Max, a 70-year-old retiree from Ohio, called The Ramsey Show with what sounded like a reasonable plan. He and his wife had no debt, no mortgage, and enough savings to comfortably afford a new car. His idea: lease a fresh vehicle every three years, hand it back, and repeat. His reasoning, in his own words: “If I get a new car every 3 years, I’m not gonna have as much to worry about.”
Dave Ramsey’s response was blunt: “Don’t lease it. No, no. Horrible, horrible, horrible, horrible. Did I mention it’s horrible?”
The Verdict: Ramsey Is Right, and the Math Proves It
Leasing is the most expensive way to drive a car, and it does not solve the problem Max thought it would solve. Two mechanics explain why.
The maintenance argument collapses on inspection. A lease does not include maintenance. Oil changes, tires, brakes, and wiper blades come out of the lessee’s pocket just as they would with a purchased car. The reason a new car feels low-hassle for the first three years is the factory warranty, and that warranty applies whether you buy or lease. Max was paying a premium for a benefit he would have received either way.
The pricing structure of a lease is where the real damage happens. As Ramsey put it: “100% of the loss in value is built into the lease. So whatever you would lose by buying a new car and trading it every 3 years, you’re paying for in the lease.” The leasing company calculates what the car will be worth at turn-in, charges you the full drop in value, then adds their profit margin, their cost of capital, and interest on top.
Depreciation: The Cost You Cannot Escape
Cars are depreciating assets, and they depreciate fastest when new. Ramsey’s rule of thumb: a car loses roughly 70% of its value in the first five years. Apply that to a $100,000 vehicle and you are looking at a roughly $30,000 asset by year five. He called it “burning cash.”
Compare the two paths for someone who wants a new car every three years.
- Cash purchase, resell at year three. You write a check for the sticker price, absorb the depreciation, then sell or trade the car and write another check. You eat the loss in value. That is the ceiling on your cost.
- Three-year lease. You pay the same depreciation, built into your monthly payment, plus the dealer’s profit, plus the financing cost baked into the money factor. That is depreciation plus a premium.
Same car. Same three years. The lease costs more every time. The only thing you avoid is the hassle of selling the used car yourself, and dealer trade-ins solve that problem for a much smaller fee than a lease charges.
The Variable That Changes the Answer
The factor that matters is whether you can write a check for the full price of the car. If you can, Ramsey’s alternative is direct: “If you’re a multimillionaire and you want to go buy a $100,000 car, go buy a car. Just write a check. And then 3 years later, if you feel like that car is getting old, then write another check.” He conceded he had just done a version of this himself, buying a new Ford Bronco with the Raptor package and accepting that it could be worth almost nothing in a few years.
If you cannot pay cash, the deeper question is whether a new car fits your budget at all. Financing a depreciating asset with borrowed money compounds the loss. The average U.S. credit card APR sits near 21%, and while auto loans are cheaper, consumer credit costs have been elevated for years. Adding interest to depreciation is how a $40,000 sedan quietly becomes a $55,000 sedan by the time it leaves your driveway.
What to Do With This
Run three numbers before you sign anything at a dealership:
- Estimate the three-year depreciation. Look up the car’s projected residual value at year three on Kelley Blue Book or Edmunds. That figure is your true cost of ownership for three years, before financing.
- Compare the lease’s total payments to that depreciation number. If the lease costs more, the difference is what you are paying for dealer profit and financing.
- Decide whether you can pay cash. If yes, buy and trade. If no, the cheaper move is usually a two-to-three-year-old used car, where someone else has already absorbed the steepest part of the depreciation curve.
Leasing bundles depreciation with profit and interest, hands you the bill, and calls it a monthly payment. Ramsey’s word for that arrangement fits.
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