Money Rehab with Nicole Lapin - Why Car Leasing is a SCAM!

Episode Date: April 22, 2021

Nicole gets sassy in today’s episode about one of her biggest financial pet peeves: leasing cars. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I just moved to LA.

I actually drove here from New York in the middle of the pandemic. Not the kind of cross-country road trip I was expecting. Obviously, I did it in a car. And in New York, I didn't really use my car. In LA, a car is as necessary as having sunblock. And it's the same in a lot of parts of the country, right? If you're outside of New York City, you likely need a car. And there are a lot of choices for cars, right? Lots of different preferences, especially on the aesthetic. There are silver ones, black ones, like you have your

preference. Maybe you want a sweet red interior. You do you, but if you don't have tens of thousands of dollars just laying around to buy a brand new car, how the heck do we actually pay for it? Do you lease it? Do you buy one? Do you buy a used car? I have so many thoughts on this. This is a question that Christina in Delaware is struggling with as well, so let's listen to what she says. Hey, Nicole. I have been holding off on getting a car until I had some other finance stuff worked out. And I finally feel like I have that under control.

So I feel good about that. And I feel like I can finally get a car. And I was just at a leasing place. get a car. And I was just at a leasing place and it just seems like they have very cool options for cars and the leasing agreements seem really great and like such bargains. And so it seems like a cool offer, but I just wanted to see what your thoughts on leasing are. Thanks. So Christina, I totally get why leasing looks like a magical deal for your budget. You're paying less monthly for a new car than you would on a loan or whether you buy a crappier car outright. You don't have to deal with maintenance, right? It could be beneficial if you have a

business. I know that's what a lot of people like to argue back to me with. So I get why it's so tempting, but this is one of the most upsetting things to me in the financial world. Leasing is one of the biggest scams out there. Why do you think the car companies created leases for funsies, for charity, just for shits and giggles? No, they did not. They did it to make money. Consumer Reports actually backs me up on this one as well. They say that leasing is the most expensive way to get a car. And why is that? Because you're essentially buying a used car at its new car price. They did it for them and not for you. And I am not on their side. I am on your side.

Hello? The research here is so, so clear. I mean, Susie Orman, like OG financial guru, she and I agree on this one. She said that leasing, and I quote, is the most stupid thing I've ever done with my money. Here's why she says that. The most important part to realize is your car value. They are quickly, quickly depreciating assets. So I know a car that's brand new, smells so pretty,

it looks so good, but it's not a good investment. Literally the second you drive it off the lot, it loses 20% of its value. The most appreciation happens in the first four years of the car's lifespan. So the best thing to do, because you're saying, okay, Lapin, I get it. You don't want me to lease. What do you want me to do? Here's what I want you to do. I want you to buy a used car cheap, run that jalopy into the ground, and that's it. I'll go into that and how to buy a used car in a whole other episode. But for now, I would like to get back to my leasing rant,

because if you think about it, you're leasing a car, it is losing value, but you're paying the same flat fee for a full lease contract. If you are leasing a car for five years, a full lease contract. If you are leasing a car for five years, after five years, that's an old smelly car and you're paying the same amount, the car companies will say it will depreciate less than what you paid. So say $20,000, which is a lot, but it's not the $25,000 that you actually paid. So that $5,000 is their profit. Essentially, you're paying a new car price for a used car, and then you're turning the thing back over to the car companies. And that's why they do this, for that profit. Car companies will tell you that they factored all that stuff in for your depreciation within the terms of your lease in order to determine your fee and the amount you're paying.

One of my biggest pet peeves is this lease term trap. It is one of the oldest tricks in the lease book. It's manipulating the term of your lease to make you think you're getting a better deal because you just don't even want to do the math. You're like, okay, cool. I'm getting a great deal. Honestly, they're just trying to make a buck here and you have nothing at the end. Nada, zippo, zilch. And I want you to create value in your life. There are penalties as well. Don't forget the penalties. You have a maximum amount of miles that you can drive in your lease contract likely. So if you go over that number, there's a penalty. If you don't keep the car in good condition, a penalty. You want to return the car before your contract expires,

a penalty. There's a lot of sketchy stuff that car salespeople can do. The first thing is a lot of car companies are really intending to make that monthly payment look really good and pretty, but they don't show you the total cost of what you're actually paying. They quote you a price without the sales tax or the licenses. So just make sure you're factoring all of that stuff in before you sign up so you know exactly how much you are paying and not just what the sticker price shows. The next thing is be really upfront about what's upfront. The no down payment situation doesn't actually mean no payment is due upfront. A lot of leases make you pay a

bunch of fees for a tag, a title, acquisition, registration, dealer documents, all sorts of stuff. Lots and lots of fine print. Some leases also require a security deposit. So all of that is not called a down payment per se, but I don't know, between us, that sounds like a down payment. And if you're saying, listen, I can handle a lease. Thank you very much. Great. I will still support you. I will still be here for you. I'll tell you the best way to get a lease and the best way to negotiate with these folks because they are sneaky little devils. But for a majority of us, all of this stuff can add up really quickly. So if you want a fancy car, but you can't afford one, don't get the car. If you look at leasing altogether, you're paying top dollar, you're paying all these penalties. Do you want convenience or do you want to be broke?

Right? That's why I think, again, I'm just going to say it. It is a scam that you should avoid at all costs. For today's tip, you can take straight to the bank, buy a used car cheap, run it into the ground. There is honestly no need to flex hard with your ride if it's just going to drive you to debt. It's like my favorite saying goes, rich people stay rich by acting like they're poor and poor people stay poor by acting like they're rich. So if you don't feel rich yet, maybe you're just pretty rich right now and that's okay.

We'll get you there here on Money Rehab. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work.

And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.