General Questions about Leasing Vehicles

lonnie77 · September 2013

I've never owned or leased a car before but need one now to move around my growing family. Looking at a 2013 Hyuandi Elantra GT, they are offering a lease of $179/month for 36 months. Offer shown based on $2,699 due at lease signing (includes $179 first payment and $2,520 capitalized cost reduction). No security deposit required. MSRP $20,340 (includes destination, excludes tax, license, title, registration, documentation fees, options, insurance and the like). Actual net capitalized cost $17,805.34. Net capitalized cost includes $595 acquisition fee. Dealer contribution may vary and could affect actual lease payment. Total monthly payments $6,444. Option to purchase at lease end $12,204. Lessee is responsible for third-party fees. Third-party fees vary by state or locality. Lessee is also responsible for insurance, maintenance, repairs, $.20 per mile over 12,000 miles/year, excess wear, and a $400 disposition fee

Is this a good lease deal? What parts of this deal can I negotiate?

sebring95 · September 2013

Anything is negotiable. First thing is to scratch the down payment. It's a bad idea to put money down on a lease. This will raise your payment to somewhere north of $250 but is far better than up-front money.

I've thought the lease deals on the Camry SE seem pretty good. They're advertising $0 down and $267 a month on a $25k MSRP car.

You say this is the first time you need a car....does it make sense to lock yourself into a 3 year commitment on one? Is there a chance you won't need this car 12k miles a year? Leasing is generally the most expensive and least flexible option for buying a vehicle. Would a lightly used vehicle not work just as well for you? You should be able to buy something still under warranty for around the same payment.

lonnie77 · September 2013

thanks for the response sebring95. I am weary of putting a down payment on something that I technically will not end up owning and yes, since I use public transportation to get to work and my wife does not drive, this will be a weekend car only, and I cannot see us putting 12k miles on the car over the course of a year.

The reason to lease is because I have never been a car owner before and am concerned over the upkeep over the long-haul. But a good warranty should take care of that, no?

sebring95 · September 2013

I don't think I would ever consider leasing in your situation. Weekend driving and not using what you're paying for (12k miles) just makes it a lousy decision.

Upkeep is pretty minimal on cars these days. Picking up a Hyundai or Kia certainly covers you for quite awhile. 5 years on everything and 10 years on powertrain would be a good thing for someone that doesn't drive many miles. Assuming you would be satisfied with one of those vehicles it probably wouldn't be a bad thing. You pretty much have to buy new though because the powertrain warranty doesn't transfer to a 2nd owner. I'm sure they sell them with extended warranties though but just to go on the record I don't recommend extended warranties either. But if you do buy an ext warranty, only go with one backed by the car manufacturer.

Personally if I was in your shoes...I would pick up an Accord. No the warranty isn't as glorious as the Hyundia/Kia but the odds are very good you'll never need it. The real upside though is resale value. If in a few years you decide you don't need a car or maybe need something bigger....low mileage Accords bring stupid money. Even in ten years it will still be worth considerably more than the Hyundai/Kia. I just feel that's a better investment and where I'd spend my coin. Good luck either way.

kmur · September 2013

I have seen it often said "never put money down on a lease, you'll lose it if you wreck the car!"

What is this statement based on? I know firsthand of two different people who wrecked leased cars, and the insurance wrote a payoff check to the leasing company, and another check to the lessee, for the difference between the payoff amount and current replacement value (which I believe would be equivalent to Edmund's estimate to buy the same used vehicle at a car dealership).

In both cases, the people were pretty far into their leases. The further away you are from the payoff amount, the less likely you will see anything. But that is no different from financing a car, yet I don't see people saying "NEVER PUT MONEY DOWN WHEN YOU FINANCE A CAR!"

stickguy · September 2013

you are talking about Gap insurance.

the logic is that insurance makes the leasing co. whole. If there is any equity left, that could go to the owner.

but, usually on a ST lease, the depreciation is such that there won't be any equity, so the buyer gets no $ (they just walk away). And that is true if you put 0 down, or 1k, or even 2K. So, the money you put down effectively instantly vaporizes as depreciation, and in a total situation, it is the first thing to go.

kmur · September 2013

The reason there would be equity is that a realistic residual is basically wholesale, while the insurance payoff will go up to retail replacement value. If your lease has an artificially inflated residual (such as with BMW or Lexus), you probably won't see a dime. So it depends, I guess.

sebring95 · September 2013

The loss of the down payment is a short-term problem for the most part. Of course that all depends on the buy-out, terms, market, etc. It could be a long term problem if you buy something that depreciates heavily. Most leases require gap coverage to make up the difference but that doesn't help you with what you put down which vaporizes when you drive it off the lot.

What's the difference between this and buying a car with a downpayment? Maybe nothing...but generally speaking the buy-out or payoff on a loan won't be as expensive as a lease $ for $. So this is just one part of why most (myself included) don't recommend putting money on a lease.

One of the other reasons I don't recommend it is because the entire purpose of a lease is to minimize cash costs. By throwing down a big chunk of cash up front, you've just basically eliminated one of the main advantages to leasing. Yes your payment will increase if you put nothing down but it's cheap money assuming you're getting a favorable rate (less than 1% is common lately on subsidized deals).

kmur · September 2013

Fair enough, and your rationale makes sense.

I guess from my perspective, I see leasing more as an easy way of getting a car for several years on a trial basis - if I like it a lot, I will buy it out. If not, I just hand the keys back to the dealer without having to hassle with the trade in. Moreover, in my past experience of leasing many cars, I have usually had enough equity built in the car (according to appraisals provided by CarMax, among others) where I would be able to trade it in at no loss with about 1 year left on the contract.

With my most recent lease, I crunched the numbers many times, considering an all cash purchase vs a lease. What I found is that for the first 3 years, leasing would cost virtually the same as cash purchase (assuming that the lease's depreciation curve is accurate). The reason is my state collects sales tax only on the payments, whereas the entire amount would be due on a cash purchase.

So if I discover I really like the car and buy it out at the end of the lease, that's when I'd be kicking myself for not having paid cash in the first place.

sebring95 · September 2013

At the point you buy it out, wouldn't the sales tax only be on the buyout amount? If that's the case, the only additional part you would be paying tax on would be the interest/expenses rolled into the payment.

There are probably deals out there that get the lease vs buy very close, particularly with some of these subsidized deals with inflated residuals and super low money factors. But for me if it's that close I'd still rather own it so I'm not locked into that mileage allowance, potential damage expense, or the tail-end fees that are quickly becoming the norm. You want to buy it out? Fee. You want to turn it in? Fee.

What I've found is a nice way to "try out" a vehicle is to assume someone's lease. I've done this a few times and made out very well because someone put money down on a lease, drove it very few miles, and then had to get out for some reason. I took over the lease in the 14-18 month range with super low miles and in all cases bought out the lease at the end or traded/sold with positive equity. Those three trucks were among the cheapest vehicles I've ever owned. Most of the lease assumptions you see on the lease swap sites are horrible deals....but occasionally a killer deal will show up and you can pounce.

qbrozen · September 2013

I've made this same argument before. You lose in either scenario, so I'm not sure why folks use that argument for not putting money down on a lease.

However, I do agree that a good lease deal typically comes with very very low interest rate, so that alone is a good reason not to put down money up front.

aviboy97 · September 2013

sebring95-

I don't agree with your view on putting money down on a lease. All a down payment does it alter your monthly exposure. Over the course of the lease, it ends up being a wash. You are really never out any money at all.

sebring95 · September 2013

Well to be fair, with the recent APR on a vehicle I wouldn't recommend putting anything down on a finance deal either. GAP coverage is really cheap as well, particularly if you go through your insurance carrier and not what a dealer sells. Stick the down payment in your investment account and easily make money.

Still, on a typical lease vs buy if you total out the car in the first year or so, the lease is very expensive to get out of and you'll likey not see that equity until the last year or so.

sebring95 · September 2013

So you're willing to hand them thousands of dollars that vaporizes if the car is totaled or stolen? For what you say is a wash over the length of the lease? If it's a wash, why in the world would you do it? I'll keep the money in my pocket (or better...in an investment account making far more than the money factor on the lease).

qbrozen · September 2013

But, see, again, that argument doesn't really hold water if comparing lease to finance. The same thing typically happens if a financed car is totaled or stolen in the first couple of years.

If you say that you shouldn't put money down on a car no matter if its a lease or finance, well then OK, but i don't see how we can apply that thinking to just leases.

kmur · September 2013

About GAP coverage... I think most auto manufacturers' captive finance companies waive GAP, so any gap coverage would be a needless extra.

In fact, I think most of the leasing horror stories that still get repeated over and over like urban legend go back to the time when it was mostly private banks which financed car leases.

The last thing auto manufacturers want are legions of irate lease customers. They are looking for repeat business.

sebring95 · September 2013

I don't think this was ever really a discussion between leasing and financing. I know the financing piece came up...mainly because someone stated that "people don't typically recommend NOT putting money down on a financed car" or something to that effect. Well I recommend that regularly for partially the same reason as the lease: cheap cost of capital and less risk of loss with gap coverage.

Either way the original discussion was about down payments on leases and the best response I've seen supporting a down payment says it washes over time. Which it might. I'm not sure why I would pony up a wad of cash now only to recover practically the same amount back over 36 months. Sounds like all the risk is on me.

qbrozen · September 2013

OK. You did specify "lease" in your reply. But if your contention is that you should never put a big downpayment on any new car, then I can't argue that reasoning.

ken117 · September 2013

Best is to lease with an OEM which supplies GAP coverage in the lease. Acura, for example. Put no money down and let the GAP coverage take care of any shortfalls in the insurance payoff if the car is totaled

If a lease does not include GAP, some insurance companies offer it at a very reasonable cost. Never, ever buy GAP from the friendly dealer F&I guy. They will charge you hundreds. Of course, if you fall for their word tracks they will be very appreciative.

jboog17 · September 2013

I don't think having money down is that much important not like having good credit. If you have good enough credit, you don't even need to put any money down. I'm glad I have the time to read everything it is on having money down, credit scores, etc....

kkelly4 · September 2013

I am looking to buy a used 2010 Subaru Forester, ideally just off a 42 month lease. Has anyone the residual lease numbers from 2010? I'd like to not just assume the % is the same as the 2014's.

Thanks for any help!

sebring95 · September 2013

I'm curious what you plan to do with this info? The residual won't have an impact on the current market value or what a dealer may have paid for it.

retired2pa1 · September 2013

Wouldn't you want to check here on used car appraisals and see what the car is worth? You'll need mileage, condition, etc.

kyfdx · September 2013

I agree... those numbers aren't really relevant, but if you want to know anyway, start looking here, in Subaru Forester Lease Questions...

http://townhall-talk.edmunds.com/direct/view/.ef9ddaf/401#MSG401

Turbos your thing?

http://townhall-talk.edmunds.com/direct/view/.ef9ddaf/422#MSG422

regards,
kyfdx

jipster · September 2013

What costs can one expect if buying car at end of lease? You've got residual value, then on lease says any taxes or fees. The tax part is okay, what can one expect in terms of fees? Fees from dealership the car was turned into at, or fees to lessor? Negotiable?

steamroll9 · September 2013

I would like to trade in my car in and lease a new car. New job, less money, better benefits. I do still owe money on the car but have about 13-14k equity in the car. Would like to use a little of the money towards a new car lease and pocket rest of the money so I can supplement my income. I know that you get less for trading in vs. selling privately, but to add the tax to the trade-in amount to see if it is worth it just to sell privately.

Question is, for the amount of money I will receive for my trade-in, the tax on the amount will far surpass the amount of taxes on the lease. What happens with the excess taxes? Applied to the lease? Or will I loose it? Thanx!

audia8q · September 2013

The extra costs vary depending on the lease....some, but not all charge a purchase fee which can range from $50-500 and should be on your lease contract. the dealer may change a dealer fee/converyance plus sales tax and motor vehicle charges. It can't hurt to try haggling but they hold all the cards, so don't be surprised if they don't budge. Good luck.

anthonyp · September 2013

I am going to buy a ford focus2013 which has a sticker price of 42,000....reduced to 35,626....I asked about a two year lease, with one payment....I was told 12,000......I wonder if you could tell me what I should do? ThankYou Tony

kyfdx · September 2013

Tony...

A Ford Focus with a sticker of $42K?

I'm guessing not a Focus, and some other Ford?

Michaell · September 2013

Focus EV starts at $35K, but there aren't that many options available so not sure how you could get to $42K.

And .. there is a manufacturer special lease on the Focus EV ... $298/mo with $0 down and 10,500 miles per year.

Of course, that does factor in more than $10K of incentives...

roxy1234 · October 2013

roxy1234 · October 2013

What model is the accord ACC? Kelley Blue Book and Edmunds don't recognize the model that is printed on the title. Can't seem to figure this out. Any help would be greatly appreciated.

kyfdx · October 2013

Google tells me that ACC might be Adaptive Cruise Control, but no idea why they put that on the title, unless it was just an abbreviation for Accord..

emeraldljs · November 2013

I have a 3 year lease. I'm not even at the 1 year mark (this January will be 1 year). I had to move this July to a city where I barely use my car and it's more of a pain to have it and would love to get rid of it if I can. Is there anyway to do this? I looked at those websites (swapalease, etc), but they all seem kind of shady. Is there a good way to do this without losing a lot of money?

sebring95 · November 2013

There's nothing shady about swapalease or leasetrader. I've used them to assume leases in the past. The good thing about them is that they require the person assuming the lease to pay for a subscription which means they likely know what they're doing and are serious. If you have an attractive lease and yours can be assumed per the contract you'll find someone to take it over.

stever · April 2014

A reporter would like to speak to a car shopper under the age of 34 who is unsure whether you should lease or buy. If this is you, please send your daytime contact info to pr@edmunds.com by Friday, May 2, 2014 at 10 a.m. PT/1 p.m. ET.

General Questions about Leasing Vehicles

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