Canthook

What happens when gas prices go up, and you've leased out a bunch of gas-guzzlers?

They're worth a lot less than you anticipated, and you lose a fortune. That one reason Chrysler Financial is no longer leasing cars.

We've thought for years that leases were bad ideas for consumers. They're OK for businesses, because payments on a lease are 100% deductible. The depreciation you can take on an owned car rarely is equal to the loss of value. Effectively, that means you're making an interest-free loan to the government, by paying too much tax now, and recouping the money later when you dispose of the vehicle.

We also think it's also a bad idea to stretch out the payments over five years. It hasn't been very long since the longest loan you could get on a car was three years, and many banks refused car loans longer than two years.

In general, it's a bad idea to borrow money to buy declining assets. Over the course of a 30-year mortgage, you end up paying for the house 3 times - once to the builder and twice to the bank - because interest is such a big factor. If the house is appreciating in value, then it's a good idea to buy as soon as you can, so that you pay less for the house in the first place.

But cars don't grow in value. They depreciate. If you can't afford the car you want, buy a cheaper car. You might need to take out a two-year loan on a used car - but the idea is to pay cash for your car. No sense in making the banker rich, is there? And if the economy sours, you don't have a car payment to meet....

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Chrysler - leases - personal finance