Leasing vs. Purchasing

delta737h · September 2007

lol!!!. Now that is funny!

John

im_brentwood · September 2007

Or do what I did.

A 3 year old Cadillac STS has a wholesale value, with 45k on it, of about $18k.

I could have bought my car for $39k.

$21,000 in depreciation, $18k if I buy it and retail it after 3 years.

I am paying, WITH TAXES amd 3 year registration, $517/mo/36mos with $1700 @ signing. That's a total cost of $20,312 including taxes over 3 years. Taxes are $1,000+, registration is a few hundred... etc...

Do the math. Plus I get a tax deduction so my net cost is less... figure I can write off 80% or $16,000.. that's another $5-6k roughly back in my pocket.

Back to the drawing board.

tidester · September 2007

Do the math.

I think that's what they have been doing!

tidester, host
SUVs and Smart Shopper

im_brentwood · September 2007

Yes, on an MIT level...

nemi9infiniti · September 2007

I have a small business and I was thinking of buying or leasing 2-3 company cars. which one should I do one. and if I do which one would benefit me more when it comes to taxes and liability.

msindallas · October 2007

OK, you guys missed the whole point - let me re-iterate -

When you lease - you are commited to how much money you spend every month (and at a high interest rate, money factor, etc). This is like borrowing from your future - living on credit. In contrast, when you buy (in my model) - you get to decide how much you save for your next purchase, and for how long. You have the freedom to adjust it - it's your money, and your car. If you need money for something else, you have the liberty to skip the car payments (to yourself) for a few months!

As for the argument on the 1st car - no one says your 1st car has to cost $60,000 - most of us start our driving life with "an old clunker". For any debate, we need to use our judgment on boundary conditions - the analysis may not apply to a business that gets a tax write-off from leasing, or an individual who inherits millions or hits the jackpot.

Lets go for it the non-math way - a car depreciates the same whether you lease it or buy it, and the cost comes out of your pocket. When you lease, there is an additional expense - you compensate the institution that pays for the car you drive (and owns it). This is why leasing will always be more expensive in the long run. You can build any model, but the above fact remains the same. In the simplified model I proposed, I suggested a way an individual can slowly build up the capital to buy his/her own own car and lease it to him/herself - without the hassles or making monthly payments on time or returning the car by a fixed date. Whether this fits his/her lifestyle, let him/her decide.

I hate to point this out - but some of the arguments here sound like "There is no global warming, because the global climate models are wrong". Now I can't remember who said that. OK, I will get off my soapbox now. Cheers, - M.S.

tidester · October 2007

There is no global warming, because the global climate models are wrong.

For the most part, the models ARE wrong. That is a separate issue from whether anthropogenic climate change is real. If you wish to discuss it further head on over to Are automobiles a major cause of global warming?.

tidester, host
SUVs and Smart Shopper

stickguy · October 2007

is just an alternate method of financing. For the majority of people that have to finance, they will have a fixed payment if they buy, just like with a lease.

The one area though that does work against the lease is the aquisition fee. Paying $500-$700 up front just for the priviledge of paying for the car is unique to leasing.

But, if the lease is subvented enough, that might get negated by other savings.

Really, other than flexibility on when to get a different car, the only thing different with the lease is you never get to the point of truly owning it (that is, no payments),

But, considering how many people take out long term loans and probably don't have any equity after 3 years anyway, it may not really matter!

And even though it is generally a (financially) bad idea to get a brand new car every 3 years, if you are going to do it anyway, a lease might be the best way to go.

final point. leases do give you one big advantage: cost certainty. If I am buying a car now, and plan to get a new one in 3 years and trade the old one, I know I can turn the lease in. If I buy it, i have no idea what it will be worth.

Tell people who bought FS suvs a few years back how it feels to own something the dropped in value like the Titanic going down! At least the leasers were able to turn them in, and make it the banks problem.

volvomax · October 2007

Your model really only works for those people who can afford to pay cash for a car.
Which lets out 90%+ of car buyers.
Most people live paycheck to paycheck and simply can't save enough to buy a car outright.
Even people of means,who can buy a car outright rarely do so.
The majority of them lease.
When you lease a new car,chances are it is going to depreciate more than the total of the lease payments.
so, even if you bought the car,and traded it or sold it after 3-4 years, it would cost you less to lease it.
The main reason that people of means lease is that they don't want to tie up capital in a car.
Lets say you buy a $30,000 car,and for arguments sake,you spend exactly $30,000.
That 30k is gone. Can't do anything else with it.
If you lease, and you are spending $400/mo for 36 months,you STILL have that 30k to invest or do something else with.
It's not tied up in a depreciating item

cdnpinhead · November 2007

it's interesting to see how one person can completely shut down a board.

Leasing isn't nearly so complicated as "msindallas" would lead one to believe. It's more complex (& open to abuse by the dealers) than an outright purchase, but still a good choice under certain conditions.

Manufacturers often subsidize leases such that there's no cheaper way to be in possession of the car for the lease term. At the end of that term, it could make sense to buy out the lease, or (most of the time), you're better off letting them have it back while admiring the interest on the money you would have otherwise spent on the purchase.

WMMV

mtdavis0 · November 2007

Hello, a newbie with a question for the group.

I friend has a nice Honda Pilot vehicle coming off a lease. If I am interested in purchasing it does, the value my friend can purchase it for play any factor?

Should my price just come from edmunds "used" retail listing? Where can I find a "feel" for inventory of this model on the lots? I've never shopped for cars coming off a lease. Is it any different then buying a used car?

Thank for your help.

M

stickguy · November 2007

Well, their price (the residual in the lease contract) is important, because that is what they have to pay to buy out the car.

But, you should just look at this as any other used car. Figure out what it is worth (Edmunds is a good resourse, and try the "real world trade in value thread" for an expert opinion.

So, if the residual is 20K, and you figure it is worth 18K, no point in getting it. If it is worth 22K, then it might be a good idea. Depending on how good of a friend you are, maybe you can just get it for the residual!

One thing I don't know is how the taxes work. That might be a question for the finance company, since obviously it will eat up the profits if you have to pay sales tax on it twice.

kyfdx · November 2007

I don't think Honda Finance will sell you the car directly. I believe your friend would have to purchase it, pay sales tax, then sell it to you (who would also have to pay tax).

The only way around this, is to get a dealer to buy it from him, then re-sell it to you for a nominal upcharge ($300?).

Assuming the residual is a good buy. '07 Pilots were going for $6500-$7000 off sticker a few months ago. That is bound to hurt the resale value of older units.

regards,
kyfdx
visiting host

guelerct · April 2008

Life changing experience on the way and I think I may need to get the wife a minivan. I have always purchased but wanted opinions on leasing.

If she remains working her commute will be approx 30 miles each way for 300 miles/week (15000 per year). If she stays home, her mileage will be around town. What has the experience been with paying overages with these leases? Should I just buy or does it make sense to consider a lease?

tidester · April 2008

If she remains working ... If she stays home

I would hold off making any kind of decision on the matter until those uncertainties are resolved.

tidester, host
SUVs and Smart Shopper

goetze · July 2008

With the steady increase of gas prices I am thinking that the hybrids will become more available soon (limited selection in the midwest) as well as alternate fuels and higher mileage vehicles. Since I am going to be in need of a new car soon (next 3-6 months) I have been wondering as to the wisdom of leasing instead of buying since I anticipate that in 3 years time there will be many more options. I do not want to buy used especially with all the flooding we have been having in the midwest, so that is not really an option. Is this something that anyone else has been giving some consideration to?

dwynne · July 2008

Leasing is all about predicting future value, so many 3rd party lease banks would not even write a hybrid lease since they have no idea what the future value will be. Now that hybrids have been around longer they can start seeing how they hold up value-wise and perhaps write leases on them.

The captive lease banks have been writing leases for hybrids, but not always at a nice rate. If the hybrids are flying off of dealer lots due to high gas prices then there is little incentive for them to offer you a discount on the car or a nice lease rate and residual. Trying to buy or lease something that is a hot seller normally results in paying too much. Now if you are looking at one of those guzzler hybrids, like an SUV that still drinks the gas (just not as bad as the non-hybrid model) they probably can make you a deal on one of those.

One hybrid thing to note, if you don't drive them in an efficient manner they do not return a lot of savings. Even you drive a non-hybrid in an efficient manner you may be able to boost your mileage by quite a bit. So keep that in mind along with the extra cost of the hybrid. If you were buying, most take 100k miles or more to recover the extra money you have to sink into them. If leasing and getting a good lease deal on one, you might be able to save enough in the course of the lease to break even. But you have to run the numbers and see, but I would think on a normal 24-36 month lease term the hybrid would cost you more to operate (gas + payments) then a non-hybrid would.

Dennis

steine13 · July 2008

A lease is usually based on 12-15k miles per year. High-mileage leases get expensive quickly, which makes them less attractive.

So if you drive tons of miles, leasing is probably not going to work, and if you don't, gas may not be the deciding factor..

The only good thing about leasing is that many lenders in the past have been downright stupid about residuals and have based everything on "if present trends continue," which they usually don't. So if hybrid resale is super-high now, you may be able to find a great deal. You just have to evaluate it carefully.

Most of the real chumps are out of the business, though... independent leasing is way down.

Good luck,
-Mathias

pasell3 · July 2008

I read almost everything I can about the difference between these 2, but there's information not talked about in the articles.

Right now, I need a vehicle for work. My company is going to reimburse me for miles which is currently .585/mile. I generally put between 30-35K on my cars/year.

This year, I am thinking of LEASING a new car, getting the lower mileage allotment, and then, at the end of the lease, just simply buying out my car. Even if I put 90K in the car in 3 years, I think buying it and then finacing it at the lower rate would be more beneficial to me as long as it's a vehicle I envision owning and it's reliable.

Am I out of my head here?

My example is that I want to get a Nissan Murano, Toyota Highlander, or Honda Pilot. All hte vehicles, after negotiating the prices, would make my payments at least $600/month with $2K down.

However, the lease on these vehicles reduces my payment dramatically, making it more affordable. However, the lease mileages are 15K/year and I will double that.

Like I said, if I plan on buying the car, does it really matter how many miles I put on it?

PLEASE HELP!! Time is running out for me!! Thank you!

volvomax · July 2008

the problem you are going to run into,putting that kind of miles on a car is getting a bank to finance the buyout amount.
The lease co isn't going to give you a break on the price because you miled out the car, and the book value is going to nose dive.
Banks are already leery of financing SUV's at book value as it is.
You may end up having to put a substantial amount of money down when you buy out the vehicle.

steine13 · July 2008

There used to be the option of simply paying the extra miles... back in the day, say '99, there were lots of leases that would charge you only ten cents a mile for overmileage, even on near-luxo cars... which was a screaming bargain, so you could mile up an A4 to 150k over 3 years, and then pay $10k in overmileage and walk away laughing.
Of course, most banks have gotten smarter.
But it might be worth checking if some captive finance co. is charging super-low mileage rates.

"[..] if I plan on buying the car, does it really matter how many miles I put on it?"

Of course not.
But that's hardly the question. The question is, is it cheaper than buying outright? If you know what the lease costs and what the car's price is new, you should be able to sort this out, no? The actual cash value of the car at lease end is hard to know upfront, but it does not enter this particular calculation.

-Mathias

kyfdx · July 2008

Am I out of my head here?

Well.. we'll leave that to your therapist...

But, leasing with a low mileage allowance, then planning on buying the car when the lease is up, seems like a dangerous plan.. What happens if you lose your job a couple of years in? As mentioned above, what if you can't get a loan to cover the residual amount, because of the high mileage?

If you are driving 2500 miles/month, then your employer is giving you $1462.50 for driving expenses.. Assuming 20 mpg and $4.00/gallon, then gas will be around $500 per month... Another $600/mo. for a car payment still leaves you over $300 month for insurance and maintenance..

I do have a couple of suggestions...

1) Look for something besides an SUV!! An Accord would save you an easy $150/mo. just in fuel...

2) If I'm wearing out a car in 3-4 years, I'm going to drive something cheaper than a $30K-$35K vehicle (see Accord above.. or maybe even a one-year-old Taurus).

Contrary to popular belief, you can lease a car for 3yrs/90K miles... Yes, the payment is high, but it may be cheaper than trying to sell a 3 yr old, 90K mile unit.. Not that I'm suggesting you do that, but you might be surprised at the payment..

Good luck!
kyfdx
visiting host

qbrozen · July 2008

Couple of points here.

1. If you want to lease and then buy, it MUST be on a vehicle with strong lease support and weak financing support. Otherwise, it makes no sense at all.
2. Since #1 must be true, then it makes no sense (in your case) to NOT take the highest mile/year lease you can. It will make your buyout far lower and you will be paying off more of the vehicle using the leasing company's fantastically low interest rate (money factor).
3. I couldn't agree more with the suggestion that you get something very fuel efficient. It is money in the bank when your company is paying you the same whether you drive a 20 mpg vehicle or 35 mpg vehicle. Hell, at that number of miles you'll be driving, I wouldn't be surprised if you could get yourself a very efficient car that your company pays you for AND have enough from the allowance left over to pay for a car you'll actually enjoy for personal use.
4. Don't forget uncle sam. I'm not a tax expert by any means, but I do know my father receives a W2 at the end of the year for his vehicle allowance and has to pay taxes on it. Ouch!

bmmiller · November 2008

Thinking of leasing a Ford Flex. I can get X plan pricing and hope for good value on my trade in. I know I shouldn't put money down up front but I can't imagine selling a car in the current market. (I live in the Metro Detroit area.) Anyway I was hoping to get some comments about leasing a new model. Does anyone have any comments on leasing vs buying a new model where the residual values are truly unknown?

qbrozen · November 2008

Does anyone have any comments on leasing vs buying a new model where the residual values are truly unknown?

I don't believe it matters much. If the residual is set too high, then you get to cut and run at the end of the lease. If it is truly too low, then you can buy it and trade or sell at the end.

bmmiller · November 2008

I don't believe it matters much. If the residual is set too high, then you get to cut and run at the end of the lease. If it is truly too low, then you can buy it and trade or sell at the end.

Excellent point. I never thought of it that way. I guess I can't really go wrong. I will have to post my info in the Flex lease discussion to see get people's opinions on the numbers.
Thanks

cheeseplz · March 2009

Ok so heres my question. I'm looking at buying a new altima and was wondering if it makes more sense to lease it (to have lower monthly payments) and then after 3 years just buy it outright? I'm not totally sure how leases work but to me it seems like a good way to pay less for a car upfront and then buy a depreciated car for less. If I was to buy it from the start I'd pay 2-3 times more a month wouldn't I? Yes after 5 years I'd own it but I also paid full price for a car that isn't worth that now. Like I said i'm not too sure what the advantages to leasing and then buying at the end of a lease are, most info on edmunds concerns leasing and then releasing at the end. PLEASE help me with any info you can.

golic · March 2009

The concept of a lease is to pay for the depreciation of the vehicle over the lease term, plus an interest rate. In a lease the interest rate is called a money factor, and if you take that factor and multiply by 2400 you will convert to an interest rate.

If you were to lease for 3 years, then finance for another 2-3 years, I am pretty sure you will expend more cash than if you were to purchase. You are right that there would be less front end cash - but in the long haul it may cost you far more.

To lease then finance often does not make good economic sense due to the following:

1. The residual value of the vehicle (the purchase price at lease end) is a crap shoot and rarely is less than FMV. I think the manufacturers overstate these slightly to keep lease payments attractive and claim their vehicles hold their value. So bottom line you may find out that your buy out price is $1,000 - $3,000++ greater than FMV at the end of the lease. On the other hand, if you are lucky and the car holds it value you can experience a nice windfall.

2. The interest rates on a new vehicle are preferential to that of a used vehicle. You will get a better interest rate financing a new vehicle for 60 months than you would get 3 years down the road financing a used vehicle. So the cost of money is better in the long run. I am not sure what is going on at Nissan, but lease rates these days are not that much more attractive than purchase rates for those with good credit.

qbrozen · March 2009

It all depends on the terms.

For example, 2 years ago my brother-in-law wanted a Mazda3. At the time, they were offering an outstanding 27-mo lease program. He was insistent that he wanted to purchase, but after running the numbers, I showed him that he would actually save money by leasing and buying it at the end. This was ONLY true because of the low money factor, however. If the manufacturer had been offering a low finance rate at the time, that probably would have been the way to go.

As it turns out, he doesn't want to keep the car, though, and will be turning it back in at the end of the lease. Had he purchased, he wouldn't have that choice now. So that's always something to consider.

stickguy · March 2009

Lease/buy out is like making your payments now and down payment (a large one!) at the end. QB is right though that you get the option to walk away at lease end.

Flip side, it can be harder (more expensive) to get out of a lease early, and there are fees (origination, turn in) with a lease that you don't have with a buy.

robertlong2 · April 2009

My exsisting lease ends soon and i will not be purchasing the 2006 Mazda5. I liked it so much i want a 2009 (same model) The dealer made this offer on a 2009 Maxda 5 touring edition: The sticker price $21,640, He says his price is $20,563. and he will give to me @ $200. over that? = 20,763
My trade T/A (second car-2000 Mercury Gr Marq. 60,000 miles, good condition) He'll give $3,500. In either scenerio I pay $300. down. He'll also payoff exsisting lease approx. $400. and absorb 2000 extra mileage @ $0.15

LEASE: 3 years 45,000 mi @ $295. mo. residual $9,738

PURCHASE: w/ Mazda rebate of $500. = $16,763 60 mo @2.9% $313.mo

Which would you choose?
By the way, Mazda is pushing their Mazda3 now, do you think they'll have better deals on th Mazda5 in the near future?

qbrozen · April 2009

Out of those 2 scenarios, I would buy it without a doubt. $18 more per month to own? Its a no brainer, really.

Only thing I would do differently is sell the Grand Marquis privately. For an '00 with 60k miles, I'd imagine you could ask $5,995 and get $5k for it.

BTW, your purchase price at that rate for 60 months should be $300.48. I assume tax is driving you up to $313? Is the lease payment with or without tax?

volvomax · April 2009

Given the small difference in payment,you should buy the car.

Even if you want out in 3 yrs,you should be able to trade it in and be ok if you keep the miles right.

robertlong2 · April 2009

Lease includes tax. Thanks for advise.

Bob

cagn · April 2009

Im thinking of leasing a 2009 Toyota Prius - $268/mo on a 3-year lease. Buyout stated up-front by Toyota @ $14,634; dealer says that because this car holds its value, the buyout cost will likely be less than its Blue Book value. Because the next generation of Prius is coming out soon, the dealer claims this is a really good deal being offered by Toyota to try and attract customers who otherwise might wait for the new models. Money factor  which I only sort of understand  is stated at 0.00017.

Same car, cost to purchase outright is $23,469.

Other part of this picture is that my personal finances are a little uncertain right now, but will be more stable in 2 or 3 years. That is, for the immediate future, the low monthly payments on a lease are attractive; 3 years from now (when I probably would purchase the vehicle rather than turn it in for another lease) the higher monthly payments are less likely to be the problem they are now.

Help! Some unbiased thoughts from someone experienced with leasing would be much appreciated!!!

kyfdx · April 2009

That sounds like it could be a great deal, but you've left out some info..

Amount due at signing?
Does that include tax?
Mileage allowance?

regards,
kyfdx
Host-Prices Paid Forums

cagn · April 2009

Amount due at signing? $1000 + $1000 trade-in on a vehicle that won't pass state inspection without at least $2000 worth of work

Does that include tax? yes

Mileage allowance? 15,000 per year (45,000 over the 3-year period)

kyfdx · April 2009

Well... I don't know what the purchase price would be, but with the $1000 rebate, I'd guess around $20K-$21K..

Given that, the lease payment looks very good, and the residual is unrealistically high (that's a good thing on a lease)..

I'd lease that car, rather than buy it, assuming your driving habits fit the lease parameters.

regards,
kyfdx

volvomax · April 2009

Looks like a good lease. You are paying half a percent in interest.
Residual is too high for the car but that only will affect you if you want to buy the car out at the end of 3 yrs.
If you bought the car you'd probably be looking at payments in the mid to upper $400's depending on term and money down.

hawkette · July 2009

I have a 2006 Toyota Rav 4 with 31,000 miles and 2 more years of payments (it was purchased). Because I tend to put minimal miles on the car and like to get a new one every 3-4 years I'm strongly considering a lease. Currently I'm eyeing some incentives for leasing a Subaru Outback. My question is is this something I could do now or should I wait? I owe slightly less than the estimated trade-in value on the Rav 4.

qbrozen · July 2009

Is there a reason why the RAV4 no longer meets your needs/wants?

hawkette · July 2009

The vehicle is fine and meets my needs ok but I used to own an Outback and really liked the size and handling much more than the Rav 4. The main reason we're looking at the lease option is to reduce monthly payments and possibly begin a leasing cycle for my vehicles.

qbrozen · July 2009

OK.

Well, frankly, I think you hold it longer. You did finance it, after all, and with only 31k miles, your best years are ahead (meaning little to no repairs and depreciation has slowed).

Granted, if going into a lease, its not like you need equity in your current car. But it is a cheaper option right now because, while the payments may be high, you are building equity. Equity you will no longer be building in a new lease. So, for instance, maybe you are burning through $200/mo on your RAV4 right now for the next year or 2 (payment minus equity). But on a lease, it would be twice that.

hawkette · July 2009

Thanks. I should mention that my payments are more like $460/mo at 6.7% and the incentive for the Subaru is $239/mo lease. (The purchase incentive is $2000 cash back at 2.9%.) I am inclined to hold onto the Rav4 however.

qbrozen · July 2009

I figured it was in the $450-$500/mo range.

The Subie deal may be tempting ... but is that $239 all inclusive (taxes, tags, bank fees, etc) and the exact model you want? Little differences in equipment, money down, miles per year, etc, can make a substantial difference in lease payment.

dtownfb · July 2009

A couple of quick math calculations shows the Subaru being the better deal as far as out of pocket money. But at the end of 3 years, you'll need a new car if you go the Subaru route. if you stay with the Rav4, you have a paid off car.

personally, unless the Rav4 is a complete lemon, i would stick with what you have. buy a can of "new car" spray to get you by.

virosario · July 2009

Hello. I've been reading a lot of posts about leasing vs purchasing, but still don't decide what is best for us. I'm married with no kids so it's only the two of us. We have a 2004 Mitsu Outlander 2004 xls and are making monthly payments of $300. We are still 53 monthly payments away from paying it in full. The car is still good but it's begining to have it's problems with the suspension and the obvious wear and tear. We bought it used, 2 years ago with 43000K and now it's 57000K, we drive in town, never out-of-state or long trips, just to go to work which is a daily commute of less than 7miles. I'm worried because it was a big mistake to make a 72 month commitment for a used car. i got a lemon warranty on this too. This car depresses too quickly and I would like to have a vehicle with better gas mileage, and not to deal with a lot of maintenance, as I can barely pay the monthly payments. I'm just trying to live withing my means and lower my bills. I would like to know what is better for me in the long term. Sorry for the long post, I will appreciate any advice, thanks.

volvomax · July 2009

As you noted,your first mistake was in taking out a 72 mo loan for a used car.
If you had to go 72 months, maybe it would have been better to find a car that you could afford with a shorter term.
Having said that, its tought to geta decent car for $300/mo. That corresponds to $15,000 financed for 5 yrs.
Right now, there just aren't many leases running less than $300/mo without some significant up front money.
You probably have a very firm grip on your car,so trading is probably out of the question. Besides, its hard to come up with a crossover that gets better mileage than an Outlander. Hoepfully, you can just drive your car for another 4 yrs,do the maintenance and be ok.

tidester · July 2009

I'll second what vmax said but I think the good news is that your Outlander has very low miles on it so it should remain functional for a good long time. Typical mileage on a family vehicle is about 12,000 to 13,000 miles per year and you're driving at half that rate.

tidester, host
SUVs and Smart Shopper

ctsfan · September 2009

I recently went to a dealer for quotes on the 2009 CTS. The 48 month lease (12,000 mi/year) quote was $540/month and the financing quote (0% for 72 months) to purchase car was $550/month. No money down for either quotes.

I've always leased my cars for no more than 39 months. So, is 48 months too long to lease a car (i.e. is it worth it)? Since I've never financed a car for purchase before, is 72 months too long of a time period to finance?

HELP!

Leasing vs. Purchasing

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