<< 1. monthly payment and how much you are willing to pay
2. how long you intend on keeping the car - THIS IS THE KEY thing you need to consider. If you KNOW that you are going to want to trade up in three years time, and you aren't making a big downpayment, then you would BE FOOLISH not to lease IMHO. >>
1. I'd like to keep my payment at or around $400/month
2. I definitely have no problem trading it after 3 years
I guess my real issue is miles (whether i can keep it under 15k) and wear and tear (whether they allot for a certain amount of it)
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<< I guess my real issue is miles (whether i can keep it under 15k) and wear and tear (whether they allot for a certain amount of it) >>
Check what your milage overage is. In the lease I'm in, my overage is $.10 a mile. So I put on an extra 1,000 miles. That's only $100. No big deal to me honestly.
As for wear and tear, you just really need to feel out the dealer on that one. The guys I've worked with were VERY lenient on what they allowed. They basically considered that you were turning in a 3 year old vehicle, and it was to be turned in with 3 years worth of wear and tear on it. Minor dings, a small scratch or two, no big deal. A huge dent, a scratch that went the whole length of the car...those were no-no's.
I know that honda gives you a damage allowance of $1500, so do some GM dealers. Hell, if you have ding or two on your car, you'll probably come out quite a bit ahead on lease than you will on trading in a car.
<< When is it good to lease instead of buy >>
Generally, never.
I don't know if things have changed, but a few years ago car dealers were trying to cram leases down every one's throat. Every advertisement and quoted payment was a lease. If you went into the showroom, getting the salesperson to give you a purchase price on the vehicle was like pulling teeth. He would always respond with something like "Why would you want to buy when you can lease?" When you told him you didn't want to lease, he would respond "Why don't we sit down and compare a lease vs. buy, then you can make up your mind?" You had to threaten to walk to get him to stop talking about leasing.
There is a good reason for this: dealers were and are making a killing from leasing vehicles. Generally what is great for them means a bad deal for you. Whatever they want to show you is probably not what you want to see. IOW, what is in their interests is not in your interest.
The only reason to lease is if the vehicle will likely have a higher resale value at the end of the lease than the residual value stated in the lease. Certain demand imports, trucks, and SUVs have resale values so high that it makes a lease worth it. Otherwise, you have to wonder why dealers want you to lease so badly if it really means a better deal for you and less profit for them (of course, it doesn't).
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There's three places that a dealer is pretty much gauarnteed a profit in a lease, vs. 1 in a finacing situation.
In a lease the dealer can make money
1. On the front end in the purchase price/holdback of the vehicle
2. On the backend with kickbacks on financing
3. The money they make off the re-purchase of the vehicle after you are through leasing(assuming the residuals worked out in their favor)
In a financing situation there is only one pretty much guaranteed place of making money:
1. on the front end in purchase price/holdback
Other than that you can pretty much finance anywhere you want instead of going through the dealer for the lease. You also have the cards in your favor with the vehicle because you can either run it into the ground, never giving the dealer a chance to make any money off of it through resale, or, you can sell the vehicle outright or to another dealer for a better deal.
If you don't have any equity going into a lease/financing deal, and you know you are going to be wanting to trade in within 3 years, and the vehicle doesn't have pristine resale, then lease IS a good option as it saves you from EVER being upside down on a loan.
In a lease the dealer can make money
1. On the front end in the purchase price/holdback of the vehicle
2. On the backend with kickbacks on financing
3. The money they make off the re-purchase of the vehicle after you are through leasing(assuming the residuals worked out in their favor)
In a financing situation there is only one pretty much guaranteed place of making money:
1. on the front end in purchase price/holdback
Other than that you can pretty much finance anywhere you want instead of going through the dealer for the lease. You also have the cards in your favor with the vehicle because you can either run it into the ground, never giving the dealer a chance to make any money off of it through resale, or, you can sell the vehicle outright or to another dealer for a better deal.
If you don't have any equity going into a lease/financing deal, and you know you are going to be wanting to trade in within 3 years, and the vehicle doesn't have pristine resale, then lease IS a good option as it saves you from EVER being upside down on a loan.
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<< What if, after a year or so, it turns out you don't like the car? Say there's a lot of problems (even if under warranty), and you are tired of having the car in the shop once a month? Can you get out of the lease? >>
Well, personally, I'd do everything in my power to lemon law the sucker. Other than that though, you *can* get out of leases, but you'd have to look at the fine prints for details on it. Even if you had to pay out $5,000 in early termination fees, it would be very close to the trade in hit you'd take on a financed car in the same situation.
okay, so i've been doing some research, and it's looking like leasing is making a little more sense.
Can someone who is against leasing (or anyone for that matter) counterpoint these points made at www.leaseguide.com?
----
Automobile leasing can be a very attractive alternative to buying for many people, although maybe not for everyone, as we'll discuss later. You must decide about the importance of these benefits to you. So, what are the potential benefits of leasing when compared to conventional new-car purchase loans?
Lower Monthly Payments
Because you're only paying for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan of the same term.
More Car, More Often
Since your monthly payments are lower, you'll be able to get more car for the same money and drive a brand new vehicle every two to four years, depending on the term length of your leases.
Fewer Maintenance Headaches
Most people like to lease for a term length that coincides with the length, in months, of the manufacturer's warranty coverage so that if something major goes wrong with their car, it's always covered.
Lower Upfront Cash Outlay
Most leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment to lower your monthly payment amount.
Lower Tax Bite
In most states and in Canada, you don't pay sales tax on the entire value of a vehicle when you lease. You're only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment.
No Used-Car Hassles
With leasing, the headaches of selling a used car are eliminated. When your lease ends, you simply turn it back to the leasing company and walk away, unless you decide to buy it or trade it.
Can someone who is against leasing (or anyone for that matter) counterpoint these points made at www.leaseguide.com?
----
Automobile leasing can be a very attractive alternative to buying for many people, although maybe not for everyone, as we'll discuss later. You must decide about the importance of these benefits to you. So, what are the potential benefits of leasing when compared to conventional new-car purchase loans?
Lower Monthly Payments
Because you're only paying for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan of the same term.
More Car, More Often
Since your monthly payments are lower, you'll be able to get more car for the same money and drive a brand new vehicle every two to four years, depending on the term length of your leases.
Fewer Maintenance Headaches
Most people like to lease for a term length that coincides with the length, in months, of the manufacturer's warranty coverage so that if something major goes wrong with their car, it's always covered.
Lower Upfront Cash Outlay
Most leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment to lower your monthly payment amount.
Lower Tax Bite
In most states and in Canada, you don't pay sales tax on the entire value of a vehicle when you lease. You're only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment.
No Used-Car Hassles
With leasing, the headaches of selling a used car are eliminated. When your lease ends, you simply turn it back to the leasing company and walk away, unless you decide to buy it or trade it.
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<< Lower Monthly Payments
Because you're only paying for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan of the same term. >>
Very misleading. Yes, the payments are lower, but when financing over the same period as a lease, say three years, you'll have equity built up in the vehicle, and you'll own the whole thing.
<< Lower Upfront Cash Outlay
Most leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment to lower your monthly payment amount. >>
Depends upon the deal - A lot of the $199 specials you see floating around include a security depost that's the same amount of your monthly payment, an aquisition fee of sorts, and first and last month's payment up front, for a grand total of upwards of $2000 or so. Just need to check the fine print and it varies from dealer to dealer, from month to month.
Another problem with laying out cash upfront on a lease to lower payments is that if you total the car, you are out that money. Just something to be aware about.
For many years before being available to the masses, leasing was offered as sort of a privileged way of acquiring a vehicle every few years (excluding the business lease). For those who were 'trading-up' every 2 or 3 years, anyway, leasing was an attractive option. In fact, dealers began pitching leases first to these buyers.
These were not people who were particularly budget conscious, most were already paying a premium for trading-up every few years, by first getting hit with the depreciation on their new vehicle for which they paid retail, then getting wholesale when they trade it in. Anyone who does that every few years clearly has money to burn...or likes to pretend they do.
So, if you already are or intend to trade-up every few years, leasing can be a better deal if you mind the terms and shop around. The confusion over leasing comes in to play when leasing is pitched as an alternative to buying a new vehicle and keeping it for several years. Leasing can be a viable alternative to buying a new car and trading it up every few years, NOT an alternative to the traditional way of buying a car and getting your money's worth by putting a couple hundred thousand miles on it.
People who couldn't afford or didn't wish to trade-up every few years and therefore keep a vehicle for many years to get their money's worth aren't likely to find that leasing is a "better deal" than what they're already doing.
These were not people who were particularly budget conscious, most were already paying a premium for trading-up every few years, by first getting hit with the depreciation on their new vehicle for which they paid retail, then getting wholesale when they trade it in. Anyone who does that every few years clearly has money to burn...or likes to pretend they do.
So, if you already are or intend to trade-up every few years, leasing can be a better deal if you mind the terms and shop around. The confusion over leasing comes in to play when leasing is pitched as an alternative to buying a new vehicle and keeping it for several years. Leasing can be a viable alternative to buying a new car and trading it up every few years, NOT an alternative to the traditional way of buying a car and getting your money's worth by putting a couple hundred thousand miles on it.
People who couldn't afford or didn't wish to trade-up every few years and therefore keep a vehicle for many years to get their money's worth aren't likely to find that leasing is a "better deal" than what they're already doing.
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<< The lease payments can be written off against business income >>
yep, my father gets a brand new explorer/mountaineer every year. Got the first 2002 mountaineer into chicago!
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<< How does that work exactly? >>
You've got to be self employed/independent contractor filing schedule C in order to claim it.
It works like this: Say you drive 10,000 miles a year. 5,000 personal and 5,000 business. Your business to personal use ratio is 50%. You have the choice of doing one of two different things -
1. Actual costs: Lease payment, car insurance, gas, license, maintanence, ect. Every dollar you spend on your car, you get to deduct 50% of on your taxes, lowering your taxible income.
2. Milage: For every mile you do for business use, you get 34.5 cents that you can take against your earned income.
Which one is better...you'll have to do the math for yourself. If you are low milage, but still have a pretty high bus to personal use, then go with the actual payments. If you are high business milage, but still higher personal milage, then you need to weigh actual expenses to milage.
There is also another trick you can do with a lease for writing it off as rent at the end of the term, but I'm not very familiar with the legalities of that one.
<<
<< When is it good to lease instead of buy >>
Generally, never.
I don't know if things have changed, but a few years ago car dealers were trying to cram leases down every one's throat. Every advertisement and quoted payment was a lease. If you went into the showroom, getting the salesperson to give you a purchase price on the vehicle was like pulling teeth. He would always respond with something like "Why would you want to buy when you can lease?" When you told him you didn't want to lease, he would respond "Why don't we sit down and compare a lease vs. buy, then you can make up your mind?" You had to threaten to walk to get him to stop talking about leasing.
There is a good reason for this: dealers were and are making a killing from leasing vehicles. Generally what is great for them means a bad deal for you. Whatever they want to show you is probably not what you want to see. IOW, what is in their interests is not in your interest.
The only reason to lease is if the vehicle will likely have a higher resale value at the end of the lease than the residual value stated in the lease. Certain demand imports, trucks, and SUVs have resale values so high that it makes a lease worth it. Otherwise, you have to wonder why dealers want you to lease so badly if it really means a better deal for you and less profit for them (of course, it doesn't). >>
I couldn't agree more... excellent post!
Leasing never seemed like a good way to go, at least to me. I have a good friend that leased a '99 Accord and hated every minute of it. He went way over on his mileage (his fault, I know), and the only reasonable way out for him was to buy the car after the lease was up. He lost a TON of $$$ on the deal, and he's still pissed about it. Anyway, I would stay away from a lease, unless you KNOW you won't go over on mileage....
<< Anyway, I would stay away from a lease, unless you KNOW you won't go over on mileage >>
Actually, it depends on how far over you think you might go. There is a definite charge to going over on a lease, but if you know that you will go over by a small amount (a few thousand miles), some leasing companies will allow you to actually purchase the additional miles up front cheaper than it would cost you at lease end. This is a gamble as if you end up not using the miles, the money is wasted. However, if the only thing holding you back on a lease is the mileage, that is one more thing to consider. Just make sure you consider the extra milage cost into your lease payments when determining just how much cheaper it is over buying the vehicle outright.
I am in my second lease, and when this lease is up next February I will lease again. But, I fall into the category of people that want to change cars every couple of years. I've never understood why my dad preferred to drive cars 150k+ miles (other than he's always been able to pay cash for his cars, and thus has not had to worry about payments anyways), but to each his own.
<<In a lease the dealer can make money
1. On the front end in the purchase price/holdback of the vehicle
2. On the backend with kickbacks on financing
3. The money they make off the re-purchase of the vehicle after you are through leasing(assuming the residuals worked out in their favor)
In a financing situation there is only one pretty much guaranteed place of making money:
1. on the front end in purchase price/holdback>>
I'll have to disagree somewhat, here.
Dealers make money on the front end, regardless of whether you lease or purchase. And they damn well should. Nobody should expect to get the holdback money, too. You can get invoice price all day long, most places,(domestic anyway) and the dealer has to make money somehow.
Dealers make money on financing OR leasing. Either way. If you got a 6% interest rate on a buy, I'll guarantee the dealer got the money for about 4% and marked it up to 6%. Not to mention loan origination fees, etc.
As far as #3 is concerned, the dealer only repurchases the vehicles they think they can sell for a profit. Most are not bought by the dealer, and are sent to auction.
When leasing was really big a few years ago, no dealer was buying the vehicles from the leasing company; they lease companies (esp. First Union) had set the residuals way too high, and the cars weren't worth what the payoff was, so everyone just turned in their cars and walked away.
That is exactly why First Union is out of the leasing business right now. They cut their own throats, especially on Ford Expeditions. In early 1998, the 3 year residual on an Expedition was 71-72%!! No way those vehicles are worth that in 3 years.
When you call their lease turn-in hotline, it says "if you have an Expedition, press 1, all other vehicles, press 2" LOL.
Leasing is a great option if you're going to trade every 2-3 years, and not go over on miles. You simply turn in the car and get a new one, while if you buy it, you'll still be upside-down in 2-3 years.
<<Another problem with laying out cash upfront on a lease to lower payments is that if you total the car, you are out that money. Just something to be aware about.>>
Yep, there is no sense in making any kind of extra down payment when you lease. The amount you're going to pay over your lease term is set, so if you put an extra 2 grand down, it's gone. They take 2 g's off your lease amount, and calculate payments over the term.
Basically, you're ultimately going to pay the same amount, no matter how you do it; Pay half down and spread the rest out, pay it all up front, pay nothing up front. At the end of the lease you'll have paid the same amount.
This is the opposite from buying, where if you put some down, it'll reduce interest and your payoff.
<<The only reason to lease is if the vehicle will likely have a higher resale value at the end of the lease than the residual value stated in the lease. Certain demand imports, trucks, and SUVs have resale values so high that it makes a lease worth it.>>
Why would you lease if you KNOW the vehicle will be worth more at any given point? Then, it's ok to buy, because you can trade in at most any time and not get killed rolling over negative equity. If the vehicle is worth more at the end of the lease (ain't going to happen on most cars, btw) then great, you sell it, pay off the residual, and keep the difference for a down payment.
<<What if, after a year or so, it turns out you don't like the car? Say there's a lot of problems (even if under warranty), and you are tired of having the car in the shop once a month? Can you get out of the lease? >>
At that point, you're in the same fix as if you'd bought the car. You're upside down, any way you look at it. Name me a popular car that you're not upside down in after a year.
Unless you put a lot down, and you'll still be losing the same amount to depreciation, only you'll have already paid it up front, not when you trade.
1. On the front end in the purchase price/holdback of the vehicle
2. On the backend with kickbacks on financing
3. The money they make off the re-purchase of the vehicle after you are through leasing(assuming the residuals worked out in their favor)
In a financing situation there is only one pretty much guaranteed place of making money:
1. on the front end in purchase price/holdback>>
I'll have to disagree somewhat, here.
Dealers make money on the front end, regardless of whether you lease or purchase. And they damn well should. Nobody should expect to get the holdback money, too. You can get invoice price all day long, most places,(domestic anyway) and the dealer has to make money somehow.
Dealers make money on financing OR leasing. Either way. If you got a 6% interest rate on a buy, I'll guarantee the dealer got the money for about 4% and marked it up to 6%. Not to mention loan origination fees, etc.
As far as #3 is concerned, the dealer only repurchases the vehicles they think they can sell for a profit. Most are not bought by the dealer, and are sent to auction.
When leasing was really big a few years ago, no dealer was buying the vehicles from the leasing company; they lease companies (esp. First Union) had set the residuals way too high, and the cars weren't worth what the payoff was, so everyone just turned in their cars and walked away.
That is exactly why First Union is out of the leasing business right now. They cut their own throats, especially on Ford Expeditions. In early 1998, the 3 year residual on an Expedition was 71-72%!! No way those vehicles are worth that in 3 years.
When you call their lease turn-in hotline, it says "if you have an Expedition, press 1, all other vehicles, press 2" LOL.
Leasing is a great option if you're going to trade every 2-3 years, and not go over on miles. You simply turn in the car and get a new one, while if you buy it, you'll still be upside-down in 2-3 years.
<<Another problem with laying out cash upfront on a lease to lower payments is that if you total the car, you are out that money. Just something to be aware about.>>
Yep, there is no sense in making any kind of extra down payment when you lease. The amount you're going to pay over your lease term is set, so if you put an extra 2 grand down, it's gone. They take 2 g's off your lease amount, and calculate payments over the term.
Basically, you're ultimately going to pay the same amount, no matter how you do it; Pay half down and spread the rest out, pay it all up front, pay nothing up front. At the end of the lease you'll have paid the same amount.
This is the opposite from buying, where if you put some down, it'll reduce interest and your payoff.
<<The only reason to lease is if the vehicle will likely have a higher resale value at the end of the lease than the residual value stated in the lease. Certain demand imports, trucks, and SUVs have resale values so high that it makes a lease worth it.>>
Why would you lease if you KNOW the vehicle will be worth more at any given point? Then, it's ok to buy, because you can trade in at most any time and not get killed rolling over negative equity. If the vehicle is worth more at the end of the lease (ain't going to happen on most cars, btw) then great, you sell it, pay off the residual, and keep the difference for a down payment.
<<What if, after a year or so, it turns out you don't like the car? Say there's a lot of problems (even if under warranty), and you are tired of having the car in the shop once a month? Can you get out of the lease? >>
At that point, you're in the same fix as if you'd bought the car. You're upside down, any way you look at it. Name me a popular car that you're not upside down in after a year.
Unless you put a lot down, and you'll still be losing the same amount to depreciation, only you'll have already paid it up front, not when you trade.
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