This Is the Most Expensive Way To Finance a Car, According to Rachel Cruze and George Kamel

It might be challenging for car lovers to talk themselves out of buying that muscle car they’ve been dreaming about since 5th grade, especially if they’ve saved a lot of money. However, as with any major purchase, there are good and bad ways to go about it. 

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Personal finance experts Rachel Cruze and George Kamel are no strangers to making big purchases and decisions. In a recent video on their Smart Money Happy Hour YouTube channel, they discussed how people make purchases that expose them to trying to look more prosperous than they are. In the episode, the topic of financing a vehicle came up. Here are some of the options to consider when buying a car.

Leasing a Car

In most cases, when you want a car you will make payments to own it. Leasing a car is different because it allows you to make monthly payments to drive a car for a certain amount of time or miles without ever making a purchase. Leasing a car may mean cheaper monthly payments to drive more expensive cars, but there are some downsides to taking this route.

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Kamel feels terrible for anyone who leases a car. He reasons that even though you might look cool and not need to worry about insurance or pay maintenance costs, you’re essentially prepaying for all that car’s depreciation without owning it. You don’t gain any long-term value when you continue to lease cars one after the other. You may also need to pay extra fees for damages or excess mileage when you turn the vehicle in.

Cruze agreed with Kamel’s assessment, stating that leasing a car is the most expensive way to finance a car. Buying a car with cash or taking out a loan will often come with higher monthly costs, meaning it won’t be as easy to afford flashy luxury cars but you will be making payments toward an asset. 

Taking Out a Car Loan

While it still isn’t the best option, Cruze admits that taking out a car loan is at least a better idea than leasing a car. Auto loans are similar to any other type of loan. You borrow money from a financial institution to purchase a vehicle and agree on terms to pay back the amount you own. You’ll often start with a down payment, which cuts down on how much you’ll need to borrow. Then, you’ll make monthly payments with an agreed-upon percentage of interest until the loan’s principal is paid back. 

Taking out a car loan means the car will eventually become an asset you wholly own. However, the interest that accrues over time will add thousands of dollars to the vehicle’s original price. Negotiating a longer loan term will reduce your monthly payments but you will pay more overall. If you go this route, it’s best to work with an expert to determine how much you can pay to repay the loan as quickly as possible. 

Paying Cash

According to Kamel, paying cash is the best way to buy a new car. While he agrees this is the most painful, unattractive answer, it’s also the most financially responsible. If you really want a luxury car, he advises saving up until you can buy it used instead of putting yourself in debt. Paying for a vehicle in cash means gaining an asset while maintaining your financial freedom.

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