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Car Financing, Car Leasing
#1 of 545 Leasing vs. Buying
by kirstie_h HOST
Nov 24, 2004 (6:39 am)
Can't decide which is better for you? Want the upsides & downsides for each? This is the place to start!
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#2 of 545 Re: Good deal today [kirstie_h]
Nov 23, 2004 (12:12 pm)
You always lose in the end with a lease. I am in financial planning and leasing is only good for business owners who can write it off. Leasing is only financially beneficial to the Auto Dealer, not to the consumer. But getting a $35k or $60k car for half the payment to buy per month usually is to tempting for people in our "I want it now" society. Seriously reconsider leasing a car if you can. Just imagine, do you think a dealer would actually give you the residual price for a car if you were trading it in to them after 3 years? No, so why are you going to pay the residual value for a car you could get for less? It's a win-win for the Auto Dealer. You give them thousands of dollars up front, rent the car and then buy it from them for a premium at the end...if you even buy it. And if you don't you have nothing to show for it. It's a vicious cycle.
#3 of 545 Re: Good deal today [audifreak21]
by kyfdx HOST
Nov 23, 2004 (12:17 pm)
This is really an over-simplification.. And the auto dealer? He makes the same, whether you lease or buy..
If your car isn't worth the residual at lease end? You walk away, secure in the knowledge that you came out ahead by leasing... If you bought the car, you would have lost that extra depreciation.. Now, the bank has to eat it..
Leasing isn't for everyone, and can sometimes be a bad deal.. but, your advice is way off base, and your reasoning is just plain wrong.
Nov 23, 2004 (1:39 pm)
That reasoning makes no sense. In fact, it is generally a very bad idea to purchase a car at lease end- UNLESS the car is easily worth more than the purchase price. But that is extremely rare.
I will also present you with my situation, in which it is preferable to lease. I own an older A8- probably worth about 12-13k. My wife has one year left worth of payments on her SUV, at which point we will own it free and clear. I don't want to get hit with additional car payments right now, and typically like to change vehicles every three years or so (A BIG FACTOR IN LEASING). So...I am going to sell my Audi, use the proceeds to pay my lease for a few years, and then have a year left on my lease while my wife continues to drive her Land Cruiser into the ground for the foreseeable future.
Anyway, there are many situations where leasing is not a bad option. For those of us who like to have a "change of scenery" every few years, purchasing is often not wise. Why own a car during the time when it takes it's steepest drop in value when you are going to sell it just as that drop starts to level off?
Take my A8. Bought it cash in '00. 66k+. Four years later, I can get maybe 13k for it. Now, if it had a few less miles, MAYBE high teens into 20. But not higher than that. So.....46k for four years. That equates to a shade under 1k a month. A little higher than a lease would be, and that doesn't factor in tax on my sale on either side- which probably bumps it over 1k/month for ownership.
If you are talking Toyota/Lexus, etc.- where I KNOW I can drive a vehicle for 5+ years without the very high possibility of significant upkeep (which IS the case with Audi- and if you disagree you've never owned many German cars out of warranty. Just takes one little problem....) then it is certainly a good idea to purchase.
In fact, in a world where most people cannot afford to car jump every few years, purchasing a car- long term- is the obvious choice. No question. If you were on the toyota corrolla board, I'd say you wouldn't find many who disagree with you.
But....in the area of luxury automobiles, the decision is often much less clear. In years past, Audi has offered some excellent incentives on their leases (my sister leased an '01 A6 for $379, that stickered for 39k) where it made a ton of sense to lease.
I don't love to gamble, which is what I feel owning an Audi over 50k miles equates to. I can afford to buy/lease the car, but don't love $3500 service calls.
#6 of 545 Re: Good deal today [audifreak21]
Nov 24, 2004 (8:37 am)
"But getting a $35k or $60k car for half the payment to buy per month usually is to tempting for people in our 'I want it now' society."
Agreed. But like beer, just cuz some can't handle it don't mean it's a bad idea.
"You give them thousands of dollars up front, rent the car and then buy it from them for a premium at the end...if you even buy it."
Usually, the trick is not to buy it and let THEM own the car for the overinflated residual.
"And if you don't you have nothing to show for it."
Sure you do. 3 years or so of trouble-free, fixed-price transportation. And if you get into a $5k accident, the diminished value is someone else's problem.
We own our cars, but as an example, I've got 14 payments left, at $555 per, on our 03 Sienna. If I'd'a leased it, the payment would have been $200 less per month, easily. And if Toyota would have kicked in a few incentives, it might have been $250/month... saving $300/month or a cool $11k. The numbers are ok, btw, Honda ran $260 per on the Odyssey recently.
So... the way I see it, it comes down to this: What do I want in my hand after 3 years... the title to a 3-year-old van, or $11k cash? It is not a trivial question, depends a lot on the details.
Hoping you're a little more careful with your advice in your chosen profession, I remain
Nov 24, 2004 (8:50 am)
I agree that the real debate is whether it's better (financially) to get a new car every three years, or buy and hold for a long time.
Once that decision is made, leasing just becomes a financing option (which in reality it always was).
The best thing that can happen with a lease is the residual was set way to high. That means you paid less to own the car the you really "should" have (in other words, you used more of the value than estimated), and you turn it in and walk away. If you would rather buy it out, find a different one for less in the open market, or negotiate a realistic buy price on your car (if possible).
Yes, if the residual is too low, you can buy for less than it's worth, but you already paid for the extra depreciation (that didn't happen), so at best you are getting your money back.
To me, leasing makes sense when the subsidized programs (ie, the $260 Odyssey EX) are too good to pass up, or you want to own a luxury car, but only under warranty.
#8 of 545 Re: Good deal today [steine13]
Nov 24, 2004 (9:58 am)
I am not a great fan on consumer leasing in general. In many cases, I have seen people get, well, fleeced. On the other hand, I have seen some pretty good deals for those people who drive ONLY newer vehicles.
My issue (and why I advise many against leasing) is that like most financial transactions, if you don't understand what you are doing, you will get taken every time. You better understand the concept of the capitalized cost, the imputed interest rate, how to terminate the lease, and the costs that will be incurred at the termination of the lease.
The people who get killed only seem to know one thing - the monthly payment. They sign up for 12k mileage leases when they commute 15k miles a year.
Nov 24, 2004 (10:19 am)
You are right that leasing is much more confusing to the average buyer, and that traditionally it has been much easier to pull what my be considered "sleight of hand" tricks to pad the bottom line (what was referred to above as fleecing).
Yes, people have to know what they are siging, but it is really easy to lose $$ on a lease contract, although maybe it got better with the regulations regarding disclosure (probably not if people still don't read).
That low payment really does suck you in, but at least with a lease, if the payment is comfortable and you can walk away at the end, you can't be too bad off (assuming you aren't way the heck over the mileage limit).
#10 of 545 I hate leasing...
Nov 24, 2004 (12:05 pm)
But we pulled the trigger on the 36 month lease on the wife's Explorer. Reasons:
1. The depreciation on Explorers makes buying them suicide.
2. Wife wasn't in love with it, but we needed something big and reliable. Babies (more specifically, the items that must accompany babies) take up ridiculous amounts of space.
3. Ford was running a ridiculously cheap lease deal. Plus we got A-plan through her dad.
She is in love with the new Freestyles, so we *may* buy one of those instead of lease next time. The goal, really, is to find a car you love enough to drive until after it's long paid off. I'm 2 years into a 5 year Maxima loan, and unless financial hardship hits I plan on driving that car for the remainder of the decade (the downside to Maximas is they're somewhat expensive to insure). It was a 1.9% loan so the money's cheap, and what a great car. I really can't see how I'd be happier with anything else. I ride in friends' Camries, Accords, Impalas, SUVs, etc., and they all pale in comparison to the Nissan. I think I'm going to be one of those people who, in 30 years, has owned 3-4 Maximas.