Ask Jack: And None Of The Miles Are Free

Jack Baruth
by Jack Baruth

Welcome to our new feature, Ask Jack! I’ll be answering your questions on pretty much any topic that has a vague relationship to cars. Send me your questions and make sure you let us know if you want to be identified!

Our very first question comes from a fellow who wants to know what he should do about lease mileage on his Camry. As fate would have it, I was a Red Carpet Leasing Professional(tm) in another life and I am ready to help!

“Mathew” writes that

I read TTAC every day and am one of those who dream of buying the latest Corvette. Back to reality! I just leased a 2014 Toyota Camry in late June 2014. I am looking for some creative ideas to minimize the cost of this car.

Note: Minimizing cost to me equals the lowest cost per mile; not a $500 beater. I’ve done the fly across the country and drive a $500 beater home stunt so I know how to play that game. I’m too old to play that anymore. If you are wondering I’m an ’81 baby.

Previously I owned (outright) a 2003 Trailblazer with 175k miles. It ran like a top even though I drove it like a POS. Just prior to driving to Seattle an oil change was made. No leaks were had with my car. When I selling it (after leasing a Camry) a gentleman who was looking at it found it was out of oil. I told him I was going to put oil in it and hope for the best. He made a cash offer right there and I took it! I didn’t even have to put oil in it!

At that time I bought this car I was in the middle of moving to Seattle from SLC. I was in no mood to find a used car much less pay for one. Four months later I have burned through half of the 24k miles allotted in my two year lease. The first person to lecture me on leasing a new car only to drive without regard to mileage can go buy my old Trailblazer from that gentleman and tell me how that goes. Here’s the kicker –the overage charge is $0.15 per mile. The lease comes out to about $0.20 per mile (payments + down payment + taxes). So those with some sense of math understanding can see the more I drive it the less (per mile) it costs me to drive this particular car. And like some of you I am still working on getting a second or third or fourth car sitting in the driveway to the home I don’t have yet.

Finally, here is my question:

Would it cost me less to:

(a) Drive it at my current rate until the lease is over and pay the overage costs?

(b) Drive it at my current rate and sell it privately when the lease is over and pay the difference between the buyout ($15,000) and market value?

Alright, this takes me back — way back to 1994, when I leased a new Ford Contour to a friend on a two year/90,000-mile program. He was paying $475 a month to drive a Contour and all his friends laughed at him! But when he walked away from an 87,000-mile car free and clear after two years, he had the last laugh.

You’d be surprised how often lease mileage is cheaper than buy mileage — and even when it’s not cheaper, it’s absolutely predictable. The exceptions to that rule occur when you’re in possession of something that doesn’t become worthless with mileage the way my friend’s Contour did.

Let’s start by figuring out how much you’re going to drive. You say you’ve done 12k in four months, which is 36k a year, which is 72k total, right? 24k of those will be covered in the lease, which leaves you with 48,000 miles at .015 which is… drum roll… $7,200. Another way to look at it is that your payment for the next 20 months just went up by $350 a month or so.

The alternative would be to pay the buyout of $15,000 then sell the car. So let’s take a look at what a two-year-old Camry with 72,000 miles is worth in a private sale, shall we? A quick check of AutoTrader shows 72,000-mile Camrys that are between three and four years old (I couldn’t find any two-year-old ones) selling for between $12,000 and $16,000. The Black Book Retail Calculator thinks a 2012 Camry with 72,000 miles is worth $13,150.

It looks like pricing your car at $13,000 or so in a private sale would ensure a pretty quick turn. Which means that your actual cost will be your state sales tax at your buyout price of $15,000 — let’s say a grand — plus $2,000 worth of depreciation. Which means that you’re looking at a $3000 hit overall. That’s $150 a month, and more importantly it’s about eight cents a mile.

Even if you could sell out of your Camry for what you owe right now, I think you would have a hard time finding a car that was as reliable, safe, and comfortable as a nearly-new Camry for eight cents a mile. The only potentially cheaper scenario would be if you could make your Camry just disappear then buy a decade-old Civic with 100,000 miles on it for $7000 and sell it with 148,000 miles on it for $5000. But will your maintenance costs be as low? Probably not.

The good news is that you don’t have to make the choice now in any event. You can start trying to sell your car as long as 90 days out. If your lease company is feeling exceptionally helpful, they may agree to transfer the title DIRECTLY to the new owner, saving you sales tax. In most states that should be perfectly legal.

The good news in all of this is that you have a Camry — a car that has a devoted high-mileage buyer base. Had you chosen a Malibu, or a Sonata, or a Maserati, you’d be hurtin’ for certain. But I think you’re probably good to go. Just make sure you clean the thing up pretty well. And don’t forget to tell people, “They’re all HIGHWAY miles!”

Jack Baruth
Jack Baruth

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5 of 76 comments
  • Pragmatic Pragmatic on Oct 15, 2014

    Yes 5% is low for long term and 8% is more realistic. However this is not a good reason to expect to beat 2% over any 3-5 year period, just the opposite. 3-5 years is way too short to use long term averages. Over the 11 years from 2000 to 2010 compounded annual growth in the S&P500 (dividends reinvested) was only .57%. Of course you're going to cry foul in that the time period includes the meltdown of 2008. Going from 2000 to 2007 gives a return of only 2.09%. These are from krhodes1: "5% is actually a low estimate of market returns over the long haul, say 25+ years. S&P 500 has done 8% adjusted for inflation 1980-2013. If you go back to the early 1900s, it is more like 10%+. So it is a pretty darn safe bet that it will beat 2% over this 3-5 year span"

    • Krhodes1 Krhodes1 on Oct 15, 2014

      I really think you are looking at this the wrong way. If you take the money out of the market, or never put it in, you lose. You are spending the money on something that will be worthless in the long run. You put it in or leave it in, and any short term loses don't matter, because over the long run, you will most likely make money. Guaranteed loss vs. probable win doesn't seem like a hard choice. The term of the loan to buy the car doesn't matter - you are locking in at a very low interest rate. Really, there are any number of things you could do with the cash that is better than using it to buy a car in a time of 2% interest rates. Do you have a mortgage? Put the $40K towards the principal balance. Put it in your retirement account. Pay off any other higher interest debt. Almost ANY debt you have will be higher than 2%. If you have absolutely NO debt *at all*, well good for you! But that is not 95% of the population. I have never said it ALWAYS makes sense to take the loan, it didn't in the past and it likely won't in the future, but it certainly makes sense to do it NOW, and now includes the past 4-5 years. But to my mind, any time you can borrow at less than the rate of inflation, you probably should anyway. I have very little doubt that interest rates will be back to something close to historical norms within the next 10 years.

  • Goyshahomer Goyshahomer on Oct 16, 2014

    Jack: I am in a similar boat as the original poster. We have a 2013 Prius persona model. It's a 3 year lease, 36k miles. We are 16 months in and my wife has already amassed 23,000 miles +. At 0.25 cents per mile on top of what we already pay 296 month for the lease, is it worth trying to get out of the lease early into a more traditional car? i.e. Honda accord sport (would be my choice). Never loved the hybird complexities- despite the exceptional reliability that they garner from the auto press. Or we can buy the Prius now outright for 22,000 and change or wait until the end of lease and pay 15,200. By the end of the lease I am anticipating her being well over 50,000 miles (unless something changes with her work schedule). She does get incredible gas mileage. Usually in mid 50's without even changing her driving habits. Mid 40's in the winter (which in Minneapolis is awesome with heat on all the time). No car, accord or the like will come close to those numbers, unless we go even more complex and get a Volt or Tesla (both out of my price point). So far Prius has been perfect, though it is brand new. Haven't had any issues with winter driving either- only one day it was a problem and she got stuck. I have a 2014 honda crv awd. It's really nice. Love the interior. Was great last Winter. Would love your thoughts on what to do with my wife's Prius. Anyone is more than welcome to "chime in" too. Thanks!

    • See 1 previous
    • PandaBear PandaBear on Oct 22, 2014

      @mnm4ever It may look the same on a car with expected reliability and resell. It is like hedge funds expect the investments they are hedging to be certain and can make money off between the investments they hedge. Except in some cases they are not. Leasing if you drive short distance gives you a chance to dump a car if you got a lemon at a predetermined cost, and it won't affect you financially. It probably won't make any difference on a Camry, however.

  • Bob65688581 We bought zillions of German cars, despite knowing about WWII slave labor. Refusing to buy something for ideological reasons is foolish.Both the US and the EU have imposed tariffs, so the playing field is level. I'll buy the best price/quality, regardless of nationality.Another interesting question would be "Would you buy one of the many new European moderate-price EVs?" but of course they aren't sold here.Third interesting question: "Why won't Stellantis sell its best products in America?"
  • Freshblather No. Worried there will be malicious executable code built into the cars motherboard that could disable the Chinese cars in the event of hostilities between the west and China.
  • Bd2 Absolutely not - do not want to support a fascist, totalitarian regime.
  • SCE to AUX The original Capri was beautiful. The abomination from the 90s was no Capri, and neither is this.It looks good, but too similar to a Polestar. And what's with the whacked price?
  • Rover Sig Absolutely not. Ever.