YACT: Auto leasing - is it ever a good idea?

[fbrdphreak]

My friend is thinking about trading his 2001 BMW 330Ci and wants a new car, with the general gist that in a perfect world he'd have a new car every four years or so. Is leasing more advantageous than buying in this situation or any other?

I'm trying to read up, but I was under the impression that leasing is akin to renting - you may pay less per month/up front, but you don't get anything out of it (i.e. equity) in the long run. Am I on the right track?

 

[spidey07]

If he wants to have a new car every 4 years, then leasing is absolutely for him.

Leasing isn't automatically a bad idea. It depends on the situation. He could actually wind up paying less if he leases.

 

[dullard]

Leasing a car is the second stupidest thing you can do financially with a vehicle.

So, leasing is almost always a bad idea. However, it isn't the stupidest thing (buying new cars and selling them shortly afterwards).

So faced with these two evils, leasing is the lesser of two evils. It can be a good idea. Note: sometimes there are very rare lease specials, but you could also find a sucker to sell a new car for $1, so I'm ignoring those silly exceptions.

 

[fbrdphreak]

As I'm reading more, I guess it does come down to the specific car and its resale value. If I'm thinking right, you would:

*Take the car, its purchase price, and estimated resale value 4 years later
*Leasing you pay the cost of the depreciation plus interest, loan you pay the price of the vehicle plus interest
*Take the total cost of a lease over 4 years and compare to the cost of vehicle loan minus resale value at 4 years (which could differ drastically, with a lease it is set correct?)

If the cost of the lease is less than the cost of owning assuming selling at four years, then it would be the better deal?

 

[dullard]

Originally posted by: fbrdphreak
As I'm reading more, I guess it does come down to the specific car and its resale value. If I'm thinking right, you would:

*Take the car, its purchase price, and estimated resale value 4 years later
*Leasing you pay the cost of the depreciation plus interest, loan you pay the price of the vehicle plus interest
*Take the total cost of a lease over 4 years and compare to the cost of vehicle loan minus resale value at 4 years (which could differ drastically, with a lease it is set correct?)

If the cost of the lease is less than the cost of owning assuming selling at four years, then it would be the better deal?

That is pretty close to what needs to be done. Also, insurance prices may vary, tax situations may vary, and leases may have lots of penalties. So, if you want to get detailed, you should look at those factors too.

For example: assume he gets another BMW 330Ci. Base model. No haggling to get the price down, no upgrades, no downpayment, trade-in is $13,000.

Leasing for 4 years at 15,000 miles would be $418*48 = $20,064 total payments. Buying with a 4-year loan would be $29,040 in payments, but he'd have a car worth ~$15,500 (good condition). Net cost for buying $29,000-$15,500 = $13,500. He'd save $6524 by buying. However, that assumes there are no lease penalties. And if his car was in excellent condition the net cost would be $12,500 and buying would be even better. This does exclude taxes, insurance, and other differences.

 

[fbrdphreak]

Originally posted by: dullard

Originally posted by: fbrdphreak
As I'm reading more, I guess it does come down to the specific car and its resale value. If I'm thinking right, you would:

*Take the car, its purchase price, and estimated resale value 4 years later
*Leasing you pay the cost of the depreciation plus interest, loan you pay the price of the vehicle plus interest
*Take the total cost of a lease over 4 years and compare to the cost of vehicle loan minus resale value at 4 years (which could differ drastically, with a lease it is set correct?)

If the cost of the lease is less than the cost of owning assuming selling at four years, then it would be the better deal?

That is pretty close to what needs to be done. Also, insurance prices may vary, tax situations may vary, and leases may have lots of penalties. So, if you want to get detailed, you should look at those factors too.

Here's the situation I posed using leaseguide.com:

$38K car
$13K trade-in
Assume $24K value after four years (he likes Lexus apparently...:roll:)
Interest rate 6.5%

Lease payment $155 (not including tax, etc)
Loan payment $600

Lease Total Cost: ~$21K
Loan Total Cost: ~$42K

Leave Equity @ End of Term: $0
Loan Equity @ End of Term: $24K

Lease Final Cost: (equity - cost) = $0 - $21K = -$21K
Loan Final Cost: (equity - cost) = $24K - $42K = -$18K

So even in this scenario, owning is cheaper in the long run but costs a LOT more per month. Interesting....

 

[dullard]

Originally posted by: fbrdphreak
So even in this scenario, owning is cheaper in the long run but costs a LOT more per month. Interesting....

See my numbers in my edit above. Yes, if you can get over the few months of the initial higher cost, having a long run gain on every car for your whole life is definately the better option.

It just means your first car might not be what you want, or your first few payments must be a bit more difficult.

 

[BD2003]

It is NEVER a good *financial* idea.

However, it can be a good *personal* idea.

Good reasons for leasing:
You have more money than you know what to do with, and are considering an expensive/exotic ride, that you'd never consider keeping more than 2-3 years.
You really, really must be pimpin a new car every 3 years, no matter the cost, and don't care to deal with buying/selling.
You have lot of money, little time, and little tolerance for hassle/repair.
You have no intention of ever modifying your car in any way.
You are a dumbass.

 

[fbrdphreak]

Originally posted by: BD2003
It is NEVER a good *financial* idea.

However, it can be a good *personal* idea.

Good reasons for leasing:
You have more money than you know what to do with, and are considering an expensive/exotic ride, that you'd never consider keeping more than 2-3 years.
You really, really must be pimpin a new car every 3 years, no matter the cost, and don't care to deal with buying/selling.
You have lot of money, little time, and little tolerance for hassle/repair.
You have no intention of ever modifying your car in any way.
You are a dumbass.

Summary: It allows one to live outside their means more easily?

 

[fbrdphreak]

Originally posted by: dullard

Originally posted by: fbrdphreak
So even in this scenario, owning is cheaper in the long run but costs a LOT more per month. Interesting....

See my numbers in my edit above. Yes, if you can get over the few months of the initial higher cost, having a long run gain on every car for your whole life is definately the better option.

It just means your first car might not be what you want, or your first few payments must be a bit more difficult.

Yeah I'd never consider leasing personally, while I could definitely like having a new car every four years I couldn't imagine "renting" a car. I just get too dang attached to it, not to mention I almost always fvck something up on it

 

[spidey07]

Originally posted by: fbrdphreak
So even in this scenario, owning is cheaper in the long run but costs a LOT more per month. Interesting....

Run your numbers again assuming 10% return on investment on the difference between the lease and the loan payment.

 

[Squisher]

I have leased when I knew that I wasn't going to put a lot of miles on a car. I then had to buy when my miles went up.

I prefer leasing on new cars.

Lower overall costs and no hassle of having to sell it when you want something new.

 

[tweakmm]

Originally posted by: BD2003
It is NEVER a good *financial* idea.

Very rarely.

If one owns a business and the car is leased "for business purposes"

 

[BD2003]

Originally posted by: fbrdphreak

Originally posted by: BD2003
It is NEVER a good *financial* idea.

However, it can be a good *personal* idea.

Good reasons for leasing:
You have more money than you know what to do with, and are considering an expensive/exotic ride, that you'd never consider keeping more than 2-3 years.
You really, really must be pimpin a new car every 3 years, no matter the cost, and don't care to deal with buying/selling.
You have lot of money, little time, and little tolerance for hassle/repair.
You have no intention of ever modifying your car in any way.
You are a dumbass.

Summary: It allows one to live outside their means more easily?

It most certainly does, but also allows those with means to live their lives more easily.

 

[spidey07]

Originally posted by: BD2003
It most certainly does, but also allows those with means to live their lives more easily.

ah, you bring up the important part.

Those with the means can come out ahead if they lease.

 

[chuckywang]

This question wouldn't even exist if people weren't so fickle. If we didn't live in this "Oooooh, gimme gimme gimme" culture, people would buy their cars and own them for 10 years.

 

[FelixDeCat]

I *almost* leased a car back in late 2003. It was a 2003 Mazda Miata. My previous car was a 2001 Miata I bought new in 2001. Yes I only had the last car about 3 years, but the 2003 was a close out deal with more equipment and cost less than my 2001 did. :shocked:

I signed the paperwork and took the car. That night I read every single sentence of the contract. Then I came up with a worst case scenerio:

If you want to get of the car before the lease contract ends, or if the car is totalled, you will be responsible for making ALL the payments at once at that point. In otherwords, if you are in the 10th month of a 48 month lease, the remaining 38 payments ARE ALL DUE AT ONCE. Sure they provide GAP insurance, but that thing has so many caveats that it provided me with no reassurance.

Now typically on a normal loan you payoff your remaining PB, whatever it may be with interest accrued since the last payment. In the above situation you make all payments with interest at once. They wont tell you what rate you are paying.

Some makers have lease incentives to get into yet another car, but lets say you dont want anymore car payments. Well, your screwed because you cant just turn in the car you have to get a loan to make all those payments.

Another thing was also the fact you couldnt modify your car, and if it was damaged during a wreck (loss of value) your GAP insurance may or may not cover it. You are out of pocket. Just too many things that turned me off.

Since I was a good customer and did alot of business with the dealership, they let me come in the next morning and TEAR UP THE LEASE. I resigned with a balloon note, which is pretty close to a standard finance contract where you build equity but finance less of the loan amount which keeps your payment low. Check into that.

Most dealers would have said, "Screw you. You signed the paperwork." But these guys were nice since I was a previous customer and had all my service work done there, and let me have whatever I wanted.

Finally it was damn good thing I dumped the lease because in late 2004 those stupid monkeys are CARTOYS car audio ran an F350 pickup into it. The repairs were crappy and I wound up dumping the car, which would have been difficult under the lease terms.

 

[dullard]

Originally posted by: spidey07
Run your numbers again assuming 10% return on investment on the difference between the lease and the loan payment.

Ok, I'll run the numbers again (even though a 10% return is highly unlikely in the next few years, I'll use 10%).

I'll even sweeten the deal for leasing. Instead of doing the 15,000 mile/year lease in my example above, I'll do a 12,000 mile/year lease and assume there is no penalties (no overmileage no dings, no wear and tear, etc) or extra insurance costs for leasing.

Desired car: 2006 BMW 330Ci with no upgrades, base model, no downpayment, 48 months, no haggling to get a better price, etc.

[*]Selling the 2001 BMW 330Ci at KBB trade-in value and using that to reduce the lease and buying price: $13,000

[*]Leasing the 2006 330Ci: $405/month. (Lease amount gotten from BMW USA website).
[*]Investing $200/month with leasing.
[*]Total leasing cost: $605*48 = $29,040 spent.
[*]Investment amount with 10% interest each year: $11,745 balance at end of 48 months.
[*]Net cost: $29,040 - $11,745 = $17,295.

[*]Buying the 2006 330Ci at bankrate.com average of 6.95% loan: $605/month.
[*]Total buying cost: $605*48 = $29,040.
[*]Value of 4 year old 330Ci (using good condition KBB trade-in value and 12,000 miles/year driving): $15,500.
[*]Net cost: $29,040 - $15,500 = $13,540.

You are still $3755 better off by buying.

Notes:
[*]The lease requires under 12,000 miles driving and excellent condition at the end of 48 months. I assumed exactly 12,000 miles driving and only good condition for buying. If the same terms were set for buying, then the value of the car would be even higher and buying would be an even better deal.
[*]Trade-in value was just an estimate, no one can forcast with 100% certainty, however I bet I'm not off by any more than $1000 in either direction.
[*]Leasing will have extra costs (gap insurance for example), but buying will have extra costs (maintenance for example).
[*]Leasing may have a tax advantage depending on your specific circumstances. You'll have to save more than $3755 in taxes to make leasing a good deal. Otherwise, buying is better in this case. Even with 10% return on investments.

 

[spidey07]

Dullard,

You're numbers are off buddy. Leasing cost is 405*48 = 19,440 out.

19,440 - 11745 difference between buy = 7695.

When you compare this to the 13540 of buying, leasing saves you 5845 bucks over a 4 year period.

Or to put it better, you increase your net worth by 5845 dollars or over a thousand bucks a year. Every little bit helps.

-edit- DOH! I see what you did now. My bad.