confessional: I leased a 2016 Kia Soul this weekend

[missj]

I know I'm about to get face punched.  But here is my thinking; please correct my logic where I am misguided.

situation: We're pretty healthy, financially speaking. We have 15 year low fixed rate mortgage and are maxing out retirement plans each year. I am on track to FIRE at age 51 (16 years from now).   Husband is already self employed and works from home. No consumer debt, no student loan debt.  We definitely live BELOW our means as far as shopping, vacactions etc.

Anyways, for several years we've been doing the "pay cash for a used car and drive it into the ground" thing.  It used to work quite well for us.  We would spend $3,000-$8,000 cash on a used car and usually get at least 4-6 years out of it with minimal maintenance expenses. 

Lately it seems this plan isn't working out any more.  Maybe it's just bad luck or maybe cars just aren't going as long as they used to, but in the last 3 years we've been BURNED in the used car world.  We've spent a total of $17,500  between 3 different used cars and lost our shirts on all 3 of them.  All 3 became undriveable within less than 2 years (unless we wanted to buy new engines/transmissions that cost more than the value of the car).  In the end we ended up salvaging/selling the 3 cars for a total $5,000 so the total cost was $12,500 over 3 years.

But the worst part, for me, is the nearly constant stress, anxiety and uncertainty of needing to rely on something that is unreliable.  As a family with small children a certain amount of safety and dependability is a must in a car.  Also, we made the decision to move away from our home towns and as a result we road trip 3-4x per year to visit family (~800 miles round trip each trip).

This all boils down to this weekend being stranded when the transmission died in a car we recently paid $3,000 for just 5 months ago.   Not only can we kiss that money goodbye, but I have places I need to be and my weekend is ruined!!

THE LEASE TERMS
so I dragged myself to the Kia dealership and signed up for a 36 month lease on a 2016  Kia Soul for $199 per month (30,000 mile maximum which we should comfortably be under).  My auto insurance went up by $51 per month because of the full coverage.  so a total new cost of $250 per month.  fuel economy is basically the same (slightly better with the Kia Soul).   the first 2 oil changes are free from the dealership.

maintenance and warranty
Now I have the peace of mind that for 3 years I will have essentially no car problems.  I looked at the maintenance schedule: oil change each 7,500 miles and a 15,000 all points inspection which runs $105 at today's dealership prices (before coupons).  so I should have to pay for about 1 oil change and 1 inspection.  possibly tires, but probably not.  and of course there is a bumper to bumper warranty.  If I figure the oil change will run me about $30-$50 (depending on coupons) then I will be spending about $155 on maintenance.  The lease also comes with free roadside assistance including towing up to 150 miles and free "gap" insurance which basically means if I total the car and there is a discrepancy between value and money owed, the slate is wiped clean and I can walk away.

Conclusion:
Assuming no tires or unforseen expenses, I will spend $7,319 over 36 months or $203 per month. +$51 in increased insurance so $254 per month.

compare that with the last 3 years where I have effectively spent $347 per month and have been plagued with uncertainty and stress as well as time spent researching, test driving and buying used cars (it's not like we buy the first one we go and look at).....

I know the mustachians will generally hate that I have leased a car, but I can afford it and I actually feel a good amount of peace about this decision.  Let the facepunching commence!

[alsoknownasDean]

Fair enough re: the new car, but why did you lease rather than buy?

Surely you could buy the Kia and get a decade and a half of reliable motoring from it :)

[mires]

Just curious. What were the 3 cars that burned you?

[missj]

Fair enough re: the new car, but why did you lease rather than buy?

Surely you could buy the Kia and get a decade and a half of reliable motoring from it :)

good question.  so at 36 months we have the option to "buy" the car for the residual which is $9,185.  And because we are still considered the original owners we will still be able to utilize the 10 year 100,000 mile bumper bumper warranty, if we choose to excercise that option.  I don't know whether or not we will love the car enough to keep it, but I didn't see any financial incentive to buying it outright vs. leasing it with the option to buy it later for the remainder.  as far as I could see, there were no "hidden" or extra fees that made leasing more expensive than buying.  I could be wrong on that.


edit to add: I busted out the contract and read the fine print.  there is a $809 "rental charge" that is factored in to the lease which I assume is not there when you buy it outright, so it seems that this is the additional "cost" to leasing vs. buying.  that is definitely good to know....nobody ever explained that to me and I thought I read the lease pretty well at the dealership, but I missed this part (they don't make it obvious). 

[missj]

Just curious. What were the 3 cars that burned you?

2006 Subaru Forrester
2001 Honda Odyssey
1998 Toyota Corrola

[GetItRight]

I only own simple old vehicles because they are reliable and maintenance and cheap and easy. TCO is low and honestly I need it to just work and get me where I need to go every time, so fancy new overly complex fuel injected vehicles with a computer simply to run the engine or roll the windows down doesn't cut it. I will never own anything newer than mid 80s, but I prefer 60s for cars or 70s for motorcycles. Sounds like your losing money on vehicles problem is from paying for the extravagance of having someone else maintain them. It will always be cheaper and more environmentally friendly to buy one vehicle you like and fits all your needs and keep it forever. Regardless, it sounds like you have a plan so fancy new cars are your luxury expense, we all splurge on something but so long as you have a plan and the numbers work you'll be fine.

[NoStacheOhio]

Fair enough re: the new car, but why did you lease rather than buy?

Surely you could buy the Kia and get a decade and a half of reliable motoring from it :)

good question.  so at 36 months we have the option to "buy" the car for the residual which is $9,185.  And because we are still considered the original owners we will still be able to utilize the 10 year 100,000 mile bumper bumper warranty, if we choose to excercise that option.  I don't know whether or not we will love the car enough to keep it, but I didn't see any financial incentive to buying it outright vs. leasing it with the option to buy it later for the remainder.  as far as I could see, there were no "hidden" or extra fees that made leasing more expensive than buying.  I could be wrong on that.


edit to add: I busted out the contract and read the fine print.  there is a $809 "rental charge" that is factored in to the lease which I assume is not there when you buy it outright, so it seems that this is the additional "cost" to leasing vs. buying.  that is definitely good to know....nobody ever explained that to me and I thought I read the lease pretty well at the dealership, but I missed this part (they don't make it obvious).

This thread has some good info for lease vs. buying new http://forum.mrmoneymustache.com/ask-a-mustachian/leasing-vs-buying-a-new-car-at-what-point-does-the-cost-break-even/msg1312404/#msg1312404

[accolay]

But the worst part, for me, is the nearly constant stress, anxiety and uncertainty of needing to rely on something that is unreliable.  As a family with small children a certain amount of safety and dependability is a must in a car.  Also, we made the decision to move away from our home towns and as a result we road trip 3-4x per year to visit family (~800 miles round trip each trip).

There is nothing wrong with having a reliable car, not everyone is a mechanic, and it's not like you bought a Merc. A lot of us still live in must have car places. You weighed your options and made the best financial decision for you. That's all that matters.

[Chris22]

The only thing I'd quibble with is your insurance going UP $51/mo; that seems really high.  Might shop around a little to see if you can get a better deal.  My insurance is only $50/mo/car and I have some expensive to insure cars and some gold-plated coverage.  A Kia Soul should be insured for $50/mo or less unless you live in a very expensive place for insurance such as Detroit or NJ.

[MrsDinero]

did you have to put any money down?

[Guses]

First thing to do before purchasing or leasing something new is to establish the need for such a thing. From the OP, we don't really know how much of a necessity the car really is. All that we know is that the husband works from home.

Have you considered a cost/benefit analysis of using a combination of public transit, uber/lyft (huge growth potential with AI cars), bikes, walking instead of a car?

In my opinion, you deserve a major face punch for asking these questions AFTER having purchased the car already. You might deserve another one for leasing the car, but we don't have enough information to assess this.

[fishnfool]

I would've bought a new Honda civic, drive it for 10 plus years and be done with it. Live n learn!

[humbleMouse]

did you have to put any money down?

+1 I want to know this aswell

[Enigma]

Conclusion:
..... I will spend $7,319 over 36 months or $203 per month. +$51 in increased insurance so $254 per month.
..... 36 months we have the option to "buy" the car for the residual which is $9,185
..... there is a $809 "rental charge" that is factored in to the lease

Total cost 17k...  Doing a little research the 10yr/100k mile warranty isn't transferable but the other warranties up to 60k appear to be.
The MSRP on a 2016 KIA Soul according to KIA's website is $17.4k (base starting price automatic)

I think there are a couple mistakes that were made with your lease/purchase.  First if you are going to buy new then you should have really waited until the KIA Soul 2017 was released.  At that moment every KIA dealer would have wanted to get rid of their new 2016 Soul models which didnt sell during 2016.  Savings...  Maybe a couple of thousand dollars (Kia already released the 2017 Sorento & Forte).  Sometimes these periods the dealerships drop the price by 4-5k even though it is still a brand new car.

Next mistake I would say would be leasing the Soul.  Since you decided a Soul I jumped on cars.com and did a quick search for a 'New' Kia Soul...  Lots of 2016 models popped up costing 11.9k-14.2k most avg around 12.5k for the first page within 20 miles of my location.  These are for the 'Base' price from Kia dealerships.

So a $12.5k over 5yrs at 1.99% is a payment of $219.04...  Price even less in my opinion if you waited for the release of the 2017 Soul.

[NoStacheOhio]

Conclusion:
..... I will spend $7,319 over 36 months or $203 per month. +$51 in increased insurance so $254 per month.
..... 36 months we have the option to "buy" the car for the residual which is $9,185
..... there is a $809 "rental charge" that is factored in to the lease

Total cost 17k...  Doing a little research the 10yr/100k mile warranty isn't transferable but the other warranties up to 60k appear to be.
The MSRP on a 2016 KIA Soul according to KIA's website is $17.4k (base starting price automatic)

I think there are a couple mistakes that were made with your lease/purchase.  First if you are going to buy new then you should have really waited until the KIA Soul 2017 was released.  At that moment every KIA dealer would have wanted to get rid of their new 2016 Soul models which didnt sell during 2016.  Savings...  Maybe a couple of thousand dollars (Kia already released the 2017 Sorento & Forte).  Sometimes these periods the dealerships drop the price by 4-5k even though it is still a brand new car.

Next mistake I would say would be leasing the Soul.  Since you decided a Soul I jumped on cars.com and did a quick search for a 'New' Kia Soul...  Lots of 2016 models popped up costing 11.9k-14.2k most avg around 12.5k for the first page within 20 miles of my location.  These are for the 'Base' price from Kia dealerships.

So a $12.5k over 5yrs at 1.99% is a payment of $219.04...  Price even less in my opinion if you waited for the release of the 2017 Soul.

Did you miss the part where their transmission died?

[KCM5]

You lasted longer than we did with the catastrophic cheap car issue. I too, had always bought cheap cars with cash and never considered buying a new one until a brand new to us Subaru's torque converter/transmission issue brought so much headache that we hightailed it down to the Toyota dealer and bought a certified used Prius. On a loan!

I probably would have bought the car rather than leased it. And I'm assuming you had your reasons for getting a Kia Soul. But overall, if you're not a mechanic and with small children and two jobs, do not have the time or inclination to learn to fix your car yourself, I think that's a reasonable choice.

[Enigma]

So a $12.5k over 5yrs at 1.99% is a payment of $219.04...  Price even less in my opinion if you waited for the release of the 2017 Soul.

Did you miss the part where their transmission died?

I did not miss the part where their transmission died.  Neither did the salesman or dealership whom will usually take advantage of terrible situations.  Most 2017 models have come out already (Soul is an exception).  More money could have been saved if they bought a 2016 'new' vehicle if their 2017 rivals were also there.  Believe it or not even online sites will put you in a car that same day.  I used USAA's car buying service but there are a ton out there.  If you know exactly what car you are wanting to buy you will save a lot with online searches against multiple dealerships.  If you are waiting for a salesman to talk you into something that you will want, it will costs you a few Benjamin's more.

[MrsDinero]

Conclusion:
..... I will spend $7,319 over 36 months or $203 per month. +$51 in increased insurance so $254 per month.
..... 36 months we have the option to "buy" the car for the residual which is $9,185
..... there is a $809 "rental charge" that is factored in to the lease

Total cost 17k...  Doing a little research the 10yr/100k mile warranty isn't transferable but the other warranties up to 60k appear to be.
The MSRP on a 2016 KIA Soul according to KIA's website is $17.4k (base starting price automatic)

I think there are a couple mistakes that were made with your lease/purchase.  First if you are going to buy new then you should have really waited until the KIA Soul 2017 was released.  At that moment every KIA dealer would have wanted to get rid of their new 2016 Soul models which didnt sell during 2016.  Savings...  Maybe a couple of thousand dollars (Kia already released the 2017 Sorento & Forte).  Sometimes these periods the dealerships drop the price by 4-5k even though it is still a brand new car.

Next mistake I would say would be leasing the Soul.  Since you decided a Soul I jumped on cars.com and did a quick search for a 'New' Kia Soul...  Lots of 2016 models popped up costing 11.9k-14.2k most avg around 12.5k for the first page within 20 miles of my location.  These are for the 'Base' price from Kia dealerships.

So a $12.5k over 5yrs at 1.99% is a payment of $219.04...  Price even less in my opinion if you waited for the release of the 2017 Soul.

Did you miss the part where their transmission died?

So I'm not a mechanic and I've never had a car where the transmission has died. 

Do most people just trade in their car when it dies?  I have a couple of friends who have gotten new cars (and rolled their payment) when this has happened.  I know it can cost a few thousand dollars to repair it.  Would it be better to fix/replace the transmission or replace the whole car?  Is transmission dying considered "driving the car into the ground"?  If the transmission is repaired or replaced can it be considered an almost new car in terms of reliability?

[Beridian]

I completely understand your decision to lease the Kia.  I just signed a similar three year lease on a 2017 Ford Escape. 

My lease including up front costs comes up to about $195 a month or $7000 total.  My purchase price at the end of the lease plus my lease payments would be a fair price to purchase the car outright now, the attraction to leasing being that I have the option to walk away at the end of the lease or purchase if that seems appropriate.

I think there is a value to having a new(ish) car that has a full warranty.  Yes I could have kept my old car but I would reasonably expect to spend $600-ish annually in repairs if I am lucky and if I am unlucky an engine or transmission could easily cost me well north of 2K.  I have heard of people easily spending $1000 on air conditioning repairs.  Aside from the potential repair costs are the hassles (and dangers) of potentially being left stranded and without transportation.  Newer cars also have improved safety and convenience features, for example mine integrates with my cell phone for hands free phone use, has four wheel disc brakes, improved crash tests, better fuel economy,  and full curtain air bags which my old car lacked.

I am frugal with my money.  I live in a modest house and I do not throw my money around on extravagant things that offer little value.  Having a new in-warranty car seems a reasonable allocation of my assets.  The car is a modest and practical model.  I obviously would not feel the same about throwing down $500 plus a month on some of the more impractical cars that my friends drive.  There is also the simple pleasure of driving and enjoying a nice new car, it will put a smile on my face every time I get into it, at least for awhile.  When all is said and done $195 a month for this benefit seems very reasonable to me.  I also like the option to walk away at the end of three years, who knows what might change in the future.

...Oh one last thing, the Ford Escape is made in America.

[CheapScholar]

FWIW, I don't think you made a bad decision.  I'm almost exactly your age and my FIRE date is also at age 51, so we are in very similar situations.  We purchased a brand new Ford Escape 2 years ago and we are happy with it.  We have a young child and my wife uses the Escape to get to work (which is snowy in winter) and to see her family once per month (90 miles away).

Like you said, there's some peace of mind that comes with a safe car with a warranty.  I personally drive an old beater but I'm happy that I can provide a nice reliable car for my wife to use.  And it's not like we have a luxury car.  We will still be very FI by 51.

[mc6]

I totally get the need for reliable wheels.  A Kia Soul is very practical IMO.   Drive on!

[Uturn]

So I'm not a mechanic and I've never had a car where the transmission has died. 

Do most people just trade in their car when it dies?  I have a couple of friends who have gotten new cars (and rolled their payment) when this has happened.  I know it can cost a few thousand dollars to repair it.  Would it be better to fix/replace the transmission or replace the whole car?  Is transmission dying considered "driving the car into the ground"?  If the transmission is repaired or replaced can it be considered an almost new car in terms of reliability?

It depends on the person.  Personally, if the transmission in either one of my vehicles dies, I will probably run down to the junk yard and get another transmission.  However, I have the skills, tools, and place to do the work.  That being said, I have sold a vehicle with a questionable transmission because I just didn't like that vehicle.  It gave me a good excuse. 

[lifeanon269]

2006 Subaru Forrester
2001 Honda Odyssey
1998 Toyota Corrola

Let's look at things a little differently. You said that the 3 cars that "burned" you were the 3 cars above. These were the 3 cars that you drove over the last 3 years. Clearly they were on the road and running fine when you first bought them. So, on average, with those three cars, the gave about 15 years worth of driving each. Not all of those driving years were to you obviously, but they gave 15 years worth of driving to somebody. Unfortunately, you had the misfortune of driving those cars at the end of their life while they died, but they still none-the-less gave on average 15 years of driving to somebody.

So with that said, if you assume that even with your "bad luck" of car ownership, you can expect 15 years of "drivability" out of a car, then that's still pretty good.

So my argument against your lease would be, why not just purchase a "newer" used car. For example, my wife just paid $12,000 cash for a 2013 Hyundai Sonata. The car is spotless and could easily pass as a brand new car if the year on it wasn't mentioned. With your "bad luck", if we assume the car will get about 15 years of service, then she'll have about 12 years of driving out of the car.

So that comes out to be about $83 a month over the course of 12 years. That leaves plenty of room for ongoing maintenance costs and still be lower than the cost of your lease. On top of that, she owns it. At the end of your lease term, you'll be in the same boat you were just in (without a car) and need to drop more money into either another lease and/or purchasing that(a) car that you were just renting for the last few years. This, to me is the biggest downside to leasing. I leased once and will never again. I hated the fact that when my lease was up, I had to pony up more money to figure out what I was going to be driving next after just paying money every month for the last few years to give myself the ability to drive. As others inquired, I'm not sure if you had to pay money up front for your lease agreement, but that really should be considered and mentioned as well.

Obviously driving is an expense no matter what vehicle or financing model you choose if you live in an area where driving is a must. I totally understand the need/want to have a reliable vehicle. I am no mechanic myself. But, you can't let that desire cloud you into thinking that a lease is a good deal. It isn't and there is a reason why dealerships push leases so hard. It is a good deal for them.

[Khaetra]

FWIW, I don't think you made a bad decision.  I'm almost exactly your age and my FIRE date is also at age 51, so we are in very similar situations.  We purchased a brand new Ford Escape 2 years ago and we are happy with it.  We have a young child and my wife uses the Escape to get to work (which is snowy in winter) and to see her family once per month (90 miles away).

Like you said, there's some peace of mind that comes with a safe car with a warranty.  I personally drive an old beater but I'm happy that I can provide a nice reliable car for my wife to use.  And it's not like we have a luxury car.  We will still be very FI by 51.

Peace of mind is worth it and a reason why I traded in my Altima this past weekend and bought a '17 Fit (paid cash for it too!).