I had posted earlier in the "Anti Anti-Mustachian" forum earlier about this situation, but the situation has since progressed to be better suited here.
My mid 50's coworker, with little to no retirement planned or saved, has just refinanced her townhouse. This, in itself, is awesome. She's dropped her interest rate from where it was at 5.5% down to 3.8%. Success!
This is where the success ends, and the poor decisions start. She's had a balance on a home equity line of credit to the tune of about $40k for quite a while now, along with a $5k credit card balance. Well, she used this refinance opportunity to consolidate her loans into one mortgage, dropping her total cumulative payments by $300/mo in the process. The poor decision? When she refinanced her mortgage that had 17yrs left on it to a 30yr mortgage, thus the ability to lower her monthly payments...
But it doesn't stop there. She also borrowed $10k to use towards buying a new car. You see, her perfectly capable 12yr old Hyundai Tiburon has been "nickel and diming" her for the past year or so. It's cost her $2k in the past year alone, and "dammit, she can't afford it". I tried to explain that if she decided to buy a new car, she would be easily paying $300/mo in car payments, plus an increase in insurance costs. A new car would cost her much more than her current car and she wouldn't have to take the hit of depreciation if she kept her current vehicle. I could tell she wasn't interested in keeping her old car, so I suggested that she look at a used car, or certified pre-owned as that would vastly decrease her costs. She agreed that that would be a good idea.
The next week, she's all excited about a certified pre-owned Hyundai Santa Fe 2.0T with all the bells and whistles. It's a lease return, with 36,000 miles, and it's priced at $25,000 before negotiating. It would come with the remainder of the 10yr, 100k mile warranty offered by Hyundai. It would cost her $270/mo after she paid $10k down, and it's pretty much exactly what she's looking for. She can't afford a new one, as they are nearly $40k, and she does NOT want to finance a car for the next 7-8 years to bring the payments low enough to afford.
A week goes by, and she tells me she's going back that weekend to check out the car again. She's got to choose between a white or a black one...
Monday rolls around, and there is a BRAND NEW Maroon Hyundai Santa Fe 2.0T (turbo), FULLY LOADED in the parking lot at work. I start thinking, "but there wasn't a maroon lease return at the dealer... She can't afford the financing terms on a new one... New ones cost $42k!... She'd have to pay almost $600/mo even if she gave them $10k upfront..."
And then I realized the brutal truth, "She must have leased it. Fuuuuuuuuuuck!"
I walk into the office and she immediately tells me that I HAVE to check out her new car. I don't pull any punches and I ask, "Did you lease it?" She says, "Yea, I really liked it, but they are really expensive. This thing is $42k with all the bells and whistles. I couldn't afford the nearly $600/mo payment to buy it new, so I thought I'd give the lease a try. If I don't like it, I can return it in three years. I had to give them the $10k up front, but my payment is only $270/mo which is totally affordable! I'm really excited, it's so nice! Plus, I have the option to buy it at the end of the lease, which would only be $22,800, which I can manage."
I ask her if she realizes that the $10k she paid up front is essentially to buy down the depreciation that the vehicle will incur in the next 3 years. That, when she's finished with her lease, she'll need to buy the car to make the lease worth it. Otherwise, she'll be paying almost $20k for a car for 3 years of use. She says, "Yea, I really like it. I'm pretty sure I'll definitely be buying it when the lease is up. I'm really happy with it."
I didn't mention that she's essentially financing $32k over 8yrs, AFTER paying down $10k. She's doing exactly what she didn't want to do in the first place, and has just signed on for $42k of debt that will be paid over the next 8 years. She's even decided to keep her older car, as she's never had the convenience of two cars before, and it doesn't cost her anything to keep it.