Tips on Buying Cars: leasing and miles allowance, lease a car, buy a car


Question
QUESTION: When leasing a car for 3 years, if they allow "12,000 miles per year" do they mean on average, and look at the total which should 36k or less? So someone could drive more than 12,000 one or two years, as long as they don't go over 36,000 total for the 3 years? I can't imagine them checking mileage one year at at time.  Thanks

ANSWER:      That's a great question.  Advertising doesn't explain how it works.  The mileage on a lease is calculated on a per year basis but as you thought, the total is all that matters.  If you contract for twelve thousand miles a year for 36 months, at the end of your lease anything over thirty-six thousand miles would be an extra charge. The extra charge per mile is usually fifteen or twenty cents.  If you run over the mileage in one of the years, it does not matter. It only matters what your mileage usage was for the entire lease.
    I always buy a few more miles then I need.  In fact my current lease is a fifteen thousand mile a year lease. I am usually at about thirty-eight thousand miles at the end of my lease. That means I have paid for mileage that I did not use but the extra mileage costs less when you pay it in advance and I like the piece of mind. Also the residual value is lower because of the extra mileage I purchase so I make it up on the resale, hopefully.

---------- FOLLOW-UP ----------

QUESTION: Thanks. Sounds like you have leased cars before. I am just contemplating it but get scared when I hear the financial gurus, like Dave Ramsey and Suze Orman say to never ever lease a car, it's a losing deal. But one thing they don't talk about is that the money used for a large down payment when purchasing a new car can be invested in something else, like mutual funds and make good gains. I also like knowing I wouldn't have to worry about keeping track of heavy maintenance or repairs that a purchased car incurs after 4-5 years. But there are so many pros and cons of buying vs leasing, it's overwhelming. I assume that you don't agree with those who say it's a terrible decision?

Answer
You are correct.  I do not agree with David Ramsey if he says no to leasing.  There are too many variables to make a blank yes or no choice.  As you said, leasing has many advantages but it also has a few basic rules I think people should follow.

1. Keep it short term 36 months or less
2. If you are driving over 25000 miles a year. Don't lease

leasing also helps a person avoid issues like poor resale value because of prior damage,  poor design, or slumped market.  The need for down payment.  The ability to have a new car more often and the reasons go on and on.    

Some of the greatest financial minds in history have said: "Lease things that depreciate and buy things that appreciate"

Theoretically buying is cheaper if you keep a car 10 years or more, but who wants to own a car ten years?  is a ten year old car dependable or safe?