lease - Leasing a car I intend to buylove car

I'm aware of the usual pitfalls of leasing a car (I found this question very helpful) and I know the general rule is that if you can't buy the car in cash, you can't afford it. However, I need a new car within the next several months.

I don't/won't have enough saved up to be able to pay cash for a better car than what I drive now, which is not technically mine (and so can't be used as a trade in). I will have enough for the signing fees for a lease (say $2000 due at signing, with a $200 monthly payment, and buyout of $18000 at the end of the lease period).

My question is this: If I already know that I intend to purchase the car at the end of the lease term, and the lease payment is low enough that I could pay it and save at least $100 extra every month to put towards the purchase of the car, is leasing still a bad idea?

If I have ~$4000 saved by the end of the lease term, then I should only need to finance ~$14000. $14000 in three years for a "used" car that I've had since it was brand new seems much more reasonable to me than $30000 for a brand new car now. I know I cannot afford the new car now, but I'm very sure that I'll be able to afford the "used" car in three years.

Does this plan seem like a reasonable way to proceed, or a big mistake?

You are still paying a heavy price for the 'instant gratification' of driving (renting) a brand-new car that you will not own at the end of the terms. It is not a good idea in your case, since this luxury expense sounds like a large amount of money for you.

Edited to better answer question

The most cost effective solution:

Purchase a $2000 car now. Place the $300/mo payment aside for 3 years. Then, go buy a similar car that is 3 years old. You will have almost $10k in cash and probably will need minimal, if any, financing. Same as this answer from Pete: https://money.stackexchange.com/a/63079/40014

Does this plan seem like a reasonable way to proceed, or a big mistake?

"Reasonable" is what you must decide. As the first paragraph states, you are paying a large expense to operate the vehicle. Whether you lease or buy, you are still paying this expense, especially from the depreciation on a new vehicle. It does not seem reasonable to pay for this luxury if the cost is significant to you. That said, it will probably not be a 'big mistake' that will destroy your finances, just not the best way to set yourself up for long-term success.

What does not seem reasonable about your plan is the payment and buyout. While $200/month payments are possible (but hard to find), buyouts are more typically in the five figure range.

Given that your savings and desired payment for a car is low (the average car payment today is about 450/month), can you really afford the massive depreciation of a late model vehicle?

Why not purchase a 2000 car now, and save the 200-300 per month? In about a year you could move up to a ~5000 car. You can buy a pretty nice car for 5K.

Myself, I am on my third year of driving a 4000 car.

answered Apr 18 '16 at 15:24

lease - Leasing a car I intend to buylove car

I have a colleague who always leases cars first. He's very well off, has piles of money in savings, owns a home, and the cherry on top, he could just write a check for the car....

He sees the lease as an insurance policy on the first couple of years of the car's life. If it gets in an accident or he finds something about it he doesn't like, he can give it back to the dealer at the end of the term with no hassle and move on to the next car. Some people value the fact that a lease is a rental.

If you're leasing a luxury car or something you couldn't otherwise afford, no amount of mental gymnastics will turn this in to a good idea.

Separately, you should never make a down payment on a lease. If the car is totaled early on, you will not recoupe the money you put down. The issue here is that while the numbers all work out the same between a lease and a purchase your situation is different. If the leased car is totaled, the bank gets its money back from an insurer. If that payment doesn't cover the value of the car, the GAP insurance will cover it. In either situation, if there's an excess remaining it will be returned to you. The issue is the excess may not fully replace your down payment. If you then went to lease another car you would need to come up with that down payment again because you couldn't just simply choose to lease a used car; like you could in the case of a purchase. Additionally, GAP is generally included in a lease whether you want it or not. As far as I'm concerned it doesn't make financial sense to mitigate the value of the GAP coverage once you've decided to live in a lease situation.

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