March 2025
Here are some key takeaways from their conversation:
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Hello everyone and thank you for joining us for THE FINANCIAL COMMUTE. I'm your host, Chris Galeski and Patrice Bening, wealth advisor here at Morton Wealth, is joining me in a conversation where we're going to talk about buying or leasing a car.
Like what do you prefer? Do you prefer buying or leasing cars?
Well if I am going to go after that, you know McLaren that I was talking to you about, I'll probably have to be a lease because I'd have to sell my house, so it depends. Chris I think the answer is it depends.
I personally like leasing because I love the technology and the advancements that go with that. But it also scares me how much cars are now computers. And when you own something for a really long time, like the repairs could be outrageous, but then you get stuck into this cycle of perpetual lease and perpetual leasing, and the cost can just be exorbitant.
So I know that this is a topic that comes up from clients from time to time. Hey, should I buy or lease my next car? And you're right, it really depends. So tell me, like, what was your first car?
We're going to go there. Okay, great. First car, 1985 Hyundai that I owned. And it was $500. And if you must know, I had to crank up and down the window. But my pride and joy of that car was that I had a Panasonic radio that I could pop out and I would take with me because I was afraid somebody was going to break into my car and steal it, which eventually did.
When I went to school one day, I left. I forgot to pop it out.
I think I had one of those. It was in the mid-90s. Yeah.
Yes it was. Thanks for dating me. Anyways. But it was truly something that I took pride in, even though it was an old car. But it was also, I knew it was my first car, but when I think in hindsight, it it set me up. For I am truly an owner of cars now. All of our cars are.
I've held them for a long time. I did at least once, and that was because I wanted to have a nicer car and I want. I didn't know if I was willing to commit to it. So we did the luxury car experience before children. And that was fun. But I would say overall, if you ask me, I've owned cars for a decade or more.
My first car. My older brother technically totaled before I got my driver's license. My parents bought us a really rundown and, old BMW. I think it had over 100,000 miles on it. This was 1995, and I think it was an early 1980s BMW, and it was fun. But he ended up totaling it. So I just shared a car with my mom.
But my mom would lease cars. And so I got to do the errands and drive nice cars because I shared with my mom. So it wasn't too bad, but I got the enjoyment out of liking to drive nice cars. And I remember our neighbor across the street. He owns a Ford dealership down in San Diego. And he said to me one time I said, Mark, I just can't seem to afford the kind of car that I want.
And he just laughed. He said, well, make more money or get a job. So I think I was in college and I didn't have a job, but he told me something that's kind of stuck with me today. He says, Chris, always remember that your next car will be your most expensive car. Even it fits the same one. So if you get a Ford Explorer today and it's $30,000 and you drive it for seven years, that Ford Explorer is not going to be $30,000 in seven years, it's going to be more than that.
So just be aware of that and be mindful. And I always thought that that was pretty interesting.
Well, I think when you and I were talking about this earlier, you had one comment that I never a statistic that I never knew, another statistic. But kind of fun fact to keep in mind is that your monthly payment should not be more than 1% of the value of the car. Is that right? Well.
There's like a rule of thumb with leasing, and I don't know if this still holds true today. I mean, some of the research that I did for this episode, I think it still holds true, but car payments have gotten outrageous. So I believe this still holds true. So if you're going to lease a car to identify at the forefront whether or not you're getting a good deal, your lease payment should be 1% or less of the purchase price.
So, for example, if your lease payment is $300 a month and the cars were $30,000, you're getting a really good deal. If your lease payment is $700 a month and your car value the mSRP is $40,000, you're not getting a good deal at all. And in fact, I got a really good deal on a lease a number of years ago.
This was almost ten years ago. I remember specifically, because I really wanted this card. I couldn't afford it if I, if I bought it outright, but the car price was like $35,000 mSRP if I was to buy it, the lease payments were around 270 a month. So let's call it $3,000 a year. It was a three year lease, 12,000 miles a year.
At the time, I was not driving more than 12,000 miles a year. So I looked at it and said, okay, I'm going to pay $9,000 over the next three years for leasing this car. And the buyout at the end of the three year lease was around $18,000. So I felt like I got a phenomenal deal. I'm getting a $35,000 car that I'm paying $9,000 for three years to drive, and instead of having a $26,000, you know, balance left, I was able to buy had the option to buy it out for 18.
And so at the end of that lease, I had the ability to buy that car for 18. Even though Kelley Blue Book said it was worth like 22,500. So I was able to buy that car from the dealership and then have instant equity. Then I could sell it back to the dealer and have cash in my pocket to go get a new car.
It was one of the few times that leases really worked out in my favor.
So I think the only caveat to that, which I did similar to you, but what I ended up doing is financing that payout amount, the buyout amount. So I ended up being making seven years worth of payments, and I definitely paid way more than the car was worth by the time. But now I have that car for a very long time.
But you were a planner all along, Chris, I like that.
I don't know, I just I've always liked numbers, so I mean, some of the pros and cons around leasing, if you're if you're driving a lot of miles. It said in the research, something around the average person drives around 13,000 miles a year. So if you're if you get a lease and it's a 12,000 mile per year lease, you probably don't want a lease because you're going to end up with extra costs at the end of the lease for extra miles.
The wear and tear is something to be taken into consideration. You might have scratches or different things that might be surprise costs at the end of the lease. And then if you're somebody that wants to own a car for a really long time, a lease might not make very much sense to you either.
That's true. Well, I'm in the position of having teenagers. And I really thought about this because I thought that, insurance on a older car would be cheaper, but it's quite the opposite, actually, because the older the car, the more prone it is to breaking down. So even when and then not the fact that I have boys, not girls, boys drive a lot more aggressively and they're prone to more accidents than girls.
Teenage boys.
Because my wife drives much more aggressively than I do.
I'm right. You listening to this, right? So I think it's also being, I think the going back to your point of features of having a, I don't think a new car for a new driver, is ideal, but I think a two-year-old car is would be great because you still get to benefit from the technology advancements.
But I you know, I'd say I think the statistic is that 43% of first year drivers get into accidents in their first year and 37% in their second. So keep that in mind as you buy or lease a car.
It's interesting and there's a lot of costs and things to consider when you're deciding whether to buy or lease. If you're going to lease, you're going to have to carry higher insurance coverage amounts on that lease than maybe if you bought it or if it was a car that was older, you could lower those amounts. The other thing is gap coverage.
I mean, when you lease a car or when you buy a car, if you don't put down a hefty down payment, you have negative equity almost instantly when you drive off the lot. And so gap coverage is that insurance coverage that says, hey, if I was to get into an accident, my car is worth 50,000, but I owe 60.
It's going to make up that difference. So that way I don't still owe money for this car that I just totaled. Right. And I've found that it's actually cheaper to get gap coverage insurance through your personal insurance company like Geico. Then at the dealership when they're trying to sell you on all those extras.
Say, I wish I knew this when I got in my cars in the past, because number one, I saw I had zero gap insurance, knock on wood. Nothing happened, but I said no to everything. The dealer tried to sell me on, not even understanding the benefit that was probably offered to me, but I also did not inquire with my insurance company.
So gap insurance I think is huge.
Yeah, it is huge.
I would say especially if you have young drivers, if you get a loan on your car, you're going to finance it. Gap coverage is essential.
Yeah, gap coverage is one of those unique things that I think is important. I mean, when it comes to leasing or buying a car, I mean, there's so many factors to take into consideration, whether it's technology, payment life. I mean, you might be going through a change in your life where you're need for a short period of time is a bigger or smaller car one with more features or less, or you may have had a car for a really long time, and you're just not sure what type of car you're going to like, because cars have changed so much, so you just want to try one out with having the option to buy it in case you like it. Oftentimes, dealerships have big incentives for leasing these days, mainly because they want to get you on that perpetual cycle of having a continuous car payment and repeat buyers over time. I'm always blown away by how that works out. I was always told to negotiate the price of the car, not the monthly payment, because if you go in there and say, I can only afford this per month, there's a lot of levers that they can pull with regards to financing, leasing versus buying.
And by the end of it, you're just exhausted. And you might just say yes, just so you can get in the car and actually leave and not be really confident in the decision that you just made.
Very true. And I think to your point, when we leased one luxury car, we had an Audi, which I really loved, but they sold beyond. You're going to pay this amount for two and a half years. And by the way, everything's included. You know, the oil changes, the maintenance. It was also zero money down. But in hindsight, I could have probably negotiated because it wasn't the top-of-the-line car or anything like that.
It was probably the lowest model, but I was content. But I did not. I did not try to negotiate. So that's such a great point.
I don't know what it is, but I'm built to negotiate cars. My most recent car purchase was my wife's Volvo, the Ex90. So we had another child. So we had to get a bigger SUV ID a few years ago. As we were kind of evaluating this purchase, I looked at several different Volvo dealerships around LA, San Diego and Orange County, and I tried to look for the model and the color that I.
Sir, by your next car, please reach out to us here at Morton. Well, we'd be happy to engage in a conversation about what makes sense for you. I remember my cousin, who was a very good saver. Always tell me, never buy a new car. I always, I always buy a car that's two years old that has low miles.
And then I own that for a really long time. And, I don't know, I think that that still holds true today.
But you won't get that fresh new car scent.
This is true. That is a good smell.
Patrice, thank you so much.
Thanks for having me, Chris.
Disclosures: This information is presented for educational purposes only, and should not be treated as tax, legal or financial advice. This information should not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. It should not be assumed that Morton will make recommendations in the future that are consistent with the views expressed herein. This information should not be taken as a representation that the strategies described are suitable or appropriate for any specific person. All investments involve risk, including the loss of capital. You should consult with your insurance professional to thoroughly review all information and consider all ramifications before making any decisions regarding your insurance coverage.
