The Car Lease – The Devastating Costs of Luxury

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Yesterday, while driving around town to complete errands in my fuel-efficient, three-year-old Hyundai Sonata, I found myself waiting at a lengthy stop light. Naturally, the wait annoyed me to some degree, as I was the only car in sight. However, Moonlight (my wife’s affectionate name for our Hyundai) and I weren’t alone for long, as we were soon joined by a sleek, shiny 2016 Audi A8 Sedan.

Leasing a car may seem smart, affordable, and convenient, but this luxury may be costing you your freedom, retirement, and much more!While I am admittedly a car lover, I must admit that my interest was divided equally between the A8 and its driver. Why? The driver could not have been a day older than 25, by my observation, and naturally, the Finance Superhero in me could not compute many scenarios in which this young man could afford such a fine vehicle.

I know what many of you are thinking:

  • Good for him! This fellow has clearly done well for himself.
  • Did you strike up a friendship with Mr. A8?
  • Age is hard to predict; maybe this hot shot is older than he looks.
  • Weren’t you jealous?

My thoughts:

  • Maybe.
  • No.
  • Maybe.
  • No.

Jealous? While others may have felt envy, I only felt pity.

Yes, it is quite possible that this driver was closer to 35 than 25. It is possible that he is a new partner at a leading law or accounting firm. However, statistics dictate that it is more likely that he is a 20-something who earns slightly above the median US adjusted gross income ($36,841 in tax year 2013, according to Regardless, I assert that the driver’s income is a variable that pales in comparison to the opportunity cost in driving and likely leasing such a fine vehicle.

I Hope He Likes the Car

Except in cases of significant wealth, the luxury vehicle represents one of the largest financial boat anchors in the lives of Americans. Leasing one – or any car- can destroy your budget, crush your dreams of financial independence, and eliminate hope for a modest retirement.

For the purposes of illustration, let’s assume that Mr. A8 is leasing his vehicle. The current manufacturer lease offer for this vehicle is $899 per month for 36 months with $4,644 cash due at the time of signing. This represents a total cost of $37,008 over three years, or $12,336 per year! For a car!

What’s that? You’re still not convinced that Mr. A8 isn’t getting a fine deal?

Let’s assume that Mr. A8 utilized the $4,644 cash due at signing on the Audi and instead purchased a much more affordable yet attractive vehicle. For example, suppose he found a deal on a 2004 Honda Accord and stretches his budget to $5,000. In this scenario, he would not have any monthly auto expenses, aside from gasoline and regular repairs. This would free up $899 per month!

What could he do with these money? Here’s a suggested monthly breakdown (rounding up to $900 for the sake of simplicity):

$400 placed in a money market account as a sinking fund designated for the purchase of a replacement vehicle when the Accord goes to the junkyard in the sky

$500 invested in a company 401k/403b, up the company match, with remaining funds invested in a Roth IRA

Now, let us suppose that our 25 year old driver’s investments earn an average return (after inflation, the generally-accepted return figure for the S&P 500 is approximately 7%) and is compounded monthly. After thirty six months, Mr. A8 would have just over $20,000 combined in his 401k/403b and Roth IRA accounts, not including any company matching. Additionally, he would have $14,402.22 saved in his money market account (assuming an interest rate of .01%) toward the purchase of a future vehicle. If he continued investing this same amount each month until age 65, he would be poised to retire with investment accounts valued at approximately $1.3 million.

I hope Mr. A8 really likes his fancy car!

Common Objections

Despite the fairly simple math above, some people still love their leased car. I’ve heard many objections over the past several years. My response is usually very straight-forward.

I need a luxury vehicle for work purposes.

I understand that for many professionals, the appearance of a car is very important. However, a 3-4 year old Honda Accord or even 10 year old BMW will get the job done. And these vehicles can often be purchased in great condition, especially if you flash cash to secure a great deal.

I am not handy when it comes to automotive maintenance, so a lease makes sense for me.

This objection rarely rings true. First, very few people are capable of maintaining their own vehicles beyond routine fluid changes, brake replacement, and tire rotations. Leasing a vehicle does not eliminate maintenance costs. And no, maintenance is not free with a lease. You are paying for it, as the costs are built in somewhere.

Second, new vehicles are often subject to repairs that will later be addressed by manufacturer recall. Strategically purchasing used vehicles which have already had these concerns addressed and repaired and have already had their 50-60k mile maintenance performed is a much better way to go.

With a lease, I can drive a new car every two or three years.

Listen. You need to make a decision. We are talking about your vehicle or your retirement! Which do you want more? 65 year-old you will want to kick 25 year-old you in the butt for being stupid and leasing a vehicle when you could follow the simple mathematical plan above and still simultaneously fund your retirement AND drive nice vehicles. And 65 year-old you is likely to get that opportunity, as Apple will probably have invented the iTimeMachine by that point. Don’t screw things up for future you! Don’t walk away – run – if you’re tempted to lease a car.

What are your thoughts on car leases? Does it ever make sense to lease a vehicle? Have you or someone you know ever been burned by a car leaLeasing a car may seem smart, affordable, and convenient, but this luxury may be costing you your freedom, retirement, and much more!se? Share your thoughts in the comments section.


13 thoughts on “The Car Lease – The Devastating Costs of Luxury

  1. I’ve never leased and never plan to!! I love the way you broke this down. I hate the fact that I have a dang car payment but at least I’ll own it once paid off. And I’m gonna drive it as long as I freaking can.
    What would you advise to do if someone needs a car but has absolutely no money to outright buy one or put money down on either??

    1. Thanks for stopping by, Beth. You pose a great question. I would advise a person in the situation you described to get creative and scrape together enough money to purchase an inexpensive beater car – something simple that gets you from point A to point B. Whether that means working overtime, selling things, or delivering pizzas, it can be done with persistence. From there, gradual, periodic upgrades are appropriate, say every 6 months.

      Keep in mind, this is what I would recommend to a person who desperately wants to win financially. I would never stand in the way of an adult choosing to take out a small, reasonable loan to purchase a basic vehicle. But I would certainly attempt to dissuade anyone who was considering a vehicle lease, as it has been proven, time and time again, to be the most expensive way to operate a vehicle.

  2. I think your analysis somewhat misses the point. The financial decision of driving around in a brand new A8 is not a buy vs lease argument. It would be just as poor of a financial decision to buy an 80k car as it is to lease an 80k car. The key when leasing is to first negotiate the price of the vehicle then figure out whether it makes more sense to buy or lease. Believe it or not there are plenty of instances where you are better of leasing a vehicle rather than buying new.

    1. Thanks for stopping by and sharing your thoughts, Frugal Familia. I see what you are saying.

      From my perspective, the primary financial decision that lies in the buy vs. lease debate is cost effectiveness. While most financial experts argue that a car lease is the most expensive way to operate a vehicle (for example –, I can see instances in which buying a brand new vehicle is equally bad or even worse.

      As I suggested in my analysis, the best course of action, in my opinion, is operating quality used vehicles without a monthly payment, developing a sinking fund to replace this vehicle when the time comes, and avoiding the generally devastating financial hits of interest and depreciation.

  3. My coworker’s AC has been broken. Rather than fix it, (a few thousand dollars at most?), she decided she wanted a new car. That was all the hullabaloo Wed morning, her talking about it and then finally taking people outside to see it. It was not brand new, low milage but she still had to finance it. And she just moved into a new place. *shrug *
    I would only lease if I had a definite short term job somewhere it didn’t make sense to bring my car or buy one. For example my last company asked if anyone would consider going to Europe for 1-2 years to work with / train others / learn from them. Depending on where, and taxes to buy & resell, I would consider a lease.

    1. That’s a situation I hadn’t considered, Jacq. If I were going to be working abroad for a short term, I would probably try to utilize public transportation before leasing a car, if possible, but I could see some scenarios in which that might make sense. Thanks for sharing!

  4. Unfortunately, I am forced to lease. My wife works for one of the Big 3 and part of her contract states that we must buy or lease a vehicle every 3 years for her to get her completely free of any cost company car. After doing the math it makes no sense to buy a car while we are under this arrangement.

    Otherwise, I agree with most of your argument though I would say that sometimes leasing is a good option for some people.

  5. I’ve never leased or financed a car before. I drive a 14 year old car, which I bought new (before I knew any better – but at least I’ve gotten my money’s worth out of it). My wife drives a 7 year old car that we bought used and paid cash for, and we also have a beater (1991) pickup truck that we bought used and paid cash for. We have zero interest in driving new/flashy cars. As long as they get us where we need to go and/or hauls the firewood, we’re set.
    On the other hand, I have friends who just leased two brand new vehicles. I hope they eventually realize the error of their ways, but I suspect that their 65 year old selves will be doing some butt kicking down the road!

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