Leasing Vehicles: Does the Math Work?


That’s how I think of money, retirement, and value. I want to make sure that whatever product I am trying to sell or information I am giving, that it helps people not just in the next few weeks, but well over the next few decades.

Habit and preference are two things that drive people when they go to buy or lease a vehicle. They think about safety, cost, make, model, color, and appearance. Many believe that leasing a car is the smartest way to drive a vehicle and in this article, it is my goal to try and sway you away from that decision.

Using logic, reason, and plain old common sense, I am going to show you why you ought not to lease a vehicle and also show you why car payments literally drain your retirement.


Around 20% of Americans lease vehicles with an average payment of around $412/month. If you have two leases, on average, you'd be paying $824/month. Crazy, right?

Let's assume that you have a $412/month payment and it is a two-year lease with $3,000 due at signing (some vehicles are far higher). Over the two year period, you would have paid $12,888. Only to turn the vehicle back in and pay $0.15 - $0.35 per mile over the average range of 10-15K/year. Moreover, the dealership conducts a bumper-to-bumper overview of the vehicle and charges you for anything above "normal wear and tear", an incredibly ambiguous term, no doubt.

All of that, to just turn the vehicle back in and start the process over again.

Let's say you wanted to buy a vehicle. Let's go a couple of years back and purchase a 2015 Ford Escape with 30,000 miles on it. There is one in my area for sale for $15,000. I'd prefer everyone to buy their vehicles outright, but even the math on placing a loan on this vehicle is better than a lease. But let's say they did it right and paid cash. After two years, the car will be worth about $11,000 (average depreciation for the Escape) and there would be 58,000 miles on the vehicle. The net cost over the two years is only $4,000 (depreciation loss). That's an $8,000 difference!

Granted, the lease can be structured differently and there are no doubt cheaper leases, but even if the money was even, the person who leases is repeating the process while the person with the Escape is driving the same vehicle. 


In the book The Millionaire Next Door by Drs. Stanley and Danko, there is a discussion of what the average millionaire drive, and it isn't a luxury foreign vehicle. They drives Ford, GM, Chrysler, Toyota, and Honda. Why? Because it's practical. It makes long-term sense. Let's look at the data...

How Saving a Lease Payment can Help Fund your Retirement

Does a nice car lease beat long-term retirement growth?

Think about it...after 30 years of making a $412 lease payment to yourself, you would have $609,000 in a retirement account assuming an 8% rate-of-return. Pretty nice. The long-term thinking is what pays off. On episode #2 of the podcast I talked about how I could go lease a new Corvette or a new Dodge Charger, but what would be the long-term impact? The short-term is that I would look real nice at a stoplight for all of 10 seconds. Moreover, I'd be sucking my retirement right out the window of my brand new car that no one who matters really cares about. 


I've seen some decent argumentation laid forth for businesses to utilize leases. It does seem that when it comes to business, it makes more sense due to the tax write-offs, but I am strictly speaking about individuals here. I fully understand that people want to feel safe, secure, and have nothing to worry about. But if your lease is killing your long-term financial dreams, how secure can you really feel? Moreover, the 2015 Escape that is two years old can get a bumper-to-bumper warranty (just like a new vehicle) for another $350. Bam, security. 

I encourage everyone who is reading this to think about the chart above. Is a short-term car lease worth taking away money from your retirement? If you are saying "Well this is the only nice thing I will ever have" then you have already lost the game. Leases are killers and I do not recommend them. They take away your investing power and put it in the hands of car dealerships who are more than suspect. 

Still not convinced? Here, here, and here are some blog articles that may help you. But, I encourage a dialogue! If you disagree, I'd be glad to hear in the comments.