Dave Ramsey on Leasing a Car

Dave Ramsey on Leasing a Car

Asking for advice from Dave Ramsey on leasing a car is like asking a Realtor if you should rent your home. Dave Ramsey knows very little about leasing cars. Before I provide the detailed evidence to support my claim, let me make it abundantly clear that I feel no personal animosity towards Dave Ramsey.  This is not a personal attack at all. I’ve spent a fair amount of time listening to Dave Ramsey on the radio. I believe he is a nice guy; a good man, who is knowledgeable in many areas of financing.  I also believe that his heart is in the right place when it comes to helping people get out of debt. For the most part, I believe his information is solid and given with sincere care and love of those he is trying to help. For instance, I really like what Dave has to say about Prenuptial Agreements. This is just one example where he makes it clear that he places more value on people than money. I really admire him for that. However, this does not mean he is an expert at all matters concerning money and people. Unfortunately, when it comes to leasing cars, Dave Ramsey has probably hurt some excellent leasing prospects with the negative, sometimes misleading information he conveys on his radio show and elsewhere. I know that many consumers think of Dave Ramsey as their personal mentor and guru and believe that he, above anyone else in the world, simply wants what is best for them.  I do not disagree with that. I do think Dave Ramsey’s heart is in the right place and he has helped many people. However, it is important to understand that Dave Ramsey is in the business of helping get people out of financial trouble. The last thing he wants to do is promote newer, innovative ways of getting people into debt. Dave is rightly a skeptic on many financial matters involving loans. Car leases are loans, but as I’ve stated many times before, leasing cars is the least risky way to drive a brand, new car. If you’re content with an old car and don’t mind the occasional, repair surprise which sometimes occurs at the most inconvenient time and place, then a used car is right for you. Dave Ramsey, however,  says some things about car leases which prove he really knows nothing about leasing at all. In his blog, Dave Ramsey mentions —the average car payment—  without giving any thought at all to the monthly average payment that still exists when you drive an old car, as I will explain.

Dave Ramsey on Leasing a Car

Dave’s Unreasonable Lease Example

A listener called his show to ask  him how a car lease works.. Rather than an accurate and comprehensive explanation, Dave Ramsey gave the listener an earful about how leasing is a rip-off and should be avoided like the plague. For his exact words, you may want to visit the actual link to the conversation, here: event=askdave/&intContentItemId=10367″ target=”_blank” rel=”nofollow”>Dave Ramsey Leasing a Car.  While, he didn’t use the actual phrase, rip-off, isn’t his reply a perfect model and demonstration of the lease skeptic described in my article, Why Lease a Car? For starters, Dave Ramsey used an unrealistic leasing example to make his claim. He tells the listener that a $400 a month lease payment for 60 months costs you $24,000. Most leases are for 24-36 months. 60 month leases are extremely rare these days. Even, a 48 month lease is rather unusual. Indeed, Dave’s example makes it seem as though $24,000 is a lot to pay for a car you are unable to keep. It also causes one to assume there will be some repairs and maintenance costs on top of that because many cars need new brakes and tires after four years, while you are still having to make lease payments. Dave Ramsey is really going over the top and digging numbers out of thin air when he suggests the dealer and finance company are making $9,000 in profit off of the lease. That would suggest we should all be in the car leasing business, wouldn’t it? But much more than that, if it would meant that the dealer is selling you the car several thousand dollars above retail price or the finance company is making record profits. No financing company could charge that much in interest and expect to stay in business. A lease agreement has a sales price which is disclosed at the time of the deal just like with a car purchase on loan. The dealer’s profit is based on the difference between the Dealer Invoice cost and the actual Capitalized Cost or selling price.  We have to remember that it is the leasing or finance company that owns the car at this point, not the dealer. Neither the finance company nor the dealer are going to make $9,000 of interest on the type of car lease that yields a $400 payment.  Whie it is true, the greatest amount profit will be made by the financing company, it is not nearly as much as Dave Ramsey would have you believe.

Interest Rates on Car Lease Deals

Dave Ramsey correctly asserts that the interest rate need not be disclosed at the time of the lease. First off, let me mention that in the many, many times that I’ve leased cars, the dealer usually provides me with the interest rate without me even having to ask them for it. If I do ask for the interest rate, they’ll give it to me without hesitation. It is not because car leasing is some type of sneaky or dishonest business that the dealer might not find it necessary to disclose the interest portion of your lease payment. The truth is, that the interest rate is only one part of the leasing formula and is meaningless to an informed consumer who is comparing average car payment versus buying the car outright on a loan. An informed consumer need only looking at the average car payment, without being overly concerned with the complex and sophisticated leasing formula.  Negotiating a car lease is no different than negotiating a car loan deal.  Whether it is a purchase or a lease, the dealers wants to make profit. However, they also need to meet the requirements of an informed consumer in order to make the deal. An interest rate that is too high will adversely affect the payment, so it is in the dealer’s best interest to provide their prospective customer with a competitive rate in order to help them meet their stated, monthly payment budget. When leasing cars, the interest rate is referred to as a Money Factor. The money factor is simply a number they use in the leasing industry to make it quick and easy to calculate the monthly payment portion of your lease.  The money factor is simply the interest rate divided by 2400.  When you lease a car, the interest is a portion of your payment just as it is with buying the car. In a lease, the interest portion of your payment is calculated by multiplying your money factor by the (Capitalized Cost plus Residual Value). The money factor used in a car lease is based on the same going percentage rate for a car loan. Whether you lease or buy a car, Of course, that rate can be affected by the greed of the loan company. In leasing, the interest rate is greatly affected by your credit rating. It is up to the dealer to work at giving you the best interest rate they can.  According to Cars.com, the typical Money Factor for a 36 month lease for a consumer with good credit is .00128. This equates to a 3.08% interest rate. Using these figures, the interest portion on my current, 2012 Honda Accord is $51.20 per month. That comes to just $1,848.00 in interest over the 36 month term of my lease. Now, let’s compare that to a purchase on a car loan. On a 60 month-term, 3.08% would be an excellent interest rate. Even so, the interest cost for the entire 60 month term is $4,000. On a 36 month term, the interest charged is $2,371. This is still more than our lease. Is it possible to get a really bad interest rate on a lease. Absolutely, just as it is possible to get a really bad interest rate on a car loan purchase. In his column, Dave Ramsey makes the case that interest is where you can really get screwed in a lease. Using my example above, I’ve proven that is simply not true. I realize, however, that Dave Ramsey is probably accusing me of doing the same thing I accused him of doing; that is, using an unreasonable example to support my side of the argument. Not so fast.

A Real-Life Leasing Example Using a Subvented Lease

I will confess that the leasing example I used above is not quite accurate. In reality, I got a much better deal than the one shown in the example to Dave Ramsey. Recognizing that my deal probably does not accurately reflect the proto-typical lease, I decided to be as fair as possible and use something which is closer to typical financial numbers to make my case. My current, 2012 Honda Accord SE is costing me $240.00 a month. That payment is with my $2,800 trade-in factored in. My actual monthly bill is only $174.00 including tax. The MSRP of the car is around $25,000 and the Capitalized Cost (Sales Price) is around $23,500. Without having the paperwork in front of me, I am unable to get the depreciation rate and money factors low enough to reflect such a low payment. This illustrates the remarkable savings power of the subvented lease deal. In a subvented lease, the manufacturer uses very aggressive rebates and incentives to help move inventory. These incentives can come in the form of higher than average residual values, sales rebates, or ultra-low, near-0% interest rates. Keep in mind, much of these same, incentives can be used to provide very attractive, new car loan purchases as well. Leasing, however, has the edge in the number of innovative ways, in which affordable car payments can be derived. Subvented deals are not unusual or hard to find. They usually come late or near the end of the 4-year generation  just before the newest model is introduced. For example, my 2012 Accord was leased just as the all-new generation of the 2013 Accord was hitting the lots. The SE or Special Edition comes with some nice additions and incentives such as all-leather interior and heated seats for basically the price of the base, LX model. The extra conveniences are simply a clever idea on the part of Honda to help move their tail-end, last-of-the-generation inventory while newer generation cars are being introduced and sold. However, literally all car makers use incentives to move their last-year, generation, car models. These are usually the best cars to buy or lease. I can say with confidence, however, that you will never be able to save as much driving new cars as you will if you shop for subvented deals from lease to lease.

Recognizing that Leasing is not Right for Everyone

If there is one thing I would like Dave Ramsey to learn about leasing cars, is that it is like any other important purchase decision. You have to be smart about it. Yes, there are bad lease deals just as there are bad purchase deals and investments. You have to ask the right questions and shop for the right deals. With this said, it is also true that leasing is not for everyone. Those who drive substantially more than 12,000 miles a year or have bad credit our probably not going to fare as well with a lease as they would with a low-interest, 60-month car loan. With that said, many successful, prominent companies lease cars and trucks for their employees and company use, despite the cost of driving a higher number of miles. Companies are not all ignorant. They are in business to make money. If leasing makes good business sense for their organization, there is no reason it cannot make sense for the right person. There are a great number of people who have successfully leased cars a great number of years and they are not the ones on their knees, crying for help and asking Dave Ramsey how they can dig themselves out of debt.

Dave Ramsey on Leasing a Car

What he Should be Saying

A better informed Dave Ramsey, who educated himself in the industry of automobile leasing, would be telling his audience that leasing a car can be a very effective financial tool for those with good credit, aim to live on a responsible, monthly budget and prefer the safety, reliability and enjoyment of driving a new car every three years. He would also be telling his listeners that if they are not mechanically inclined, nor have the time to work on cars, leasing is an excellent way to insure they will never be bothered or surprised with repair and maintenance costs and inconveniences. Also, since Dave Ramsey is fond of people’s welfare, he should be telling them that one of the most compelling reasons to finance new cars is to keep their family members safe on the road, particularly if they are required to drive long distances or during the night hours in the dark. Leasing is an attractive transportation option for those who prefer to keep their family members safe and secure in the cars they drive.

Last, but not least, Dave Ramsey can be referring his listeners to the many excellent number of car leasing websites where one can get the information they need to make an informed decision on leasing cars. I am not too bashful to say that this website, Monthly Car Lease, is one of the easiest, most comprehensive ways to get the information you need each month to find a car lease that is right for you. In addition to my own site, there are two other excellent places his listeners can visit to get unbiased help in leasing a new car. Real Car Tips and LeaseGuide are a couple of my favorites. Also, Cars.com, is an excellent site for comparing a car lease with a car purchase and getting real-time Money Factors and Residual Values. Do I have a favorable bias towards leasing cars? There is no doubt about it, but it is not nearly so obvious as the negative bias of Dave Ramsey on Leasing a Car.

12 thoughts on “Dave Ramsey on Leasing a Car

    • Despite what some might think, paying with cash still comes at a cost in interest. There is a reason for a cost in borrowing. Cash lost is investment opportunity interest that is lost.

        • Paying cash for a new car is the riskiest purchase you’ll ever make. You’ll lose 10% of your investment the minute you drive it off the lot. Unlike cars, homes actually appreciate in value and I have never had anyone tell me you can’t afford a home if you don’t pay cash for it up front.

  1. Rob,

    Your perspective on this issue is dangerously misguided. The numbers you provide are completely irrelevant to the greater issue which is that no financially responsible person would every consider paying money every single month for the rest of their life for a vehicle.

    Can you find a lease where the math is technically less destructive than some loans? Of course, but your argument is essentially, “If you are going to shoot yourself, at least use a smaller bullet”. The tone of this article is ridiculous and considering the number of people out there making bad financial decisions, irresponsible.

    Will a lease automatically ruin your finances and send you crashing into bankruptcy? Probably not, but that doesn’t make it a good idea.

    Have millions of people successfully navigated a lease without destroying their lives? Certainly, but they would have had MORE money if they had paid cash and avoided the lease.

    The real question, and I would argue that this gets to the heart of the responsibility you have to your readers, is, what is the best financial decision for purchasing a vehicle? No level of mathematical kung-fu beats driving a gently used car. The average person doesn’t want to admit this, but most people CAN NOT afford a new car. Leases and car loans give buyers the illusion that they can “afford the car”, and they pay for this misconception dearly.

    Put simply, your argument implies that ~$2000 lost in interest over a 3 year $25,000 lease (and correct me if this is not a fair characterization) is not that big of a deal ($666 per year). Certainly affordable for most people. But for how long? At what point is this no longer a good idea? A 20 year old buying their first car doing this until they retire would cost them $500,000 in opportunity cost (assuming a reasonable 10% interest rate investing ONLY the money they lose in lease interest – never mind the staggeringly large lost value realized by purchasing a brand new car over and over again, but that would happen even if purchased with cash, so I’ll ignore that for now).

    The fact that you fail to realize the long-term implications of the strategy you are advocating is at best, negligent, and at worst, malicious. This entire blog is offensive and the content you post here is hurting the people who read it. I’m sure you are a good guy, but your perspective is misguided and if you care about your readers (which I sincerely believe that you do) you will remove this content and re-evaluate what you teach.

    • Dear Anonymous (Dave):

      This is a Car Leasing Blog. My readers are either already leasing cars or would like to learn more about it. It is because I care about my readers that I offer these lease ratings and information as a service. I have mentioned over a dozen times on this blog that leasing doesn’t make sense for everybody, specifically those who drive more than 15,000 miles a year, enjoy modifying and repairing cars, and don’t care to drive new, maintenance-free vehicles. You have not offered any new or compelling arguments against leasing, here. This is the same mind-set used time and time again by people who think that what is best for them must be best for others. For the record, I’ll summarize a little bit in reply to your comments:

      Opportunity Cost works both ways. It costs money to drive cars whether you are leasing them new, buying them new, or buying them used and keeping up with the maintenance and repairs which become increasingly more expensive and risky with the age of the car. You bring up interest costs, but I don’t care about interest costs. I have already figured that into my total cost of ownership when I make the lease deal. The one thing you leasing naysayers overlook is that there is a Total Cost of Ownership or True Cost of Ownership whether you buy new, lease new, or buy and drive used cars. You will always have a car payment in some form or another if you choose to drive cars most of your life. You can’t get away from that. The only difference is where your money goes. The bullet hole you speak of is not incurred by the financing method, but the reality that it costs money to drive cars regardless of whether they are new or old.

      I’ve done a fair amount of comparative research on websites like Edmunds that offer Total Cost of Ownership estimates based on real-life averages over five years. Paying cash for a new car still won’t save you money, even after 10 years. While the average cost of the initial investment decreases, the repair and maintenance costs increase. And, don’t assume that buying slightly used in the first place will make much difference. There is a reason slightly used cars are cheaper and it doesn’t have much to do with the new car smell being gone. The car will still eventually need to be replaced. You can’t stop time. This is why cars depreciate. This is why it makes sense for some of us low-mileage drivers to lease new cars.

      Soon, I will write a detailed article with actual comparison figures of Total Cost of Ownership of Leasing, Buying New, and Buying Used. In the mean time, suffice it to say, there is no free ride.

  2. Rob,

    You just care more about making money and gaining readers on your blog. Leasing in any situation is flat out the worst thing you can do. When you completely own something you are free. Perhaps rather listening to Dave once in a while on radio you should go through his class before you make such assumptions. It’s like reading the cliff notes to accounting principles 101 and then thinking you are now a tax consultant! Stop misguiding your readers and yourself!

    • Dear Anonymous,

      There really is no such thing as owning any asset, free and clear, especially when it comes to a car which is the most depreciating asset you can possibly buy. Cars become liabilities. They need brakes, tires, belts, timing belts, maintenance, and a myriad of other repairs over time. They also become a safety liability. Whether you buy or lease a car, you are going to part with money whether it is up front in the form of a huge or small sum of cash (that comes with an opportunity cost too as you will have to replenish money that could be earning investment interest), or whether you spread the cost out over time with small, reasonable monthly payments. Leasing is certainly not for everyone, but it is a huge mistake for Mr. Ramsey to be telling the rest of us what is best for us when he hasn’t really taken the complete class on Leasing 101, himself. His version of leasing most certainly is an abbreviated, one-sided cliff notes version lacking in a great number of facts. I invite you to read more before you completely close your mind.

      Lease or Buy a Car

      Thank you for writing,
      Rob

  3. Rob, I can see both sides of the argument because I have been, and am on both sides of the fence. Because of what my wife does she trades her vehicle every 3 years. Leasing makes sense for her but not for me. She does lease her vehicles. She actually had $3500 in equity on her last lease. It helps when your husband structures the lease at time of purchase. 🙂

    I am very familiar with Dave Ramsey and his teaching. Anonymous is advocating the debt-free, payment free lifestyle that Dave Ramsey proposes (which is great). Because of that the 2 of you will never agree and you are correct in saying, leasing is not for everybody.

    Just to give you a quick overview of my background. I have 30 years in and around the car business. I was a finance director, worked the sales desk and for a number of years was a bank rep for one of the top 6 largest banks in the country. I was the number one lease rep 5 years in a row before moving on to another bank, so I do understand and like leasing.

    Leasing is for people who know that they like to trade their vehicles every few years for whatever reason. The bank I worked for offered lease terms out to 66 months. My rule of thumb was always, if you can’t make the payments on a 36 month lease you can’t afford the car. Pretty much anything after that defeats the real purpose of leasing.

    Just a quick side note: High mileage isn’t always the determining factor on whether to lease or buy. I leased a Jeep Grand Cherokee and put tens of thousands of miles more on it then the lease allowed by lease end. I knew I was only paying $.12 a mile for the overage and at that time I believe the IRS allowance was 34 1/2 cents a mile for depreciation, which was closer to what a dealer would ding you for on excess mileage. Had I been purchasing the car I would have lost more money getting a trade-in bid from a dealer than what I had to pay in excess mileage charges. It is true that you have to have the cash to pay the excess mileage charges but the point is I came out about $3000 ahead by doing the lease rather than trading in a 3-year-old 93,000 mile vehicle.

    To the other side of the fence, it is wise to purchase a used vehicle. Even brand-new vehicles are not maintenance-free. I keep my cars maintained and also have extended service contracts for anything major that may occur. I currently have a Dodge truck with 154,000 miles on it and no repairs except a new battery. I had a Buick Century I bought at auction with 20k miles, paid for it in 2 years and went 7 years with no car payments. When I finally decided to get rid of it and wholesaled it to a dealer friend of mine it had 234,000 miles on it. It had the original shocks and struts (no leaks), the original rear brakes, never had the AC recharged (would still freeze you out) and never needed an alignment. Outside of regular maintenance the only thing I had to do to that car was the blower motor ($119) and a new catalytic converter $180). While that is an exceptionally rare car, both of these vehicles prove that the newer cars if taken care of with regular maintenance are not the black hole of expenses that the cars of the 60s, 70s and 80’s were.

    Ultimately it comes down to personal choice. The argument about opportunity lost with investment dollars (while with the bank I also did CFP training) has many variables. How much interest am I paying vs. how much interest could I earn? What kind of risk would be involved on an investment that would be equal to or greater than what I am spending? If I save $5000 (or more) buying a used vehicle rather than a new vehicle and I can put a 5 year/100,000 mile exclusionary service contract on it for $1800-$2000 am I not virtually in the same boat with expenditure exposure as buying the new vehicle with money still left over? There really is no one-size-fits-all in the world of automobile finance.

    There were valid points on both sides but no agreement because you were both looking out 2 different directions and the view was different. Ramsey had some faulty math (based on the numbers you gave) but debt free is the best way to live. Hopefully people can take something from both of you and make choices that are best for them.

    • Thanks for the very thoughtful post, Dwight. You make a lot of good points. To me, there is one thing that is overlooked and that is the assumption that just because you don’t have a loan payment you are living debt free. Really, our own bodies are liabilities like cars. They won’t last forever. On top of that, we all have our vices and hobbies. Even going out to dinner or buying nice wine comes with opportunity costs. We might say we are debt-free, but in reality we are attached to things that we paid for, whether it’s with up-front cash or a five-year, or 30-year loan. When I buy an occasional bottle of good whiskey for $50 or more it comes with an opportunity cost even though I don’t have a loan payment to show for it. Unless we truly live the virtuous life of a hermit or ancient stoic, there is no such thing as debt-free living. The reason why there is interest or a cost to borrowing is because cash is valuable. Parting with cash for a depreciating asset like a car is not right for everybody. Even if I save up every five years for a car, every dime I put in the bank comes with an investment opportunity cost.

      It is true that you can pay cash for a used car and drive the living heck out of it for 10 years and save money over any other method. I paid $4K for a VW Jetta for my son four years ago. When I average out the $4K investment with all of the repair bills over the last 48 months, my average monthly payment is $141.00. I’d be hard-pressed to lease a brand new car that cheap, but I could come close. That is best case scenario for a used car purchase. I’ve also been on the other side with a 1997 BMW that I paid $5K for and another 6K in repairs and upkeep.

      In either scenario, I wouldn’t feel save driving these old cars across the country. There are some real advantages to leasing, but as we both agree it is not for everyone, particularly if you derive no pleasure over new cars and don’t mind keeping up with the maintenance.

      Best regards,

      Rob

  4. I just stumbled across this post and can’t help but comment. My wife and I paid cash for a 2013 Toyota Camry XLE (the top of the line Camry, not a hybrid) last September. We were out the door for about $13000. The car had 48,000ish miles on it. I have no doubt that this car will last us 10+ years. The only thing I have to pay for, right now, that a lessee doesn’t have to pay for is tires, which, according to nerdwallet.com, cost about $147/year. By the way, the tires for a Camry do not cost that much, but we’ll use that figure for argument’s sake. Total cost per month is $120ish. That number will probably rise a bit toward the end of its life but not by much when averaged over the course of its life.

    I’m currently driving a 2006 Toyota Corolla with 156,000 miles on it. I’ve had to take it to the shop once in the last 2 years. That trip cost us $1200. That’s only $50 per month when averaged out over that particular 2 year period. If we average it out over the life of the car, that’s only $9 per month. If the Camry is as reliable as our old Corolla, we make out like bandits compared to to your crazy lease math.

    The payment you have now (It seems that you were paying either $240 or $174, it’s a little hard to tell with the way you worded it. I also think you said your trade in was $2800 which needs to be factored in to your monthly payment, again hard to tell with the wording.) will be the lowest payment you ever have. As cars rise in price, so do lease payments. My payment averaged out over the next 10 years will always be the same. I can also choose to pay the minimum insurance payment, since there is no lien holder, which would save another $40-$50 per month, which you cannot do when leasing. There are also no restrictions on mileage or body damage.

    We leased a 2013 Rav4 LE (the cheapest style) before we turned it in and got this Camry. Payment was $310/month for 36 months. That’s $11,000. Maybe we didn’t get the subvented lease you spoke about, but that’s 11 grand that was flushed straight down the toilet. Even if we had gotten the superlease and our payment was $240 like your current payment, that’s still $8600. Using your figure, that’s only about $5k away from our total payment for our Camry. And that’s just for 3 years of use. Using our figure, it was a complete waste of money. We will never lease another car again. Ever.

    If that figure of $240/month stays consistent for 10 years you will have paid almost $29,000 for your cars. When compared to our total cost, I’m betting you overpaid by at least $9,000 (this doesn’t include your extra insurance cost). That’s a lot of money that’ll never be invested in anything other than a depreciating asset. after 20 years, at 7% growth in the market, you cost yourself over $38,000. You can almost buy 3 Toyota Camrys for that.

    “It is because I care about my readers that I offer these lease ratings and information as a service.” If this is true, you should tell your readers to stop leasing cars.

    • Hi, Josh:

      Thank you for your comments.

      $13,000 for a 2013 Camry XLE with 48,000 miles on it is a good deal. But, while driving a used car for over 10 years might be what’s best for you it’s not what is best for everyone. I could have purchased my own 2012 Honda Accord SE last January for around $13,000 and it only had 24,000 miles on it. That’s after I only made $8,694 in monthly payments, meaning I could have bought it for well below it’s invoice price. Still, I opted to lease again because unlike you, I don’t want the liability and risks of owning an aging car, and I enjoy the safety, security, technology, and superior fuel economy of the newest models. As is the case with most leasing skeptics, you are only seeing one side of the argument. You only paid $13,000 for your Camry but it also already 4 years old with 48,000 miles on it. By the time I’ve made $13,000 in lease payments, your car will be about 9 years old. You will not only have a rather old car, but you will need to invest more in maintenance than just tires to keep it running. Most people underestimate their cost of repairs and maintenance and conveniently forget. Go to Edmunds and look at Total Cost of Ownership and you’ll see that’s about $8,500 after five years. Still, you can maybe save a few bucks if you take the risk of owning a car with 156,000 miles on it, but it is not as safe to drive, doesn’t have the latest technology and safety features, and it certainly isn’t as enjoyable to drive. And, the savings are not nearly as good as you think.

      Yes, if I continue to make $240.00 lease payments it will cost me $29,000 over the course of 10 years. But, in those same 10 years you will have a 14-year old car with 170,000 miles on it and be looking to plop down another $13,000 on another 4-year old car. The $13,000 you paid in cash is a lost investment opportunity. Did you figure the lost opportunity cost into your net savings of not having a payment? When you pay cash for a car you are recouping that investment over the course of months rather than having it make interest for you. And, how much will that $13,000 have made in a mutual fund in those 4-5 years? You will have to invest $240.00 a month for a long time to pay back the $13,000 plus the interest it will have earned.

      Your low-end RAV-4 was not a very good lease, but even at that I’d still prefer it over paying for a 4-year old car up front. Driving a new car is insurance and peace of mind.

      You also have to realize that sooner or later you WILL have to replace the car and you’re going to be looking to let go of another $13,000 or so cash or run the car into the ground. What leasing skeptics don’t realize is that you always have a car payment. You have to look at this over the period of a life time. God willing, with our health, we will always need to drive cars.

      I can appreciate those who like to be frugal as possible, and I don’t doubt you can save a few bucks if you buy used cars wisely as you do and keep them a long time, but the savings are not what you or Dave Ramsey think. And hey, you can also save money by eating beans and weenies all your life too if that’s what makes you happy. What I don’t think is right is when those supposed “experts” like Dave Ramsey try to tell us what is right for them is right for everyone else and if we don’t follow their lifestyle we are fools. Unbeknownst to Dave Ramsey, there are hundreds of thousands of very wise, financially-sound individuals who are driving leased cars, and can still enjoy steaks and going out to dinner instead of beans and weenies all the time. In fact, it is because they lease cars that they can enjoy a better life style.

      Best of luck to you,

      Rob

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