Leasing vs. Purchasing

qbrozen

How much of a difference are we talking about? Because, if I remember correctly from the lease questions board, the V50 has a couple percentage points over the S40, as well. So it could be a wagon thing. And, of course, the XC70 has the AWD, which helps resale quite a bit, too.

I also agree, however, its probably partly due to help from Volvo for sales purposes.

bodble2

Comparing the XC70 to the V50 T5 AWD, the residual % is 59 & 55.

doctorjoe2000

Hi all,
New to forums and hope you can all shed some light on a cloudy subject for me. I love cars and am in a position of necessity and want to buy a car. The problem like some/most is my credit score is pretty bad. I am 22 and am paying off debts fairly quickly now. I have four debts I need to pay off and then I am free and clear. I am wondering if there is a way to finance a new car without a cosigner? I would prefer to buy a car but leasing is less monthly and I hear that it is easier to get a lease approved than a loan. I am going to be promoted to a job that is earning me more annually with pretty high bonuses annually if business goals are met. Truthfully I am not worried about the money per month. I just need to get approved. Which route do you all recommend. I am probably over sharing in my personal finances and all but I just need as much help as I can get to know whether or not getting a new car is even attainable. So which is the better route, leasing or buying?

kyfdx

You'll have more luck trying to purchase than lease..

Banks will finance almost anyone, if they are willing to pay a higher interest rate.. But, if you have poor credit, you generally won't be able to lease.. at any price..

bodble2

Right off the top, I have to admit I have always bought cars with cash except once when I was in my 20's and took out a small loan. I don't recall that being too difficult. So I don't have much real experience on any sort of car financing. But we (wife and I) have just this week leased a MINI, and I have to say the process was amazingly simple. The lease is in my wife's name, and all they did was verbally asked how much she makes, and what other debts she has. That's it. No documentation to verify anything, nothing, nada. And literally a few hours later, the lease is approved. I just figured that since they still have title to the car, they're not really that concern over credit. Probably their thinking is worse case scenario they'll just get a repo guy to come and haul the car away.

danf1

Banks and dealers are very concerned about credit. If you weren't asked for any documentation all that means is that your wife's credit is good. No bank wants to incur the costs of repossessing a car. It is a losing proposition for them.

bodble2

That's just it, my wife actually does not have a good credit history. I hate to say it, but she has poor money management skills. Earlier on in life, she had problems with a few credit cards. And now she actually has NO credit cards. So at best, her credit report would be a blank.

danf1

Actually you are better off with bad credit than no credit. At least with bad credit you can get a loan with high interest.

I would recommend starting to look for loans at a credit union if you have one. Maybe your local bank, but if your credit is bad then the dealer probably has the best shot at getting you approved.

When applying remember that you will probably be asked to prove your income, address etc.. So if you are going to a dealer save the aggravation and bring a recent paystub and utility bill with you.

sunpro2003

Is this a good lease deal?
I live in New Jersey.

2005 Volvo XC90- 2.5T AWD
Metallic Paint
Premium Package
Climate Package

MSRP: $41,370
Cap Cost Price-$39,005
Residual-25,235(61%)
36 Month Lease Term
10K miles/yr.
Money Factor-.00182(4.37%)
0 down payment

Monthly Payment-$499

Thanks

sunpro2003

I am looking at trading in a 2003 Volvo XC Wagon to a dealer. Looks like they all use the Galves trade in value which favors dealers so they don't overpay.

My 2003 Volvo XC70 wagon(Power Sunroof, Leather, Metallic Silver) only has 16,500 miles-Galves pegs trade in at $24,125-KBB gives trade in value of $24,350-NADA puts it at $27,725 and Edmunds puts it at $25,502.

How do you know which figure to believe?
I see dealers selling comparable 2003's between 28-30K.

What is dealer markup on used cars taken as trade in?

isellhondas

Whatever the market is on these. You might want to go to Real World Trade Values and ask Terry.

You can always try selling it yourself.

kyfdx

No opinion on your trade price.. but..

I don't know the market too well on the XC90, but a 36mo/30K lease payment of $499/mo on a $41K car is pretty good..

And, you should try selling your other car yourself... A nice low-miler like that should go quick.. You can probably realize $2000-$3000 over what the dealer will give you.

cadillacmike

"That's just it, my wife actually does not have a good credit history. I hate to say it, but she has poor money management skills. Earlier on in life, she had problems with a few credit cards. And now she actually has NO credit cards. So at best, her credit report would be a blank. "

It won't be blank. If you have her as a authorized user on any of your cards, even if you never let her use them, they will show up on "her report". Do you have a home mortgage(s). Are you Joint owners? Bingo, "her report" will have this too. Do you have any gas or store credit cards for her? ditto.

Your high score will directly translate to her high score in this manner. Most husband & wife duos have the same or very similar ratings, no matter who controls the financing, unless there is a totally one sided marraige.

bodble2

Her record would then only contain a joint mortgage that we took out last year when we bought our house. Other than that, she should have nothing. She has no credit card in her name, and she is not an authorized user on any of my cards. Believe me, this is for her own protection. (In much the same way you wouldn't put an alcoholic in charge of a bar)

cadillacmike

Get her as an authorized user, then shred the card when it comes in. She'll benefit from your paying the bills on time.

bodble2

Good idea!

tmchow

If i know that I only want to keep a car for 3 years, is this automatically mean that I should lease?

kyfdx

Not necessarily, but it sure makes it more likely that it would be beneficial... You should at least look into it.

gbofrn

Is this a good deal? Thanks!

36 months
12K
cold weather package
premium package
17" wheels
Side Rear Airbags
$415/mo
$0 down

jnm1

We have leased into a SR5 4x2 05 Tundra back in Nov. and the lease began with the mileage at 12K/yr. Sence then avg. mileage for keeping the truck until that time again would put us way over...Does anyone know if you can change the mileage terms on a lease before it is due without resigning for a longer lease? Or paying alot more money? 12K is just not enough when it comes to Southern California big mistake with the lease!! Please help!!

paul138

Is there a general rule of thumb when trying to determine if
your lease deal is a good one?
If I add up my down payment,35 payments & the residual price.
should it be the same as the mspr or actual selling price? a little higher? lower?
thanks

kyfdx

I'll give you a really rough rule of thumb..

With no cap cost reduction, a monthly payment, tax included that equals 1.5% of the MSRP is average. That would be for a car with no incentives or special lease rates..

The holy grail of lease payments is 1% of MSRP... Anything below 1.3% is very good, and 1.2% and below are usually killer deals..

Again... this is a very rough rule of thumb, but I find it helps me quickly evaluate whether leasing a certain model is desirable..

regards,
kyfdx

paul138

thanks!! that is very helpfull.

paul138

kyfdx
my monthy payment would only be just above 1.1 of MSRP but the deal
is for 2500.00 down. is your formula based on 0 down? If so
should I just spread that 2500.00 over the 36 months to get an accurate
figure??
thanks,
paul

kyfdx

I base the rule on only making 1st payment and security deposit at lease signing.. So, subtract that from your total upfront payment, and divide the rest by the term of the lease..

So, If your first payment is $475 and your security deposit is $500, subtract $975 from $2500, leaving $1525 divided by 36 = $42.36/mo... Add that to the payment..

Like I said, it is just a rough rule to see whether leasing a car makes sense, not whether you are actually getting a great deal..

About ten years ago, when interest rates were a lot higher, 1.5% of the MSRP was a really good lease payment, but with purchase interest rates under 6% (or sometimes much lower), 1.5% is not as good...

You really have to research the specific car, though.... Some cars have really large incentives skewed to the purchase or lease side, but not both... Sometimes you might pass up a great purchase deal for just a good lease deal..

regards,
kyfdx

richds

I wouldn't be considering a lease, but the incentives on the Mazda RX-8 right now are only for the lease, so I'm thinking seriously about doing it. I was planning to trade in my car, but I don't think I will with a lease because I won't get the tax advantage since it's taxed on the use fee only. (correct me if I'm wrong on any of my assertions.) The advertised lease is as follows:

$299/Month, 24-Month Lease, $2,598 due at Lease Signing. Includes 1st Month’s Payment and Security Deposit. Excludes taxes, title and fees.*
* Dealer participation required. Not all lessees will qualify for lowest payment through Mazda American Credit. Some payments higher, some lower based on residency and other factors. Not available for NY residents. Lessee responsible for excess wear and mileage over 24,000 at $0.15/mile. Total payments of $7,176. Purchase option at lease end for $16,187. Take new retail delivery from dealer stock by 7/05/05.

MSRP on the car in question is around $27,500. I think the one I want will have an option package worth $1300, so that will obviously raise the price, but that's irrelevant for this discussion.

The residual value is .59. Not quite sure on the MF--probably .0013. I would plan on buying the car at the end of the term, since I think that will be just about dead-on what it will be worth. So I will be paying 25,961 (plus tax).

Now here is the main point of my question: How do I negotiate a lease? Can I just do it like I would normally when I buy a car. They are offering $2000 on rebates on the lease (which is how they came up with the $299 figure in the first place, by subtracting from MSRP and adding the up-front fees.) I would like to get this car for invoice minus the rebate. Should I just try to get the best price on the car and then tell them I want the lease rebate taken out of whatever we negotiated? Sorry if my question is confusing--I'm pretty confused myself.

rroyce10

....... You negotiate a lease like you would if you were buying the vehicle - on price ...

That said, you say you've never leased before ... just make sure your doing it for all the right reasons and you understand the good, the bad and the ugly parts of leasing ...



Terry.

richds

Okay--from what I understand the down side of leasing is the mileage requirements, possibly higher interest rates, and baloon payments at the end. Are there other ugly things I'm not thinking of? Like I said the fact that I would plan to buy the car at the end of the term seems to negate some of these issues.

lumbar

I'm essentially in the same place as you are and have tried to self-educate with the help of knowledgeable people at Edmunds. Keeping in mind where I'm coming from (amateur), IMO the ability to negotiate a low "buyer's" price for the car, combined with a manufacturer "subsidized" interest rate and (as you note) driving habits that will keep you under the mileage limit are the keys. This isn't exactly news, but a lot of people are used to "packaged" leases where all aspects of the deal are supposedly set in stone. Personally, it appears to me that most of the "leasing is a bad idea" tales come from people not negotiating the sale price of the vehicle (buying at or close to MSRP) and not realizing what the interest rate is. With a lease at, say, invoice, an interest rate around 2% (money factor around .00081) and a watchful eye on reasonable fees (ya gotta live with the acquisition fee), leasing can compare very favorably, with the added benefit of low out of pocket costs at the beginning. If you go in planning to buy the car for the residual after three years, then any concerns about the residual wouldn't seem to matter.

stickguy

don't forget, you have to pay for the privelege of le4asing (orig. fee, and turn in fees). DOn't have that with a purchase.

LDegrelle

Really new to this and some of this stuff makes my head swim. Maybe if I explain my situation someone could shed some more light.

I am currently an IT worker who is doing contract work (40 hour weeks) with contract good until end of year. Allegedly I will be picked up for another 6 months beyond that with some possibility of permanent hire. Wife is stay at home with 2.5 year old and expecting our second this July.

Our cars consist of a 96 Saturn in great shape (~90k miles) and 85 Chrysler 5th Avenue in decent shape (but no AC) with 105k miles. Really hoping to upgrade the 5th Ave to a minivan (Nissan Quest). We will have the two kids, all the junk that goes with kids, and a dog in a carrier. The Saturn has no chance of hauling all that and the 5th Ave is marginally better. That and the 5th Ave guzzles gas (approx 15-17 mpg).

The immediate benefit I see from the lease is this:
- lower payment than purchase
- if van proves unreliable, we can just drop it at end of lease
- if we decide to purchase van at end we can do Home Equity Loan and write off interest

I figure that most time i might be 'in between' jobs is 4-6 months. I put aside 6 months of lease payments and should be covered in any down time. I am looking to do a lease without down payment, as I know that if van gets totalled, I lose all that down payment.

I am fully set on the Nissan, so do not need advice on that front - looking for pure insights on my views (or fallacies) towards leasing.

Thanks!

ljwalters1

Don't know if I'd consder this "advice," but here're some things to keep in mind, as the proud owner of a Sienna minivan.

1. go with a higher mileage option, like 15k/yr. I assume you'll drive the Saturn to work. Your wife driving the minivan around for errands, kids programs, etc can add up. Also, if you go for a family night out, or run errands or a driving trip or visiting with family, you're gonna wind up taking the minivan 'cause it's so easy to pack, and has so much storage.

2. consider the wear and tear. normal wear & tear is usually not a problem, but if you return your leased minivan with carpet that smells like spoiled milk, tape deck doesn't work 'cause a peanut butter sandwich was stuck into it, the front seats need replacing 'cause the backs are worn out from being kicked from behind, side panels need replacing b/c of all the dents from bicycles and balls hitting and being thrown into them, there will be additional charges.

lumbar

It seems to me that if you have to have the van, and cannot get into it other than by leasing, you're pretty close to a decison and the call becomes how best to go about it. That said, I'm not a big fan of leasing vehicles that have large rebates available to those who purchase directly without leasing. Doesn't the Quest have like a $2000 cash back that is not available in a lease that you'd have to forego, in addition to the over $500 acquisition fee for the lease? I'd also be interested to know what the money factor on the Quest lease is.

Also, as an aside (since you might not purchase), writing off the interest on a Heloc may not be a big a deal depending on the Heloc interest rate and your tax bracket. You could easily be in the same place as if you just got a 4.5%-5.0% loan now.

LDegrelle

Thanks for insights. I do not know the Money Factor on the lease - how do I go about finding that? I also have to check on that rebate - excellent point.

Whew! Who knew spending so much money could be so hard

ljwalters1

Maybe if you leased through another company, you could get the rebate on a lease? What I mean is, priate companies (like Lease Compare - check their website), with contract to purchase a car for $X if you agree to lease it under Y terms. If the terms are comparable, maybe the dealership would consider it a sale since the private lease co is "buying" the car from the dealership?

lumbar

Definitely go over to the "Lease Questions--Ask Here" board and ask Car Man about the money factor, then convert it to an APR (money factor X 24). I wouldn't even attempt to lease without knowing this. Then you need to be concerned about if and how much the dealer may be marking up the money factor, which IMO is a big deal in whether you're getting a decent lease or not.

LDegrelle

Thanks for all the help. Crunching the numbers, I am seeing the purchase as probably the better bet. We are definitely a family that keeps things forever and the Nissan has most of its bugs worked out - which was a small factor.

I am comfortable with putting down $3000 on a purchase, and it looks like with Nissan's financing (and minimal rebate) this gets us very near to the number for leasing with no money down.

But I'm definitely going to do some more research on the Money Factor and the residual value.

rroyce10

... **I figure that most time i might be in between' jobs is 4-6 months. I put aside 6 months of lease payments and should be covered in any down time** ...

Leasing is a good thing if you have a firm grip on what the future might be in 2/3 years ... but a change of job, a move to another state or an area can make short term decisions a nightmare in 15/20 months down the road, the boards are filled with them ....

Your looking at a van, and they're bunches in new market and there's "plenty" of really nice low milers on the used side for alot less $$ ........ remember when you lease, you lose control of your own destiny, especially in the short term .. if you trade, you take a beating .. if you pile up the miles, you take a beating, it's a rental and your paying for the miles and the use, you just can't turn it back on Sunday ..l.o.l...... the smart thing would be to find a nice pre-owned low miler that's 1/2 years old, get a factory warranty, keep it clean and sell it in 20/25 months - keep in mind, a new car is only new until you drive it over the dealers curb ... if the future is more solid at that point, then lease ....



Terry

ljwalters1

A lot of people post about the negatives of leasing, and it's important to understand those drawbacks, but don't forget the positives. If you always lease...

1. you'll almost always have a relatively new car with the newest safety features under warranty;
2. If you'd exchange cars every 3-4 yrs, it might turn out cheaper to lease;
3. With lower payments, you can afford a better (safer, faster, bigger or whatever attribute, in your opinion, makes 1 car better than another);
4. Lessees rarely have a situation where they owe more than a vehicle is worth;
5. Rather than locking themselves in to an aset that depreciates faster than any other investment, they pay strictly for the depreciation of the investment, which is why the payments are lower.

bruce4

I'm into my 4th lease and find that it is the best option for me. Using a GM Master card, I build up the $500 max per year so with a 3 year lease, I usually have $1500 credit on the card that I use as a capital reduction. My up front money is the security deposit plus the first month's lease payment-nothing more.

I negotiate the price of each new vehicle just like I was going to buy it. Once we reach an agreed upon price, I then ask for lease terms. As a final negotiating point, I ask the dealer to bump up the mileage allowance from 12k to 15k per year. Works every time! Best time to trade is at the end of the month-especially the end of the year [got my 05 Buick on 12-28; monthly lease payment is 1.05% of MSRP.

Advantages are [1] a new vehicle every three years, [2] payments typically 50% of that of owning the vehicle, [3] no hassle of trade-in-just turn to any GM dealer, and [3] if you get a vehicle you don't like, you know that you can get rid of it at the end of the lease.

isellhondas

I agree with all of your points EXCEPT number 4.

This is far from the truth. a person can be DEEPLY buried in a lease!

ljwalters1

OK - how about this:

4. While your payments may exceed the value of the car for a time (because of unexpected or accellerated depreciation), it's not as big a concern b/c you don't have to resell the car. A potential exception is if the car is stolen or totalled in an accident, which is why leases should always contain "gap insurance."

wongx2

I know I have excelletn credit, but recently I went to lease a Volvo S60R, for $399mo x 36 with $7000 walk out. Yes and that was with the cap cost reduced by $10,000 from the MSRP. When I asked him about the money factor, it was 0.00220, which seems a bit high.

My question is, how do I know what the bank is giving me, versus, what I am eventually being charged for. I know car dealerships try to make money on these loans - they even have a specialist, the dreaded F&I person.

Thanks

stickguy

the only thing you will know is the rate that you are paying, which is on the contract. I don't think you have any way of finding out what the bank was willing to do, assuming the dealer marked it up (and got a rebate from the financial institution).

Looks like you are paying about 5 1/4%. I have no idea if that is reasonable for a lease, but if you got the big rebate, it isn't logical to expect a discounted rate too.

7K cash up front on a lease? Wow. I thought only hi end stuff (Porsche, Ferrari) went out with that much up front. nice car for $399/month though!

sanjsrik

Ok, got a question. I just did the lease, waiting to get the car.

I got a 24month lease, (live in NJ), for $360 with $1700 down. I'm not paying the taxes and rolling those into the payments.

I got a Volvo V50 the dealer couldn't find a base model so I had to do with one that had a climate control pkg that brought my downpayment up to $1700 from $1400 (I tried to argue bargain him down on the climate pkg being thrown in but he wouldn't go for it) to keep the lease payments at $360.

is this a good deal?

stickguy

Hard to tell without seeing all the numbers, but doesn't look too out of line for a 30K MSRP car.

more important, if you like the car and are happy with it, it is a good deal, and kinda hard to worry about it at this point.

besides, in 2 years, you get to do it all over again!

sanjsrik

well, i haven't paid him everything yet, only gave him half and the other half when i pick it up.

my credit score is excellent. over 750, interest rate was .81, financing through chase, he also ate the security deposit since i had good credit.

one thing, can i get him to throw in anything else bc the car took so long to acquire?

black_tulip

5. Rather than locking themselves in to an aset that depreciates faster than any other investment, they pay strictly for the depreciation of the investment, which is why the payments are lower.

Wrong. Besides depreciation, You are also paying interest on the entire purchase price of the car. Somebody has to buy the car at the purchase price before they lease it to you. That somebody is going to want interest on that entire amount.

stickguy

is analagous to an interest only mortgage. The payment is only lower because you don't pay anything against the principal, as you do on a normal loan (or mortgage).

You do pay interest on the full price of the car though.

rroyce10

.. **You are also paying interest on the entire purchase price of the car. Somebody has to buy the car at the purchase price before they lease it to you. That somebody is going to want interest on that entire amount**

That's the part that everyone forgets, until they need to trade/sell or buy a new one ..l.o.l......

Terry.