Personal Finance

The time the girl leased a car

In my previous post, I mentioned that my sophomore basic economics teacher taught us how to buy a car without ever going into debt. Today, I want to share a little back story on how my failure to have a little patience and foresight led to the lease of a beautiful new Volkswagen Rabbit way back in my younger, single days. Basically how I forgot that wise teacher’s advice. Oh the trappings of youth!

If you want to know how to buy a car without ever going into debt, just Google it. Many a personal finance writer has more than explained the methodology, so I don’t feel the need to spell it out here. In fact, here’s a great explanation right here from Dave Ramsey. Now on to my story.

My first car was a 2001 Honda Civic which my parents purchased for me from a rental car company. They bought the car with cash following the payout of a lawsuit that dropped a heap of dollars in their laps that same year. The car had a mere 17,000 miles on it and was in perfect condition. Turns out rental car companies often take better care of their cars than private parties do. For an 18-year-old college student, it was the perfect car. In high school I shared my parents’ janky Ford Taurus, so having my own wheels presented so much independence and freedom! I loved that thing! I got the car just before Christmas that year. I drove it through college and took it with me when I moved to take a job in Waco after graduating and then when I moved to the Pacific Northwest for another job 1.5 years later. It came back to Dallas with me when I moved home in 2007. And at that point, it had 130,000 miles on it.

As an aside, yes I realize that 130,000 miles on a 6-year-old car is an outrageous sum. I blame frequent trips home from college and my job as a newspaper reporter which entailed a LOT of driving.

In 2007, my transmission gave out. The Civic required a $3,000 new transmission. My sweet mother went with me to the repair shop and once we found out how much it was going to cost, offered to pay for the repair for me. Given their financial situation at that point, the aforementioned cash having all but run out, I knew she had no business parting ways with $3,000, but she seemed really committed to her generous offer.

I just couldn’t do it. Instead, I told her it was probably time for me to get a new car. I reasoned that at age 25, I was well-positioned for such a significant purchase. It was time to step into adulthood.

I had a friend who had leased a car the previous year and had spoken highly of the idea of leasing. If you intend to drive a newer car, he said it was a good idea. This friend did not provide me with advice, but I suppose I figured what’s smart for one person is smart for everyone.

How I wish I had remembered that wise professor’s advice.

My mother and I took my car hobbling down the highway access road to the Volkswagen dealership. From the moment we stepped through the door, we were toast. We test drove several cars, and I ended up pointing to the car I wanted on the showroom floor. Yes, I was THAT person! Of course they had that exact car waiting for me at the back of the lot. I vaguely remember my mom feigning interest and encouragement, but the truth was that she didn’t agree with me buying a car and probably didn’t understand why I wouldn’t just take her up on her offer. I think she knew that I didn’t want to burden her, but she was probably more concerned with me not taking on such a huge financial responsibility. As it turned out, I didn’t qualify for the loan on my own. My mother agreed to co-sign the note with me (quite a stupid idea for anyone, and she is lucky that I was committed to paying on time each month and never missed a single payment). We handed over my paid-off Civic as a down payment (on a lease, mind you! So stupid!). I cruised out of there with a four-year lease and a mileage limit of 60,000. I was still working as a reporter. I’ll let that sink in for a moment.

Four years later, I was of course way over the mileage limit. By this point, I was married and the husband had already spent a lot of time teasing me for picking out my car on the showroom floor. The gig was up, and it was time to make a decision. We could either buy out the car or pay the ridiculous charge for the mileage overages. And I had to have some kind of wheels. This is Dallas, after all, home of the achingly inefficient mass transit commute. We decided that it made the most sense to go ahead and buy out the lease. We reasoned that at the very least, it had still only been driven by one of us. It was definitely the lesser of the two undesirable options. I drove the Volkswagen for another two years before a little hiccough between first and second gears became concerning. Upon evaluation, the cost of repairing the transmission on the Volkswagen quoted by our trusted mechanic was $5,600. We still owed $6,000 on the car. Never buy German, my friends.

At 25 years old when I leased the Volkswagen, the information I had about car-ownership was limited to my six years of experience as a car-owner coupled with my limited knowledge about how to handle money in the first place, a position of weakness to be sure. During the last two years of owning the Civic, it had occasional mechanical issues averaging about $500 per repair. I believe I had four $500 (on average) repair bills in about two years. Now, is it pleasant or desirable to shell out my bucks to repair a car? Absolutely not! But, what if I compare the cost of those four somewhat significant repairs over the course of two years to the annual cost of a car payment? The difference? My annual car payment for the lease was $3,660 or about $305 per month. The cost of owning the paid-for Civic was about $1,000 per year. In a community where it is damn near impossible to get along without a car, the auto ownership cost (aside from fuel and routine maintenance) of around $1,000 a year was obviously the much smarter choice. Even now, I wish I had just repaired the transmission on the Civic. The system had held out for more than 130,000 miles. I am confident that had I pulled the trigger on the new transmission I would still be driving that car today and I would own it free and clear in sharp contrast to the current situation of paying a monthly car note.

Several years ago, Brandon’s Chrysler Sebring gave out, and he purchased a used Nissan Xterra. The SUV now has around 135,000 miles on it. It is still going strong, though it does drive like a mature car. But, we own it, and it is reliable. Two years ago, the paid-for Xterra required a repair of around $1,000 which raised the question of when we would consider replacing it. When one of us asked the inevitable question, “Well, what happens if we have a $1,000 repair like this every year?” the other responded with the honest truth that our auto ownership costs would be that $1,000 per year plus routine maintenance and fuel.

After getting rid of the Volkswagen, we ended up purchasing a new economy car and got a relatively good deal on it, but even since that point two years ago, I have learned so much about shopping for a car, how easy it is to buy into scare tactics and what I can actually stand to drive! The auto industry would have us believe that it is foolish to drive a car once it is beyond or close to its value to repair and that we deserve better. My critical error was the mistaken belief that a $3,000 repair for a car worth maybe $5,000 at best was a foolish way to spend my bucks. Not to mention my prevailing belief at the time that what I drove mattered beyond its safety and ability to get me from point A to point B. Wouldn’t I rather have something new that will last rather than throwing away money on costly repairs every year? Didn’t I deserve to drive something nicer, well-designed and hip? I was young after all! Drive what you want!

Intrinsic in this line of thinking is a misguided notion about cars: that they are somehow supposed to be a good investment or a sound financial choice. Thou shalt not believe this stupid notion! Cars are depreciating, expensive luxurious privileges.  For me, the weekly cost of the car payment itself is about $76 or roughly 50 cents per hour. With gas, insurance and the occasional routine maintenance, the cost rises to about 75 cents per hour. Based upon my (albeit modest nonprofit) salary alone, I can tell you that my time is worth MUCH more than 75 cents per hour, so I am satisfied with paying down the note knowing that it affords me opportunities to spend valuable time elsewhere and in much more profitable ventures. However, if I compare the hourly cost of renting a condo with the hourly cost of owning my car (until it is paid off), the per-hour difference is actually rather modest when I consider the space that either payment provides. This gives me some notion of how expensive cars actually are.

I don’t believe I actually need a car – not like I need air to breathe or food and water or clothing to cover my person. In actuality, a car is a luxury that allows me to function more efficiently in my daily life. For many people and in many localities across this vast nation, a car may be worth the annual expense because the convenience and efficiency it affords allows its owner to commute to work in a timely manner, making valuable time at home, at work and at play much more accessible.

Over the next few years, I anticipate that we will need to make a major repair to Brandon’s Xterra. When that happens, it will not be pleasant to part with potentially more than $1,500 for a rebuilt transmission or engine repair. But, given that the Xterra is only nine years old at this point and given our positive experience with the reliability of the vehicle, the question of whether or not to replace it is (for me) an easy one to answer. I am comfortable continuing to drive it for several years to come knowing that in doing so, I am ultimately choosing my own freedom. Coupled with careful saving so that higher cost repairs don’t catch us completely ill-prepared, we feel that continuing on our course with an older car – one that has a track record of reliability – makes the most sense for us. And we are confident that driving an old car doesn’t say anything about us, our character or our goals or success in life. And it feels good to have that certainty.