Why we pay more for cars with bad credit

Ask The Expert: Should I Buy The Car I’ve Been Leasing?

Question: I leased a nice sedan because it seemed like a good deal at the time. I had a good job and wanted to look the part. Then I got laid off.

I found another job that pays less, and now I realize I paid way too much for a too-nice car I don’t own. But the dealer has given me the option of buying the car now that the lease is almost over. I’m wondering in general: Is it a good deal to buy a car you’ve been leasing?

— Carl in Wisconsin

Howard Dvorkin CPA answers…

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Like many financial topics, the answer is yes, but. In this case, the but is: “But only if you can negotiate a great deal.”

Buying a leased car is actually harder than buying a new or used car. Why? Because your price is based on complex terms like “capitalized cost, “residual value,” and “purchase-option fee.”

The bottom line is this: Dealers sell most of their previously leased vehicles at auctions, and you can figure out what the likely price is by checking out sites like Edmunds.com and Kelley Blue Book.

If you discover the asking price for the lease is steeper than you could get just buying the same vehicle used somewhere else, show the dealer your homework. You might save a bundle, because they’re often willing to negotiate just to get rid of the inventory. And if you don’t like the offer, then get the same vehicle elsewhere.

That said, I’d suggest an easier way: Buy a used car that’s not as nice as the one you own now.

In your email, you mentioned the car’s make and model, which I won’t repeat here. But by checking the above websites, I found the long-term reliability for your sedan is rather low. That means whatever price you pay, even if it’s a good deal, the savings will likely be eaten up in repair bills over the next several years.

You’ve learned a valuable lesson, Carl. Leasing a car is a great way to get more car than you can typically afford, but it’s not something you do to save money. Yes, cars can be emotional purchases, and auto dealers certainly market them that way. However, you can buy a nice used car for very little and still look good.

One of my friends is Stacy Johnson at Money Talks News, and he famously wrote about being in his mid-50s and never having bought a new car in his life. He has a boat and lives on the water in Florida, but he never saw the need to buy something that loses half its value once you take it home. Something to consider.

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Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a  CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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