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Car leasing advice

#21
I have friends who continually lease a car. They like having a shiny new car every three years, and are fine with the monthly payment. Some aren't, and think the idea of leasing is terrible. I'm right in the middle.

-Mike
 
#23
Leasing really only makes sense if a) you get a tax benefit from it (as others have said), b) you NEED to have a new car every couple years and don't like to/can't purchase them, or c) have so much money that you don't care about the cost and want the freedom to change up cars often without much effort.
 
#26
Baer said:
This is a wise man. Unless it's for a business where operational costs can provide tax benefits, leasing a vehicle is seldom a good thing to do in the long run.
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A business does not have to lease a vehicle to enjoy the tax benefits of operational costs. They are also allowed to claim depreciation on any vehicles that they own.

The bottom line is that dealers offer leasing because it is a money maker for them, and it provides them with potential repeat customers every 3 years. When the numbers are looked at without bias, leasing is almost always a bad idea.
 
#27
duff beer is exactly right. These auto companies have some very smart people crunching their numbers. If you think you are getting a "deal" by leasing or somehow pulling one over GM, Ford, Toyota, Subaru, or whomever, you're being foolish.

My father is one of the most financially successful people I know. For years he drove Cadillacs, before going to driving Mercedes-Benz a couple years ago. The last two vehicles he bought were lightly used, and he paid cash. He has done a lease exactly once in his entire life, and didn't afterwards because he realized it was a bad deal.

Follow the habits of rich people. Pay cash for your car, if you can. Better yet, buy used instead of brand new. Let someone else eat the depreciation on your vehicle.
 
#28
invader3k said:
Follow the habits of rich people. Pay cash for your car, if you can. Better yet, buy used instead of brand new. Let someone else eat the depreciation on your vehicle.
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Technically buying cash is a horrible idea- if you are a smart investor you can make much more money on using that cash than you'll save by not paying the interest on a loan.

Now, I wanted to minimize time spent on paperwork per month, so I didn't do that when I bought my previous car and I won't when I buy a new one next month, but if we're going to be picky and you want to maximize your worth (and headache), then buying cash really isn't a good idea.
 
#29
After 3 and a half years of making monthly payments on my old Subaru I owed 13,500. My monthly payment was 437. My lease is 261. After 3 and a half years I can buy this car (same as my old one) for 12,900 if I choose to (I will). How am I losing out in this lease? I don;t think those who are writing it off as "always a bad idea" know *** they're talking about. You can buy a car outright with cash, all you're saving is interest. You can buy used and save on some depreciation (not nearly as much as 5 years ago don't believe me? shop around) Or you can lease and decide at the end if you want to keep it at a great deal or let it go. I haven't paid for tires, alignment, brakes, transmission, anything in 6 years. Nothing but oil changes and tire rotations. How much have you spent owning used cars? Does that cost not figure into the equation? If you can drive the wheels off something good for you. I can't.
 
#31
fisticuffs said:
After 3 and a half years of making monthly payments on my old Subaru I owed 13,500. My monthly payment was 437. My lease is 261. After 3 and a half years I can buy this car (same as my old one) for 12,900 if I choose to (I will). How am I losing out in this lease? I don;t think those who are writing it off as "always a bad idea" know *** they're talking about. You can buy a car outright with cash, all you're saving is interest. You can buy used and save on some depreciation (not nearly as much as 5 years ago don't believe me? shop around) Or you can lease and decide at the end if you want to keep it at a great deal or let it go. I haven't paid for tires, alignment, brakes, transmission, anything in 6 years. Nothing but oil changes and tire rotations. How much have you spent owning used cars? Does that cost not figure into the equation? If you can drive the wheels off something good for you. I can't.
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It's impossible to figure out anything from your numbers when so many of them are missing:

How much was the car new?
How much of a down payment did you put down when you bought the car?
how much of a down payment went on the lease?
How long is the lease term?
 
#32
Both cars were about 21,000. The old loan was 72 months. The new lease is 42. Interest on the old car was 3.9 I think. New car gets 36mgp on the highway old one was 26. Another factor in my decision to bail on the old car. Do the math. Please. Not all leases are the same. Some car companies have especially bad leases and some states laws are more consumer friendly than others. Claiming they are all a mistake is in itself a mistake.

edit. Interest was 5.9 but I reified to 3.9 shortly before I decided to sell it.
 
#33
here's my opinion: leases get a bad rap because they lend themselves to deceptive practices. anytime you talk more about monthly payments rather than the selling price (and other inputs) it's ripe for deception. but the fact remains that leasing is just a financing alternative. all the inputs are there to be negotiated (or at least presented and analyzed). the selling price is probably where most people get screwed... they negotiate buying outright, but for some reason don't negotiate the selling price when leasing. however, you should be able to get the same discounted selling price regardless of how the car is financed.

then the residual factor - they vary a lot. for a 3 year lease, anywhere from 55% to upwards of 63%. a 63% residual value would be only 12% depreciation per year. if you negotiate a 10% discount on the sales price also on a 63% residual value, you are only paying for 9% depreciation per year (assuming a 3yr lease). i think the average car (used or otherwise) depreciates at about 15% per year. that doesn't sound all bad.

the last input is the cost of money - and the car manufacturer is likely to provide a better finance cost than a typical bank.

PLUS, you only pay taxes on the 3yr term of the lease (not the whole value of the car). relative to buying, you have a built in put-option to sell the car back to the manufacturer at a pre-determined price. this has a lot of value. if you try to trade it in later, the dealership has to buy back from you at wholesale. if you sell privately you get screwed on taxes - i.e., you've paid full sales tax on the car, but don't get the trade-in value of taxes back.

it really comes down to the inputs of the lease. it's not a forgone conclusion that it's a bad deal. i just wish the subaru dude would chime in and give some credibility here.

i personally don't lease because i just don't like having to make monthly payments (i don't finance either). i'm lucky to be in that position. but if it were about monthly payments, i would definitely see if there were some good lease deals to be had (high residual value, low cost of money).
 
#35
fisticuffs said:
Both cars were about 21,000. The old loan was 72 months. The new lease is 42. Interest on the old car was 3.9 I think. New car gets 36mgp on the highway old one was 26. Another factor in my decision to bail on the old car. Do the math. Please. Not all leases are the same. Some car companies have especially bad leases and some states laws are more consumer friendly than others. Claiming they are all a mistake is in itself a mistake.

edit. Interest was 5.9 but I reified to 3.9 shortly before I decided to sell it.
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Your numbers don't add up...$21,000 at 5.9% over 72 months is $346 per month. You stated that you made payments of $437 for 3 and a half years and still owed $13,500. However, 42 payments of $437 on $21,000 leaves just $5,500 owing according to an amortization calculator. You're off by $8,000.

By the way, my 2007 Subaru gets 35 mpg highway...basically the same as the new ones. I have no idea why you only got 26??
 
#37
hgregs said:
here's a relatively unbiased article showing the advantages Lease Your Car and Fleece The Dealer | Thousandaire
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Thanks. This articulates what I am finding when I am doing the math on the cars I might want to lease. With 0 APR and the negotiating a good deal, I am not seeing any financial advantage to buying outright over a lease.

And when I do the math over what I've spent on the purchase and maintenance on my last two used 2-4 year old cars (before calculating slightly lower car ins payments) the difference is not all the great vs. what I'd spend on lease or purchase of a new car. Maybe I got slightly unlucky with above average repair/maintenance costs but it wasn't if I bought poor rated cars. It would be nice to have a warranty (avoiding a unexpected bill - sometimes a sizable one) and be able to drop off the car and grab a free rental if anything goes wrong.

RS
 
#38
The iriginal loan had destination charges, sales tax, title, gap insurance and an extended warranty. They also front lOad the interest on car loans like they do mortgages. Those were my numbers. What 07 soob gets 35 on the highway? There's nothing they make rated anywhere near that and they usually don't lowball those numbers.
 
#39
My 2007 Impreza gets 35-37 mpg on the highway...that's my real world driving, not manufacturer's claims. But...I just realized that is Canadian gallons which are bigger than US gallons. Call it 30 mpg.

They don't front load interest on mortgages. If you owe $100,000 on your mortgage at 5%, they charge $416.67 per month in interest. If you make a $1000 payment that month, you now owe $99,583.33, and the interest charge the next month is $414.93.
 

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