Buy or lease?

[GrantMeThePower]

So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

 

[Descartes]

It entirely depends on your financial situation and the deal you're getting for the lease/purchase. A lease deal for a low-residual car extending 5 years with $4k down probably isn't a good deal, but neither is a 6 year note on a car at 18%. In other words, you didn't give us enough information.

You'll probably hear a lot of people say, "But if you lease the car isn't really yours." That's a nonsensical argument, and for many people leasing can often be financially advantageous. You have to look at your situation and crunch the numbers.

 

[GrantMeThePower]

Well it would be a 3 year lease with 3K down and I COULD swing the car cash. BUT if i lease, then i could invest the money...so thats one reason why its hard.

 

[Gunslinger08]

Here's how you figure it out:
Lease: Down payment + (lease payment * # of payments) = total paid
Buy: (loan payment * # of payments) - resale value = total paid

Now, the money isn't going to be as simple as this in most cases. A majority of car leases have a limit on mileage with an expensive $/mile over this limit. You will probably keep your purchased car for longer than it takes to pay off. Etc.

 

[compuwiz1]

Depending on your portfolio, a good rule of thumb for people with high yield investments, is keep your money working for you. Buy what appreciates and lease what depreciates.

In a typical case, a six year loan might run you about $16.50 per thousand borrowed. So, just figure $165 for every $10,000 your loan. A $50,000 loan will cost you almost $800 per month. If taxes and fees come out to about $5000 on such a car, you will either need to put that down, or add it to the finance balance, driving the payment even higher.

If you are one who likes, or needs to turn a car over every 3 years, you will typically have no equity at the end of year 3, on a 6 year note. So while most people may think they are buying, at the end of year 3, they own nothing.

The higher the residual value, generally the lower the payment. So, if you can find an attractive lease, which gives you a payment of $450 per month, as an example, that might be the best way to go.

Do not ever do a 5 or 5 1/2 year lease! I don't care what anyone tells you. It's a bad deal. If you need to do a lease that long to get to your payment, you simply should not be looking at so much car.

joshsquall depreciation must be factored in. The difference between a vehicle's MSRP and residual value can be an indication.

 

[MixMasterTang]

With BMW's resale and their 50,000 mile service/warranty I think buying and then selling after 3 to 4 years would be the best option unless you get a really sweet lease deal. How long do you plan on keeping the car and how many miles do you put on a year?

 

[XZeroII]

95% of the public should not lease. There are very good reasons to lease, but it is a horrible deal for most people. Unless you are planning on leasing cars for the rest of your life (or at least > 10 years), then you should not consider leasing. Otherwise, just pay cash.

 

[compuwiz1]

One question one must ask before committing to a lease, is whether is is based on an APR, or a money factor. Find out what the APR is. If it's a money factor, find out what it is and multiply that figure x 2400. That should give you a good idea of what the cost of the money is.

 

[GrantMeThePower]

Originally posted by: MixMasterTang
With BMW's resale and their 50,000 mile service/warranty I think buying and then selling after 3 to 4 years would be the best option unless you get a really sweet lease deal. How long do you plan on keeping the car and how many miles do you put on a year?

I guess I'd plan on keepinng it like 5 years or so. My last bmw (m3) i had for 8 years just because i loved it SO much.

I put on between 13-15K per year.

EDIT- BUT THAT SAID, I would still like a new car every three years who wouldn't?

 

[GrantMeThePower]

Originally posted by: compuwiz1
Depending on your portfolio, a good rule of thumb for people with high yield investments, is keep your money working for you. Buy what appreciates and lease what depreciates.

In a typical case, a six year loan might run you about $16.50 per thousand borrowed. So, just figure $165 for every $10,000 your loan. A $50,000 loan will cost you almost $800 per month. If taxes and fees come out to about $5000 on such a car, you will either need to put that down, or add it to the finance balance, driving the payment even higher.

If you are one who likes, or needs to turn a car over every 3 years, you will typically have no equity at the end of year 3, on a 6 year note. So while most people may think they are buying, at the end of year 3, they own nothing.

The higher the residual value, generally the lower the payment. So, if you can find an attractive lease, which gives you a payment of $450 per month, as an example, that might be the best way to go.

Do not ever do a 5 or 5 1/2 year lease! I don't care what anyone tells you. It's a bad deal. If you need to do a lease that long to get to your payment, you simply should not be looking at so much car.

joshsquall depreciation must be factored in. The difference between a vehicle's MSRP and residual value can be an indication.

What if you COULD pay cash for the car (no payments) or you could lease and invest that money?

 

[spidey07]

Originally posted by: GrantMeThePower
What if you COULD pay cash for the car (no payments) or you could lease and invest that money?

Depends on your return on investment and the lease factor.

In other words - it depends on your situation. I'm a big fan of leasing a car, but there is a risk. Things can change and your mileage requirements aren't set in stone.

 

[compuwiz1]

Originally posted by: GrantMeThePower

Originally posted by: compuwiz1
Depending on your portfolio, a good rule of thumb for people with high yield investments, is keep your money working for you. Buy what appreciates and lease what depreciates.

In a typical case, a six year loan might run you about $16.50 per thousand borrowed. So, just figure $165 for every $10,000 your loan. A $50,000 loan will cost you almost $800 per month. If taxes and fees come out to about $5000 on such a car, you will either need to put that down, or add it to the finance balance, driving the payment even higher.

If you are one who likes, or needs to turn a car over every 3 years, you will typically have no equity at the end of year 3, on a 6 year note. So while most people may think they are buying, at the end of year 3, they own nothing.

The higher the residual value, generally the lower the payment. So, if you can find an attractive lease, which gives you a payment of $450 per month, as an example, that might be the best way to go.

Do not ever do a 5 or 5 1/2 year lease! I don't care what anyone tells you. It's a bad deal. If you need to do a lease that long to get to your payment, you simply should not be looking at so much car.

joshsquall depreciation must be factored in. The difference between a vehicle's MSRP and residual value can be an indication.

What if you COULD pay cash for the car (no payments) or you could lease and invest that money?

If you could get a much less payment on a 3 year (Max) lease, I would lease and invest the difference. Keep in mind, you do not pay sales tax, up front, on the full value of the car. You only pay tax on your downpayment (that's the part you buy up front). You pay tax on the payment, not the entire price of the car. Depending on what you do, you might also have tax advantages. A 3 year lease also means, new car every 3 years. If you're a person who always has had a car payment, and would like a new car every few years, leasing could very well be the way.

 

[ultimatebob]

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

 

[compuwiz1]

Originally posted by: ultimatebob

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

You only pay a mileage penalty, if you actually return the car at the end. If you sell it or trade it, not a problem. Most people know how many miles they drive. Don't go with a 12k per year lease, if you know you are borderlined...take a 15k.

 

[ultimatebob]

Originally posted by: compuwiz1

Originally posted by: ultimatebob

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

You only pay a mileage penalty, if you actually return the car at the end. If you sell it or trade it, not a problem. Most people know how many miles they drive. Don't go with a 12k per year lease, if you know you are borderlined...take a 15k.

I once had a 10 mile round trip commute to work, and then suddenly got transferred to a location 55 miles away just six months into the lease on my Audi. By the time I finally moved to the new location, my mileage was used up and I ended up having to buy the car at the end of my lease.

Needless to say, my opinion on leasing has dimmed somewhat.

 

[Nutdotnet]

Originally posted by: compuwiz1

Originally posted by: ultimatebob

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

You only pay a mileage penalty, if you actually return the car at the end. If you sell it or trade it, not a problem. Most people know how many miles they drive. Don't go with a 12k per year lease, if you know you are borderlined...take a 15k.

I'm surprised how many people are confused on the mileage penalties.

Like CW1 said, they only apply if you return it @ the end of the list. Just re-finance the remainder amount and sell it private party. Sure, it may be a bit of a PITA but it sure beats throwing $$$ away.

I <3 leasing. I put on far less then 12k per year and I prefer to invest in appreciating assets. My current lease was a fantastic deal...I pay $18 in rent charges (basically the same as interest) over the LIFE of the lease...39-months. At the end, I'll probably re-finance, sell it for more than what I owe, and make some $$$ back.

 

[compuwiz1]

Originally posted by: Nutdotnet

Originally posted by: compuwiz1

Originally posted by: ultimatebob

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

You only pay a mileage penalty, if you actually return the car at the end. If you sell it or trade it, not a problem. Most people know how many miles they drive. Don't go with a 12k per year lease, if you know you are borderlined...take a 15k.

I'm surprised how many people are confused on the mileage penalties.

Like CW1 said, they only apply if you return it @ the end of the list. Just re-finance the remainder amount and sell it private party. Sure, it may be a bit of a PITA but it sure beats throwing $$$ away.

I <3 leasing. I put on far less then 12k per year and I prefer to invest in appreciating assets. My current lease was a fantastic deal...I pay $18 in rent charges (basically the same as interest) over the LIFE of the lease...39-months. At the end, I'll probably re-finance, sell it for more than what I owe, and make some $$$ back.

There are some cars, where you might find yourself ahead at the end. Don't count on it. Cars are generally written off as depreciating assets. Not sure why people say that, because something that depreciates is not an asset.

 

[iversonyin]

Originally posted by: compuwiz1

Originally posted by: Nutdotnet

Originally posted by: compuwiz1

Originally posted by: ultimatebob

Originally posted by: GrantMeThePower
So I'm going to get a new car (3-series) and I'm trying to decide what is better-buy or lease. I will be getting about 27K for my current car. The new one will be 34K.

Whats better and why?

I wouldn't get a lease unless you have a crystal ball and can be CERTAIN that your commute will not change over the next few years. If you end up having to take a job further away, you will get killed by mileage charges or early termination fees.

You only pay a mileage penalty, if you actually return the car at the end. If you sell it or trade it, not a problem. Most people know how many miles they drive. Don't go with a 12k per year lease, if you know you are borderlined...take a 15k.

I'm surprised how many people are confused on the mileage penalties.

Like CW1 said, they only apply if you return it @ the end of the list. Just re-finance the remainder amount and sell it private party. Sure, it may be a bit of a PITA but it sure beats throwing $$$ away.

I <3 leasing. I put on far less then 12k per year and I prefer to invest in appreciating assets. My current lease was a fantastic deal...I pay $18 in rent charges (basically the same as interest) over the LIFE of the lease...39-months. At the end, I'll probably re-finance, sell it for more than what I owe, and make some $$$ back.

There are some cars, where you might find yourself ahead at the end. Don't count on it. Cars are generally written off as depreciating assets. Not sure why people say that, because something that depreciates is not an asset.

If you use your car for joy, then its not an asset. If you use your car for work (generating revenue), then it is an asset.

 

[GrantMeThePower]

Well I do live close to work (and i really dont see that changing) but I drive a lot for pleasure. i dont think i could write off any of it.

It does sound like leasing has its financial upsides, but it sounds confusing and difficult and not THAT much better than buying, unless I'm misunderstanding something.

I guess I also dont see why, if I'd be planning on buying it at the end of the lease, why I wouldn't just buy it up front.

 

[mugs]

Originally posted by: compuwiz1
There are some cars, where you might find yourself ahead at the end. Don't count on it. Cars are generally written off as depreciating assets. Not sure why people say that, because something that depreciates is not an asset.

Sure it is in the accounting sense of the word. Some people consider assets to only be things that make you money, but that's not really right.

One problem with leasing is that people use it as a way to afford a car that they can't really afford. If you can't afford to buy it, you should consider the lease out of your price range as well.

 

[compuwiz1]

Originally posted by: GrantMeThePower
Well I do live close to work (and i really dont see that changing) but I drive a lot for pleasure. i dont think i could write off any of it.

It does sound like leasing has its financial upsides, but it sounds confusing and difficult and not THAT much better than buying, unless I'm misunderstanding something.

I guess I also dont see why, if I'd be planning on buying it at the end of the lease, why I wouldn't just buy it up front.

I leased 7 cars in a row, 4 of them for 24 mos., and the other 3 for 36 mos. I bought, when I could get 0% financing. I figured at no interest, I could committ to a 5 year contract, and by the time I got done with my payments, they would still be pretty good cars.

 

[GrantMeThePower]

Originally posted by: compuwiz1

Originally posted by: GrantMeThePower
Well I do live close to work (and i really dont see that changing) but I drive a lot for pleasure. i dont think i could write off any of it.

It does sound like leasing has its financial upsides, but it sounds confusing and difficult and not THAT much better than buying, unless I'm misunderstanding something.

I guess I also dont see why, if I'd be planning on buying it at the end of the lease, why I wouldn't just buy it up front.

I leased 7 cars in a row, 4 of them for 24 mos., and the other 3 for 36 mos. I bought, when I could get 0% financing. I figured at no interest, I could committ to a 5 year contract, and by the time I got done with my payments, they would still be pretty good cars.

So wouldn't that be like in my case where I could buy w/o financing? (i.e no interest payments) or am i missing something again?

 

[iamwiz82]

I like leasing when I can get good deals thrown at me. What are the monthly payments of each?

Personally, our two new vehicles are both leases. We put nothing down on Lola's, while I put down the first month's payment and title/license. Her vehicle stickered at $26k and costs us $189/mo. mine was $32k and costs us $206/mo. Since we like frequently getting new cars, it's a win-win situation.

On the other hand, we looked at a Mazda CX7 with a $26k sticker and they wanted $325/mo for a lease with $2000 down. Insane, IMHO. I could buy it for not much more per month.

 

[mugs]

Originally posted by: GrantMeThePower

Originally posted by: compuwiz1

Originally posted by: GrantMeThePower
Well I do live close to work (and i really dont see that changing) but I drive a lot for pleasure. i dont think i could write off any of it.

It does sound like leasing has its financial upsides, but it sounds confusing and difficult and not THAT much better than buying, unless I'm misunderstanding something.

I guess I also dont see why, if I'd be planning on buying it at the end of the lease, why I wouldn't just buy it up front.

I leased 7 cars in a row, 4 of them for 24 mos., and the other 3 for 36 mos. I bought, when I could get 0% financing. I figured at no interest, I could committ to a 5 year contract, and by the time I got done with my payments, they would still be pretty good cars.

So wouldn't that be like in my case where I could buy w/o financing? (i.e no interest payments) or am i missing something again?

No... paying $X up front is not the same as $X over 5 years... I assume you knew that, because you said this previously:

then i could invest the money

So I'll give you the benefit of the doubt and assume you're just confused.

 

[vi edit]

Depends on the car/deal. You could lease an Accord for about 9 years (3 seperate leases) for about the same amount as you spend on a new one and upkeep it over that time. (($199 month x 108 = $21,500) + $6000 = ~ $27,500). That's on a $23,000 Accord SE V6. Figure in a little bit of interest accrued in the financing and the maintenence costs and you are about even.

All you really have to do with the lease is put gas in the tank and change the oil. Rotate the tires a couple times. Nothing else would ever have to be done to it. That's a new car every three years for 9 years/72,000 miles. That's a tough deal to beat.

My wife's Highlander is much the same way. We could lease it 3x over for about the same amount as what a new one would cost to buy.

If you take care of your cars and like something new every few years there are some very smart deals out there.