Leased car question

lbonga1 · September 2015

I am a year into a car lease with a 36 month term, and I'm planning on buying the car at the end of the lease. That's the next thing I have to pay off after my credit cards, so I'm trying to figure out the best way to go about it. From my understanding, there's no benefit to paying the lease payments early. So would it be best to take any money I have to pay toward debt, put it in a savings account, and use it as a down payment for the purchase when the lease is over? I don't think I'll have enough to completely pay it off in cash, but I think I'll have about half. WWMMD?

bmo88 · September 2015

Hi there! We are in a similar situation, we are in the 2nd year of our 3 year lease. We chose the lease option because we didn't put any down, have 0.9% interest and negotiated the price of the vehicle lower than sticker price.

Our plan is to pay about half off at the end of the lease and get a good interest rate, probably around 1.5% or less. It will save you money to put more down if you can swing it, so it sounds like a good idea!

lbonga1 · September 2015

@bmo88 Thanks for the advice. I got a really good deal on mine too. I was underwater on a car that I couldn't keep because I just had my second baby, and I couldn't fit 2 carseats in the back (it was a small sports car), so I didn't have any money to put down. And the car that I'm leasing, they gave me a great price on it because it was used as a service loaner. So it was considered used but only had 3k miles on it, plus warranty and maintenance.

jessica490 · September 2015

Good to know. H's lease is up in Dec 2016 and I think we are going to buy it as well so we don't have to start all over. We were also in negative car equity when we bought it so this helped us even back up.

als1982 · September 2015

What would MM do? Personally, I'd NEVER lease a car. Can you save up some cash to buy a beater, then get out of it?

emily1004 · September 2015

It's usually not in your best interest financially, to buy the car outright after a lease. You'll have better luck with another used car or another lease. You may have gotten a good deal in the beginning, but the dealership is not going to take the depreciation, you will. The less you pay upfront the more you will pay on the buyout.

simplyelise · September 2015

Did you roll your negative equity into the lease?

I've never leased, but what I'm seeing is that you probably have that end-of-lease purchase price already laid out in your lease agreement. And you can already start estimating the KBB value of the car at the end of the lease. If that value is lower than your outlined purchase price, don't buy the vehicle. Just save up and buy something else.

lbonga1 · September 2015

@simplyelise They gave a me a trade-in value that essentially let me break even on the car I traded in. The end-of-lease purchase price is going to be a bit above $14k, but the person I spoke to when signing the agreement told me I can have them reevaluate the value of the car at the end of the lease, and it may end up being less.

brij2006 · September 2015

What would I personally do? I would save up cash and buy a beater, and get the heck out of the lease now.

But you could do what simplyelise is recommending. Save up the money, and buy a vehicle in cash after the lease is done. Get rid of that lease payment and have cash to buy a different vehicle.

If the buy out of that vehicle is supposed to be $14k in the end, and you are thinking you will have half of that saved up. That $7k will buy a pretty good used car in cash. No lease payment or miles to worry about, no car payment, and owning your vehicle 100%.

cbee817 · September 2015

With 2 kids I would be hesitant to buy some junk car just because you have the cash for it- I think peace of mind with a reliable vehicle and your kids' safety far outweighs saving a little bit of $. Chances are you probably won't get a good deal on the car you're buying from a lease, but lesson learned for the next time.

simplyelise · September 2015

7 or 8 thousand is hardly a "junk car"

I will never understand this belief that the only safe cars are new cars.

I have a 2010 Hyundai Elantra with 91k miles on it. The KBB value on that is about 8500 right now. It has side airbags and all the safety features (actually frequently ranks among the safest vehicles). I am having to put a little bit of money into it for the first time because I have to replace the timing belt and associated items which only last for 90-100k miles before needing replacement.

So in 2017 when your lease expires, you could probably buy a 2012 Elantra or a 2011 Mazda6 for the cash you'd have available to you. With the instability of working as an independent contractor and the added instability of your FI's employment (is he still SAHD?), I think the best move financially would be to not have any more car payments. And you wouldn't be compromising safety even an inch.

cbee817 · September 2015

simplyelise said:

7 or 8 thousand is hardly a "junk car"

I will never understand this belief that the only safe cars are new cars.

I have a 2010 Hyundai Elantra with 91k miles on it. The KBB value on that is about 8500 right now. It has side airbags and all the safety features (actually frequently ranks among the safest vehicles). I am having to put a little bit of money into it for the first time because I have to replace the timing belt and associated items which only last for 90-100k miles before needing replacement.

So in 2017 when your lease expires, you could probably buy a 2012 Elantra or a 2011 Mazda6 for the cash you'd have available to you. With the instability of working as an independent contractor and the added instability of your FI's employment (is he still SAHD?), I think the best move financially would be to not have any more car payments. And you wouldn't be compromising safety even an inch.

I drive a 2003 honda civic with 66,000 miles on it and 2 kids. My car is worth $4,500 but I have impeccably maintained it since I bought it in 2006 as a certifed pre-owned from a dealership. I know how the car drives, what's been replaced, and that it'll last me another 10+ years if I continue to take care of it. Why spend 7 or $8,000 on a car you know nothing about and have no idea how it was taken care of? Around here, dealers don't sell cars that inexpensive- they go to auction and usually aren't in the best condition.

simplyelise · September 2015

Get a carfax report and buy from a private individual. Ask the individual to meet you at your local mechanic's shop and pay for an in-depth inspection.

cbee817 · September 2015

If you do decide on a different car, make sure both of the car seats fit correctly in the vehicle before purchasing. DH bought a new booster for DD#1 online and it didn't fit in his car (even though the convertible car seat of the same brand did). Luckily it fit in mine and she needed a booster for my car too, but backseats are shaped very differently in different makes, models, years, etc.

Sisugal · September 2015

I bought a 2 year old Toyota Corolla in 2010 for $8000 (WAY under market value) it had only 6,000 miles on it. Still running great and only routine maintenance needed. Great gas mileage and reliability.
What ever you decide to do - STOP leasing when this lease is up. You do NOT need a new or almost new vehicle to have dependable, reliable, safe, ow cost transportation.

SAVE, SAVE, SAVE for your next vehicle - even if that means making adjustment to your current budget.

Xstatic3333 · September 2015

I'm not anti car loan when it makes sense, but I agree that I'd only buy the car for below KBB value and wouldn't lease again when the lease is done. I do think, though, that for $7000 you can absolutely get a safe used car. I'm hopeful that I'll get one for around that when this car goes in several years.

brij2006 · September 2015

simplyelise said:

7 or 8 thousand is hardly a "junk car"

I will never understand this belief that the only safe cars are new cars.

I have a 2010 Hyundai Elantra with 91k miles on it. The KBB value on that is about 8500 right now. It has side airbags and all the safety features (actually frequently ranks among the safest vehicles). I am having to put a little bit of money into it for the first time because I have to replace the timing belt and associated items which only last for 90-100k miles before needing replacement.

So in 2017 when your lease expires, you could probably buy a 2012 Elantra or a 2011 Mazda6 for the cash you'd have available to you. With the instability of working as an independent contractor and the added instability of your FI's employment (is he still SAHD?), I think the best move financially would be to not have any more car payments. And you wouldn't be compromising safety even an inch.

I'm going to hardcore ditto this. I never understand the whole, "spend bookoo amount of money on a car because it isn't safe for my children to ride in." Sorry, but it just screams bringing on the mommy guilt for anyone who can't afford/doesn't want to finance a car.
We brought DD home from the hospital in my H's *gasp* $3k car that had the headliner hanging inside, had dents and scratches all over it, and the check engine light had been on for months. But yet it was a 2006 with 140k miles on it, and had side curtain airbags. If we were to have gotten in an accident with it, I wouldn't have felt like the car was unsafe because we didn't spend $10k+ on it. That sucker was paid for! My children aren't going to give a shit what vehicle they were brought home from the hospital in. What they're going to care about is that they don't have to take care of me when I'm old, and that they aren't going to have student loan debt. No amount of random "safety" stuff is going to ever be justified to buy a vehicle that is too expensive for your budget.

Yes, there are vehicles that are safer than others, I'm not saying that. But a vehicle from 1970 is a much different item than one from 2007. They have been built to crumple in around the passengers, for a reason. Whether you buy a $2k Ford Focus or a $70 BMW.

The only people who tell you that you need a "safe" vehicle for children are the ones who have an interest in the decision. Aka car dealerships, safety awards that are backed by the car companies paying for them, crash test ratings that are backed by the car companies paying for them, etc.

Okay, okay, I'll settle down now.

vlagrl29 · September 2015

I would not buy a beater. I would buy a slightly used car.

brij2006 · September 2015

If you would like any more backing to it. Here's a youtube video of a 2009 Chevrolet Malibu vs a 1959 Chevrolet Belair. The 2009 Malibu would be worth about $5-8k right now. So right in that range of "cheap" vehicle that was pointed out. The crash ratings and safety features have come a long way, but right here is how it's possible to buy a cheaper used vehicle for under $10k, get into an accident, and still be safe.

https://www.youtube.com/watch?v=joMK1WZjP7g

hoffse · September 2015

My problem with older vehicles is that IIHS has come out with a new crash test in the last couple of years, and older vehicles haven't been crashed using that test. The year it came out some cars (sneeze: the Camry) failed spectacularly.

As a driver, I want to know that my vehicle aced all available tests. It's not about kids at all for me (I don't have any). It's just that when it's time to replace a car I see value in buying something that has all available data points, assuming you can afford it. As long as those data points continue to change, H and I will always be buying newer cars when it's time.

My car predates the new crash test, but when it's time to replace it - probably next year - I won't look any older than the 2013 models. That's the year the new crash test came out. If I buy exactly the same car I have right now, I won't look any older than 2015 because the 2013 and 2014 models got a meh score on that test. The 2015's got a great score, which means they have been re-engineered to account for it.

It also means that the car I drive now (a 2007) is probably not as safe as the 2015 model.

Call me paranoid, but I don't really care if it costs more. That said, newer cars fit into our budget just fine, and we aren't compromising on our retirement or anything.

The good news is this new crash test is now a couple years old, and by the time OP's lease is up there will likely be used options within her budget that have gone through (and passed) that test. There may be other new technology out at that time as well, and she will just have to weigh the cost of those upgrades against her budget.

lbonga1 · September 2015

Maybe I just have bad luck with cars

I loved my first car (Honda Del Sol), but I got hit by a drunk driver and it was totaled. I spent $6k on a 5-year old Mitsubishi Lancer, and one of the tires shredded on the freeway and the radiator blew within a year of me owning it. It was also burning through gas like crazy and would've cost too much to do the repairs to fix it. Then I leased a Civic, and I was having to replace the brakes every 8k miles. It was clearly defective, but the dealership kept trying to tell me otherwise. Then I had my BMW sports car (got it when I had a different job and before kids and could afford it)...loved it but not practical with the kids. But I do really love the car I have now (Mini Countryman).

My FI also recently had bad luck with his car...we spent $5k on it, and it needed $2k worth of repairs within 6 months and still needed new tires, brakes, and a temperature sensor. We were fortunate that his dad decided to take it from us to use as a trade-in and gave us his 2004 Honda Pilot instead. It's getting close to 200,000 miles, but hopefully it'll last us a while before needing anything major.

vlagrl29 · September 2015

The reason I wouldn't buy a beater is because I don't want to spend tons of money in repairs. We are about at that point with DH's car - we know the max dollar limit we are willing to spend a year on car repairs - when it totals up to a small car payment then that's when we upgrade cars. Just our personal comfort level on cars.

vlagrl29 · September 2015

lbonga1 said:

Maybe I just have bad luck with cars I loved my first car (Honda Del Sol), but I got hit by a drunk driver and it was totaled. I spent $6k on a 5-year old Mitsubishi Lancer, and one of the tires shredded on the freeway and the radiator blew within a year of me owning it. It was also burning through gas like crazy and would've cost too much to do the repairs to fix it. Then I leased a Civic, and I was having to replace the brakes every 8k miles. It was clearly defective, but the dealership kept trying to tell me otherwise. Then I had my BMW sports car (got it when I had a different job and before kids and could afford it)...loved it but not practical with the kids. But I do really love the car I have now (Mini Countryman).
My FI also recently had bad luck with his car...we spent $5k on it, and it needed $2k worth of repairs within 6 months and still needed new tires, brakes, and a temperature sensor. We were fortunate that his dad decided to take it from us to use as a trade-in and gave us his 2004 Honda Pilot instead. It's getting close to 200,000 miles, but hopefully it'll last us a while before needing anything major.

you should try a ford focus. that's what I have and its a great car.

als1982 · September 2015

vlagrl29 said:
The reason I wouldn't buy a beater is because I don't want to spend tons of money in repairs. We are about at that point with DH's car - we know the max dollar limit we are willing to spend a year on car repairs - when it totals up to a small car payment then that's when we upgrade cars. Just our personal comfort level on cars.

I would consider my 2001 Honda a 'beater.' It just crossed 200,000 miles and is worth about $3,000. We took it in this week to the shop for a thorough look over by a trusted mechanic, and all it needed was a $38 oil change. Like everything, if you buy the right car and keep it well maintained, it will last and you'll end up saving signifantly in the long run. In total, over the last four years, I've spent maybe $1,500 on repairs and maintenance.

simplyelise · September 2015

Another possible option if you guys are currently a two car family... If you still plan on being an independent contractor, you could probably drop down to one car for a while until you save up more to buy something a little nicer in cash.

Erikan73 · September 2015

If I were in your position, I would save up enough money to get the car payment to where it would be comfortable and put the difference then towards paying off credit cards which are charging you interest now. Granted paying them off will take money away from when you buy the car, meaning more payments on the car. But if you pay down your credit cards, hopefully your credit score will improve in time for you to get a good interest rate on a car loan. Typically, car loans have lower interest rates then credit cards. Then once you have the credit cards paid off, you can put extra towards your car payments, paying that off early.

And for those that don't like to get used cars, I totally get that. One of my co-workers got a car in the past year that is just a few years old and not too bad on mileage, she's already had to put almost $2000.00 into repairs in just the first year. She would have been better off getting a smaller & more basic car that was brand new for the same car payments then getting a this used car which is very nice, but she's had to get fixed. I personally would rather buy a brand new car & keep it for 10 years (or however long until it started turning into a money pit) and know what I've got because I've been the one maintaining the car since day 1.

brij2006 · September 2015

Guess my biggest issue with buy a used vehicle with a payment is that you then are making payments on it AND have to do all of the bigger maintenance items. If you have a $3-5k car that you don't owe a dime on, then when it needs a $1,000 repair, that's not as hard to come up with because there's no monthly payment on top of that. If your $15k car with 85k miles on it and a $250/month payment needs a $1,000 repair, it hurts a lot more. It makes people (just generalizing) think that they might as well buy a brand new car for the same payment and then it has a warranty and they don't have to pay their payment and pay to maintain it.

Thus turning a $15k car into a $25k financed or leased vehicle. Just because the payment is the same (spread out longer), and it has a warranty.

In the end, vehicles are depreciating assets. They're moneypits. A monthly payment would be put to better use by putting it into your retirement fund and watching it grow.

short+sassy · September 2015

It's interesting to see everyone's different viewpoint on car buying. I fall a little in between. I've never purchased a brand new car and don't think I ever would, but I also don't buy cars more than about 5 years old. Not for safety reasons, but for maintenance/repair reasons.

I also don't mind financing a car purchase if the interest rate is fairly reasonable and I can easily fit the monthly payment into my budget.

jtmh2012 · September 2015

Just to add a data point. We always buy new cars. That way we know the maintenance history on them. We know the work has been done and done when it should have been done. We also tend to keep cars for 15-20 years and I get a 5 yr loan that is normally paid off early.

Yeah, there's a point around 10 yrs or so where a lot of stuff comes up, but having done this with several cars, it doesn't last long and compared to buying another car, it is better to just prepare for it and deal with it.

simplyelise · September 2015

I actually have several data points...

First Car: Toyota Corolla (1994) bought in 2005 through private sale for $4000. Had only had one owner. I had it for just over 2 years when I got hit by a drunk driver and it was totalled. Only work was routine oil changes.

Second Car: Ford Escort (2000) bought in 2007 through private sale for $3000ish using insurance check. Bought from a family that needed a more disability friendly car instead. Was going to need a bit of work done in late 2009 (less than $1000 in work) and I was looking at 6 months of no driving following seizure, so my parents donated it to the church who did the work and gave it to a single mom.

Third Car: Mazda6 (2004 - maybe around 60k in miles?) bought in 2010 through used lot at dealership for $12,000. The best car ever. Unfortunately I got cutoff on the highway at night and in the rain and lost control and went air born, flipping over in the air and landing on right side up, breaking the axil. The safety features saved my life. Got more in the insurance totalled check than we paid for it.

Current Car: Hyundai Elantra (2010 - 45k miles) purchased in 2012 through used lot at dealership for $10,000. Love this car. I'm at 92k miles now, so I've got to replace the timing belt and some other things that are meant to be replaced before 100k. Still waiting on estimate, but all the work should be under $800. Consistently ranks high on safety reports.

My parents were insanely generous. They spent about 3500 total on the first two cars (insurance check was about 3500 after drunk driver accident), then spent about 9000 total on the second two cars (13k insurance check from mazda6).

They didn't have 12,500 (the total they've spent on vehicles for me) to spend back in 2005, but if they had, I don't believe the new car we could've gotten back then for that amount would have resulted in less maintenance than I've had with my collection of used vehicles. I've bought 2 full sets of tires (with a couple random used tires in there when I was poor) and I've done the tire rotations and oil changes and air filter replacements. We could've done the work needed on the Escort, but my dad had just sold his business and they wanted to be generous. (They paid for my sister's 1-year masters program and my brother's divorce that year too).

I really like private sale and have had great experience with both craigslist and autotrader.

You do you and all that, but saying that a used car can't be safe and will be a money pit just isn't a universal truth.

jessica490 · September 2015

jtmh2012 said:

Just to add a data point. We always buy new cars. That way we know the maintenance history on them. We know the work has been done and done when it should have been done. We also tend to keep cars for 15-20 years and I get a 5 yr loan that is normally paid off early.

Yeah, there's a point around 10 yrs or so where a lot of stuff comes up, but having done this with several cars, it doesn't last long and compared to buying another car, it is better to just prepare for it and deal with it.

Ditto this! I just can't trust used cars and since we can afford it we buy new.

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