ST. CROIX INSIGHTS

Lease or Purchase Your Next Car

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

If I had my choice, I’d rather not deal with a vehicle. We spend big dollars on an asset that’s guaranteed to depreciate even before the ink dries on the purchase agreement. Over the years I’ve developed two philosophies when comes to vehicles. One for business owners and one for non-business owners. Here’s my rational behind it.

Philosophy #1 – Drive Your Car into the Ground

I purchased a new vehicle (make, model and price shouldn’t matter – you’d think?). It should have been well-built but within 112,000 it was on its 3rd transmission. A $6.00 part (wave plate) continued to fail which caused a $6,000 repair each time. Talk about paying for the car a few times over. The good news was the manufacture stood behind their product and I only had to pay $1,000 total. As of this writing, this vehicle has 170,000 miles on it. Knock on wood it keeps going to 300,000 miles. Which brings me to my 1st philosophy for non-business owners. Drive these cars into the ground. Just because your vehicle has 100,000 miles on it doesn’t mean it’s going to break down and you need to purchase a new $40,000 vehicle. You’ve only changed the tires one half times if you bought quality tires and rotated them every few oil changes. There is a lot life in that vehicle left. Save your money for more meaningful and impactful things in your life.

Philosophy #2 – Lease

Now for business owners – philosophy #2. My good friend T-man told me I had to stop driving around a crappy vehicle (which it wasn’t) because it didn’t bode well for me in my given occupation. Ok, so I gave into peer pressure, and now I lease a Honda Accord. Lease is the key word. With my previous experience mentioned above, I’m done owning cars for a while. I still have the car mentioned above. It won’t leave until it’s carried out on a flatbed truck and is beyond repair (cost/benefit/diminishing marginal returns). Yet I drive a ton each year, roughly 22,000 miles a year. So I did a high mile lease for 22,000 miles for 3 years.

“I’m able to deduct the lease expense through my business, purchase new tires for the vehicle when I turn it in and walk away.”

That’s cool. I negotiated a comprehensive extended warranty for only a few hundred dollars that went through 80,000 miles. Some say a waste of money on the warrant, maybe, but not based on my experience. If bad luck happens with cars, the car will find me. I view this as a pre-pay option for any major expenses.

Sure, depending upon your tax bracket, the vehicle you lease or purchase when running the math, it might actually be better to purchase the vehicle outright when you factor your mileage per year, the price of gas, maintenance, etc. I’ve just reached the point where I want to simplify my life and walk away when dealing with company vehicles.

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