Wednesday, May 7, 2014

Viewer Mail: Should a 77-Year-Old Lease a Car?

Let's see what's in the viewer mail!

I have received several inquiries online from readers to the effect of "should someone in their 70's think about leasing a car?"

It is an interesting question.   

To begin with, if you won the lottery and just don't give a damn, sure, go ahead and lease a car.  Spend all you want to.   But please don't bother reading this blog.  It wasn't written for you.  I am sick and tired of people writing to say, "Well, I have lots of money, so I can afford to do X."  This blog isn't about people who have money to burn, but for average middle-class people who are trying to live within their means. 

Besides, chances are, even though you think you can afford to do X, chances are you can't - it is just the cumulative debt hasn't caught up with you yet.  Give it ten years or so, that is how long  it takes the credit industry to ruin people these days.

Thus, I presume by the very act of asking the question that money is still dear to you, and that this is a financial decision you are not comfortable with.

At first, it appears that leasing has some attractive features for the older set:
1.  Old people drive a lot less, so the 10,000-mile-per-year limits on mileage aren't an issue.

2.  Old people drive a lot more carefully, so the "wear and tear" back-end costs are less.

3.  You get a new car every three years or so, so you don't have to worry about maintenance.

4.  You can budget your car costs based on the monthly payments.
Those are good points, to be sure.   Leasing for older folks at least fits their lifestyle better than for younger folks who drive more.   However, there are still a number of bad points to consider:
1.  You take that big trip to see the grandchildren and you rack up a lot of miles, you could go over the mileage limits and incur a lot of back-end charges.

2.  Old people get into wrecks, usually just before they lose their licenses for good, and these wrecks can create back-end "wear and tear" charges.

3.  Maintenance costs for a low-mileage, carefully-driven car are very low, so the worry of "repairs" is overstated.

4.  Leasing is still the most expensive way to ride, and hidden costs can wreck the most carefully planned budget.  Just paying sales tax on a new car every three years can be staggering.
Let's consider some real-world examples of some oldsters I know and illustrate how leasing can go wrong - or just be more costly than owning.

1.  Jerry and Mary lease a new truck to tow their camper with.   They are both in their 70's and like to travel.   However, their "trip out West" put more miles on the truck than they anticipated.   Worse, Jerry is losing his eyesite and as a result, put a number of small dents in the truck and tailgate.  Mary says they can't take any more trips now, as they are "over" the mileage limit specified by the lease.   So whenever possible, they cadge rides from friends.   It is, as Jerry says, almost like not having a car.

When the lease ended, the salesman told them they would have to have the truck repaired, or pay huge back-end "excess wear" fees in addition to overmileage fees.  In addition, the tires are worn out and have to be replaced.   In order to "turn in" the leased truck, they will have to pay thousands of dollars for repairs and tires, as well as overmileage fees.

The cost of owning the truck was higher than anticipated.   If they had bought it new, they could have ignored the small dents and kept the truck longer.   There would be no overmileage fees.  In fact, the monthly cost (when you factor in these back-end charges) is about the same as buying the truck new.   Buying a lightly used truck, or one with fewer options, would have cost them even less.

Leasing, it turned out, was neither maintenance-free or inexpensive.   It was just a complicated contract that bit them on the butt.

2.  Susan is a widower and leases a new car.   She wants a "reliable car" to get around in, even though her old car (a Camry) while eight years old, had only 30,000 miles on it.   Old people sometimes don't drive much.  There was easily eight more years of serviceable life left in her old car - it likely would have outlived her.  But, she says, she wants "peace of mind" which she doesn't realize isn't something you can buy.

While her children think she is "rich", the reality is, she lost a lot in the market crash of 2009, and doesn't have that much in the bank.  Between Social Security and her late husband's pension, it is tough to pay all the bills, including a new car payment.

And then the inevitable happens.   She is older and her reflexes are slower.  And she lives in Florida, where everyone under 50 drives like a jackass.  She gets into an accident.  It doesn't matter whose "fault" it is, either.

The car is taken off to be repaired, and the insurance company recommends a repair place.   The accident was severe, but not enough to total a brand-new car.   As a result, it is not hard to tell the car was in a wreck, even if you are not experienced in these things.  Plus, the accident shows up on the car's CARFAX report, making it worth less.

When the time comes to turn the car in, she is dinged for "excess wear" because of the accident and repairs.   She paid a lot of money for "peace of mind" and it turned out to be illusory.

3.  Arnie and Jill decide to lease a new Volvo.   Arnie's car is getting old, and the salesmen sells them on the idea of a lease, using the arguments set forth above.  It is a very nice car and all, but being a station wagon, Jill can't drive it ("too big!", she says, "I can't see out!").

Arnie suddenly dies unexpectedly.   While settling the estate, Jill realizes she has an extra car now - and an extra expense in her life.  Her share of social security, as well as Arnie's pension is less than what they had before.

She goes to the dealer to "turn in the car early" - why not, it is just like renting a car, as the salesman explained, right? 

Wrong.   There are huge "early turn-in fees" for turning a car in before its due date.   These are often more than half the cost of the full-term of the lease.   Jill has to pay thousands of dollars to the dealer in order to get them to "accept" what is a beautiful, low-mileage used car, in excellent condition.  

Her only other alternative is to let the car sit in the driveway and keep making lease payments on it.

* * * 

What do these three examples have in common?
1.  The cost of leasing often ends up being far more than expected - which is a bad thing when you are on a "fixed income" and have fixed remaining assets.  These excess charges can put a dent in your budget - and your savings.  Both can't afford too many dents.

2.   Leasing prevents you from being flexible in your spending.  If your life situation changes (you lose your license, go into assisted living, or your spouse dies - all of which are predictable events for an oldster) you are locked into a contractual agreement that will cost you a lot of money.
The cost of owning a car, outright, ends up costing you less and provides you with more flexibility in your finances, regardless of your age.   For oldsters, it may be appealing to lease, at least initially.   However, the special circumstances of being old mean that a lease could be an expensive mistake.

Traditionally, old people kept their cars forever.   There was an old lady in our town who (in 1977) drove a 1955 Ford.   It had 80,000 miles on it.   It was paid for, as she put it, and she didn't drive much.   Keeping a car a long time is one advantage of being retired or semi-retired, and being old.  Heck, I have a 15-year-old car with just 50,000 miles on it.  Why sell it?  Why lease a new one?

My Grandfather drove his 1967 Cadillac until the 1980's.  My Grandmother did the same with her 1968 Chevrolet.     My Grandfather could "afford" to buy a new car, and eventually he did.   But not before he drove the wheels off that old Caddy.   For my Grandmother (from the other, poorer side of the family), that Chevy was her last car, period.

When you get old, you drive less.   Your car sits in the garage longer and lasts longer.   Why not take advantage of this economy when you can?   You are at the point in your life when  owning a car forever makes the most financial sense.

Why lease?