Gather Little by Little

This article is part of the Ask the M-Network series.  Jason submitted a question and asked:

So, I fleased a car about 3 years ago, before I realized what a bad idea it was (I was 22), and my intent was to purchase the car at the end of the flease. I knew I was going to be commuting and putting a lot of miles on the car, so I figured I could drive it for 3 years at a cheaper monthly payment and then purchase at the end and avoid the excess mileage fees. Last night, my Wife and I decided it would be so nice to not have that $350 car payment nor the extra $100 in insurance, so basically increase our income by $450/month. Finally, my question, I am essentially 43,000 miles over the set amount, at $0.15/mile comes to about $6,500, we have the money to pay the fee and be done with the car, do you think that is a wise move? We both now work only about 10 miles away from home, so we could operate with one vehicle.

Patrick says:

I would hate to throw $6,500 at something and not have anything to show for it. Have you considered putting the $6,500 toward the car loan and then figuring out how much your payments would be? It may drop your payments by $100 a month or more, which may make the car more affordable. However, don’t let sunk costs change your mindset. Sometimes it’s just best to walk away and not throw good money after bad.

This is a tough call, and one you will need to make with your wife. If you think you can afford the car with lower payments and you will get good use out of the car, then it may be worth keeping. If you absolutely don’t need the car or the payments and insurance costs, and you can afford to pay the mileage fee, it may be best to pay it and get it out of your life for good.

Plonkee says:

It’ll take about 15 months to save up $6.5k

Can you do without the second car for that long, and do you have an emergency fund that will cover any job losses? Although if things stay the same as they are you would be better off ditching the car, you need to assess how you might cope if things don’t stay the same. Perhaps you and your wife have fairly secure incomes and live well below your means, in which case there may be no problem. On the other hand if your job is at risk in the recession and you might need to travel to get a new one, you would need a second car, and might have to rely on any emergency fund to get through in the short-term.

Whatever you decide, why not try using only one car anyway? You’ll save on fuel costs, not add any mileage to the car, and see whether you could cope with only one car.

I say

Your situation is exactly why I hate leases and car companies love them. They are going to make out like bandits on your deal. If you don’t want the car, than I would just pay the fee, attribute it as a “stupid tax” and turn it in. As you implied, keeping the car is just going to cause you to incur additional mileage cost and since there is no penalty, I’d just let it go. The only other option is to buy the car, but since you don’t really provide any info on it’s value vs. sale price I really can’t advise you one way or the other.

Do the math on buying it though, as you could purchase it and just turn around and sell it and come out better financially. So make sure you seriously consider this option. If you buy it, you won’t need to pay the excess mileage fees. You would need to pretty seriously upside down to not do better than $6500 selling it.

Update us on what you decide to do Jason and sure hope our take’s on your situation help you think through it! Readers? How about you? What would you recommend? Chime in and help Jason out. Add a commnet!

Please remember that our answers are opinions and should not be considered professional advice and we assume no responsibility of any kind. Please consult a certified financial expert as needed.

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