Dave Ramsey on Leasing Cars

Dave Ramsey on Leasing CarsThe article, Dave Ramsey on Leasing Cars, was formally published by me on the Monthly Car Lease website. Because it was popular, I have decided to re-publish it here. The original article is below:

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Asking for advice from Dave Ramsey on leasing a car is like asking a realtor if you should rent your home. Dave Ramsey knows very little about leasing cars. Before I provide the detailed evidence to support my claim, let me make it abundantly clear that I feel no personal animosity towards Dave Ramsey.  This is not a personal attack at all. I’ve spent a fair amount of time listening to Dave Ramsey on the radio. I believe he is a nice guy; a good man, who is knowledgeable in many areas of financing.  I also believe that his heart is in the right place when it comes to helping people get out of debt. For the most part, I believe his information is solid and given with sincere care and love of those he is trying to help. For instance, I really like what Dave has to say about Prenuptial Agreements. This is just one example where he makes it clear that he places more value on people than money. I really admire him for that. However, this does not mean he is an expert at all matters concerning money and people. Unfortunately, when it comes to leasing cars, Dave Ramsey has probably hurt some excellent leasing prospects with the negative, sometimes misleading information he conveys on his radio show and elsewhere. I know that many consumers think of Dave Ramsey as their personal mentor and guru and believe that he, above anyone else in the world, simply wants what is best for them.  I do not disagree with that. I do think Dave Ramsey’s heart is in the right place and he has helped many people. However, it is important to understand that Dave Ramsey is in the business of helping get people out of financial trouble. The last thing he wants to do is promote newer, innovative ways of getting people into debt. Dave is rightly a skeptic on many financial matters involving loans. Car leases are loans, but as I’ve stated many times before, leasing cars is the least risky way to drive a brand, new car. If you’re content with an old car and don’t mind the occasional, repair surprise which sometimes occurs at the most inconvenient time and place, then a used car is right for you. Dave Ramsey, however,  says some things about car leases which prove he really knows nothing about leasing at all. In his blog, Dave Ramsey mentions —the average car payment—  without giving any thought at all to the monthly average payment that still exists when you drive an old car, as I will explain.

Dave Ramsey on Leasing a Car

Dave’s Unreasonable Lease Example

A listener called his show to ask  him how a car lease works.. Rather than an accurate and comprehensive explanation, Dave Ramsey gave the listener an earful about how leasing is a rip-off and should be avoided like the plague. While, he didn’t use the actual phrase, rip-off, isn’t his reply a perfect model and demonstration of the lease skeptic described in my article, Why Lease a Car? For starters, Dave Ramsey used an unrealistic leasing example to make his claim. He tells the listener that a $400 a month lease payment for 60 months costs you $24,000. Most leases are for 24-36 months. 60 month leases are extremely rare these days. Even, a 48 month lease is rather unusual. Indeed, Dave’s example makes it seem as though $24,000 is a lot to pay for a car you are unable to keep. It also causes one to assume there will be some repairs and maintenance costs on top of that because many cars need new brakes and tires after four years, while you are still having to make lease payments. Dave Ramsey is really going over the top and digging numbers out of thin air when he suggests the dealer and finance company are making $9,000 in profit off of the lease. That would suggest we should all be in the car leasing business, wouldn’t it? But much more than that, if it would meant that the dealer is selling you the car several thousand dollars above retail price or the finance company is making record profits. No financing company could charge that much in interest and expect to stay in business. A lease agreement has a sales price which is disclosed at the time of the deal just like with a car purchase on loan. The dealer’s profit is based on the difference between the Dealer Invoice cost and the actual Capitalized Cost or selling price.  We have to remember that it is the leasing or finance company that owns the car at this point, not the dealer. Neither the finance company nor the dealer are going to make $9,000 of interest on the type of car lease that yields a $400 payment.  While it is true, the greatest amount profit will be made by the financing company, it is not nearly as much as Dave Ramsey would have you believe. 

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