What I’ve Been Up To

Ask Jean: Buy or lease?

It is very rare that I keep a vehicle more than two years. In many cases, I will put a small amount down and roll a portion of the negative equity into the next one. I do not put excessive miles on my cars and I do keep them in good shape. Given my history trading cars every two years, do you recommend financing or leasing? If someone is upside down in a car and they would like to decrease their payment, what options do they have?

– Steve

You sound like a great candidate for leasing. Let’s be clear – leasing is almost always going to be more expensive in the long run. You’re essentially paying to rent a car, so your lease payment includes depreciation on that vehicle – which will depreciate a lot, particularly in the first year – and interest. But if you’re trading in every two years, you need to be leasing. Keep in mind, though, that the shorter the lease, the more expensive the payments will be, so I’d urge you to extend this out to three years.

When you bring a car to the dealership as a trade-in, and you’re upside down, the dealer will often roll that debt on the trade-in into the new car’s financing. That means you’re taking on debt to pay off debt. The best solution with an underwater vehicle is to simply stick it out and continue making payments – eventually, you’ll dig out. But it’s not the time to be trading in your vehicle or taking on more debt. If you can’t afford the payments, you can also try selling the vehicle privately – you’ll get more for the car than you would by trading it in.