“Lease” can be one of those negative words in the personal finance realm. Similar to “rent,” it implies you are throwing your money away. But are you really? For many years, my wife leased vehicles, while I always owned. She had a shorter commute, placed a higher priority on having a new vehicle every couple of years and (don’t tell her I said this) wasn’t always on top of the ongoing maintenance that comes with owning a car.
I find that many of the benefits of leasing a car are especially attractive for retirees. Here are a few:
1. No commute
If you’re driving 20,000 miles per year, it’s likely because of your work. The only retirees I have come across clocking that type of mileage are doing it in an RV or are driving cross-country.
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When you lease a vehicle, there are mileage caps. If you exceed them, you pay for it. Most leasees will be charged an excessive-mileage fee of 15 cents to 25 cents per mile over the cap.
For the purposes of this article, we will be using a Toyota 4Runner as our vehicle of choice. When you lease this vehicle, you have a choice of 10,000, 12,000 or 15,000 miles per year. This can be a turnoff to a young parent driving between three soccer practices a week and a job. For a retiree, it’s likely all three options are just fine.
2. Lower/more predictable monthly costs
It’s easy to ignore the purchase of a new vehicle in a financial plan. Depending on our clients’ tendencies, we may have a purchase or car note that resets every five, seven or 10 years. As I’m sure you’ve noticed, these things aren’t cheap. It’s important you model them out. You can try a free version of the software we use.
My wife and I have bought three homes together. It makes sense for us to buy instead of rent, for a few reasons. The main one is stability for our kids and their schools. However, my financial plan would be much more predictable if I had a rent payment and didn’t have to guess at home maintenance and repair costs. The same is true for leasing a car. You have a better sense of what you will pay.
Often, the monthly lease payment will also be lower than a comparable loan payment. For example, if I put down $2,500 for the 4Runner, with a 60-month auto loan, my monthly payment would be about $870 (based on the current default interest rate in the calculator I used). With a 36-month lease, and a cap of 12,000 miles per year, it would be $574.
3. Up-to-date safety features
I have owned Teslas since 2019. Unlike most cars, and more like your cellphone, there are software updates a few times per month. The biggest benefits to those updates, in my mind, are the new safety features. I recently realized, while driving my aunt’s 2014 BMW, that I’m not actually a good parker.
One benefit to the lease is that you are getting a new car with the latest and greatest safety features every couple of years. As you age, as you know, mobility decreases, and those blind-spot monitors and cameras become even more useful.
So, am I saying you should lease your next car? I’m saying you should not dismiss the idea because “lease” strikes you as a bad word. You should do what makes sense for you.
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