Monday, April 21, 2008

Quandry: Get a cheap lease to lower payments, or hold out until existing car is paid off?

I'm currently in a quandry trying to decide if it would be smart to trade in my current vehicle and lease a new one to save monthly cash outlay... Three years ago when gas prices started creeping upwards, I traded in my beloved SUV for a more econimical car. Not only did this move lower my monthly car payments by $100/mo, but the gas savings was also considerable. Then a year ago, I became eligible to become a full-time telecommuter at work, meaning that I would no longer have a daily commute. I changed the usage status on my car insurance for my vehicle from a commuter to pleasure vehicle, as it was now only being driven in the evenings and on weekends.

Unfortunately, I'm still making car payments on a vehicle that is only being driven a few times per week. It seems rather wasteful to be paying that much every month since the vehicle is depreciating at the same rate whether I drive it or not. I started doing some rough calculations, and at $397 per month, the vehicle is costing me about $13/day plus fuel/insurance costs. Based on data from, the vehicle is depreciating at about $1100/year or roughly $92/month.

Enter the Tempting Lease Deal

A local Subaru dealer is offering a 24 month lease on a Subaru Legacy for $149 down and $149/month with zero deposit for qualified leasees. So even with the negative equity on my current car which would add approx $50/mo to the $149 payment bringing the total payment to just over $200/mo with sales tax added in. That would save me approx $200/mo in payments, some of which would go towards an increased insurance premium. The lease offer expires on 4/20/2008 and there are only two eligible vehicles left in the dealer's inventory.

In addition, we are looking at starting a small business, and the new vehicle could be used for business purposes meaning that part of the lease payment / mileage may be tax deductible. I'll need to research this further and consult with a tax expert before I make a final decision about writing anything off - and it may be better to lease the vehicle under the business name. With the price of gas continually increasing, we're also considering a hybrid vehicle as an alternative, since the Subaru would provide no fuel savings advantage over my current car, only a savings in monthly car payments for the next 24 months. (the duration of the lease) The drawback is that when the lease is up, I'll be forced to search for another lease deal or assume a lease through or Another option I've considered is trying to sell my vehicle and then assume someone else's lease.

Financially it would probably make more sense to bite the bullet and continue making the higher car payments for the next 36 months and then the vehicle would be owned outright free and clear. Because I purchased a lifetime oil change plan when I bought the car, the ongoing maintenance costs would be very low. In about 3 more years, it would be like getting a $400/mo raise that could then be applied to any remaining/existing credit card debt and/or placed into a high yield IRA! In order to make that happen, perhaps I'll consider paying off the car faster instead of looking for a lower monthly payment...

No comments: