Broker Check

Should Seniors Buy or Lease a Car?

Special to the Herald

"I think this is going to be my last car," says Myron, age 82. "Two years seems like an eternity, but I'm going to lease a new Honda Accord. I won't worry about maintenance and the warranty covers repairs."

Thanks to cars affectionately known as "geezer cars" -- with electronic stability control, airbags and backup cameras -- seniors are driving longer. CPAs, however, aren't fans of seniors, like Myron, leasing cars.

Leasing companies routinely flip mint-condition returned lease cars for huge profits. Lessees, at the end of a lease, have nothing to show for making lease payments.

"Pay for a new car with cash or finance, not lease, if you have a car to trade or a down payment," is standard CPA advice. I now believe, as a financial adviser, leasing makes sense for some seniors if they consider:

What happens if a leased car is damaged in an accident?

Many seniors get involved, unfortunately, in "fender-benders," costly accidents requiring major collision repairs. Financially speaking, major body work benefits a lessee better than an owner.

"Any car that has an accident has an automatic decline in trade-in value with a lease," one top auto salesman said. "You don't get docked with the decline in car value that occurs with trading in a car that you own later."

For example, if a 2011 Chevrolet Malibu has $9,500 of body work done, all paid with auto insurance, after a collision the owner would find that his trade-in could be $4,000, rather than $10,000 because "accident cars "are tainted and less desirable for buyers checking vehicles on Carfax and AutoCheck," said the salesman. "There is less demand for 'accident cars.' The lessor, the leasing company, on the other hand eats this decline in value because they're obligated to buy back your lease."

What happens if you lose your driver's license or move to assisted living?

Your financial responsibility depends on your lease contract provisions. Many car leases allow you to return the car for an early return, moving forward, fee. You see the leased car always has a built-in value, but the proceeds realized must equal or exceed the built-in value -- or you can still owe funds to the leasing company.

What happens if you can't drive anymore?

Health problems aren't usually grounds to terminate obligations under a car lease. Remember, leases are contractual obligations -- just like loans, credit cards and mortgages. Regardless of health issues, car lease obligations must be satisfied.

So if you're at risk of losing your driver's license, or a strong candidate for assisted living, you probably shouldn't lease a car. Some leases, however, have decent health provisions allowing you to escape from them. When it comes to health issues, your lease must specifically allow reassignment, refinancing or cancellation. If not, you can't completely extricate yourself, without cost, from the lease -- even if you're very sick.

Bad health won't get you out of a lease, but you can often renegotiate your lease. The leasing company might allow you to lease the car to someone else or refinance. Call your leasing company and ask for a pay-off amount. If a car is worth $21,300 and the early buyout is $26,000, what remains on the lease, you need to come up with $4,700. All premature lease termination provisions are different, but if the car has lost value, it will probably cost you some money.

How does death affect a car lease?

Death doesn't cancel a car lease; at a minimum, there may be an early termination fee, of several hundred to a thousand dollars, and at a maximum your estate, with a lease from a bank or non-manufacturer leasing companies, may be obligated for remaining lease payments, the difference between auction proceeds and lease liabilities, and processing fees.

How should you negotiate?

Sharpen your pencils and negotiate. Good lease negotiators might get a huge discount of 20 percent, or more, if you ask for a 7,500-mile, rather than a 10,000-mile, a-year lease. Work at avoiding or reducing a $1,000 lease drive-off fee, document processing, for example.

Seniors looking for a "Publix Car," a car driven to doctor's office and grocery stories, should consider a nationally advertised lease. Try leasing a car under a national lease program for a moderately equipped car, like a Toyota Camry or Honda Accord, for lease payments as low as $239 a month.

My auto insider told me, "If your local dealer says, 'Gee, we don't have any more of the nationally advertised car,' I'd say, 'Thank you very much and leave.'

"Call the manufacturer's headquarters and say 'My local dealer said they don't have the nationally advertised lease.' Corporate will likely pressure the local dealership to start accommodating you."

Jim Germer is a Bradenton CPA and financial adviser at Cetera Financial Specialists, LLC, member FINRA/SIPC.