Faith & Finance - Buy or Lease Your Next Car?

Buy or Lease Your Next Car?

08/25/22 • 25 min

The days of record low interest rates and barely noticeable inflation are behind us, so the decision of leasing versus buying isn’t so clear-cut. Maybe it’s time to go over the pros and cons again. We’ll do that today on MoneyWise. Not only are interest rates up, but used car prices are way up, too. All of this is making the idea of leasing a car a bit more palatable for some folks. As inflation squeezes the monthly budget, the need to cut costs becomes more important. Before we get into the nuts and bolts of buying versus leasing, however, let’s understand the difference. Obviously, buying a new car is just that. Before you can drive it away, you have to pay the dealership every last nickel of the cost upfront, and these days, that’s a whopping figure. Of course, the best way to do this is with all cash up front, but that’s getting harder to do. That means most people have to finance the purchase of a new car, ideally while still putting down as much as possible to minimize borrowing. Fortunately, there are a number of sites you can check out to get the lowest rates and best terms for an auto loan. These include Bankrate.com, NerdWallet, and LendingTree. Now, what does it mean to lease a vehicle? You might compare it to signing a lease for an apartment, except with an apartment, you don’t have mileage restrictions. A lease gives you use of the vehicle for a set period of time. Most leases run for 36 months. Unless you pay the entire lease amount up front, you’ll make payments each month. When the term is up, you have two options. You can hand back the keys, or purchase the vehicle. There you probably have some negotiating power, because the dealership will probably want you to buy the car so they don’t have to deal with it. But most people turn the car back in and that means, they give up any equity the vehicle may have. LEASING PROS Still, there are a few advantages that come with leasing a vehicle. The big one, of course, is that the monthly payment will usually be lower than if you purchase it. In some cases, leasing a new vehicle may have a lower monthly payment than if you buy a late model used one. With a lease, you’re not paying down the principal on a car loan. Instead, your lease payments are really just covering the normal depreciation of the vehicle for the life of the lease. That’s a real attraction for some people, getting to drive a newer car for less monthly outlay than with buying a used car. Plus, some people don’t like the idea of having to sell a car when they need a new one. That’s why most just trade them in, usually for less money than they could get if they sold them on their own. With a lease, when the term ends, you just drive back to the dealership and hand them the keys. A couple of other advantages to leasing: You may be able to deduct some of the expenses associated with it, especially if you use it for a business. And if you typically drive the same number of miles each month, or you don’t drive much at all, mileage restrictions shouldn’t be a problem. LEASING CONS But leasing definitely has a few downsides. When buying, you have the opportunity to keep making monthly payments to yourself once you pay off a loan. That allows you to make an even bigger down payment when buying each new car, eventually getting to the point where you can pay all cash upfront. Well, with leasing car after car, that never happens. Remember, your lease payments are really just covering the cost of depreciation for the dealer. When the lease is up, the dealership still owns the car. You’ve accrued zero equity. Also with a car lease, you’re usually limited to 10,000 miles a year. Go over that and you’ll be hit with big penalties. That could be a real problem if the length of your commute changes or you want to finally take that big, cross-country vacation. And while you won’t be charged for normal wear and tear, the dealership will go over the car with a fine-tooth comb when you turn it in and charge you for every tiny scratch or ding. BOTTOM LINE So while leasing might seem a little more attractive these days I wouldn’t recommend it for most folks. On today’s program, Rob also answers listener questions: ● Does the MoneyWise app require a subscription? ● What are some options for low-risk investments? ● What are the tax implications of selling a property? ● How do you respond to a fraudulent tax return filed in your name? ● What is the best way to investigate an investment opportunity? RESOURCES MENTIONED: ● MoneyWise App ● Find a Certified Kingdom Advisor ● Eventide Funds ● Praxis Funds ● Inspire Investing Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected]. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29

Previous Episode

More Inflation Fighters

Saving a dollar here and there is great. But you may need inflation fighters that give bigger, quicker results. We’ve got a bunch of them for you today on MoneyWise. We should always be looking for ways to save money and be faithful stewards of what God has given us, but it’s especially important with prices on the rise. Proverbs is often our go-to book for wisdom on saving. Proverbs 21:20 reads, Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it. And Proverbs 10:4 tells us, A slack hand causes poverty, but the hand of the diligent makes rich. MONEY-SAVING TIPS 1. AVOID DEBT. And if you’re in debt, get out of it as quickly as you can. Stop using credit cards unless you pay off the balance each month. Pay down what you owe. Use the snowball method that we’ve talked so much about before. Start with the smallest debt. When that’s paid off, move on to the next, and so on. If you’re paying thousands of dollars a year in interest on credit cards, imagine how that could beef up your emergency fund or earn in a retirement account! 2. AUTOMATE YOUR SAVINGS. Automate your savings. Have part of every paycheck transferred automatically into savings. Do that first to build up your emergency fund, then when that’s fully funded with 3 to 6 months’ living expenses, start putting that money into a qualified retirement plan like a 401k or IRA. If you rely on yourself to do it manually, it probably won’t happen. 3. SAVE MONEY FROM TAX REFUNDS OR PAY RAISES. Try to bank at least half of your raises and all of your tax refund. However, you really shouldn’t be getting much of a refund at all. That’s just giving Uncle Sam interest-free use of your money. So adjust your withholdings to get as close to zero as possible. 4. STAY HEALTHY. Eat a well-balanced diet, exercise, and get plenty of sleep. Watch your weight. Why? Because healthcare is expensive. No matter what kind of plan you have, the less health care you use, the less you’ll pay in deductibles and the more you save. Studies show that if you’re overweight and out of shape, on average you’ll spend more on health care in your later years. 5. TAKE A SIDE JOB. Take a side job or put in extra hours at work. Or think outside the box. Maybe you can drive for Uber or Lyft, or rent out a room through Airbnb. If you work just 10 hours a week at $12 an hour, it adds up to more than $6,000 a year, more than wiping out the effects of inflation. 7. CALL YOUR CREDITORS. Is your time worth a hundred, or maybe two hundred dollars an hour? Unless you’re a brain surgeon, probably not. But that’s what you can save by spending an hour or two on the phone every year with each of your monthly creditors. These include: home, auto, health insurance companies, your smartphone carrier, Internet, cable providers, and credit card companies. Go over your plans with a customer service rep to make sure you’re paying as little as possible for the product or service you need. Do this especially if you have automatic renewal. They may have added items you don’t want or need. 8. GET OUT OF DEBT. This last money-saving idea is for those who haven’t completed the first one yet get out of debt! It’s a little more difficult in times of rising interest rates, but an annual call to your credit card issuer to ask for a lower rate could result in saving hundreds of dollars a year. On today’s program, Rob also answers listener questions: ● When does it make sense to use investment funds to pay off debt? ● What is the best way to start investing for kids and college? ● How much information should someone have to provide to get a line of credit? RESOURCES MENTIONED: ● Bankrate.com Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected]. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29

Next Episode

Happy Job Hunting!

If you’re ready to look for a job, there are some things you need to consider to make your job hunt a happy experience. We’ll talk about them today on MoneyWise. SOME RULES NEVER CHANGE Some rules of job-hunting haven’t changed. One of those rules is that networking is vital! By some estimates, about 85% of jobs are filled without ever being advertised. With networking, who you know can be on a par with what you know. So make a plan to contact at least one person you know in your line of work every day, and let them know that you’re looking and the kind of job you’re seeking. Keep a list of people you’ve talked to and notes about the conversation. Another thing that hasn’t changed is that you must always be looking for ways to improve your job skills, and that’s if you’re actively seeking a new job or not. It’s easier than ever these days to find online classes for additional training. Concentrate on skills that transfer to other types of businesses or industries, for example, things like customer service, HR, and bookkeeping. Then update your resume and LinkedIn profile to show those skills or certifications, and specify how they’ve increased revenue or cut expenses in your current or previous jobs. Now, we’ve talked in the past about how important it is when interviewing to never say anything bad about your current or previous employers or on social media. Hiring managers routinely screen a prospect's social media postings, and if they see you bad-mouthing someone, they’ll assume you’ll do it to them, too. And while we’re at it, do I have to say never post any kind of objectionable material on social media? In a CareerBuilder survey, 57% of employers said they found content on social media that made them eliminate an otherwise promising candidate. So never put anything up you wouldn’t want your grandmother to see. THE NEW RULES Some things have changed over time, of course, and one of them is that you have to take social media to a new level. It’s not just about avoiding bad content. You want to use those platforms to highlight your favorable attributes. That same CareerBuilder survey found that 70% of employers use social media to check up on candidates, and this should drive the point home, 43% said that an applicant’s social media content contributed to their decision to extend a job offer. That’s how important social media has become. So you want to use Facebook, Twitter, and Instagram to highlight your career-related skills. Now, if you haven’t been in the job hunt for the past couple of years, there’s an entirely new thing you have to adapt to and that's making a good impression in a video interview. One survey has revealed that a whopping 86% of companies are now using video platforms for interviews. So If you’ve never done a video interview before, it’s a good idea to set up a practice session with a friend or family member so you can get comfortable with the process. Position your computer so there’s a professional-looking background or at least nothing that appears untidy. Adjust your camera so you’re eye-to-eye with the interviewer. Dress much like you would for an in-person interview. Alert others in the house not to disturb you during the interview and close the door to keep out noise and pets out of the room. You don’t want your cat walking across your keyboard during your interview. Also, have a copy of your resume and other related paperwork handy in case the interviewer refers to it. And finally, follow up the online interview with an email no later than the next day. Do those things and you’re far more likely to have a happy job hunting experience. On today’s program, Rob also answers listener questions: ● What is the best kind of account to use to save for kids’ college? ● Are Social Security benefits taxed? ● For a land purchase, would it be best to use funds from savings or an investment account? ● Is it best to pay on debts more than once a month? Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected]. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29