Leasing Vs Buying A Car - Dave Ramsey

Summary

In this conversation on the Dave Ramsey Show, a caller seeks advice on whether to lease or buy a used car. Dave Ramsey explains that leasing is an expensive way to finance a vehicle, often with a high effective interest rate. He advises the caller to prioritize purchasing a used car outright to avoid debt and to focus on long-term financial health. The caller shares details about their income and savings, with Dave urging them to clear any remaining student loan debt and rebuild their emergency fund to strengthen their financial position.

Takeaways

• 😀 Leasing a car is a form of financing and can cost you around 14% in interest, similar to a car loan.
• 😀 Consumer reports and financial experts agree that leasing is typically the most expensive way to operate a vehicle.
• 😀 When purchasing a car, it's important to consider the total cost of the car, not just the monthly payments or down payment.
• 😀 To avoid financial struggles, focus on paying off your debts as soon as possible, rather than financing for long periods.
• 😀 Wealthy individuals focus on asking 'How much?' when making purchases, not just 'How much down?' or 'How much a month?'
• 😀 It's essential to build a healthy emergency fund. Having a solid financial cushion can protect you in unexpected situations.
• 😀 Don't be complacent with debts like student loans—clear them as quickly as possible to avoid future financial strain.
• 😀 Even if someone else is helping with your student loans, like your parents, you’re still legally responsible, so prioritize clearing them.
• 😀 With a $25,000 savings account, you can afford to buy a $15,000 used car, but ensure you rebuild your emergency fund afterward.
• 😀 Avoid accumulating more debt, and focus on budgeting and saving to build long-term financial stability.
• 😀 Maintaining good credit is crucial, and relying on others for loans or payments can negatively impact your financial situation.

Q & A

Why does Dave Ramsey recommend against leasing a car?

Dave Ramsey recommends against leasing a car because leasing is essentially an expensive form of financing with high costs. On average, leases can cost around 14% annually, which is much higher than typical car loans. He believes it's a poor financial decision in the long term.

What is the primary financial issue with leasing a car according to Dave Ramsey?

The primary financial issue with leasing a car is that it hides the true cost of the car. People tend to focus on the low monthly payments rather than the total cost of the vehicle. This leads to long-term financial strain as they end up paying for a car they never fully own.

What alternative does Dave Ramsey suggest instead of leasing a car?

Dave Ramsey suggests buying a used car outright with cash, especially if the car is affordable. By doing so, you avoid interest and long-term payments associated with financing or leasing.

How does Dave Ramsey define financial decisions between wealthy and broke individuals?

Dave Ramsey explains that wealthy individuals focus on the total cost of an item, asking 'How much?' while broke individuals focus on the down payment and monthly payments. This mindset shift helps people avoid perpetual debt and build wealth.

What should Martis do with the $25,000 in savings after purchasing the used car?

After purchasing the used car, Dave advises Martis to rebuild their emergency fund to $25,000 to ensure financial security in case of unexpected expenses.

What advice does Dave Ramsey give about Martis’ student loan debt?

Dave advises Martis to eliminate the student loan debt as soon as possible, even though it is being managed by their parents. This is important because if the loan falls behind or is not paid off, it could negatively affect Martis' credit score.

What is the potential risk of having a student loan under Martis' name that their parents are managing?

The risk is that if Martis' parents miss a payment or fall behind, it could negatively impact Martis' credit score. The loan is in Martis' name, so they are legally responsible for it, regardless of who is making the payments.

How much is Martis' annual income, and how does that affect their financial decisions?

Martis' annual income is $125,000, which puts them in a strong position to make wise financial decisions, such as purchasing a used car outright and eliminating debt. With this income, Martis can work towards building wealth and securing a better financial future.

What is the potential issue with focusing on monthly payments when making a car purchase?

Focusing on monthly payments can lead to overlooking the total cost of the vehicle. This can result in poor financial decisions, such as committing to long-term debt that doesn't help build wealth, which is why Dave advises against it.

What does Dave Ramsey mean by the phrase 'How much?' in terms of financial decisions?

By 'How much?', Dave Ramsey means asking for the total cost of an item or investment, rather than focusing on the down payment or monthly payment. This helps individuals avoid taking on unnecessary debt and better understand the long-term financial implications of their decisions.