can drive in order to avoid paying a penalty?


Car Accidents

leasing a car

Another thing to think about- Let’s say that you get in a car accident, and it’s your fault.  Guess what, you are still responsible to pay through the end of the lease unless you have gap insurance.  Can you imagine making payments on a car that you don’t own AND you can’t drive?  No thank you.  If you do choose to do a lease, make sure you have gap insurance which covers you for the difference between what you would owe the dealership and what the insurance company pays you.


Missed Payments

Now let’s say that you hit a hard economic time and lose your job.  What happens if you miss a payment or two?  The dealership can repossess the leased vehicle and sell it at auction.  Here’s where it gets worse.  If the dealership sells it for less than what you owe on the vehicle.  You’re still responsible to make up the difference.  Unfortunately you cannot use gap insurance to pay the difference between the auction price and what you still owe.


Car Alterations

leasing a carOn top of that, if you’re a gearhead and love to make alterations to your vehicle, a lease is not going to be for you.  Making any changes to the car will result in penalties and require the dealership to put on OEM parts if you don’t keep the original equipment.  So, not only would you waste money on parts, unless you’re going to buy or lease the same exact model, those parts would become obsolete.  


Buying at the End of the Lease
leasing a car

Finally, let’s say at the end of your lease you decide that you really love you car and want to buy it from the dealership.  If you end up buying that car, you’ll often times pay more money than if you have financed the car to start out.  Think about it for a second.  You have made monthly payments for the last three years, and then you have to start making payments on the residual value of the car all over again.  It would have been cheaper to buy the car outright then pay for the car essentially twice.


My Situation

Now with all that said, I lease a car.  Shocking, right?  I am in a unique situation as I have the ability to lease a new vehicle each year directly from a car company which includes the insurance and maintenance on the car for 1% of the purchase price of the MSRP.  That means if a vehicle is $25,000, I only have to pay $250 a month for the car.  


leasing a carWhen you drive your brand-new car off the lot, the vehicle on average loses 10%.  Can you imagine any other “asset” that loses 10% as soon as you take ownership?  That’s on the first day alone.  After the first year the average vehicle depreciates 20%, and then over three years the vehicle has depreciated by 45%.


Doing some research on the internet I found that I should be paying about $150 for car insurance each month based on what the average US American pays in the US.


The Numbers

Now let’s say that I wanted to buy the $25,000 car outright.  Right away the vehicle has lost $2,500 the day I drive the car off the lot.  After the first year, the car is now worth $5,000 less due to depreciation.  This equates to $416 each month that my asset drops in value.  After three years, the car is now depreciated 46% or $11,500.  This equates to a drop of $316 per month.  On top of that, I would be required to pay $150 each month for insurance.  In addition, the yearly maintenance on a car is about $725 or roughly $60 a month.


Remember, I only pay $250 per month for a leased vehicle.  So, right off the bat, I am saving money by focusing in on depreciation alone if I only keep the car for three years.  When you include the maintenance, insurance and depreciation over three years ($536), the lease ($250) costs less than half of what the car would cost over three years.


leasing a carNow, what if I bought a used car.. Would that be more economical than the lease I am in currently?  Let’s say that I bought a used, five-year-old Toyota Camry for $10,000, and it depreciated by 10% each year.  Each month, this vehicle would depreciate $83, and I would be paying around $150 for insurance and around $60 for maintenance.  This equates to $293 a month.  These numbers clearly show that I still save money by leasing a vehicle for $250.  


This is why leasing a car is right for me.  Is leasing a car right for you?


Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.


  1. That’s interesting! I’ve never heard of a leasing deal like that, but it seems like it would be really nice for “car people” who love trying out new cars.

    Your lease v. used car decision looks like it depends strongly on the car insurance number. Maybe it’s something to do with age, area, or amount of driving we do, but my husband and I pay about $150 for 6 months of car insurance! Looks like leasing under your plan would only come out ahead for us if we leased really cheap cars.
    Ellie @ The Chedda recently posted…Net Worth and Income – December 2016My Profile

    • Thanks for stopping by Ellie!!!

      Wow $150 for 6 months of car insurance. That’s awesome.

      My wife and I definitely do not have rates that come close to that. Which obviously makes the decision that much easier for us.

      But if we only paid $150 we’d definitely have to recalculate the math to see if it still makes sense.

      Thanks for sharing!!

    • Thanks for stopping by Ms. FAF!! I know Dave would hate that. But when you run the numbers it makes sense for us. But we’re one of the few 🙂

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