George Kamel - Why Car Leasing Is Stupid

Episode Date: June 14, 2023

People make a lot of dumb mistakes when it comes to cars. But one of the dumbest mistakes I see people make every day, is leasing a vehicle. In this video, I dig into the dirty details of car leases, and show you the smartest way to pay for a car. The Ramsey Car Guide Download The EveryDollar App Today Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

People make a lot of dumb mistakes when it comes to cars, like forgetting to change the oil or buying a PT cruiser or taking the PT cruiser to the drive-in theater to see Gile. That might be the worst series of decisions a person can legally make. What do you take your stupid pills? Come on. But one of the dumbest mistakes that people make every day, leasing a vehicle. So today I'm going to break down the reasons why I hate car leases even more than when people put an apostrophe in their last name on Christmas cards. It's the camels, not the camels. apostrophe after the last name, not in the last name.

And the fact that dealerships bend over backward to talk you into a lease should be the first of many red flags. Anyone you know who leases a car, probably bragging about how great of a deal it is, right? And for some reason, finance bros love talking about this stuff on YouTube. But I'm here to tell you, leasing a car is a con. So we're going to dig into the dirty details of car leases and show you the smartest way to pay for a car. Before we get started, though, let me tell you about the smartest thing you can do

with those digits. is clicking those like and subscribe buttons. And right now, during our Camel Fawn sales event, you can subscribe for $0 down with no interest and no payments until ever. It's always free. And if you act now, you can take advantage of our friends and family discount of double free when you share this video with your friends and family. How about that?

Come on down! Our prices have never been lower! So let's start with the basics. What exactly is a car lease? Well, a car lease is when you make monthly payments to drive a car for a certain period of time, usually two or three years. So think of it like renting an apartment, except your lease car probably doesn't come with an upstairs neighbor who sets off the fire alarm weekly. Derek, how hard is it to use the air friar? Okay?

You can get a car lease from an auto manufacturer or a third-party lender, but usually it's done through a car dealership. You know, that place with the wacky waving, inflatable arm-failing tube man. We love them. So how much do you have to pay to lease a car? Well, your monthly payment is based on the residual value of the car. That's a fancy way of saying how much it will supposedly be worth at the end of the lease. which makes sense. If you're essentially renting the car for two or three years, that same car will be worth much less when you go to return it. And that dealership ain't losing money. That cost is covered by you. And sad fun fact for you, cars lose the most value in the first two or three years, which means it's costing you quite a bit of money. So here's how these lease payments are usually calculated. You take the expected depreciation amount, how much value the car will lose over time, plus a rent charge, which is basically the dealership charging you interest, plus sales tax, plus fees, and divide that by the lease term. Now let's talk about that dreaded four-letter F word.

Fs. I want to wash my mouth with soap after saying it. I hate fees. I hate snakes, shock! I hate them! So you've got fees on the front end, including an acquisition fee, which is what it costs to set up the lease, a documentation fee, the cost of processing paperwork for the lease,

and on top of that, you still got your title and registration fee. But wait, there's more! When that lease is up, you have to fork over even more cash for things like a disposition fee, which is the cost of cleaning up and selling the car. excessive mileage fees if you go over the mileage limit, and excessive wear and tear fees if you don't maintain the car up to the dealer's standard. You want excessive. Those fees are excessive.

I mean, leases have so many fees that makes ticket master blush. Maybe it's the same people. Conspiracy theory. Oh, and remember those rent charges, aka interest? Well, what makes car leases extra sketchy is that they're not required to disclose the interest rate. And here's why. The Federal Trade Commission doesn't technically define a lease as debt. So there's no federal disclosure required.

Thanks, FTC. What that means for you is that there's no truth in lending disclosure sheet that's given to you, which works out perfectly for the leasing company that gets to bake those terrible interest rates into your monthly payment. And then, at the end of all of that, you don't even get to keep the car. You have to give it back to the dealer after paying the worst of the depreciation. So here's the math. Let's say you paid $16,000 over the life of the lease, and it went down $10,000 in value during that time.

That means it costs you an extra $6,000 to leave. lease the car for that period. And if you're a car leasing company, that's called profit. And if you're the person leasing the car, that's called stupid tax. What do you take it, stupid pills again? The person leasing you the car always comes out ahead on this deal, not you. And what happens if you want to get out of these chains, or if you can't pay anymore? Well, there's only three ways out if the leasing company even allows it, and none of them are pretty.

Now, the first option is early lease termination. This is where you pay an early termination fee, which could be several thousand dollars. And it's usually the difference between the remaining balance owed, and the credit you get for the current value of the car. So, for example, let's say you still owe 17 grand on the lease, and the value of the car is 14 grand, you would pay the $3,000 difference to get out. And they can still charge you a disposition fee,

transfer fees, and taxes. So that option sucks. Well, that sucks. The second option is a lease transfer, which involves finding someone else to take over your lease agreement. And let me tell you, that's about as rough as trying to find someone to buy your old timeshare or your nickelback tickets.

I've had it with all this nickel-brac. back hating, right? You think that makes you cool with the cool kids in school, Fred? Now with this option, you'll still pay a lease swap or transfer fee. All the fees I mentioned earlier still apply. Now, this could be a cheaper option than early lease termination, but it still sucks. Now, the third option is a lease buyout. Here's how it works. You ask the leasing company for the early buyout or payoff amount. Then you compare that with the current value of the car. If the car is worth less than the payoff amount, and it likely will be, because remember, the value of a car plummets in the first few years, then you'll have to pay that difference to buy the car,

plus sales tax and disposition fee. Bottom line, unless you love throwing money away, leasing a car just doesn't make sense. So what's the smarter way to pay for a vehicle? It's simple, and it's hard. Save up and pay cash. What a novel idea. And to be clear, that doesn't necessarily mean you're handing the dealer a wad of paper currency. In fact, maybe don't bring that briefcase full of $100 bills.

When I say paying with cash, I just mean paying for the full cost of the vehicle up front with no lease or loan. So it could be a personal check, your debit card, a money order, you name it. Either way, you give the seller the money, they give you the car. One payment, no interest, bada bing, bada, boom, you're driving away debt-free with the car that you actually own. Now, you might be already commenting, George, that's not realistic. I can't afford the car I want in cash. Okay.

Fair point. Let me fill you in a little secret. Hey, come here. Closer? Closer? Don't start with the car you want. Start with the car you can afford. That was some Yoda-level wisdom right there.

Any for your thoughts? I know that's easier said than done, but I'm telling you, I lived this stuff out. Back in 2017, I paid $6,000 for a 2009 Honda Civic EXL that had seen some things, okay? Had some personality, some character flaws, okay? Now, nothing crazy. I love that car. It was safe, reliable, got me from A to B, and I drove that thing for about five years until I could afford something nicer, at which point I sold it to my friend Kelly for a little less than I paid for it, and her

her son pretty much immediately crashed it. Don't worry, he's okay. The car, however, totaled. And if you're wondering what I drive now, I drive a paid for 2013 Tesla Model S that I paid cash for. Zero dollars a month payment for the rest of my freaking life. And if I can do this stuff, you can too. And if you aren't happy with the cars you can afford, just remember, this isn't a life sentence. This isn't a life commitment. Drive the cheaper car, take all the money you're saving on car payments, and stash that away for a better car down the road. See what I did there? down the road we're driving car puns and before you jump back in the comments going

but george used cars are so unreliable i need something safe to drive save it bucko because you know what your new car becomes as soon as you drive it off the lot a used car look at that now i'm not saying you need to buy a rusty old piece of crap with no muffler and a taped on windshield there are decent used cars out there people you can find reliable used cars in any price range you can find a vehicle that gets you from point a to point b for a few thousand bucks will it be your dream car probably not but it will be your car that you own fully instead of it owning you. And just remember, when you find a used car you like,

make sure to have it inspected by a reputable mechanic before you buy it. That's called a pre-purchase inspection, and it helps you avoid terrible situations like this. So the bottom line, leases are the most expensive way to pay for a car and operate a vehicle. So the next time you hear someone talking about why leasing a car is amazing, ask them if they've done the math

and share this video with them. The smartest way to buy a car is to buy a reliable used car with cash. And again, you may not be able to purchase your dream car in cash right now, and that's okay. Start by getting a car you can afford now, then saving up for a better car down the road. Trust me, you'll be way better off and less stressed when you don't have a car payment. And if you're wondering, well, George, when can I buy a brand new car? When does that make sense for me financially? Well, the only time I'd recommend you buy a brand new car is if you have a net worth of a million dollars or more.

And you're probably going, dude, that's crazy. Well, what's crazy is taking the hit on depreciation before you have the net worth and wealth to stomach it. So wait until your net worth millionaire to buy a new car in cash. And if you're in the market, to buy a car, check out the Ramsey Car Guide. This is a super helpful resource that I've used myself, and I'll drop a link in the description below if you want to check it out. And by the way, saving up for a car is a whole lot easier when you've got a budget, an actual plan for your money where you're able to set up a sinking fund

and save up for that car goal month after month. So if you're looking for an app to help you reach those savings goals, the app that I use and highly recommend is called Every Dollar, and it's a free download in your app store. I'll drop a link in the description to that as well. Trust me, when you're making a plan for your money every single month and sticking to it, you'll be able to buy that car you love sooner than you think.

As always, make sure to like, subscribe, and share this video with someone who's in the market for a vehicle so they don't wind up making an expensive mistake like Columbia Pictures did when they decided to make the movie G-Ly. Lost a lot of money on that one. Thanks for watching. We'll see you next time.