What are your thoughts on leasing a car?

[Zenmervolt]

Personally, I drive too much. If you go over the mileage limit there are hefty fines, etc. Plus if something happens to the car there could be problems.

ZV

 

[ynot167]

Originally posted by: Tyler
What's with all this "spend beyond your means" stuff? If you can afford the payments, it's not beyond your means, obviously.

Look. If you are budgeted to spend 200/mo on leasing a Passat that is 25000 vs. financing a car for 200/mo on a 12000 car, then to me, that's spending beyond your means.

The reason is because you'd (not just you) rather drive that more expensive car than that smaller economical car that does just the same thing (it gets you from point a to point b).

By the end of the lease, you'll have to give the car back. And then what? NO MORE CAR

Don't take this as an insult...just advise. Good luck!

 

[kt]

Originally posted by: Ameesh
its ridiculous how many people in this thread dont understand the simple fact that cars depreciate in value.

at the end of the 3 years the money youve put in the "purchase payments" and the money i put into my "lease payments" maybe equal but niether of us have anything to show for it. your money is gone through the depreciation of the vehicle, you didnt gain a damn thing!

more then likely the payments for a lease will be alot less then a payment for a purchase especially if you get a nicer car that doesnt depreciate fast.

again each situation is different, you have to compare the apr to the money factor and work the numbers but in the most part, if you get a nicer car you are better of leasing.

case in point: all my uncles are all succesfull doctors, they can afford to buy there cars right off but they all choose to lease, 1 of them just got a brand new 745iL on lease, he could easily pay cash for 5 of them if he wanted but he realizes the value and flexibility a lease gives you.

i think everyone knows the value of a car depreciates. there are only 2 reasons for you to go with a lease:

1. you're planning to change to another car.
2. you're writing it off on your tax.

otherwise, lease is just not worth it.

 

[JeffreyLebowski]

If you believe in Leasing, then, you are a car salesmens dream. You cannot haggle the price of a lease, if your lease is over the basic warranty, then you MUST get the extended warranty from the dealership before you take possesion of the vehicle, and believe it or not, not all vehicles can be(read will be leased) usually you will be forced into the top of the line model.

Some leases even state that if the vehicle has been in an accident and repaired, you are responsible for the depreciation of value due to the accident, and insurance doesn't cover this(or GAP) that they will make you buy.

And the only way to get into a 0 down lease is if you have perfect credit. And leasing usually doesn't add to your credit as you are not purchasing the vehicle.

 

[dullard]

For the vast majority of people, leasing is one of the worst things you can do monetarilly. However, there is one thing that is even worse: repeatedly buying and selling new cars within a 2-3 year time frame (this is the case Ameesh is talking about). If that applies to you, then you lose so much money on depreciation that you are wasting your money away. So if you really need a new car every two years, choose the leasing option as it is the lesser of two evils. But if that doesn't apply to you, in almost every case buying will be cheaper in the long run (sadly Ameesh ignores all these cases).

 

[waggy]

Originally posted by: Ameesh
its ridiculous how many people in this thread dont understand the simple fact that cars depreciate in value.

at the end of the 3 years the money youve put in the "purchase payments" and the money i put into my "lease payments" maybe equal but niether of us have anything to show for it. your money is gone through the depreciation of the vehicle, you didnt gain a damn thing!

more then likely the payments for a lease will be alot less then a payment for a purchase especially if you get a nicer car that doesnt depreciate fast.

again each situation is different, you have to compare the apr to the money factor and work the numbers but in the most part, if you get a nicer car you are better of leasing.

case in point: all my uncles are all succesfull doctors, they can afford to buy there cars right off but they all choose to lease, 1 of them just got a brand new 745iL on lease, he could easily pay cash for 5 of them if he wanted but he realizes the value and flexibility a lease gives you.

Everyone understands deprecation. I?m sure nobody here thinks that there car is worth even close to what they paid for it 3 years down the road (granted some more then others).

The example you gave is great for leasing. They have the extra money and want a new car every few years. My sister is the same way (but without the extra money heh). She wants a new car every few years. So leasing is a good idea for them.

For most people a lease is not a good idea. If you plan on keeping the car more then 3 years then there is no reason to not buy it.

The only times I see leasing as a good idea is when you either want a new car every other year or you want a nicer car then you can afford and don?t mind wasting money.

 

[Electric Amish]

If you're worried about depreciation, buy a used car.

amish

 

[Vic]

If it is an expensive luxury car, lease it. If it isn't, buy it. The ratio of depreciation against the total value of the car is the key. Luxury cars have lower depreciation ratios (they depreciate less as a percentage of the total original value of the car), so it makes sense in that case to lease rather than buy.
The other reason why people should not lease less expensive or economy cars is because of buyer demographic. If you're leasing because you could not otherwise afford to buy the car, then for God's sake you should buy a different, less expensive car, probably used.
There is also personal preference in this issue. Personally, I prefer to buy my cars, because when I pay for something, I like to own it.

 

[Armitage]

Originally posted by: conjur

Originally posted by: ergeorge
IMHO, with rare exceptions, it is among the worst personal finance decisions you can make.

You have nothing to show for your cash when the lease is up.

You pay insurance on a newer/more expensive car then you might otherwise buy. Consider "gap" insurance if you total it and the insurance company gives you less then the elase residual.

Run the risk of getting shafted on damage or mileage on return ... or have it sitting in the garage a few months before return so you don't go over.

Take the same amount and buy a decent used car that you can afford ... drive it for a few years past the when its paid off and you'll be ahead of the game.

of course, it's no fun to live within you means right?

Ok...you purchase a car, say, a Honda Accord EX and finance $20,000 over 60 mos. and have payments of, oh, $375 (at 4.9%). And, let's assume the total purchase price ($23,500) + taxes ($1,410), title/fees ($90) was $25,000 so you put down $5000.

I lease the car at an equivalent APR but put $0 money down...nothing out of pocket (as many leases can be done these days). So, I'm going to lease a $23,500 car for 48 mos. Let's assume a residual of about 45% (that's probably low for an Accord EX). So, the amount financed is $15,000. $15,000 for 4yrs at 4.9% is $330. Now, add on the 6% tax and the lease payment is roughly $350. So, I'm saving $25/mo. for 48 mos ($1200) plus I still have the original $5000 that I didn't put down when I bought the vehicle.

Now, 4 yrs later you still owe $4500. The residual value on the vehicle is $10,575 for the lease but if you were to trade the car in you'd be lucky to get what you owe on it after 4 years (dealers only give wholesale/auction value for trade-in).

So, after 4 yrs in a regular finance you've spent $5,000 + $18,000 = $23,000 and have nothing to show at trade (just a wash). In the lease, only $16,800 has been spent (a savings of $6,200!) and I'm no worse off than the person who financed and wants to trade after 4 years. Now, I have the option of financing the residual ($10,575) for, let's say, 2 years at 4.9% which is $463/mo or another $11,123 for a total outlay of 27,923. The original finance still has $4500 to go above the original $23,000 spent which brings a total of $27,500 over 60 mos. The only benefit is it's paid off one year sooner and cost only $423 less (leasing and financing the residual took 72 mos. to pay off and only cost $423 more).

Now, there's some play, obviously, in that scenario but it's rather accurate.

Leases are not as bad as they used to be (the old days of acquisition fees, disposition fees, etc. are gone). And, American Honda includes gap insurance in the lease so that's not an extra cost.

The benefit here is that leasing allows someone to buy a nicer car for little or no money down or buy an even better car by putting money down. If you plan on getting a new car every 3-4 years, leasing is defintely an attractive option.

A small nit ... you're very unlikely to get 4.9% on a used car loan. Probably closer to 7%

In any case ... lets look at the longer term ... say 10 years.
Let's start here
You've gone through 2 and a half 48 month leases ... 120 * $290 = $34800 for the ten year total

I bought the same car $21019 + 4% tax = $21859, $5K down and finance the rest for 48 months @ 5% gives a payment of $388.27 for a total of $23636.96.

Now lets get into the nits.

I keep making those $388 deposits into my savings account for those extra 6 years ... at a lousy 3% interest rate, I've made about $2500 in interest, and have about $30K in the bank.

You can put the $5K downpayment and the difference between your lease payments and my loan payments in the bank. At 10 years you'll have made about $3700 interest and have about $20500 in the banck

A rule of thumb for car depreciation is 15% a year, with an extra 10% the first year. So my car is still work on the order of $3500. Actually I just looked up my 10 year old Honda Civic, and NADA says it's still worth about $3K ... not bad for a car paid $12K for at 1 year old.

In that time, I'll expect 2 major repairs at $800 each (my Honda has only had one in that range) so - $1600.

So at 10 years:

Buying: -23636 - 1600 + 3500 + 30000 = +8263
Leasing -34800 + 20500 = -14300
Difference: $22,563

In reality, it's even worse then that.

My insurance & taxes have dropped steadily with the value of the car. I'll probably drop comprehensive around the 7 or 8 year point to save some more. You'll be paying new car tax & insurance the whole time. That will be several hundred a year difference by the last few years.

I would probably by the car at a year or so old and save the 25% depreciation hit in the first year.

And, I will likely keep the car longer then 10 years. My Honda is still solid ... I expect another 3 or 4 years on it.

Of course it's always personal choice ... having a new car is not important to me. Traveling, having a nice house, money for my hobbies, some stash in the bank is.

 

[conjur]

Originally posted by: JeffreyLebowski
If you believe in Leasing, then, you are a car salesmens dream.

Somewhat true. But, my sister leased an '03 Honda Civic that went out at invoice and I made $0 on it (not that I wanted to make money off my sister )

You cannot haggle the price of a lease

False. You can haggle the purchase price of the vehicle just as you when financing. The only thing frozen is the residual value.

if your lease is over the basic warranty, then you MUST get the extended warranty from the dealership before you take possesion of the vehicle

False. I leased a vehicle here and there that did not have warranties covering the entire length of the lease

and believe it or not, not all vehicles can be(read will be leased) usually you will be forced into the top of the line model.

Again, false. Where do you get this stuff???

Some leases even state that if the vehicle has been in an accident and repaired, you are responsible for the depreciation of value due to the accident, and insurance doesn't cover this(or GAP) that they will make you buy.

Ok...and that's unexpected how? Gap insurance will cover losses if a vehicle is totaled.

And the only way to get into a 0 down lease is if you have perfect credit. And leasing usually doesn't add to your credit as you are not purchasing the vehicle.

Once again, false.

 

[conjur]

Originally posted by: ergeorge

Originally posted by: conjur
Ok...you purchase a car, say, a Honda Accord EX and finance $20,000 over 60 mos. and have payments of, oh, $375 (at 4.9%). And, let's assume the total purchase price ($23,500) + taxes ($1,410), title/fees ($90) was $25,000 so you put down $5000.

I lease the car at an equivalent APR but put $0 money down...nothing out of pocket (as many leases can be done these days). So, I'm going to lease a $23,500 car for 48 mos. Let's assume a residual of about 45% (that's probably low for an Accord EX). So, the amount financed is $15,000. $15,000 for 4yrs at 4.9% is $330. Now, add on the 6% tax and the lease payment is roughly $350. So, I'm saving $25/mo. for 48 mos ($1200) plus I still have the original $5000 that I didn't put down when I bought the vehicle.

Now, 4 yrs later you still owe $4500. The residual value on the vehicle is $10,575 for the lease but if you were to trade the car in you'd be lucky to get what you owe on it after 4 years (dealers only give wholesale/auction value for trade-in).

So, after 4 yrs in a regular finance you've spent $5,000 + $18,000 = $23,000 and have nothing to show at trade (just a wash). In the lease, only $16,800 has been spent (a savings of $6,200!) and I'm no worse off than the person who financed and wants to trade after 4 years. Now, I have the option of financing the residual ($10,575) for, let's say, 2 years at 4.9% which is $463/mo or another $11,123 for a total outlay of 27,923. The original finance still has $4500 to go above the original $23,000 spent which brings a total of $27,500 over 60 mos. The only benefit is it's paid off one year sooner and cost only $423 less (leasing and financing the residual took 72 mos. to pay off and only cost $423 more).

Now, there's some play, obviously, in that scenario but it's rather accurate.

Leases are not as bad as they used to be (the old days of acquisition fees, disposition fees, etc. are gone). And, American Honda includes gap insurance in the lease so that's not an extra cost.

The benefit here is that leasing allows someone to buy a nicer car for little or no money down or buy an even better car by putting money down. If you plan on getting a new car every 3-4 years, leasing is defintely an attractive option.

A small nit ... you're very unlikely to get 4.9% on a used car loan. Probably closer to 7%

In any case ... lets look at the longer term ... say 10 years.

Ok...whoa...10 years? I would never advocate a lease longer than 4 years and, personally, I wouldn't do one over 3 years (think....no maintenance, no tires, no brake pads...EVER!)

And, it is definitely possible to get low APR on used vehicles. Honda had (might even still have) Certified Used vehicles at 4.9% (oldest I saw on the lot I worked was '99).

 

[Armitage]

Originally posted by: conjur

Originally posted by: ergeorge

Originally posted by: conjur
Ok...you purchase a car, say, a Honda Accord EX and finance $20,000 over 60 mos. and have payments of, oh, $375 (at 4.9%). And, let's assume the total purchase price ($23,500) + taxes ($1,410), title/fees ($90) was $25,000 so you put down $5000.

I lease the car at an equivalent APR but put $0 money down...nothing out of pocket (as many leases can be done these days). So, I'm going to lease a $23,500 car for 48 mos. Let's assume a residual of about 45% (that's probably low for an Accord EX). So, the amount financed is $15,000. $15,000 for 4yrs at 4.9% is $330. Now, add on the 6% tax and the lease payment is roughly $350. So, I'm saving $25/mo. for 48 mos ($1200) plus I still have the original $5000 that I didn't put down when I bought the vehicle.

Now, 4 yrs later you still owe $4500. The residual value on the vehicle is $10,575 for the lease but if you were to trade the car in you'd be lucky to get what you owe on it after 4 years (dealers only give wholesale/auction value for trade-in).

So, after 4 yrs in a regular finance you've spent $5,000 + $18,000 = $23,000 and have nothing to show at trade (just a wash). In the lease, only $16,800 has been spent (a savings of $6,200!) and I'm no worse off than the person who financed and wants to trade after 4 years. Now, I have the option of financing the residual ($10,575) for, let's say, 2 years at 4.9% which is $463/mo or another $11,123 for a total outlay of 27,923. The original finance still has $4500 to go above the original $23,000 spent which brings a total of $27,500 over 60 mos. The only benefit is it's paid off one year sooner and cost only $423 less (leasing and financing the residual took 72 mos. to pay off and only cost $423 more).

Now, there's some play, obviously, in that scenario but it's rather accurate.

Leases are not as bad as they used to be (the old days of acquisition fees, disposition fees, etc. are gone). And, American Honda includes gap insurance in the lease so that's not an extra cost.

The benefit here is that leasing allows someone to buy a nicer car for little or no money down or buy an even better car by putting money down. If you plan on getting a new car every 3-4 years, leasing is defintely an attractive option.

A small nit ... you're very unlikely to get 4.9% on a used car loan. Probably closer to 7%

In any case ... lets look at the longer term ... say 10 years.

Ok...whoa...10 years? I would never advocate a lease longer than 4 years and, personally, I wouldn't do one over 3 years (think....no maintenance, no tires, no brake pads...EVER!)

And, it is definitely possible to get low APR on used vehicles. Honda had (might even still have) Certified Used vehicles at 4.9% (oldest I saw on the lot I worked was '99).

No, not a 10 year lease. Leasing a car for 10 years. ie. three and a therd 36 month leases or two and a half 48 month leases. vs. buying one car and keeping it 10 years. The lease number I used was for 4 years. 3 years adds another $21/month and makes the final difference about $28K + even higher average insurance & taxes over the period.

 

[conjur]

Originally posted by: ergeorge

No, not a 10 year lease. Leasing a car for 10 years. ie. three and a therd 36 month leases or two and a half 48 month leases. vs. buying one car and keeping it 10 years. The lease number I used was for 4 years. 3 years adds another $21/month and makes the final difference about $28K + even higher average insurance & taxes over the period.

Ok....you mean continuing to lease various cars, not the same car?

I'll buy that. And many people do. Some people value having a new car every 3-4 years over keeping something for 10. I've had my Sebring convertible now for 6 years and I'm definitely ready for something else and will hand this down to my daughter when she reaches 17 in a little over a year. Now, me, otoh, will most likely look to lease something like an Audi A4 and then a few years later lease a different new car and on and on. I have no problem with paying a car payment each month for the privilege of driving a new vehicle on which I'll have to pay to replace anything other than oil and gas!

 

[Vic]

Originally posted by: JeffreyLebowski
And leasing usually doesn't add to your credit as you are not purchasing the vehicle.

As a loan officer, I can confirm that this part is NOT true. Leases do show up on your credit and do affect your credit score. In fact, when reviewing a customer's credit report, I usually don't know if it's a lease or a purchase unless I ask.

Like I said, asides from personal feelings, the key is the ratio of the residual value vs. sales price. The higher this percentage ratio, the more leasing makes sense. The lower, the more buying makes sense.

 

[kermalou]

i prefer to pay the extra money and not have the hassle of trying to sell my car to a sucker, the extra money i am paying is well worth it and i am young and like change. can't imagine driiving a car for more than 3 - 4 years anyways....