Deciding On Leasing Or Purchasing A New Car: Saying Good-bye To Moose!

Deciding on leasing or purchasing a new car is a big decision that can cost you money if you make the wrong one. As a car fanatic since the 1990s with dozens of cars under my belt since, let me provide some tips on how to choose.

I have both leased and purchased cars over the past three decades.

Leasing Or Purchasing A New Car Decision

After 10 years, I'm sad to say Moose is gone! He just had too many problems that cost too much to fix as a 14 year old Land Rover Discovery II. I hated to let him go because he was like my big boy.

I still remember finding him with 87,000 miles at the orphanage (Craigslist) for $10,000 in early 2005. The owner got a sweet consulting gig in Amsterdam from Pricewaterhouse Coopers and she had to sell quickly. We agreed on the steal price of $8,000 and the fun journeys to Tahoe, Napa, and Carmel began.

Ferrari Enzo - Deciding On Leasing Or Purchasing A New Car
My new Ferrari Enzo

I actually hate driving today. There are just too many cars in San Francisco and the Bay Area now that the economy has roared back.

Traffic was very manageable just three years ago, but condos are sprouting up everywhere downtown next to main arteries, making driving very stressful. The worst is when delivery or garbage trucks double park during rush hour and traffic backs way up. Dear local politicians, please outlaw such activity.

There was a point where I almost thought about not buying a car at all, and just using UberX as it is so cheap and signing up for a ride-sharing program since prices have come down so much. But in the end, I still valued my freedom of being able to get in a car and drive anywhere whenever I wanted. 

The Decision To Lease a Car

After pondering whether to lease or purchase a new car, I ended up leasing a new car for simplicity reasons.

I went back and forth with your help between a sweet Jeep Grand Cherokee Limited for $39,700 and a Honda Fit EX for $19,025 for a couple months until the DMV forced my hand!

It was time to pay the $132 car registration renewal fee for Moose plus an $80 smog check fee if I wanted to continue. $212 isn't a lot of money every two years, but there was one other problem. I had been driving with my service engine light on my dashboard for 1.5 years! It was so annoying that I just put some black tape on the plastic cover of the dashboard to cover up the light.

When I asked the smog attendant whether he thought Moose would pass smog, he said “no” because they hook up cars to a computer diagnostic that will immediately catch the check engine light problem.

I would have to go to my mechanic, figure out how to fix the problem and then return back to the smog station once the light was off. Suddenly, the $232 in fees could very well balloon to $500+ and cause me to waste more time. Finally, I also had to buy at least one $220 M&S tire as well since my left rear tire was totally bald.

When I got to the Jeep dealer, I was all ready to get sold by the salesman. Instead, the salesman was watching the SF Giants game and didn't seem to care. I asked him to give me a deal I couldn't refuse and he said, “This is it.” So I left.

Deep down I felt that spending $44,000 after tax for another low fuel efficient car didn't feel right, even though it would have qualified as a great business tax deduction.

I went to the SF Honda dealer and there he was, a silver 2015 Honda Fit with alloy wheels and every option imaginable parked in the lot. You know that feeling you get when you see “the one”? I felt that when I saw the Fit.

Here are some of Rhino's features:

  • Backup camera
  • Right side view mirror camera
  • 16″ alloy wheels
  • Great dimensions of 160″ long, 67″ wide, 60″ tall vs. 184″ long, 75″ wide, and 75′ tall for Moose
  • 6 airbags from 8 compartments vs. probably two non-operating airbags for Moose
  • 130 hp from 117 hp for the previous model
  • Two USB ports, 1 120V port, and 1 HDMI port
  • Magic seats that can lay flat and go into the footwell
  • Paddle shifters
  • Bluetooth for handsfree phone calls and linking up to Pandora
  • Moon roof and more

Honda Fit Felt Like Good Value

Honda Fit 2015
Rhino – A 2015 Honda Fit

I was blown away by all the features because Moose didn't even have a working CD player. The glorious feeling of always being able to charge my phone on long road trips is amazing. The ability to park in tight spaces where parking is a premium in SF is a huge plus. A city car is perfect for a city resident.

My biggest concern was on safety given the size and weight of the Fit. Large objects tend to hold up in crashes better. Further, bigger cars tend to bully smaller cars on the road.

I was happy to research that Honda skipped the 2014 model and went straight to 2015 because they wanted to comply with all crash test metrics. The 2009-2013 models didn't pass Insurance Institute for Highway Safety's front overlap crash test. Based on the latest IIHS test, the 2015 Fit overcame the failure and received the IIHS TOP SAFETY PICK award. Awesome!

Yes, Rhino might not be as manly or as sexy as Moose. Girls also will probably not be as interested in talking to me. But I think that being more eco-friendly and frugal with one's money is pretty sexy as well.

Besides, a confident man can drive anything. I've gone from rolling in a beat up Toyota Corolla hatchback to a $80,000 Mercedes G500 back down to a compact car and I love it.

Rhino helps cover the most important aspect of Stealth Wealth since a car is the most common clue that gives people's perceived wealth away. When it comes to leasing or purchasing a new car, you can show off more with a leased car.

Making The Decision To Lease Or Purchase

Something must have happened to lease rates over the past 10 years because leasing is now a very favorable financial option based on my research with five cars across five different dealers (Honda, Toyota, BMW, Audi, Mercedes).

I used to always be opposed to a lease because the end price compared to purchase always seemed much higher. But not anymore as the premium between leasing and owning has narrowed tremendously as you'll see below.

The other reason why I decided to lease was the desire for optionality. At the end of my three year lease, I want to have the option to either purchase Rhino for $12,746 (residual value) or swap him for a new car.

Optionality Has Tremendous Value When Leasing A Car

Maybe I'll want a larger car due to a new addition to the family. Maybe Rhino isn't as great in the snow with chains as I hoped. Who knows. Since I recently purchased my house, it doesn't feel good to spend a boatload of money on an asset that is guaranteed to depreciate.

There once was a time when I loved negotiating with strangers online to buy and sell a car. I didn't mind waiting for hours in the DMV to register a car either. But those days are long gone.

Now I'm very willing to pay a premium for freedom and convenience. Even though I have much more free time now than 10 years ago, I have less time overall given I've got 10 years less to live.

Some of you may ask why I didn't just pay cash for the car. The main reason is due to optionality again. I don't want to feel “stuck” owning a car in case I don't like it down the road.

The Cost Of The Car Lease

  • $0 down e.g. sign and drive.
  • $1,000 trade-in value for Moose, a 14 year old Land Rover with 130,000 miles and $500 in work necessary for him to comply with smog. I also need a $220 new tire.
  • $20,117 total cost after trade-in, taxes, and fees.
  • $235 monthly lease payment vs. $604 a month purchase payment over 3 years at an interest rate of 0.9%.
  • Total monthly lease payments after 3 years = $8,462.
  • Residual value: $12,746 (price I can buy Rhino for after 3 years)
  • $8,462 in monthly lease payments + $12,746 residual price= $21,208 compared to $20,117 after taxes, fees, and trade-in if I were to purchase in cash.

Costs More To Lease A Car

In other words, I am paying only $1,091 (5.4%) more to lease the car with the option to purchase after three years vs. if I paid $20,117 cash. The optionality is worth at least $2,000 to me and I can easily make 2.2% guaranteed income on $20,117 a year. Furthermore, I'm actively paying down my 3.375% rental property mortgage.

If I were to purchase the car, the lowest rate Honda gives is 0.9%. The cost would end up being around $20,800 to finance the car over three years, or only $392 cheaper than my total $21,208 lease cost.

A $235 a month lease payment is less than 1% of my monthly cash flow and I'm going to put it on auto-checking payment. Rhino's $21,117 all-in cost (before $1,000 trade-in) also fits into my 1/10th rule for car buying as well.

Recommendations If You Want To Lease A Car

  • Drive under 12,000 miles a year. 12,000 miles is the general standard mileage allowance for leases. Every mile over 12,000 costs 25 cents on average. You can get higher mileage caps for a higher price. I drove 4,500/year on average for 10 years.
  • Cherish having the optionality to turn back the car after three years.
  • Enjoy driving new vehicles.
  • Lease an electric vehicle because its battery life might fade. Further, batteries cost $6,000 on average to replace.
  • Don't have a trustworthy auto-mechanic to fix cars off warranty. My auto-mechanic of 10 years left SF due to high rents and moved to Oakland.
  • Unsure about your future driving needs due to family size, job, etc.
  • Want to maximize monthly cash flow.
  •  Don't like negotiating deals when it comes time to sell.

When you're thinking about leasing or purchasing a new car, you always want to think about the after-tax cost of owing the car as well. If you have a business, you can easily deduct the car lease.

Here is a post I wrote on how to get out of a car lease if you find yourself stuck.

Leasing Or Purchasing Is A Strategic Decision

Honda Fit vs. Tesla - Deciding On Leasing Or Purchasing A New Car
$20K Rhino vs. friend's $110K Tesla Model S P85 at the tennis club

Owning a car is generally bad for your finances. Besides the purchase price of the car, there's the recurring maintenance costs, parking tickets, moving violation tickets, DMV renewal fees, accident costs, and insurance. Everything adds up.

I totally forgot about my car insurance costs by buying a new car. Moose only had liability coverage that cost $286 every six months. I now pay $456 every six months for Rhino because it is mandatory I get comprehensive and collision insurance when leasing a new car.

That's a whopping 59% increase in my insurance costs that I forgot to calculate! I'm not going to starve paying $340 more in insurance every year, but that's an unfortunate expense.

The best way to minimize your car ownership costs is to hold onto your vehicle for as long as possible, buy a car that has a history of reliability, keep up with the scheduled maintenance, shop around for insurance, and be a good driver. Please follow my 1/10th rule for car buying as well.

Always think about your car as an ongoing liability. And if you have a car newer than 10 years, then maybe it might one day turn into a business expense if you decide to drive for Uber or deliver pizzas.

Leasing or purchasing a new car can work well either way. Just make sure you follow my recommendations before leasing or purchasing. If you do, you'll be able to comfortable afford your car and enjoy it too.

Related posts:

The Best Time Of The Year To Buy A Car

The Best Mid-Life Crisis Cars To Buy


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155 thoughts on “Deciding On Leasing Or Purchasing A New Car: Saying Good-bye To Moose!”

  1. LeaseConvert

    I used to always be on the buy used camp vs buying new or leasing. However, my perspective is starting to change that leasing is the best option. Unless I decide to buy a really used car that’s under $8K-$10K, I think it’s better financially to lease with better monthly cash flow that you can utilize to invest or use the money for something else instead of paying off on a depreciating asset.
    I really think with cars just like real estate, “Rent Luxury, Buy Utility” applies. If you’re buying anything that’s less than $8K-$10K, and you’re mostly concerned about going from point A to B, then “Utility” applies. But anything above that, it’s a luxury. If you’re going to get anything luxury, it’s best to rent it(lease) and keep your monthly payments as low as possible.

  2. 3rdgen4runner

    I get it’s a good financial decision to drive a car like rhino, but life is short. You can clearly afford a nicer car, i would say go for it and buy the Porsche or range rover you have your eye on

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  8. This is the first article I’ve read that looks at car leasing vs. buying in the proper light — which is to say that it considers the broader picture of a person’s entire financial life. I have to buy a car soon to replace a 2001 Toyota that I actually got for free when someone in our family got ticked off trying to trade it in with little luck getting any value and simply gave up. I kept it running for two more years with minimal investment and avoided having a car loan on our records as we got approved for a mortgage and purchased a home. With two full-time salaries, my wife and I will be able to remain within the 10% rule and get a new one that fits our family of four, albeit the base-line, no-frills model. But after that home purchase, our cash savings is depleted. After factoring in the need to pay for daycare for the next three years for two kids, we’d have to scale back our retirement contributions or delay rebuilding our emergency fund in order to afford both a down payment and then higher monthly car payments going forward. And right now, our retirement funds are doing really well. We’re in our late 30s and I don’t want to cut those contributions back — not even to buy rather than lease a car. They’re worth so much more in the long term. In short, the leasing route will give me the chance to keep contributing to retirement and our emergency fund at our normal levels, and those contributions will appreciate significantly more than the few thousand I might conceivably forfeit if I buy our car as the lease term ends…or finally buy a new car outright at the end of three years. It would be great to save money and buy instead of lease, but as I back up and look at the entire picture the way Sam did in his situation, then I can’t really fool myself into thinking that I somehow save money buying a car this time around instead of leasing one.

  9. Nice! In 2007, my girlfriend, now wife, worked in the online sales department of a home dealership. Despite the immense popularity of the fit, dealerships hated selling them because the margins were low.

    Fun fact; “Rhino” has served as the unofficial nickname of 2 US military combat aircraft: the vietnam-era F-4 and the current f18e. Your rhino gets 30 mpg, while those rhinos burn several times the curb weight of your vehicle in a matter of hours.

  10. Currently own my 8 year old car. Have 105K miles on it and its been paid off for a few years now. I have never leased a car before (I am 33 and have only had 2 cars lol), but I think I am going to go for it next time. Although I am very likely to completely ignore the 1/10th car rule lol

  11. green_knight008

    Would I consider a lease? Highly unlikely, as you’re essentially basing your calculations off of some numbers that may or may not be accurate (such as 3 year old value of a new car). Here’s an example of how I prefer to buy cars, based on my last purchase.
    In 2010, I purchased a 2002 Camaro for $2700 (all in, that’s much less than the 10% rule!), which booked at the time for $4800. It was leaking oil on both sides of the engine from the valve cover seals. ($300 at a mechanic, or $50 DIY). As the only real major problem with the vehicle from a standpoint of functionality/safety, this means I started $2050 ahead (DIY). In the intervening years, I’ve put about 60k miles on the car, with an input of ~$1800 in parts, labor, oil changes, etc-and that includes installing a new stereo system, upgrading the brakes and brake lines, some electrical upgrades, and cosmetic modifications-none of which were necessities.
    Once I put the next modifications in play (upgraded suspension) I’ll be over the book price that the car was worth when I bought it-with premium sound, improved suspension, brake system, electrical, and fuel MPG. Double that total amount of money and I still wouldn’t be at 10%. Granted you do have to know something about cars to do this sort of thing, but it’s a worthwhile field to learn something about considering the cost of owning a vehicle.

    The next car I intend to “buy” is the ’65 Chevrolet C10 that has been waiting patiently for someone to give it some attention at my parent’s retirement home. With these trucks worth 30-45k after fix up, and essentially zero initial cost of the vehicle, I expect that an investment of 15k (and a significant amount of time) will return a pickup that is both fun to drive and worth more money than was put into it. If you go old enough, and you know what you’re doing, they don’t always depreciate!

    Probably a smart move on your part to go with the smaller, stealth wealth vehicle that’s going to save you quite a bit on gas over what you were paying for your Disco (I happen to own a Disco II myself, that’s the truck my wife drives). You’ll likely more than make up for the insurance costs in fuel savings since you’ll go more than twice as far on a gallon of gas than you’re used to.
    That said, I have never bought (or leased) new, and I doubt that I ever would. I just can’t deal with the depreciation when I know it isn’t necessary. You could have easily bought a 2012 Fit for the amount that you’re estimating you’ll pay at the end of your 3 year lease-although I can see an argument for the 5 mpg increase in mileage in the 2015 helping defray the difference. Really, I think that you just wanted to buy yourself a new car because you felt you could afford it-and you can-there’s no question there. You could certainly have afforded a far more expensive car too. What really will matter is if in 3 years you decide to purchase or not. If you decide not too, then this will be, in my mind, a bad decision. Otherwise it’s just one that I personally would not have made, although in your case I can to some extent see the financial rationale.

  12. hello, would you mind letting us know who you mechanic is in oakland ? we are in the east bay and looking for a good mechanic. TIA

  13. hello, would you mind mentioning who your mechanic was ? we are in the east bay and looking for a good mechanic. thanks in advance.

  14. With leasing you are stuck with a contract for the term of the lease. I prefer to pay cash for my cars, 2-3 year used cars normally and have the flexibility to sell it if need be. You never know what life will throw at you and being stuck with a car payment with no job does not feel very good.

    1. True- if you’re leasing as a way to squeeze a new car payment into your budget and you live paycheck to paycheck. But I am guessing that most of the followers of this blog have atleast a solid financial cushion or are already financially independent. But regardless, it is no harder (and possibly easier) to walk away from a leased car vs one you own. With a leased car you can:
      -Find someone to take over the lease using a site like swapalease
      -Make the remaining payments, buy the car out and then sell it outright (really no different than if you owned the car and needed to sell it)
      -Make the remaining payments (remember, your obligations only extend to the end of your lease and if you have any kind of financial cushion and leased within your means, it should be very easy to afford this). And odds are that if your “doomsday scenario” occurs it won’t be in month 1 of the lease anyway.
      -Plus your leased car will be under warranty for the duration of the lease- a better situation than having a used car that suddenly incurs a big repair bill soon after you get laid off

    2. “With leasing you are stuck with a contract for the term of the lease” … This actually isn’t true. A lease is just another form of loan, one can simply sell the vehicle and then pay off the lender directly or pay a small fee and find someone to “assume” your lease using one of the new online services such as Furthermore, if you have driven less than the allocated mileage at the end of the lease then you may have upside equity since the contract ‘residual value’ is based on mileage in which case you can sell the vehicle prior to handover and profit the difference.

  15. I am very surprised you went with the Honda Fit! After all the posts about getting a 60k-80k range rover! The fact that this is only costing you less than 1% a month of your monthly cash flow is great. You are totally way below your rule of keeping car purchases/leases under 1/10 of ones yearly income. But yeah, still surprised from a high end choice to a very economical
    choice of the fit!

    I have been car less the past 3 years or so, mainly because I just don’t have a need to own one currently. I only need a car maybe a month or so at most out of a year these days, therefore renting as needed is a much better choice for me. If one doesn’t need a car very much out of a year, there are many advantages overall. I don’t have to worry about the upkeep of a car, insurance, DMV fees, parking/storage fees of a vehicle when not needed etc.

    1. When I was home visiting recently, I went over to the Tesla show room at Santa Row in San Jose, CA. Currently I have no interest in buying any new car since I do not need one. I just wanted to see what all the fuss was about the Tesla Model S. They let me test drive the P 85, and I have to say its one amazing car, its like a rocket ship, unlike any type of fuel engine car. After the test ride I was sold on it! Maybe down the road when my income meets the 1/10 rule for a 110k Tesla haha.

        1. Hmm- As much as I want a Tesla and meet the net worth criteria, I still don’t think I could bring myself to plunk down 80k plus for one.

          1. What amazed me about the Tesla was is, performance wise it blew away cars in the same price range. I’ve driven other cars, never owned them. Such as the Porsche Cayenne Turbo, E92 M3, C55, 5 Series BMWs. I was shocked how a electric car like the Tesla felt better and possibly outperforms other high gasoline cars all from a fully electric motor.

            Hopefully this technology keeps improving, and Tesla does come out with an awesome car that’s more in the 30k to 40k range.

            1. Totally agree. I test drove a P85 as well and wanted it so badly after driving one. The good part about that is that it quenched any desire I may have had for high end gas powered performance cars. If I ever decide to spend that much money on a car it will be a Tesla. But I probably won’t have to. In 5 years, the mid level model should be out and used Model S will probably have depreciated somewhat.

    2. Yeah, I kinda surprised myself. I agonized for two months… but really more like two years on what to buy. I wrote the post on the three car options, with a survey that pointed me towards the Range Rover Evoque for $65,000.

      I just couldn’t bring myself to do it. City resident should logically buy a city car. I don’t like feeling stressed scratching or banging something expensive up. Furthermore, the uncertainty of a family size or my future after year 3 is why I stayed conservative.

      Enjoy being carless!

      1. I have never owned such a high end car. Always wanted too, felt that I would eventually. But as time passes and the more and more I grow my net worth. The less I desire the things that I thought I once wanted. I guess after saving and investing so much, you actually find it more thrilling to see it go up even more than spending it down.

  16. Damn it Sam!! The Beast (1998 Ford Explorer w/ 255K miles) has been falling apart. Smells like burning oil. Passenger cannot open back driver side door. Lock on passenger door does not readily open. It still drives and stops fine. But it is an embarrassment when someone else wants to go somewhere in my car. I have been dreaming of a new car for a while. My wife asked me why I did not get a brand new F150 like I always wanted. At that point, I thought of Moose. I figured if you could stick it out with an older car, so could I. I bike to work most days and there are times when the only time I drive in a week is to my weekly softball game. I definitely have had “One more year” syndrome with this POS for a while. Now that you pulled the trigger on that awesome new car, I feel my will slipping.

    1. Haha, sorry man, but the DMV and California screwed me! I’m not going to spend probably $200-$500 fixing Moose so his Service Engine light is fixed after 2 years of being broken to then spend $90 to pass smog and $164 (late) for registration! It wasn’t just the money, but really the hassle of another 2-4 hours. Forget it!

      I have to say, I LOVE driving an up to date modern car. All these creature comforts I’ve been missing for all these years. Can’t beat the new car smell either! lol

      But, I LOVE the old car smell too.

  17. I saw a picture, and I thought you grew a pair.. and then i saw what you actually bought..
    Just kidding (sort of). As long as you like Honda Fit and it makes you feel good.. to me these are the criteria.

    As for buying vs. leasing.. I have always looked at it exactly the same way, in lease you are just buying a put option. In your case it’s a very cheap one, so going with it sounds like mathematically a sound decision.

    I keep going between financing and leasing in current interest rates. Penfed financing at 1.49% is basically free money for 3 years – this is what I use now.

      1. We are moving to Portland from Lala land.. So I am thinking of swapping my rwd 335i for a Range Rover Sport.. That car is just so awesome looking.. Working on justifying this expense to myself :)

  18. Congrats Sam! Your analysis and reasons for leasing pretty much mirror my own. I do get a little tired of reading all the anti-leasing, buy a lightly used car and drive for 10 years orthodoxy that gets repeated on many personal FI blogs. So it was good to read your more nuanced take on it. There are many reasons why driving a new or newer car can be a valid choice, even if you’re someone who is otherwise frugal.

    Assuming you have good credit, I actually think leasing a new car makes more sense than buying a 2-3 year old used one at this point because
    a) prices for used cars are unusually high
    b) You tend to have more negotiation leverage with new cars; and manufacturers are more aggressive in terms of sales/leasing support
    c) You can easily find (or order) exactly the car you want
    d) Carmakers really do continually evolve their products and I often find that even comparing what appear to be 2 otherwise identical cars, but separated by a few model years, there are lots of changes that tend to add up to improved comfort/safety/convenience/performance/efficiency. At 5 years the differences are more dramatic, and a 10 year old car (even a former top luxury car) is generally trumped in pretty much all aspects by any new car.

    I may be burned at the stake here for mentioning this, but I currently drive a leased BMW 5 series. Love everything about the car and the hassle free “ownership” experience. Got it for $400/0 down for a car that stickered at 55k. Ordered it exactly how i wanted it too. Yep, I’m an unrepentant lessee.

  19. Another Reader

    When I saw you decided to lease I thought you would describe how you managed all the moving parts of a lease to minimize your cost at the dealer’s expense. I figured you would tell us about how you reduced the cost of money, negotiated down the cost basis, negotiated up the miles, cut your back end responsibility, and minimized your cash out of pocket. I was more than a little disappointed. Seems like you took what the dealer offered without a lot of negotiation, not that the dealer would be willing to give much up right now. The new Fit is, well, new and it’s in short supply.

    Yeah, leasing works for a business because it’s deductible, but overpaying never makes sense. I see a lot of hand waving and excuses, with an emphasis on flexibility, but no hard facts on the deal. Tell us about that sweet deal you made, and I’ll be impressed.

  20. I’m quite envious, Sam. I’ve been eying the Honda Fit for a few years now, but I can’t justify purchasing a new car while the current one (1998 Honda Civic LX) refuses to die. You need to do another post about Rhino so I can live vicariously through you.

    Of course, if Elon Musk’s prediction comes true and self-driving cars will be commercially available in 5-6 years, it may be a Tesla in my future instead of a Honda Fit.

  21. I have a Honda Civic and it has been quite reliable for me. Interesting analysis on leasing. I personally don’t like leasing but if the opportunity is correct, leasing might be a good option to get a car.

  22. I bought a new jeep wrangler 4 door in 2007 for cash. At 1200 miles the engine blew and it was in the shop for 2 months while they rebuilt the engine. I have always had weird little problems with the car over the years and really wished the car would have been leased so I could have returned it.

  23. I love Honda’s, they’re incredibly reliable, but I’m surprised you leased the car. I guess the flexibility is a bonus, but knowing that you’ll pay more in the end to own it doesn’t seem like a great idea. But who knows, maybe traffic will get to the point where biking and transit make more sense than owning a car in 3 years. I know here in L.A. traffic is insane and growing daily. Yuck.

  24. Jay @

    I think the inability to drive wherever you want outweighs the pros of leasing. Especially if you’re single,otherwise you could buy your other car and do trips in that one. For instance, I may just drive to Florida this weekend on a whim to see some friends (but I won’t because I’d need a car for that…) but you get idea.

    Also, can you really name a tiny Honda Fit “Rhino”? That reminds me of all those tiny yappie dogs named Rambo or something haha.


  25. FS, you mentioned that your new home has just a one-space garage. If you are living near the ocean and have to park it outside, this is another of the many good reasons for your choice.

    1. Indeed. I actually have a large garage, but not large enough to fit two 170″ or longer cars tandem. So instead, I’m taking about 12 feet of the garage and creating a 160 sqft bathroom and a decent size one car parking. There is always free parking outside b/c I’m in a low densely populated area on the hill now.

      1. Sounds good. Living near the ocean for 15 years in a house with a 1-car garage, my thought is that the ‘good car’ gets garaged, and the one in the salt air, fog and beach weather better be a leased vehicle, or a beater. You will be out of that vehicle lease in plenty of time.

  26. Above Average Black

    “We don’t lease, we buy the whole car, as you should” – Jay Z (Can I Live, Reasonable Doubt, 1996)

    On a serious note. I’ve leased to own my current car and there is nothing wrong with doing so.

  27. Cars are a personal choice and whole I have always been against leasing because of both mileage and cosmetic issues (I have a dog with sharp nails), it sounds like it works well for your situation. I had a car with a value less than 10% of my income but it wasn’t going to make my cross-country move unless it was on a trailer behind an expensive UHaul. So guess what? I traded in and went over your 10% rule, almost to 20%. I also financed the car I’ve always warned but never bought, a 4Runner. Yes I have to throw more money at it to pay it off and that money could have been invested, but I made the choice and am very happy with it. I could have gone for the Fit myself but wanting towing capability. The bonuses are that the vehicle is for recreation only so I don’t spend much on gas, it will make it over the 3 mountain passes and 12 hours that separate me from my family in the winter, and I was able to use the car to pull a UHaul trailer right after I bought it instead of renting a big truck and pulling the Corolla (immediate reduction of moving costs of $2,000). I know I will move within the next couple of years and it could be another cross-country. I will accelerate payments on the loan, but all in all, it is worth the money to me. I can easily see why the lease is worth it to you.

    PS I would probably be more interested in the guy driving the Fit than that convertible. Down to earth girls still exist :)

  28. My commuting car when I am working or I use it when I have to go into the City is a 1990 Honda Civic I got for free in 1998 because it had a blown motor. I spent $2000 to have everything replaced under the hood and its still going strong getting 35 to 37 MPG. It always passes our emissions tests. Looks like hell and the off-ramp pan-handlers don’t even look at me for hand outs. Honda’s are great all purpose city cars. I love cars and my primary car is is 1981 Toyota PU that my son and I made into a hard-top convertible. I have been driving it over 22 years. You are absolutely right about buying cars and keeping them a long time. Buy something you like, maintain it and drive it forever. Both of these cars have well over 300K miles on them.

  29. I wish you’d written this article 4 months ago before I purchased my 2011 Honda Fit!

    My 2002 civic didn’t pass the Massachusetts inspection and I found myself in the situation of paying more than it was worth to fix her or get a new car. I didn’t even consider the options between leasing and loan and went for the loan.

    I paid $2k down with $13K on the loan and will have it paid off in a year and half with my extra monthly payments but I had no idea what flexibility leasing could provide!

    At least it’s a great car with lots of trunk room and oh man I love how many cup holders there are! Lol.

    1. Doh, sorry to hear that about your Civic. Your situation was my fear. Spend 1 hour going to smog and failing. Then going to the mechanic an hour away in Oakland and wait another hour to see what’s up. Pay $200-$500 to fix, and then going back to smog for an hour and another $90 to test and pass. Painful!

      I decided to screw all that, and getting a tire, and paying registration and trade Moose in. They will sell him in Oregon where there is no smog check they say.

      Enjoy your 2011 Fit!

  30. Lovely car, but it isn’t a Porsche Macan S. I was hoping to live vicariously through your posting about it…

    1. I just ordered one. Will get here in April. I live in the SF area. I’ll pick Sam up for a spin if wants to give his take on one.

        1. I optioned the car pretty frugally (as the salesman put it) and the msrp was a hair under $60k. In my opinion a steal! :)

  31. Thanks for crunching these numbers for us. My wife and I are looking at a 2014 or 2015 Mazda3 hatchback, very similar to the Fit in price, features, and style. We’re definitely not considering leasing but I’m trying to decide if we should pay it off in a year or three years. I’m leaning towards the three years, so we can invest more every month rather than dumping month into a depreciating asset. Interest rate is only .9%, so only $200 difference between short term and long term. She’s of the opinion that we should pay it off over five years and minimize our monthly payments so we invest more every month. She figures if we’re getting such a low interest loan, why not spread it out and dump money into our investments? Her way is definitely math smarter, I just can’t decide if I want to be making payments for that long!

    1. I think you’ll probably get sick of making those payments for so long. Guess it all depends on how long you plan to own, and how good your market returns are!

      I think I’ll own Moose for 5+ years.

    2. Jay @ ThinkingWealthy

      I did this with my last car before I moved to the city. It’s just not worth paying down that debt when you could be earning the market return. Hell you can pretty much offset your interest cost and earn a return risk free if you wanted to!


  32. The Fit has always been a great car, and they’ve really cleaned it up and given it some nice bells and whistles for the 2015 model. Good choice!

    I currently drive a 9 year car and no matter what I do there’s no way you can get more than 20-25mpg. Engine tech has come a very long way in the last few years and even larger cars are getting far more efficient. I recently rented a full sized VW Passat – driving 80+mph on freeway stretches and still got 35mpg out of it. Of course being smart about when you actually drive, consolidating trips, using public transit etc. is the only way to significantly cut your gas costs, but far improved fuel economy across the board certainly helps too.

    As for your insurance issue – have you checked out Metromile and their new pay per use insurance option? I’m considering getting it – living in the city you’d get other great smartphone alerts too – street cleaning, stolen car tracking (heaven forbid!), vehicle diagnostics etc (they use a small device that plugs in to your car – they swear it only tracks miles drive for the insurance option – not HOW you drive). I haven’t looked into the details, but as long they have a legitimate insurance partner that’ll have your back the initial online quote I got looked very appealing – especially if you don’t drive too often.

    1. I’ve never checked out Metromile. Sounds interesting.

      I’m really happy with the advancement of technology since 2000. I don’t think there was even an iPhone back in 2000 yeah? My CD player didn’t even work for the past 4 years!

      1. No iPhone in 2000? There was no iPhone until 2007! Two Thousand and Seven! It’s amazing how far and fast technology has moved in just the last 5 years.

        2000 was still very much dominated by the Nokia 3210. Yikes.

  33. the honda fit is an excellent car. i have owned one for 6 years and it’s still running like a champ!

    1. Good to hear from a fellow Fit owner! I’m excited to join the forum and see wassup. Maybe there will be some parties and entourage driving on the weekends up to Napa haha.

  34. Practical Patty

    Nice! Congrats on Rhino. I’m a big fan of the functionality of the Fit & hope to get one if my current car ever finally dies. Hopefully that is still a few years out. Only 323K miles & still going strong. Fingers crossed for a half million miles!

      1. Practical Patty

        a 1990 Honda CRX. It’s given me ~40 mpg from day 1, I’ve been able to use the carpool lane on the bay bridge with only 1 other person, i can fit into the tiny parking spaces and the hatchback holds a great deal. All it has needed to keep it happy are regular oil changes, replacing the timing belt every 60K miles, and the occasional batteries/tires. It definitely gives me wealth stealth ;)

  35. Sam, it sounds like you got a really good deal on that car. Fuel efficient, modern conveniences, and brand new. I’m actually quite surprised about the financials too, since the common wisdom says never to lease.

    I had a couple of “car scares” recently and it reminded me how I hate the whole car ownership concept since it’s nothing but an expense with no upside. I drive a car that’s nearly 30 years old and, although it’s very solid, looks great, and I have a great mechanic, things are starting to go on it. Most recently, the alternator gave out and I had to do a fix for it.

    Then, the smog check came and, because I was worried about it not passing, I started researching options. Surprisingly, a diesel car came to the top of my list. It’s cheaper to run, it lasts a lot longer than a gas engine and doesn’t have the high costs of an electric.

    Luckily, my old car passed the smog like a champ so I didn’t have to deal with any car switching. But, now if this comes up again, I’ll consider a lease, the numbers look really good. And, since it’s a lease, if it’s a lemon you can just choose to not buy it and wash your hands of the whole thing.

    But, I think I’m also not alone in saying that I was really hoping you had purchased the Ferrari!

    1. Good stuff passing smog! MAYBE Moose coulda passed smog, but I doubt it b/c the Service Engine Light was on for 2 years.

      A 30 year old car is old! What type is it?

      Maybe I do have a Ferrari as my second car. Nobody ever asked what else I own!

      1. Mine is a BMW. I think it was made before the concept of “value engineering” was introduced. That’s probably why it’s still on the road.

  36. Congrats on the new car. I agree Uber X is great if you live in a city. So much better than taxis and much cheaper too. I only use occasionally to avoid parking hassles/cost or when I have a few drinks.

    I am 41 and have had my townhome for 15 years and car for 14 (92k miles). I walk to work so I am fine with the older car and besides it still looks great and drives pretty nice. I did have to spend a few bucks this year on maintenance including a similar smog issue you described.

    I am getting a little more tired of the townhome. Even though it was pretty much my dream home when I bought, it could use a renovation, and someday I’d like a proper house with a yard. For now, I may rent it out and live in a smaller apartment with amenities for a couple of years and then renovate the townhome at the end of that period.

    I can’t afford to do what you did and just buy a new house as I still want to retire from the corporate world in a few years.

    1. Sounds like you’re always there soon! Good luck!

      It’s funny, b/c I bought Moose when I bought my previous house too. I’ve totally adjusted my house and car towards a very normal SF family lifestyle. The house is 40% cheaper, and the car new vs. new is 60% cheaper than a LR4.

      That’s great you get to walk to work! Where do you live?

  37. I’m not trying to be rude or disrespectful, but I don’t understand your decision to get the fit and I’d have to disagree with most of your readers here.

    I grew up being very frugal and thrifty and before was an analyst in a bulge bracket investment bank in nyc where 3 guys shared a one bedroom apt.

    Then I moved to Singapore where a Honda civic will cost you more than 100k usd and you can only drive it for 10 years.

    The US is the only place in the world where you get the biggest bang for the buck buying cars. With that in mind, if you love cars, you should get your favorite car in the State bc you’ll end up paying for it more anywhere else. Any car, whether it be a porsche or Ferrari is cheaper in the US than anywhere else.

    Also, I’m a single guy. I personally love Hondas but it’s my belief now that if you want to attract a nice girl, you need to spend the time and money to invest in yourself to attract the right one. What kinda girl do you attract in a Honda fit? Sure, you’ll avoid the gold diggers, but you’ll also turn off the good catches too.

    What does a nice and beautiful girl look for? You could say she’s looking for a nice and genuine guy, but appearances matter. She’s initially attracted by someone confident, with good style, nice watch, car and pad.

    I guess you can tell I used to be more like a financialsamurai kinda guy, but through society and experience am now more of a follower of wallstreetplayboys.

    Saving a dollar here and there just doesn’t make a difference. You can skip the Starbucks and stay at home everyday and be a millionaire by the time you’re old, or you can invest in yourself and enjoy your life while you’re young.

    What’s your opinion on this?

    1. I’d say that’s a pretty terrible argument. You could completely flip the coin and say since you were lucky to be born in a place where transportation is so affordable, you should take advantage of it by not buying more than necessary.

      Superficial girls chase superficial boys. I am neither. I see plenty of good looking girls dating guys who drive beat up trucks and guys. Sure there are demographically differences, but yeah.

      For me personally, I would be appreciative of having a high paying job and recognize that it won’t last forever so I would make the most of it.

      Also I don’t really think Sam is frugal at all. I doubt he would say he is frugal either. He travels frequently, has expensive homes, has a vacation home (which he rents out, but still) and eats out frequently.

      Let’s face it, it’s way easier to get caught up in society, especially in a place like NY, and do what everyone else is doing. But if you do then you’re just delaying your freedom. Personal finance is about freedom as much as it is managing money.

    2. Wallstreet26

      You can lose a lot of money chasing women, but you won’t lose a lot of women chasing money. But yea ur right I hear smuggling stuff internationally is a good business.

    3. I actually understand your sentiment perfectly given I’m very familiar with the OUTRAGEOUS import taxes in Asia for foreign cars.

      If I lived in Singapore for at least 3 years and moved to the US, I’d probably go out and buy a Porsche 911S for $100,000, because I would feel it was a DEAL given it’s $250,000 in Singapore, HK, Malaysia, etc.

      So, that’s kinda what I did when I bough the MB G500 in 2002 for $72,000. It was $150,000 the year before but MB bought the import rights to the US from a Santa Fe company.

      The 2015 Honda FIT probably costs $50,000 in Singapore, so that’s still a deal :)

    4. Practical Patty

      Actual girl here weighing in with her 2 cents…

      A guy intelligent and disciplined enough to figure out how to retire in his 30s is sexy. The Honda Fit with all of its functionality and flexibility is sexy.

      An expensive car is not what’s going to win over the catch. It will win over a materialistic girl.

    5. green_knight008

      “She’s initially attracted by someone confident, with good style, nice watch, car and pad.” -You’re essentially defining a gold digger here, and I’d say with your take on how to find “the one” there’s a good chance (at least 50%) that soon after your marriage, (if that happens) that she decides to make off with at least half of your confidence, style, watch, car, and pad.
      One of the best pieces of advice I’ve seen on this site is the “stealth” wealth concept-not that it is new, but it is true.
      You would likely have better odds getting a good wife or husband by concealing some of your money during the courtship. After all, who’s going to be pissed when they find out after they get married that their new partner is actually financially worth several times more than they thought?

  38. Yes, one of the comments above said it perfectly. The big win here is that you are choosing the Honda Fit over other significantly more expensive options.

    Honestly I thought you’d end up with the Evoque. You are a personal finance hero to be able to be in your financial position and truly practice your “stealth wealth.” I know you have an inclination towards nice vehicles, so just make sure you won’t have any regrets!

    I hate the argument of “why would I pay more than 10,000 to get from point A to point B?” Personal finance is not about saving the most amount of money. Life would be a bit dull if everyone drove a 10 yr old Honda Civic around. Some people only care about the practicality of cars and that is great (lucky in my opinion) but others enjoy their vehicles on a different level and there’s nothing wrong with that.

    I am looking to get a 2014 or 2015 Jeep Grand Cherokee Altitude so that is interesting you decided against it. Besides the costs, is there anything that turned you off about it?

    1. Jonathan,

      I thought with 80% certainty I was going to get the JGC b/c I am used to sitting up high and love Jeeps. The mph was also 50% better than Moose too.

      Nothing turned me off about the Jeep GC. It is the best looking SUV on the road along with the Range Rover Supercharger 2015. I also think it is the best value in its class. I just felt bad paying so much. I’m paying a lot for my housing remodel, including expanding a bathroom in the garage, so I wanted a smaller car than a longer one. The JGC is 189″ long vs. the Fit at 160″, so that’s a big difference in SF.

      I’d get the JGC. Let me know how it treats yah!

  39. I like driving new cars. I like being the only one who owned the car. I like knowing for certain that there have been no prior issues with the car. I like that I get the benefit of the maintenance plan for a while. I like the reliability because frankly I don’t have the time or desire to deal with nuisance repairs that may be cheaper in terms of money, but more expensive in time and worry. I don’t believe in the myth that a car loses 30% of its value as soon as you drive it off the lot (good luck finding a 2 year old used car with relatively low mileage) that is 30% less than the price of the new model of the same car).

    I also like leasing. I like leasing because you get the most up-to-date safety features. I’m willing to pay more for those safety features because my family is worth it. I don’t want to risk there lives to save a few thousand dollars. I like it because it means I never have to spend much time maintaining the car. I like it because my car needs may be different 3 years from now than they are today.

    Most of all I like buying new and leasing because some people are really self-righteous about cars, as if they are different from any other kind of purchase. Eating out is probably a bad financial decision compared to cooking at some. Sue me, I like eating out. I can afford it.

    Do the same people who insist that buying anything other than used car also buy used clothing? Because pants depreciate at a much faster rate than cars. Would they ever buy a new bike for their kid?

    All the above I said is BS too. I have bought slightly used, really used, new and leased. You know what – I hated all of them, and can think of positives for all of them. My reasons were different each time. But people are so certain that there is one set way to buying a car.

    1. Good stuff. I really wanted to have the latest safety features and technology after driving a 14 year old car for 10 years.

      If I had a family, I think I would have bargained hard to get the Jeep Grand Cherokee instead. But so far, I feel pretty safe in the Fit. I’m not a speed racer, and am relatively defensive in my driving.

      It’s pretty neat to get people’s views on leasing. I was very anti-leasing 10 years ago, and would always buy used until I grew 10 years older and ran the numbers across 5 type of cars

  40. wallstreet26

    how many miles Moose rack up? I’ve driven my 2008 camry about ~100k miles and i am thinking of replacing it next year since the tire popped on me while i was driving on freeway. its a toss up between a mustang (since i like to drive fast), and a sonata (because its the smarter choice). BTW you should truecar. you can get bargain deals on new cars for last years model at 20%+ off MSRP. I know you got the 2015 for its safety so i guess it wouldnt make sense for you, but this gets you a deal and gets rid of most of the negotiations. but props on the honda fit. very economical and smart.

    1. Moose had about 130,000 miles for a 14 year old car. Not that bad, and in really good shape. I think my car buying journey is done for hopefully the next 5 years now. Will check out Truecar in the future though. thx

  41. Haha, you’re right I did enjoy your post, and while I purchased my Fit at 0.9% interest instead of leasing, I don’t think it really matters for you given your circumstances.

    Make sure you check out the forums. Lots of good info over there.

  42. Lance @ Healthy Wealthy Income

    2 out of the 3 cars I have purchased have been lease returns. They are 3 years old and in immaculate shape because they have to be to turn them back in. The mileage is low and the price has dropped considerably. Best cars I have owned. Paid cash up front and haven’t had to do any major repairs over the last 7 and 9 years respectively. My first car (Toyota 4-Runner) I bought from a stay at home mom that only used it to take kids to and from school and to soccer. She didn’t even know how to put it in to 4 wheel drive. Super nice family that needed something else and I drove that car in to the ground (19 years old when I got rid of it). Lots to factor in with cars: price, insurance, gas, mileage, driving range, usefulness, practicality, golf clubs fit :) My general guideline is to spend a little more than to get a great deal because the money you save to get something a little nicer will pay off in the long run then going cheap and breaking down and paying for constant repairs.

    1. Sounds good to me Lance. I will probably just buy Rhino in 3 years for $12,700 as he’ll be in immaculate condition with less than 18,000 miles given I only drive 4,500 miles a year.

  43. Even Steven

    I treat leases like riding a tiger. Sure it’s really fun in the beginning, people are looking at your new tiger very impressed and wonder how you are able to have such a cool ride. Then since you are not meant to be riding a tiger he gets angry and takes advantage of the poor fool who decided to ride a tiger(lease). You can imagine the outcome, you are injured and hurt by the tiger. At first everyone feels bad for you then they found out you were riding a tiger and should have known better. The End.

    That just came to me and was fun to write, it might even have some good points who knows.

    1. He’s leasing a $20k Honda Fit. Hes a millionaire with a substantial monthly income. He didn’t write a post that said “Hey, I’ve decided to start smoking crack!”

      Am I the only one that thinks all of you are penny wise, pound foolish?

      1. There was a comment higher up talking about why leasing leads to constant payments and is not a good match for building wealth. This is true for buying a new car (depreciating asset) as well as leasing. However, besides showing the lease to be almost equal to buying the fit with cash, Sam explained that he saved $40,000 by not buying a more expensive car. That savings is way more important that saving a few pennies by making a purchase compared to a lease, especially when factoring in the convenience of a lease.

        Also, if Sam has paid his dues and has built his wealth, he can afford convenience, which is why he chose a lease. What is the point of having money if not to make life easier. I am still building wealth and am careful not to exchange money for convenience, but at some point I am going to look back and see that I have more than enough. At that point I plan to – and others should as well – spend money to make life easier and better for myself and others. Building up money to endlessly stack it into higher and higher piles of cash is foolishness. Being free to live a good life is the point of learning money, not the money itself.

        1. It’ll be interesting to observe when your cross-over point where you stop trying to penny-pinch everyone and start using money to buy more time, peace of mind, and convenience.

          I really wanted to own Moose FOREVER, but the DMV/CA screwed me with their mandatory smog test. So I had to make a choice.

          I spent a couple months going back and forth, agonizing what to get, and I STILL went the frugal route vs. the $44,000 Jeep, which was the cheaper route from two months ago as I really was going to buy the $65,000 Evoque Limited edition!

          And four months ago, I was set on buying the Range Rover Sport HSE for $72,000. I feel good w/ Rhino.

          1. My cross-over point is distant in the future. While right now I scrimp because I want to save and invest everything I can, I also scrimp where I don’t have to in order to teach my children the importance of saving and working hard. So my cross-over point is not based on reaching certain goals with money, but based on showing/teaching my children how live right.

            Once the oldest of my children is out on her own I plan to retire and play with my kids and grand kids, spending money for convenience because by that point I should have no worries about income for the rest of my life. (I’ll have a pension, own my homes, and have additional retirement accounts).

      2. Mysticaltyger

        No, you are not the only one! Sometimes, there really ARE exceptions to the general rule. I believe Sam’s case is one of them. If he’s paying a premium, it won’t be much of one unless he doesn’t buy the car at the end of the lease….but even in that case, it’s not going to kill him. When you have the money, you have the luxury of blowing it on convenience. Nothing wrong with that as long as you still have more coming in than going out.

  44. In August of 2013, after my 2000 Acura TL trannie died right on 101, I took my wife’s then 13 year old Subaru Forester and bought her a brand new Lexus SUV. 90 days after I bought her the Lexus she said, “Hey it’s really nice, but I’m used to it now and it’s not nearly as big a deal. I could even go back to the Subaru.”

    You are rationalizing a questionable decision any way you know how, but at the end of the day you are renting a vehicle for a few years while it depreciates rapidly.

    I know I come off as an antagonistic pain in the arse, so just to let you know I’ve shoved MANY of your posts into mah Evernote for reference at any time, anywhere.

    But dude…reallly?? This isn’t an April Fool’s joke?

    1. What happened to the brand new Lexus SUV?!

      We’ll always rationalize our decisions. Most just don’t do it in a 1,700 word post open to everyone to read on the internet.

      Don’t look down on Rhino. Ladies are digging it so far!

  45. The people most scared of leasing usually don’t understand the details that make up a lease. The most important numbers are the money factor (interest rate) and the residual value. It can often times be difficult the find the money factor as it’s not listed on most lease contracts. Always ask the dealer about the money factor and make sure they give you the “buy” rate. The buy rate is the money factor offered by the leasing company and often times dealers will mark this up a bit. It’s good to research this number before going to the dealer because they often play dumb until you call them on it. With a good residual value and low money factor you are essentially financing the car at a lower interest rate than conventional financing.
    You would be hard pressed to beat 0% or 0.9% financing but sometimes there are lease incentives that make it more favorable. At the end of a favorable lease you may have more equity in the car than the residual value and thus you can buy it outright or trade it in for a gain rather than turning it back in to the dealership. Or if the value of the car drops heavily, as SUVs did a couple years ago, then turn it back in and the leasing company takes the financial hit. A good lease gives you a lot more options at the end of it’s term. At the very least you should run the numbers both ways before automatically blowing off leasing.

  46. The First Million is the Hardest

    Congrats on the new ride! I’ve gotta say I was little disappointed when I was reading and found out it wasn’t the Ferrari in the picture :)

  47. The Alchemist

    Hey Sam, how’s the power in the Fit? Have they improved it? I’ve liked the size/versatility of the Fit for a while, but a friend who actually test drove one told me that it was maddeningly gutless. And how are the paddle shifters?

  48. Sam, congrats on the purchase. As a car guy I cringe, but as a fellow city dweller, I understand the need for a compact, flexible car.

    The people in this thread losing their minds over a lease vs. buy scenario have been trained to follow instinct rather than follow the math. Yours clearly checks out as you’ve shown in several different ways. There is simply no way that you’re damaging yourself with this lease. I suppose you could have done what folks are advising and saved a bit of money over the life of the lease, and therefore added a few hundred bucks to the bottom line, but I like you value my time and comfort a bit more than that.

  49. mysticaltyger

    I can understand why Sam is leasing. Let’s face it….he’s loaded, so he can do what he wants, within reason. The extra cost is relatively minor compared to his income and net worth. He’s leasing a sensible, small, non-flashy, fuel efficient car; which is very suitable for someone living in San Francisco. He’s not restricted by the mileage limits because he doesn’t drive that much, anyway. He’s not your typical person lessee, who is trying to get more car than they can really afford. Seems like a reasonable decision to me, although I can also see that buying outright would also be reasonable. Bottom line is he’s not trying to “stretch” to buy/lease a car he can’t really afford. Far from it.

    1. The Fit really is a fantastic city car. I’ve been able to find parking so much easier now. Like 30% more parking spaces have opened up to me now given Rhino’s 160″ length.

      Expensive car = lots of worry for. I’m thrilled to be driving a car that has technology 14 years newer that doesn’t cost that much.

  50. I too am not a fan of leasing. We did it once with a 2005 Toyota Highlander. To me it felt like renting a car for the entire 36 months. We were worried about door dings and keeping it clean. We put on close to 12,000 miles, so we were also “watching” the miles.

    At the end the residual value was quite a bit less than what we owed to buy it. We just turned it in.

    I am surprised they only gave you $1,000 in trade. Did you consider selling the Rover on Craigslist? Seems like you should have been able to get $2,500 at least.

    I won’t ever lease again. Hopefully you will keep us posted on the experience. I do really like the Fit. Very good choice over the Jeep for many reasons.

    1. They initially offered $500 lol.

      I couldn’t really have sold it on CL because the registration was two months past due and I couldn’t renew without fixing the check engine light and paying $90 for smog on top of the $132-$164 renewal fee.

      Nobody would buy Moose because they wouldn’t have clear registration. Then I would be liable if they did buy moose and have to pay all the fees. If I knew it cost less than $150 to fix the service engine light that was on for two years, I probably would have forked over $500 to keep moose. But I didn’t and wanted to save time and hassle.

  51. I think you guys are giving Sam too hard a time about the lease. Yes, it’s always optimal to know exactly what you want (now and in the future) and then arrange to get it as cheaply as possible. However, that is not always realistic. Optionality is a nice thing to have, and in this case, it’s very affordable.

    Financially, this is a huge win regardless of the lease. Sam was looking at much more expensive cars (that he could still afford, by the way) in the luxury/SUV class that cost 20-60k more, but he went with the efficient model that met his needs. This is the biggest savings here, not the measly 1-2k on leasing vs. buying.

    In other words, by nitpicking the lease, people are missing the big picture. The buyer in question is a millionaire who is choosing to buy an economy car for ~20k instead of a 44k SUV or 60-80k luxury car. Paying 1-2k for some optionality is insignificant in comparison.

    1. That’s some good big picture thinking MDD! I was seriously going to spend $65,000 on the Range Rover Evoque Black Limited edition. So sweet, compact, and good for my lifestyle given I go to Tahoe. I just felt bad spending that amount, even though it fell within my own car buying rules.

      It’s nice that some readers are focusing on the $1,091 in premium I am paying to lease over 3 years. I basically took the $44,000 I really was going to spend on the Jeep, subtracted it from the $21,000 I did spend on Rhino, and am using the proceeds to pay down principal on my 3.375% rental mortgage. So far I have paid down $9,500 in extra mortgage the day I bought Rhino.

      I plan on paying down another $11,500 from the car “savings” before year end.

    2. It’s not just the $1k premium…the extra cash flow is likely worth the $1k premium alone. The lease is a good option for that reason alone. It’s mainly the fact that if he gave the car back after 3 years then it would have been a poor financial decision.

      1. I’m about 75% sure I will buy Rhino at the end of the lease given I owned Moose for almost 10 years.

        But of course, I’m not sure given I have an Internet business that allows me to be very mobile.

        I agree with you. Leasing for 3 years and then getting a new lease is probably the worst for one’a finances. But we know car buying is an expense anyway. Wish I knew the future! Maybe I won’t want a car at all then.

        1. Tax Avoidance

          Can you deduct the lease payments as a business expense? If you can, then you may come out close to even or perhaps ahead?

          By the way, for purchasing business vehicles, the section 179 deduction ($25K) is only for cars >6000 GVWR ie. fully loaded car. Most SUV’s would qualify.

          I just leased a sweet 2015 BMW 435ix Convertible. Maximizing tax avoidance (which is legal) allows my true out of pocket expense (I’m at the highest tax rate) to be fairly minimal. Yes, it’s a mid-life crisis thing and a bit of a splurge, but you only go through life once. If you have your ducks in a row (like you and I do), it’s not such a bad thing to have a new car. I fully support your decision to lease. By the way, I asked my accountant to independently run the numbers for lease and a purchase. He confirmed it is in my best interest to lease the vehicle, particularly as it qualifies as a business expense.

          1. Did the 435 convertible come out yet? Just checked out the M4 yesterday and it is sweet. Asking $80,000 with a $20,000 mark up to $100k! Kinda crazy.

            Of course I can deduct Rhino’s lease payments. I need him to go see clients after all :) I think I can deduct 70-80% of the payment, so ~$150. With an effective tax rate of 30%, I guess I save about $45 a month. Not huge, but better than a poke in the eye!

            Enjoy the bimmer!

  52. I ended up leasing my wife’s car! I even got it $1,500 below dealer invoice! The numbers made sense even compared to zero interest financing. I plan to pay it off with the sale of m Prius in three years. I

  53. I leased my car and then bought it and I regret it every day. I ended up paying way too much for the car. From now on, I’m only going for slightly used cars and have somebody else eat the initial depreciation. But that won’t be for a while, I’ve only had my car for 7 years (90,000 miles). I’m going to try to keep this baby for another 7 years. We’ll see if it holds up.

  54. Wow– I am surprised. I expected that you would buy a used car to avoid the up- front huge drop in value. I expected that you would pay cash to avoid the financing charges. I expected that you would buy and not lease a car which I agree is essentially renting a car for a long term.

    If you turn in the lease after 3 years you have spent $2820/ year. But if you pay cash–and drive it for 10 years– you only pay $2174/year. Big difference.

    I just hate when you are not in charge of your own destiny. Leasing a car is like renting a home. Too many rules. The “landlord” calls all the shots. You cannot exceed certain mileage limitations. You need to worry about dings and extra charges when you turn it in.

    As far as the optionality that you desire——you can always sell the car. Its pretty liquid. Go over to CarMax. They write you a check on the spot. Put an ad in craigslist.

    I don’t agree overall with the finances of your decision but….if you are happy with your choice for whatever reason, god bless you. enjoy Rhino.

    By the way. The name Rhino for a little compact car is a bit….. misleading.

    Maybe change the name to Squirrel ? or Woodchuck? or Painted Pony? or Silver Fox ?

    Just a thought.

    1. My destiny definitely is pretty ruined now, you’re right. But hopefully I will survive as the payment is less than 1% of my monthly cash flow.

      Have you calculated the difference if I leased Rhino for 3 years, bought him for residual and owned him for 10 years? About $80 a year, but actually a positive if I reinvest the $20K. So far I used $9,500 to pay down a 3.375% rental mortgage.

      1. Having just had to replace an engine in my used lexus, even though I thought I did everything right and it’s supposedly very reliable, I now regret paying cash for a used car with no warranty. Nothing sucks like an unexpected $7k hit on your used car. I think you made a good choice.

        1. Yikes, $7K is a big one :(

          At my age and wealth stage, I really like have the warranty. I’m bummed my trust automechanic moved to Oakland. He was the best. I can still see him, but I’m on the more western part of SF now, so he’s kinda far away (45-50 minutes). Before he was just downtown SF so convenient.

  55. To me a new car is fun to drive the first three years or so, then it becomes ho-hum for the next five years or so. After year eight, it becomes fun again because you realize how much money driving your old car (which has been paid off for a long time) saves you. The older it gets the better you should feel. My Nissan Altima has never had a repair of more than $800 and is exactly 11 years old. I’m going to try to keep it for two more years until my house is paid off and then get something sweet, and pay with cash!

  56. Ha! I did a double take, Sam, when I saw your pic up top! We own, but we got 0% financing. I’m leaning towards buying used for our next vehicle but that won’t be for about 7 years. I have leased once before, but I think unless you have a fair amount of uncertainty about how long you want to keep it, the math tells you to buy. As you said, you’re paying $1K for that luxury of flexibility but hopefully you can re-coop that through earned money on investing the extra cash flow or saved on interest for your mortgage repayments. Actually would be interesting to see if you actually come out ahead at the end of the day factoring that last part in.

    Keep insurance out of it, because although a cash flow drain, it only makes sense to compare against a scenario of buying new versus buying used. I don’t know if buying used again was a scenario you considered, but if not, the insurance just becomes a necessary expense on your decision to go new this time (for other reasons).

    1. Cool Ferrari yeah?

      Well, I can dump $20,000 into a risk-free CD at 2.2%, thereby earning me $1,300 in three years and wiping out the $1,091 in premium.

      But what I actually did the day I purchased Rhino was lob another $9,500 towards my 3.375% rental principal mortgage! Whooo hoo!

      1. If you include the higher insurance that you have to pay ($340 a year), you still lose $811 even after the $20,000 investment in a 2.2% CD.

        1. Good thing I’m using the $20,000 to pay down my rental mortgage at 3.75%.

          There’s no “winning” in car buying. It’s all an expense that will unlikely ever be recouped.

  57. I’m definitely surprised by your decision to lease, given your aversion to renting in general.

    Wouldn’t you have been better off buying a 4-5 yr old compact car and testing for a few years to see if you could live with it and then basically get your money back out of it?

    I have a feeling you’ll end up keeping it so overall I think it was a good move for you. Where people truly mess up is paying huge upfront signing costs and continuously leasing. The option to not buy would be worthless for me because I’d hate to think I just threw away $8k over 3 years if I decided to go with something else. Sure, it’s not truly $8k because you did have a car to use over that time, but the car still isn’t any closer to being yours.

    1. Buying a car is a bad financial decision. It is guaranteed to depreciate. I’m optimizing for optionality, less stress, and freedom.

      The best way to go is to buy used and flip it, like I did for many many years. I just don’t have the interest anymore. I’m probably going to buy Rhino out in year 3, but it’s nice to know I don’t have to.

  58. Leasing equates to renting the car for the period of the lease. It is THE most expensive way to operate a car. You’re perpetually in the land of car payments which isn’t a conducive towards building wealth.

    Rhino’s 20K price is going to become closer to 10K in the next 4 years. I don’t see how making payments on a depreciating asset is a good idea; even if it’s at 0%. It’d be like pouring $500 per month into an ETF to watch it consistently lose value over 4 years (Doubt that you would continue to do it). If you add the buyout price at the end of your lease and the sum of your payments, you’re paying too much.

    As far as the argument of driving a new car every 3 years, that’s mainly what broke people do. If you have enough money that throwing away 20 – 30k every 3 years doesn’t matter to you, then disregard everything I said and proceed. :-)

    Just my 10 cents.

    1. Buying or leasing a car PERIOD is never a good financial idea as I concluded in my post. It’s the decision on what’s the route of least damage that still provides maximum utility.

      As a guy who really values his time, I think leasing a depreciating asset is slightly better than owning a depreciating asset.

      My “paying too much” is $1,091 over the cost of paying cash for the optionality. But it’s -$200 b/c I can just reinvest $20K risk free for 2.2% a year.

      Please share your car story.

      1. I wouldn’t say I have a car story per se. I own a 2008 Volvo that I bought outright in late 2007. I keep up with the maintenance on it and have no plans on replacing it anytime. Has just over 110k miles on it, doesn’t burn oil. It still runs great.

        It could be argued that I should have purchased a 2 year old car that’s already experienced a lot of it depreciation. Going forward, I’ll be doing that. I just can’t see myself ever leasing a car. Even if it costs me $10 dollars more to lease, I’m not doing it. Even if the cost is minuscule (.55% or $1091 more in your case), you still have to consider the harassment of having one more thing in your budget to track each month.

        I would just pay cash and be done with it. Less headache.

        1. Don’t beat yourself up. So long as you spent less than 1/10th of your annual gross income on your Volvo, I really wouldn’t worry.

          I’ve found that the older I get, the more I place a premium on time and convenience. That is what money can buy.

          I do enjoy the fact that I can earn at least $1,300 risk free on the $20,000 that wipes out the $1,091 premium though.

          1. Count me in the same “no lease” camp with FrugalInGA. To me one of the biggest problems with leasing (renting) besides the never-ending payment, is the requirement to ALWAYS carry full coverage insurance. Personally, I like to buy/sell my cars used from/to a private party and then keep Liability and maybe Comprehensive, saving a lot of money vs. leasing just on that one major expense. Our two cars are worth $16K combined and we pay about $200 every 6 months in insurance on both including Comprehensive but no Collision. If there is a door ding – oh well… If we want to go on a long trip the last thing on my mind is mileage… A 3 to 5 year old car bought in cash is the sweet spot for us in terms of reliability vs. price.

            But hey, please go ahead and lease cars and get a new one every couple of years. My car buying strategy depends on a fresh supply of barely used cars that can go another 150-200K miles after trade in!

            As a side note, if you gonna go with a lease, why not look at something like Swapalease or Leasetrader to try to further reduce your costs?

            1. I think it’s because I really like the 2015 Honda Fit, which just came out this summer. I found it to have the best combo of features and pricing for a city driver. Hence, there aren’t any existing leases to trade b/c it is too new.

              Also, the lease payment is less than 1% of my monthly cash flow and it’s tax deductible. The expense is not going to crimp my lifestyle.

  59. Comparing the monthly payment of lease vs. Buy is odd for two reasons: (1) because Sam is much smarter than your average “monthly payment buyer” and (2) it’s apples to oranges to compare a 3 year finance payment (where you own a $12k asset at the end) to a 3 year lease (where you own nothing at the end). I like the value of the optionality though.

    1. It’s the same thing when you buy a call option in finance. At the end of 3 years, I have the option of buying Rhino for $12,750. If I have low miles and still love him then, I will. If not, then it’s the same as if I bought the car, but I don’t have to go through the hassle of selling. That’s worth a lot to me now in my old age.

      1. Yeah, but it’s like a European call option, not an American one. Actually it’s worse than a European call option.

        With American call options you can exercise them or sell them, ANYTIME up the option expiration date end.

        With the car lease you only have 1 point at which you can sell the car without incurring penalties. And that time is EXACTLY three years from lease commencement. What if you move to a foreign country two years into your lease? Or decide that your need a different car for a certain reason? You’ll have to go into a very thin market of people who take over car leases or return it to the leasing company for a huge hit.

        If you purchased a car, you could sell it or turn it in just as well at the end of three years. You could also sell it and one, two, or two and a half years.

        Furthermore your analysis didn’t take into account the estimated resale value at three years and compare that to the residual value of the lease for which you could buy the car. You now drive for Uber some (which would certainly add miles), but you mentioned that you only put on 4,500 miles per year on your previous vehicle. There’s a very good chance that your vehicle with only 13,500 miles on it and three years old would have a private market value much higher than the residual value given in the lease, especially when the lease assumes 12,000 miles per year or 36,000 miles at the end of the lease.

  60. Sam – good post. I’m having the same dilemma as you right now. Unfortunately living in Texas, the low lease mileage restrictions make leasing a more difficult decision. Otherwise I’d do it for sure. For now I’m just trying to squeeze whatever life I can get out of my current paid for car. But if you aren’t quite sure what you want then I think leasing is a good option. Gives you flexability.

  61. Wow, the 2015 Fit redesign is sexy! I’m not a huge car guy, but that is a fine looking auto.

    Interesting data on the lease deal. I’ve automatically counted out leases in the past, but I guess I should take another look when I next need a car.

    That insurance increase isn’t actually that bad, I would have guessed more!

    Make sure to get wheel locks! Fit wheels are a frequent theft magnet!

      1. I think Frugalwoods was talking about the 4 wheels that are on the Fit as opposed to the steering wheel. You can get a lock for each wheel that would replace one of the lug nuts making it a (tiny bit) harder to steal the wheels.

        1. Yeah, the wheels on the Fit are some of the most commonly stolen car items. The locking lug nuts won’t stop a determined thief, but they will stop the punk kids who are looking for an easy score.

          I’ve seen 2 fits around town get their wheels stolen. No fun to come outside and see your car on cinder blocks…

  62. Sam,

    I have never been a fan of leasing, mainly because of the fact that you are basically renting a car and paying extra money to do so. And, now that I have had some friends tell me about their leasing experience, I am even MORE against it!

    Aside from losing a few thousand bucks through leasing instead of buying, there are two major reasons why I wouldn’t consider it.

    (1) The mileage restraint really dampens the mood when you think about going on long trips. My friend was leasing and thought about taking their fuel efficient car out west for a couple of weeks. The round-trip mileage would have been over 3,000, which would have tipped them over the 12,000 limit. To avoid getting charged the extra, they were forced to rent a car instead. I don’t know about you, but when I buy a car I plan on driving it…. Leasing can restrict that.

    (2) You begin to get paranoia about parking near people as nicks and scratches will penalize you when you return the vehicle. Plus, you will have no say as to whether a ding is serious enough to warrant an additional charge to you. The discretion is purely up to the leasing company. I’d rather buy a mediocre car and not worry so much about a scratch here and a dent there. Owning the car outright would make my every day life much more enjoyable.

    Go for the Rhino and buy it outright. It’s a great car that will treat you well for many years.

    1. Here are some counterpoints:

      1) The cost of leasing is $1,091 more over three years than if I bought Rhino outright with cash. But the cost of leasing is $392 over 3 years if I bought Rhino with their 0.9% over three years. This isn’t “thousands” of dollars more. I haven’t even factored a risk-free 2.2% annual return on my $20,000 I will earn ($440/year) by not buying Rhino with cash.

      2) I drove 40,000 miles in 9.5 years. That’s under 4,500 miles a year. My lease mileage range is 12,000 miles a year. I won’t be going over 36,000 miles in 3 years for sure.

      3) I would be paranoid if I bought new, used, or leased. But definitely more paranoid new or leased. Rhino is half the cost of what I was seriously thinking of buying, a $44,000 after tax Jeep.

      4) I have the optionality of buying Rhino in 3 years for $12,746. I just love having that option to return the keys or not.

      1. Hi Sam,

        Assuming trade-in value, yes, your dollar amount is correct. But, if you were able to sell the car yourself, you would likely get a couple thousand more than trade-in value.

        But, as some of the readers have already commented, a couple grand is not going to break your bank account. The fact that you are looking at the Rhino instead of the Range Rover or the Jeep is the biggest step.

        Nice choice Sam!

        1. Unfortunately I couldn’t really sell moose, who has a KBB of $2,200 because he can’t pass smog without probably $200-$500 worth of fixing and time spent.

          Have to sell out of state or something and who has time for that!

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