Looking for Advice: Debt pay down vs. fixing car vs. leasing car
Young, married couple expecting first child the end of this summer -- we have a question about debt pay down vs. fixing current car vs. leasing a car:
Through faithfully using YNAB the past year we were are learning a lot and have accomplished several big goals and are still learning about our priorities! We were also able to faithfully save to fix the air conditioning in our car over the past five months using YNAB's 1st two rules, and I also started to set aside money in another category towards getting a different car in the future so that we are not making our next auto purchase all on an auto loan.
It's getting hot where we live, and we just reached our savings goal to fix the car air conditioning. When my husband looked at YNAB he mentioned that by saving to fix the air conditioning in our car in addition to saving towards getting different vehicle in the future, we could fully pay off the car! So we started to toy with the idea of paying off the car and trading it in to lease a car for a comparable amount to our monthly car loan, but neither of us know very much about leasing cars since this is not something our families did growing up. Another option is pay off the car and go through another summer without air conditioning while we save to fix it again, but being pregnant (and it being my car) this is less than appealing but still tempting since debt pay down has been a priority for us.
Any advice YNAB community?
A lease can make sense if you plan to switch out to another car after the leasing period. (e.g. Potential kids on the way, but want something "funner" right now.)
Car leases usually just hands you a car for a while, like a house rental. There will be stipulations about the mileage and condition of the car at the end of the lease -- as well as your options for converting it to a purchase (or not) and how much extra you'd have to pay if the car is in a worse condition than they expected.
Also: How much is the interest? You can probably use the "new car" funds to knock the principal down, fix the A/C, and still be ahead. But, you probably want to figure out by how much before deciding.
I always recommend that people lease their cars. When they do, they get a brand new car, they make payments on it and absorb 40-50% of the cost of the car over two or three years. They're forced to keep it below a certain number of miles per year, so the car wears well, and maintenance is often included so there's no excuse not to take good care of it.
Then they turn it in, and probably lease another new car, at which point their nice, well-maintained, low mileage car hits the secondary market. I scoop it up from my dealer who specializes in these cars, and buy a great, almost new car for what amounts to a 50% discount. I pay it off in a couple of years (for the next one, hoping to buy it outright--current car had to be bought suddenly after an accident), and drive it for a decade or more payment-free. Meanwhile, the sucker who provided me with the car is probably on leased car number 4, stuck on a hamster wheel of payments.
So yes, lease. I won't get my nice used cars if too few people are willing to fall into that trap. :)
Hi KaminCents !
Ah, that's a tough one! Like nolesrule said, you have no asset at the end of a lease, so you could possibly be stuck in car payments forever (unless you just buy a beater at the end of a lease)! However, like WordTenor said, leasing a car basically outsources all maintenance costs and you can trust that your vehicle is always going to be in good shape.
At the end, I think it's one of those things that comes down to you and your husbands priorities. What's more important, debt pay down or a trusty vehicle with A/C? With a baby on the way, it makes it an even tougher decision! Not only do you want A/C while pregnant, but you want to be in a vehicle you can trust (I'm hoping that the A/C is the only issue?). On the other hand, being out of (car loan) debt by the time baby comes is really tempting! Babies cost a lot of $$! 😆
If it was me, I'd choose the latter. Being debt free should always be the goal, and if you guys set that priority a while ago, fall back on why you made that decision. Remind yourselves of all the reasons you laid out back then, and see if they are still applicable now (which I'm sure they are!).
Also, is there any way you and your husband can trade cars during the hottest of days? 😉
like WordTenor said, leasing a car basically outsources all maintenance costs and you can trust that your vehicle is always going to be in good shape.
That is not what WordTenor said, just to be abundantly clear. WordTenor is suggesting through irony that the OP not get taken for a sucker, because the people who benefit from a leased car are the dealer and the person who buys it outright when the lease is over, while the person who leases the car basically pays through the nose to make those other people's lives better.
Hi KaminCents !
I am throwing another coin in the anti-lease bucket. Leasing a car was explained to me like renting a home - the money you pay is going towards someone else's bottom-line with no return or equity. I was told only to rent if I wasn't in a position to buy - with a home, things can be slightly trickier (and there are more factors to consider), but you already have a car! I wouldn't give up a car that you're close to owning in order to rent a new one.
To decide between paying off the car and fixing it, ask yourself how fast you can do one if you pay for the other. For instance, if you pay off the car, how long would it take you to pay for the A/C repair now that you don't have to pay the monthly car note? Is the cost to repair the A/C one car note? Two? More? If you can't pay the car off and then fix the air before summer is over, you may want to fix the A/C first depending on how much and how often you'll be driving. I grew up in southern California where the average summer day was 110 degrees, so driving without A/C was a death sentence.
I hope you'll let us know what you decide!
Financially, repairing a car is almost always better than replacing it. So my vote is to fix the A/C unless you have some debt at an astronomical rate that should be paid first with the cash you saved.
With a baby on the way, pile up a bunch of cash to cover all the expenses. It might cost twice what you think. Once Mom and Baby are home and healthy, put all that's left toward debt.
Until your debts are paid off, don't buy a car that you can't comfortably pay cash for.
Full disclosure: Drivers in my family tend to buy higher mileage cars (75K and up) and try to put 75-100K on them before replacement. So I'm a bit biased.
I think I would:
- pay now to get the air conditioning fixed
- start or continue to save a realistic amount for car repairs, so I could keep maintaining the existing car
- (only after reaching my goal in the car repairs category) pay extra on the current car debt to get this paid off as quickly as possible
- then start another category to save for the next car.
Thank you everyone for the advice and warnings against leasing!
Faness : thanks for asking! We decided to fix the A/C and continue saving like nolesrule advised in the first response. All in all, we couldn't be happier we made that decision especially since fixing the A/C in the end cost way less than we had expected since it started working after being recharged and we didn't have to replace the compressor! Very thankful!
Jannelle : You did suspect right, there was another unknown issue with the car (thankfully, when we took it in today for the A/C we found out that it was really minor and relatively inexpensive, and came in under budget, even with the extra fix, yay!). And, we did trade cars during the hottest days, it was just less than ideal because his commute is very far. Thanks again everyone for all of your advice!