Is a car lease a fleece?

Dave Ramsey says that no one should ever lease a car, he calls car leases fleeces, is it true, is this fair, should no one really ever lease a car, and is it always a rip off? Basically a lease is the purchase of the car’s value that you will be using.

Dave’s overall recommendations are to minimize transportation costs, because we often see people  making bad (expensive) decisions in this area of personal finances. It is not unusually for us to see people buying cars that they normally couldn’t afford, with large payments that they are stuck with. At best this just is a hurdle to accumulate sufficient wealth for things like retirement, or at worst people end up in poverty. I know this to be true for myself, and for the 100’s of people who I have counseled or had in class over the last few years. I believe Dave’s point of perspective comes from similar experiences as mine, plus he is communicating to millions of people, for this wide audience he wants to keep his message simple, and it makes sense: Buy good used cars cheap, drive them a long time, learn personal financial management, don’t borrow to buy deprecating assets, pay off debt, save and pay cash for things that are needed, such as your next used car. Eventually when your house is well in order as defined by no debt, a lot of savings and funded retirement, then sure go buy a new car now that you can afford.

I think this is sound wisdom, that most people should heed.  However, I am car guy, and I love cars, is this from a mathematical standpoint always true?  Is this information fair to the auto industry, vehicle dealers, sales people and finance companies? 

Keep in mind, whether you lease, borrow, or buy outright, there are always costs of ownership. That is where the devil is in the details. The cost of ownership can be computed to dollars or cents per mile, or for the total number of years of ownership.  The calculation should include: 1) purchase price (including financing), or lease payments 2) gasoline usage (this is huge and often underestimated by the SUV crowd) 3) maintenance 4) insurance 5) opportunity cost, or the lost interest on the money if you saved or invested it instead of putting it into car payments or a lump sum purchase 6) depreciation or the value the car is worth at the end of ownership when you sell it or trade it in.

This is a difficult calculation for most people to do, however in a few hours, with a calculator, note paper, and a few different websites, I think you could come close estimating at least 1 through 5 above. I recommend using the Total Cost of Ownership TCO at www.edmunds to only estimate the repairs, maintenance, gasoline, insurance and depreciation of used versus new for the same make and model. Use the auto finance calculators at to estimate the total costs of financing. Comparing say 8 years of ownership: new cars will have an advantage of lower repairs and maintenance costs, and higher residual value. Used cars will have the advantage of lower insurance, and no, lower or shorter finance payments. If you follow the advice of many good articles of how to purchase a good used car, and you find a good one, most of time your TCO will be much less for used versus new. If the difference is small for your analysis, and you will own it for a long time, then a new car might be the wise decision. If you want to then look at comparing leasing, then compute the costs to lease three cars for your comparison, since you will have to lease that many for the same ownership period as your purchase. The advantage will probably be to own instead of leasing.

Do I ever like leasing?  Sometimes, but usually only if there is absolutely no money down, the payment is a super low deal probably offered by the manufacturer to move a back log of inventory, and after doing a good analysis like here. However buyers need to be very cautious, become sometimes their emotions get the best of them, and they are tempted by that really nice up market vehicle, and before they know it they have a high payment.  Lastly, it might make sense too to lease or purchase new sometimes, if you can get a low-cost high gas mileage car, with low maintenance versus keeping the a low gallons per mile car with constant repairs, but only again if you do the analysis above. Be extremely careful leasing, watch your mileage limit and talk to many advisors before doing it, because after the car is delivered it is almost impossible to get out the deal later and you will be stuck with payments for the duration.