August 05, 2010

Leasing Cars is for Economic Idiots?

Growing up in the 80s, my dad told me about a magical time in history. A car lease that he made a total net profit it.

See, when you sign a lease, you agree to a possible buy-out price once the lease is over. Due to severe hyperinflation at the time, the car's value went way up (as did all goods) during his lease period. So, he was able to buy-out the car at the end of the lease for far less than the car was actually worth, and instantly sold it back to the dealer for a net profit.

Ever since then, I thought that there was a way to beat the leasing. But I've realized that was an extraordinary circumstance. And maybe the common logic that leasing is stupid or only for people who can't be seen driving a Mercedes more than three years old, is right.

Because economically, when else would leasing make sense?

Let's say you're going to buy a $16,000 car, hoping it will last for 10 years. And let's put a conservative repairs estimate over those 10 years being $2,500. That's $18,500 over 120 months, or $154/mo.

If you can find a $150/mo lease payment, leasing would definitely be worth it, especially since you also get the benefit of a new car every 3 years. So with that perk, even $165-$170 might be worth it.

And that's actually close to the some of the lease offers you can find on smaller cars nowadays. Or am I missing something again?