Q: My parents will be 70 in July. They are in search of a new vehicle but their income is modest, as they live off a small pension. Should my parents lease or finance? The lowest monthly payment is the best option for them. They put approximately 10,000 kilometers a year on their vehicle.
A: Monthly payments with taxes for a compact car like the Toyota Corolla or Honda Civic with the safety and convenience features that seniors need, including an automatic transmission, air conditioner, backup camera and pre-collision warning currently run about $250 a month for a low-mileage 48 or 60 month lease, and about $300 a month for 84 month financing.
But here’s the paradox: the lower monthly payment with leasing can actually be more expensive in the long run, even though it’s easier on your cash flow over the short term. At the end of a loan, your parents will be driving a paid up used vehicle with about 80,000 km on the odometer; it will have plenty of useful service left, and they will enjoy several years with no car payments.
When your parents decide to sell it, they will have some equity to use for a down payment on their next vehicle. If your parents lease instead, they will always be making payments and have zero equity for their next vehicle.
Seniors rarely use the full mileage allowances in their auto leases because they no longer drive to work, which is one reason dealers LOVE to lease to them — the unused mileage makes for a desirable vehicle turned in at the end of the lease.
After age 80, drivers tend to accumulate minor dings and scratches at the corners of their vehicles. A lease customer will face penalties, whereas an owner can consider what repairs to make and which ones to ignore.
Finally, in the event of a health issue or loss of driving privileges, it’s easier to dispose of a paid up used car. It will cost you significant money to terminate a lease early, no matter what the retailer tells you verbally during the buying process. For seniors who are not limited by their budgets and want to splurge on an indulgence like a convertible, leasing can make sense because it will be easier to dispose of the vehicle when they’ve had their fun.
For in-depth information on leasing, financing, and other driving issues of concern to seniors, take a look at the 2017 Lemon-Aid Guide, which covers senior-related concerns in detail. (It’s available in most lending libraries.)
—Georgy Iny, president of the Automobile Protection Association
- 10 auto insurance myths you should stop believing now
- How to cut your auto insurance costs
- Think twice before cancelling auto insurance