I financed a car – Here’s why

For my entire driving life, I’ve had a leased car.

First, it was a 2002 Honda Accord, then a 2006 Honda Accord, then a 2009 Honda Accord, then a 2012 Honda Civic, my current ride. Can you tell I’m a Honda girl?

Say hello Honda!

Say hello to my Honda!

When I leased my current car, I was just starting to dip my toe into the PF world. I’d heard that leases were a bad idea, but at that point I didn’t care. I needed a reliable car and a low payment. I didn’t have any savings. More than anything, I wanted to establish myself financially without relying on my family. With a reasonable payment and a great track record with Hondas, I felt comfortable signing on the dotted line.

My lease is up in January and I’ve decided to buyout my lease. Apparently people don’t do this very often. My finance guy at the dealership said about 15% of people buy out their leases. Most just turn in the car and get a new one. With everything I know, it seems like buying out the car is the best option for me. Here’s why:

1. My buyout price is lower than the value of the car. 

My lease was for 12,000 miles per year and I drove around that for the first year, but dramatically less than that the last two years. I’m averaging around 5,000 miles/year lately. Because of this, I’m under mileage and the value of my car is high. There is no damage on the vehicle and I’ve taken great care of it. If I wanted to get a different car, I’d have to pay much more or get much less.

2. Interest rates are stupid low right now. 

My interest rate for my 3 year car loan is 0.99%. When my banker told me that, I laughed at him. What’s the point of paperwork if the interest rate is only 0.99%? He should just lend me the money and I’ll pay it back at my convenience.

3. I didn’t want to save for the car. 

The car loan is for $13500. I could have saved up that amount of money but I deliberately chose not to. Saving for my car would have diverted funds away from my student loans. My student loan interest rate is 6.55%. My savings account earns an awesome 0.75% (this is actually awesome, I’ve only heard of a few places in the U.S. that offer better savings account rates). As you read above, the interest rate on my car loan is stupid low. The math made sense to attack my student loans instead.

(I did write a check for $1378 at signing to cover title, tax and my license tabs for the next year. No trip to the DMV for this girl!)

4. I like the car. 

This is important. I have no issues with my car right now. It is in great condition, does everything I need it to do and it gets excellent gas mileage. I also expect it to last a good, long time. What else could I ask for?

I’m excited to transition from car leaser to car owner. It feels very adult of me.

Now I just have to decide if I want to accelerate my car loan. At this rate, there is no reason to pay this thing off anytime soon.

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15 comments

  1. I’m all for financing a car when the rates are so low. At some point I will likely being doing that as well. I know it’s totally a faux-pas, but not everyone can “afford” a beater. Just cause the price is lower doesn’t mean it’ll be cheaper. There’s something to be said for reliability and warranty.

    1. Affording a beater is a real issue, especially if you aren’t good with cars (like me). It’s so hard to find that sweet spot where its no longer worth it to put money into a car.

  2. Congrats! From what you’re saying, it sounds like this was the best way to go. I never leased a car before (just bought one brand new) but I’ve never really understood why people DON’T buy out the car at the end of the lease… I don’t want to be making car payments for my entire life! At some point I’d like to flat out own the thing.

    1. Thanks! I think a lot of people just like driving new cars. And you can get a lot more car temporarily for a lot less money with a lease. Once you get in the cycle of leasing, its really hard to break out of it.

      I’m so excited to be free from the cycle!

  3. This is A great example of “personal” finance. This was the right choice for you, without any savings. It makes the most financial sense and you obviously spent time weighing out the price and cons. Another person might say, hey, I would sell something and get a junker – but they have something great they want to sell and they are not worried about high maintenance costs and reliability issues. Everyone has different circumstances!

  4. Oh my God, at less than 1% interest I wouldn’t accelerate anything! Attack those student loans and do the minimum on this forever. Congrats on the car; it sounds great.

    1. Thanks! At 1%, it totally makes financial sense to ride this out for 3 years. The biggest itch I know I’ll want to scratch is that it is going to feel so nice to not have any payments!

  5. With an interest rate that low, your approach totally makes sense. And, you’re wise to stick with your current car when the lease ends and not get a new one. I’m a Honda gal as well–we have an 18-year-old Honda Odyssey minivan and it’s an awesome car. We will drive it until it just won’t drive anymore :). Thinking of possibly getting a Honda Fit when the Odyssey bites the dust.

    1. Aren’t Hondas the best?! I’m hoping to get at least 10 more years out of my civic. My sister has a Fit and she loves it. It’s like a mini-minivan! Seems like it would be right up your alley.

  6. It makes sense to finance a car at less than 1 percent when you’re making progress on your student loans at 6 percent! That’s just math. Sounds like you got a great deal =)

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