At what point does leasing a car become more economically sound than financing?

Discussion in 'The Garage' started by SunnyD, Nov 20, 2012.

  1. zephyrprime

    zephyrprime Diamond Member

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    That's because the answer is never. Leasing is never lower cost than purchasing after resale of the old car is taken into account.
     
  2. Ichigo

    Ichigo Platinum Member

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    People rent apartments.
     
  3. onza

    onza Diamond Member

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    ITT we talk about car leasing, not apartments.
     
  4. Genx87

    Genx87 Lifer

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    I think it depends on the car. I wouldnt buy a leased chevy or pontiac or ford. But I would buy a leased certified Audi, Lexus, or BMW. I currently am closing in on my 10th year of owning a previously leased 2001 A4. I got it with 27,500 miles, it has 223,760 miles on it and has cost me under 2500 dollars in repairs over a decade. It still looks really good but is starting to show some wear and tear on the engine. I plan to buy a new Mazda CX-5 in the spring. But I may go get a two year leased A4 for the same money.
     
  5. Elganja

    Elganja Golden Member

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    have you returned a lease? basing it off others?

    my first Acura lease was easy as pie to return... I suspect my 2nd one will be just as easy (wasn't in sequence... had one for 3 years, had a different car for 2 years, then leased an Acura again)
     
    #30 Elganja, Nov 20, 2012
    Last edited: Nov 20, 2012
  6. Slew Foot

    Slew Foot Lifer

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    When you're incorporated as a business and can write off the value of the lease
     
  7. OverVolt

    OverVolt Lifer

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    Average homeownership is 5 years and you are paying mostly interest into a financial black hole during that time. It isn't much different.
     
  8. KIAman

    KIAman Diamond Member

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    I did say used is the best option, I was listing out the risks. Also, a carfax won't tell you how a car was actually treated. You won't know if the chump before you went WOT every stoplight, for example.
     
  9. spidey07

    spidey07 No Lifer

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    When the car is expected to be worth more than the redisual, and the money factor/interest rate on the lease is lower than your investment returns and/or financing it makes more sense to lease.

    A lease is really just a different kind of loan, and based on interest rate it can make better financial sense provided you are prudent enough to make your money make more money for you elsewhere. It's the same reason you should NEVER pay off a mortgage with today's rates...it makes much more financial sense to have the longest term possible at a low rate.

    The lower payment on the lease (remember, it's really a loan) means you can invest more each month and the compounding nature yields greater net worth over time. It's foolish to think about personal finance as money in vs. money out - think about what would increase your net worth over the long haul.
     
  10. rcpratt

    rcpratt Lifer

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    Obviously, leasing is generally worse financially than buying. However, at today's low rates and high resale values, leasing is hardly that much worse than buying. It's impossible to quantify, but it's close enough that personally, I don't feel bad leasing. I'm willing to pay that premium for a new car. Everyone has to value that separately.
     
  11. DrPizza

    DrPizza Administrator Elite Member Goat Whisperer
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    Uh, wouldn't low interest rates & high resale values be a reason to increase the value of purchasing the vehicle vs. leasing?

    Anyway, to answer the OP's question, "more economically sound" - it isn't for economic reasons. But, in some situations, economic reasons can be outweighed by other considerations, such as preference for a newer vehicle.
     
  12. spidey07

    spidey07 No Lifer

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    Or if the interest rate on the lease is less than the financing interest. It happens thanks to special programs/incentives. You lease depreciating assets and buy appreciating ones. A car is a depreciating asset.
     
  13. halik

    halik Lifer

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    If you enjoy paying the highest depreciation rate continuously.

    There are some exceptions like small business tax benefits, but that's about it.
     
    #38 halik, Nov 20, 2012
    Last edited: Nov 20, 2012
  14. halik

    halik Lifer

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    The leasing companies are in the business of making money on that spread, so the residual will be on par with what you paid for in the expectation. They have far more information and better models to price out the residual than you, so it would be foolish to go into a lease with the expectation that you'll come out on top.
     
    #39 halik, Nov 20, 2012
    Last edited: Nov 20, 2012
  15. spidey07

    spidey07 No Lifer

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    Meh, I've been on top every time I lease.
     
  16. soccerballtux

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    You can lease a decked out Kia Optima EX or something for $200/month. For a $35k car, that's a killer deal IMO.

    I don't expect they will keep that up for the next 10 years otherwise I would just do that, but for the next 3 years it's a great deal to take advantage of.
    Obviously they doing it to get mindshare and exposure to their cars.
     
    #41 soccerballtux, Nov 20, 2012
    Last edited: Nov 20, 2012
  17. CA19100

    CA19100 Senior member

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    I strongly encourage everyone I know to lease vehicles.

    That way I I'll have a wider selection of 2-year-old lease turn-ins with low mileage when I'm ready to buy. :whiste:
     
  18. hans007

    hans007 Lifer

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    leasing is generally not going to be a deal you win if you are good at math / do research. car companies are good at math, they aren't giving you a deal they are just giving people more numbers to fill their heads with usually. anyway here is my 2 cents, its gonna be a long read hahah

    when you lease they do calculate the residual and obviously that is how they calculate your monthly. and then they are conservative on this, so you lose on this transation unless residuals plummet in the say 3 years you own said vehicle.

    for example, you lease a $20k car and they project it has a 50% 3 year residual on say 12k miles. its 3 years of payments + money up front is $10k. you just paid $280 a month.

    of course you wont actually pay $280. since the car dealer is taking all the risk should residuals plummet to say 40% (and this has happened say in 2008 when gas prices spiked, SUV residuals were way way lower than people who leased in 2005 predicted and dealers got ass raped) they probably will charge you extra.

    leasing is effectively insurance against a drop in residuals. so say they charge you $300 a month (instead of $280, because the $20 is the dealer insuring themselves of an unexpected residual hit etc) for a car with projected 50% residual in 3 years that costs $20k up front. assuming you drive exactly the miles you contracted for (which obviously factors into the residual) then you realistically are only paying them the $20 a month to put the risk on them should the residusal fail.


    i mean think of it this way. if you could tell the future and knew for sure in 3 years the car would be worth $10k why wouldnt you just buy it now for $20k, and sell it in 3 years for $10k , drive it for 3 years the same number of miles as the lease, but give yourself the option of say keeping it more than 3 years, or less than 3 years (sya you get a way way better job and want to upgrade) while also saving $20 a month ($720 hypothetically could be more could be less i havent done THAT much research on how leases go with say a camry to know). if you could tell the future there'd be no point to leasing right? so leasing is just like car residual insurance. not leasing the car would also give you the option of exceeding a yearly miles quota if say your lifestyle / job changes. you can't really renegotiate a lease so you'd get stuck with the milage overages. buying gives you flexibility in length of ownership and miles used, but sticks you with the consequences of owning car longer / driving it more (i.e. more depreciation)

    now a lot of people get fooled by things like money factors (which is basically implied loan interest... which can say be an implied 6-7% in a near 0-1% environment but many many people are really bad at math and dont understand this). so the one way you could get even more screwed on a lease is if car residuals actually go up while you own your car.


    for example, i bought a 2010 A4 at the start of january 2010. at the time the lease residual on it was 51% for 3 years. so i just bought the car since i drive a lot of miles and wasnt sure i'd get a new one in 3 years. so 3 years go by and residuals right now are in the 58% range. i'd guess residuals are up because the economy is slightly better than after the horrible stock market of 2009, that and in my case, audi's desireability as a brand seems a bit more these days than 3 years ago.

    So I happen to in fact be in the market for a new car, so given the weirdness in the used car market right now, i actually will do much better than the leases i could get in january 2010, by buying the car outright in 2010 and selling it now 3 years later. i calculated it out and ill probably end up better off by about $100 a month (just so happens to be 35 months or so ) compared to leasing a car with the type of milage i ended up using. so in this case not only did i not have to insure against prices falling, i actually got some upside on the rise in future used car prices.

    granted i took the risk (like say if audi's started killing people randomly and residual dropped to 25% i'd be screwed right?) . on a lease, i would just turn it in and not had to do the math.

    so yeah thats my understanding of leases. i know theres some tax benefits to leases as well as its easier to calculate if you own a business (instead of say writing off car depreciation vs, just your monthly lease payments) so there is that benefit of leases being easier to write off. but if you dont own a business well... i tend to think leases are really only good for people who will in fact drive exactly the number of miles on the lease and are really afraid of not winning on the depreciation front over 3 years.

    leasing is just anothe rway to spin a dumb persons mind around with more numbers and options and it LOOKS cheaper because buying costs more up front. but overall i think leasing generally does not work out for people (at least smart people who do research, and like know how to do math / figure out depreciation on cars).

    one point i can think of with leases that might pay off really well is if you buy say a 3 years lease on a car and that cars model changeover happens during your lease. not sure most leases account for this. but say you leased i dont know, a 2013 lexus IS. the lexus IS is going to be brand new next year and generally this causes a much larger hit to residuals than just a normal year of same body style. so if you sell a paid for 2013 lexus IS in 2016, itll probably take a larger hit, compared to say selling a 2010 in 2013. food for thought i guess.
     
    #43 hans007, Nov 21, 2012
    Last edited: Nov 21, 2012
  19. Railgun

    Railgun Golden Member

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    You`re assuming the audience for that post want a car for the life of the car. There`s no point to leasing a car with the intent to buy after the fact. That`s where you end up getting screwed. If I want a car for two to three or even four years, and want to dump it, I`m going to lease.

    Additionally, it also depends on the terms of the lease. Increasing mileage allowance doesn`t change the price as dramatically as you`d think so for those high mileage drivers, it`s really a non issue.
     
  20. Ferzerp

    Ferzerp Diamond Member

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    When you want to change cars often and your lease costs less than the depreciation of the vehicle over the term of the lease.

    It's never sound financially, but if you're going to be swapping cars that often anyway (I do it, but I don't pretend that it's the right decision fiscally, but I don't lease), and you can get a lease that costs less than the hit you would take on depreciation if you purchased the vehicle, it will cost you less.
     
  21. Pulsar

    Pulsar Diamond Member

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    No on the time extension, because you can get loans to purchase a car for 1 - 1.99%: less than inflation.

    The math is simple folks. Do a Fusion for instance.

    2012 Fusion
    Buy: $29555: finance at 1.99% over 3 years: Total Paid is 29555 + 915.49 = $30,470.49
    Lease: 3 month lease, nothing down, $594 / month. You'll pay $21,384. Residual is $13,300.

    You've lost $4,300 in 3 years. Of course, from there it only gets worse. Get a new lease car and figure it out to 5 years and you lose around another $14k.

    Of course, that's assuming no maintenance. So let's say you get a really sucky car when you buy it and pay $5k in maintenance over the first 5 years. You still comes out $13,300 ahead.

    There's just no arguing it. Leasing sucks if you want to save money. If you want a new car every three years and can't afford to pay your vehicle off, then it makes sense. If, however, you want a new car every three years and you CAN pay it off on a loan, then you're still losing money.
     
  22. spidey07

    spidey07 No Lifer

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    You fail to take investment income in you calculations in the difference. But you guys go ahead and loom at the short term money and not the long term. I'll keep leasing.

    You probably think paying down a mortgage or doing 15 year is a good move as well. Good luck.

    I can lead you to water. But you'll never drink. At these rates it's free money.
     
  23. Pulsar

    Pulsar Diamond Member

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    Yeah.... about that.

    Hate to break it to you, but the vast majority of Americans can't afford a 15 year loan on a house. Nor can they 'afford' a new car. That's why most lease, or buy used. What your smug, self-righteous attitude failes to take into account is that a lot of people can't sustain an investment loss.

    Yeah, yeah, we know you make the 'big bucks'. Most don't. And for most, like me, an investment loss any sizeable amount means one of my kids may not go to college. Or I take out a loan and work an extra 10 years to pay it off. I can't risk that.

    Just because you have the disposable income and are young enough to * around and take changes doesn't mean we all are. I'd hate to see your bank account if something went south on you (for instance losing your job), and you had all those loans outstanding. That's how a whole lot of 'have's' lost their homes in the last go-around. Over-leveraging and undersaving. You keep preaching it though, brother.
     
  24. spidey07

    spidey07 No Lifer

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    Again. You fail to realize that increasing ones net worth allows one to absorb set backs.

    Make your money make more money for you.

    I'm losing my job in 8 years. I'm retiring before age 50.

    How can I do this? It's by making my money make more money for me. Free money.

    Suit yourself. Just trying you make y'all richer.
     
    #49 spidey07, Nov 21, 2012
    Last edited: Nov 21, 2012
  25. vi edit

    vi edit Elite Member <br> Super Moderator
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    Or how about we use an Accord:
    http://automobiles.honda.com/curren...edan&offerid=65275&modelid=CP2F7CJW&sf=2&ft=1

    $2000 down
    $219 month/36 months = under $10,000 in payments with a buyout of $13,500 on a nearly $26,000 car.

    Terrible deal? No, not really.