Car Financing - Leasing vs Purchasing

[Capt Caveman]

How is saving money each month (compared to purchasing) throwing money away?

/facepalm

b/c most people don't purchase/lease every three years

 

[Doppel]

Used to be opposed to it strongly but currently leasing two cars. Dropped about 1500 at signing and then 180-210/month on each--and they are not entry level cars, one is an import v6 sedan. I did most car repair myself but ultimately got sick of it and didn't want to spend my free time playing around with rusty brakes, for example. Now I have full warranty and 200 month is not that much more than a person pays "owning" a car anyway. Many don't think to calculate the depreciation they are paying if they own their car. And I have modern cars with lots of airbags and stability control.

When these leases are up if similar lease rates are available I will do it again.

 

[Jumpem]

/facepalm

b/c most people don't purchase/lease every three years

Hence why I said compared to purchasing.

My wife and I don't need to miss work due to mechanical issues with an older vehicle. I also like having my kids ride around in a newer vehicle with more safety features. We do save money by carpooling to work, and only having a single vehicle between us.

 

[the DRIZZLE]

How is saving money each month (compared to purchasing) throwing money away?

Because you can't see the forest from the trees. If you are going to get a new car every 3 years leasing may be better than buying because you are essentially negotiating the trade in price at the same time as the purchase. However, it is not really cheaper than buying and trading in. For example if you took a 5 year loan and traded the car in after 3 years it would likely have a similar payment structure to a 3 year lease. The lease is only better because it avoids having to negotiate the trade in and because of possible sales tax savings.

As spidey said it's just a matter of how you finance the depreciation and interest. You are paying them either way. If you want to save money don't buy a new car every 3 years.

 

[dr150]

First rule of thumb when it comes to leasing...

NEVER state that you are looking to lease. Do not mention anything about leasing until AFTER the purchase price has been negotiated.

I agree with this. Get that final price as far down as possible.

Play email footsies with the internet department of regional dealerships and using successful lowball sales data from trucar.com to offer a good "saleable" price.

Then when you come into the dealership with the agreed upon price, you can negotiate a lease.

FWIW, it's better to buy a reliable car (i.e. Honda, Toyota, etc).

A fancy German car may be great but owning a lemon can be a financial headache. To play this game, leasing is good (using above methods) to SEE if you got a reliable car and not a built-on-German hungover-Monday car. You can then purchase the remaining amount. In my experience, a German car can be as reliable as a Japanese car or as big a headache as possibly imaginable. The good thing is that 3 years is a good enough amount of time to KNOW if you have a crappy version or a great version that you know you can reliably shitkick for 10+years.

There are models of many makes and countries that are so reliable that purchasing makes sense based on the law of averages (Consumer Reoprts, JD Power data, car forums) and when combined with a .9% or 0% Holiday financing it's a GREAT way to go.

Buying new is good if you can lowball a desperate dealer looking to make his month-end quota. Otherwise, buy a loaner car with the 20% depreciation included. For all intent and purposes, a 15k 2011 loaner car is good as new.

 

[Imdmn04]

Lease is cheaper if you plan to switch cars every few years.

Leases are highly dependent on the residual value of the car and the money factor. Sometimes you can get spectacular deals when financing arms of automakers offers a good residual (higher than 60% for 36 months and a low money factor). The terms changes every month.

In a lease, you can negotiate the following:
the selling price - make sure you take any rebates into account
the money factor - the dealership finance office usually will pad the money factor (interest rate) on top of the automaker finance arm's rate to fatten their pocket, your job is to pay only at the rate that the automaker set for that month. But sometimes they will simply refuse to sell it to you if it is really a hot car if they can't at least profit a little on the money factor.


The residual value is typically not negotiable and quoted on 15k/year baseline, so you usually add 2% residual if you plan to drive only 12k miles instead of 15k miles, and add additional 1% if you only drive 10k miles.


Go to http://www.ridewithg.com/ to find out lease terms of each maker for the current month.

 

[dawks]

I think a lot of people look at Leasing the wrong way.. For me Leasing is simply another way of purchasing a vehicle.

You can pay cash, finance or lease. The key difference is the interest rate. I ran quite a few scenarios, and lease/finance worked out to roughly the same.

Leasing takes the purchase price, less a lump-sum buy-out, and divides evenly by the months in the term of the lease. IE ($50,000-25,000(buyout))/mo. The thing that throws some people is the fact that the car may be worth less on the market than what the buyout is worth. So they say if the car is only 'worth' $20,000, but I have to pay the dealer $25k, they'd just walk. On the other hand, if you lease to OWN with the intention of keeping the car, the buyout vs 'market value' has no real meaning.

Leasing is really a clever marketing ploy to get people to just walk away from their cars because of the 'market value' vs buyout problem. So if you do that, you've paid the dealer say 50% of the price of the car for 2-3 years, then you give it back so they can resell it for 55-65% of the price again. They get extra money on the principle value, plus any interest you paid over the term. However, if you lease to buy and keep, theres really nothing wrong with it, providing the interest rate is reasonable.
Its not really 'renting' at all, unless you return the vehicle after the term.

Also, the mileage limits ONLY apply if you're returning the vehicle after the term. If you KEEP the vehicle, the mileage limits mean nothing.

One thing to note with leasing that probably catches many people off guard is, even though the monthly payments are low, theres still the big buyout at the end, so if you dont have the cash, you need to be saving the money for the buyout too. Having a $500 lease payment vs a $1500 finance payment is nice, until you get hit with that $25k buyout.

tl;dr, leasing isnt as bad as everyone claims it is, providing you keep the car after the term. lease to own.

 

[vi edit]

tl;dr, leasing isnt as bad as everyone claims it is, providing you keep the car after the term. lease to own.

Again, that depends entirely on the state.

If I leased a $20,000 car in IL I'd pay sales tax on $20,000. It's 6.5%. So I'd pay $1250 up front. If the buyout was $12500, I'd pay sales tax on that again for another $780. I just paid almost another $1000 over financing the thing.

If your state doesn't double dip then it's not as big of a deal. In IL you do not lease to buy. Dump and run. Or better yet, don't lease at all because you get mugged on the sales tax up front.

 

[airdata]

I think a lot of people look at Leasing the wrong way.. For me Leasing is simply another way of purchasing a vehicle.

This can be true.

Going to have to turn the lease in at the end of the term and get something else... And if you're considering buying at that point, the payoff on the lease is going to beat anything else on the lot for price.

 

[rh71]

I buy outright to keep rather than paying out a large amount after 3 years only to return it and have to pay another downpayment for another one. You are forever tied to car payments this way. Also, the thought of paying per month while driving so little miles is not worth it for me.

BUT, if you like new & nice things, and your monthly payment isn't a burden, leasing is a good way to get the newest with the latest & greatest technology. This and the 4yr warranty/maintenance are big reasons why BMWs are often leased. The downside to that is you can't really mod it the way you want... you can but do you really want to put it back the way it was?

Other than that, http://www.carbuyingtips.com/

 

[paperfist]

I think a lot of people look at Leasing the wrong way.. For me Leasing is simply another way of purchasing a vehicle.

You can pay cash, finance or lease. The key difference is the interest rate. I ran quite a few scenarios, and lease/finance worked out to roughly the same.

Leasing takes the purchase price, less a lump-sum buy-out, and divides evenly by the months in the term of the lease. IE ($50,000-25,000(buyout))/mo. The thing that throws some people is the fact that the car may be worth less on the market than what the buyout is worth. So they say if the car is only 'worth' $20,000, but I have to pay the dealer $25k, they'd just walk. On the other hand, if you lease to OWN with the intention of keeping the car, the buyout vs 'market value' has no real meaning.

Leasing is really a clever marketing ploy to get people to just walk away from their cars because of the 'market value' vs buyout problem. So if you do that, you've paid the dealer say 50% of the price of the car for 2-3 years, then you give it back so they can resell it for 55-65% of the price again. They get extra money on the principle value, plus any interest you paid over the term. However, if you lease to buy and keep, theres really nothing wrong with it, providing the interest rate is reasonable.
Its not really 'renting' at all, unless you return the vehicle after the term.

Also, the mileage limits ONLY apply if you're returning the vehicle after the term. If you KEEP the vehicle, the mileage limits mean nothing.

One thing to note with leasing that probably catches many people off guard is, even though the monthly payments are low, theres still the big buyout at the end, so if you dont have the cash, you need to be saving the money for the buyout too. Having a $500 lease payment vs a $1500 finance payment is nice, until you get hit with that $25k buyout.

tl;dr, leasing isnt as bad as everyone claims it is, providing you keep the car after the term. lease to own.

Except you don't actually ever own the vehicle. Cars are not investments, so a lease is like buying a house that is constantly in deprecation mode.

Unless you have to have a flashy car every couple of years it doesn't make a lot of sense. Cars these days are pretty reliable so it's not unlikely you can drive a car you paid $20,000.00 for for 10 years if you buy it outright. If you lease it (depending on taxes like someone mentioned) you're looking at $50,000.00 for those same 10 years.

 

[Drekce]

Think about it like this:

My wife's 2008 Nissan Armada (we bought it used, one year old at a significant discount) has been paid off for a year.

My 2009 G37 (bought it used, one year old at a significant discount) will be paid off by March.

We will have two new looking/driving/performing quality vehicles completely paid off with no payments needed for years. Had we leased them we would still have payments to make for a long time. I guess the flipside is that I could have used the money used to pay off the cars so fast for other purposes, but I would rather have no debt.

 

[Doppel]

Except you don't actually ever own the vehicle. Cars are not investments, so a lease is like buying a house that is constantly in deprecation mode.

This is true, but counter to the point you're trying to make. Cars are not investments; they are depreciating tools. All of the people who pretend they have no car payments always have car payments, they just front-loaded. A car is always costing maintenance and always depreciating. Whether you pay for this real-time (which a lease does) or you pay ahead (financing), you are paying for it nonetheless. And this is whether you end up owning it or not.

The MUCH more important issue is new vs used. Leasing new (even if you buy out) can at times almost cost nothing more than financing new, and gives the option to painlessly dump the vehicle after three years if desired.

Of course, it's been fact that over the last couple of years used car values have skyrocketed such that owning one is far less attractive than in the past.

How do you like these apples? A car I got last year I paid $23,000 for, leased, and after 3 years its residual is $16,900. I paid therefore $6100 to drive a brand new car for three years. If I had bought a used car for $16k it would have dropped the same amount of value in those three years, except be out of its bumper to bumper warranty. And IF I sold it, I would have eaten the loss of the taxes on that $10k value still remaining on it, since with a lease you pay in most states only the tax on the depreciated amount. Most residuals are much lower--in the 55-60% range, but I got a car with very high resale and I got a killer sale price on it. And I was willing to move away from the die hard never-lease approach I used to have.

Remember a car is a liability. It is a cost, it is not an investment and should never be seen as one.

 

[Doppel]

Think about it like this:

My wife's 2008 Nissan Armada (we bought it used, one year old at a significant discount) has been paid off for a year.

My 2009 G37 (bought it used, one year old at a significant discount) will be paid off by March.

We will have two new looking/driving/performing quality vehicles completely paid off with no payments needed for years. Had we leased them we would still have payments to make for a long time. I guess the flipside is that I could have used the money used to pay off the cars so fast for other purposes, but I would rather have no debt.

You obviously know that your comparison means nothing without numbers, and that you paid those off with MUCH higher monthly rates than a lease would have been.

 

[Jumpem]

One thing to note with leasing that probably catches many people off guard is, even though the monthly payments are low, theres still the big buyout at the end, so if you dont have the cash, you need to be saving the money for the buyout too. Having a $500 lease payment vs a $1500 finance payment is nice, until you get hit with that $25k buyout.

Explain? I thought at the end of the lease you simply turned the car in, and moved on to something else?

 

[alent1234]

Cheaper to buy new at 1% interest or less than used and 4% or 5%

Think about it like this:

My wife's 2008 Nissan Armada (we bought it used, one year old at a significant discount) has been paid off for a year.

My 2009 G37 (bought it used, one year old at a significant discount) will be paid off by March.

We will have two new looking/driving/performing quality vehicles completely paid off with no payments needed for years. Had we leased them we would still have payments to make for a long time. I guess the flipside is that I could have used the money used to pay off the cars so fast for other purposes, but I would rather have no debt.

 

[spidey07]

Explain? I thought at the end of the lease you simply turned the car in, and moved on to something else?

No, you have the option of purchasing at residual (or negotiate lower price).

 

[spidey07]

You obviously know that your comparison means nothing without numbers, and that you paid those off with MUCH higher monthly rates than a lease would have been.

The means of building wealth is to lower monthly expense and allow your money to make more money for you. If all you care about is the monthly payment, you're not building wealth and focusing purely on keeping your money out low without regard for increasing your income/wealth.

So, how much do you want to spend a month? I can see why all dealerships do this, because a large percentage of the population (and is demonstrated CLEARLY in this thread) only sees or cares about the monthly payment, not what is in their best interests financially.

 

[vi edit]

No, you have the option of purchasing at residual (or negotiate lower price).

No you have the option of buy, or turn in the keys and walk away (plus any added milage or wear and tear costs).

Although you could argue that you are forced to take on a new lease or finance another vehicle once you turn in the keys.

 

[the DRIZZLE]

This is true, but counter to the point you're trying to make. Cars are not investments; they are depreciating tools. All of the people who pretend they have no car payments always have car payments, they just front-loaded. A car is always costing maintenance and always depreciating. Whether you pay for this real-time (which a lease does) or you pay ahead (financing), you are paying for it nonetheless. And this is whether you end up owning it or not.

Cars don't depreciate linearly. The depreciation on a newer more expensive car is much more than on an older used car. The maintenance will be slightly higher on a used car but not nearly enough to offset the increased depreciation.

 

[vi edit]

So, how much do you want to spend a month? I can see why all dealerships do this, because a large percentage of the population (and is demonstrated CLEARLY in this thread) only sees or cares about the monthly payment, not what is in their best interests financially

Most people are better off buying a used, value oriented purchase and driving it into the ground. But many are in the habit of continuous car payments either by lease or financing. For every person "wasting" money on a lease I'm sure there are several more rolling negative equity into financing on a new/new to them vehicle that they really don't need.

There's actually a lot of people that would probably *save* money overall locking themselves into a lease rather than flipping every couple years and eating the depreciation.

Cars in general...regardless of bought or rented are the crutch of the middle class.

 

[spidey07]

No you have the option of buy, or turn in the keys and walk away (plus any added milage or wear and tear costs).

Although you could argue that you are forced to take on a new lease or finance another vehicle once you turn in the keys.

Last three leases I purchased car with cash for residual and sold for profit.

 

[vi edit]

Last three leases I purchased car with cash for residual and sold for profit.

Arbitrage is bonus in a lease. And not something to rely on. Once you account for taxes, effort, and risk it's not like you are making an excessive amount.

 

[spidey07]

Arbitrage is bonus in a lease. And not something to rely on. Once you account for taxes, effort, and risk it's not like you are making an excessive amount.

Each time it was 3000+ cash. It's like I said earlier, leases CAN be a good option. If the following are true:

1) low interest rate on lease
2) resale is higher than residual

This of course ONLY applies to NEW cars. My current lease is .9% and I expect it to be worth more than residual, but will likely buy it out with cash and sell or keep.

 

[child of wonder]

My preference is to buy a car. So long as you don't finance it into the ground, the car should have a fair amount of equity in it and could be sold if you fall on hard times.