Leasing vs. Purchasing

golic

1. You have two choices, walk away from the car or purchase the vehicle for the agreed upon purchase price that was set at the lease inception. If the car is worth 15K and the buyout is only 13k, then buy it and immediately trade it in and pocket the 2k.

Or, if the car is only worth 12k, but you racked up over 2k in mileage fees and excessive wear and tear, then you could buy the car for 13k and trade it in for 12k and save you 1k *shrugs*

2. If you realtor lifestyle demands you have a new car every 3 years, and you are expensing the lease payments then go ahead and lease but I would see if you can buy some additional miles ahead of time.

good luck

qbrozen

What the heck is an '04 IS250? There was only an IS300 in '04.

british_rover

I was wondering that too. I thought they only made the 6 cylinder version of that car in the US. They had a 4 cylinder version in Japan but it was called the Altezza there.

stickguy

You can, theoretically, trade in your leased car at a dealer. This way, you save taxes on buying it out first. Of course, it only makes sense if you have positive equity, since the dealer would have to turn around and pay off the residual.

A realtor seems to be one situation that leasing really makes sense for, due to usage and what iunderstand to be the tax advantages of leasing to a business.

gr8nrg

Ok, I have never leased a car before, and now thinking about it. Here's my situation...

I'm moving temporarily to Texas for 3 years (exactly 3 years). My wife is an IT contractor, so theoretically we could write off the lease from our taxes. The problem with Texas is that it's one of very few states where in the monthly lease payments they include the tax calculated from the OVERALL price of the vehicle, and not ontly the "used portion" during the lease. So, that obciously racks up the monthly payments. I don't know if tax write-offs are large enough to say for sure what leasing in my case is 100% better than buying. I mean, is leasing always worth it for contractors? I know for a fact that I would want to dump a car at the end of 3 years when I move back, but should I buy it instead and heave a headache of finding potential buyers?

Oh, I'm looking into either Range Rover Sport, Acura MDX or BMW X5.

What do you guys think?

stickguy

just from the fact that you want to keep it exactly 3 years, a lease makes sense. Besides, if you buy a car you pay full tax on it, and don't get it back if you sell it private party either.

I also think an X5 or RR is best leased in any case, and they tend to have decent lease programs (maybe not the sport right now, since it is hot, but figure to pay MSRP).

The MDX could go either way (not a bad one to buy), but recently Acura was running subsidized leases, and it is at the end of it's model run.

So, if I was in your situation, I would lease.

british_rover

The sport leases for this quarter are just bad. Last quarter our leases were ok but they have so drasticly changed the Leasing program now that it costs a 100 bucks or more a month for the same lease last quarter as this.

Oh and the sport just won an award for highest residual value this quarter too. Makes you think huh? :confuse:

I am hopeful that next quarter the lease programs will improve greatly for the Sport. Also probably by next quarter you will be able to buy the Sport in most markets, South Cali and South Florida excluded, for under MSRP. Right now most markets are still Sticker and some are above sticker. A few markets are getting slight discounts in the 500-1000 dollar range but that is it.

The X5 leases better because there are more incentives backing up the lease but if you option out an X5 up to the point that it is equpied identicaly as a base sport the Sport probably leases almost even.

golic

I am from the "other" state - Illinois which assesses a sales tax on the full value of the vehicle.

As a CPA, let me offer my thoughts.

In my opinion from an economic sense, it will always be advantageous to put 10-20% down on a car and drive it at least 4 years. You can decide how many miles to drive and if you get a significant dent in the car, its up to you to fix it or not. The longer you have the car and the care you put it into should result in having some equity in it at the end, which you can then use as down payment on the next vehicle.

From a purely tax standpoint, leasing of certain vehicles, offers a tax advantage due to the fact that the amount of depreciation on a purchased vehicle is limited and leasing will afford a larger tax deduction.

And since these "select" businesses enjoy driving new cars every 3 years, leasing can provides a "tax advantage" which is not neccassarily the same as an economic advantage.

I have always believed that individuals who "must" have a new car every 3 years and can work within the mileage limit, than leasing may be a better option for them.

But, keep in mind, do not over extend yourself on the lease. If your job or family economic situation changes getting out of the lease will be more difficult than getting out of the financed car.

Try and put the money you are saving on the lease away in the bank, so at the end of the lease you have some cash to be used on a new vehicle, otherwise you may find you might become a perpetual leasee.

From the cars you are talking about, I would gather your economic situation is OK, just be careful you temporary situation does not change were you end up racking up miles.

gr8nrg

Thanks for replies. Now, just as an average figure, without taxes, what would be considered a very good deal with respect to monthly payments on 36 months lease of BMW X5 and Acura MDX (separately, of course)?

brandloyal

My "03 Honda Accord lease is up next month and it looks like I have equity in the car. The difference between trade in value (as listed on this site) is $1200 more than my payoff. Can I use this as a downpayment on another new Honda I am about to finance? If so, how do I approach the dealer with this?

golic

Call the dealer to do your "end of lease" inspection. Then see if you can talk to the used car manager who can appraise your car. Let him know what your plans are.

Then after you negotiate the price of your new car, you can work the purchase and trade-in.

Also, go to the real world trade in forum and ask Terry what he thinks your trade in value is, make sure you follow the format they suggest so he knows where you are located.

brandloyal

Thanks for the advice. I wonder if the lease inspection company will provide me with a report so I can hand that to the used sales person?

rroyce10

... **I wonder if the lease inspection company will provide me with a report ....**

Wonder nothin'.! .... **ALWAYS** get a copy of the report from the dealership, the lender or the lease inspection company ..

1.) always check the Vin# ..

2.) always check the mileage ..

3.) always check any written notes ...

4.) always make sure it's signed and you get an immediate copy ..



Sometimes these cars sit for weeks and weeks, so it never hurts to take some good pics ... because you never know, some balloon head could run a screwdriver over the hood and you get a bill 7 weeks later for $1,200 ...... happens everyday.!



Terry :sick:

golic

I have had two Honda Leases end and each time I went into a new Honda.

From what I have experienced, if you are going into a new Honda they are very very very lenient on the inspection process.

Not sure if that was my experience or if that is Honda's way of keeping the customer happy.

79857

Great post. Why would you want to put 10-20% down? I just lease a vehicle and took advantage of their "no down" program. Not bad in my opinion. It is a three year lease and overall saved me some money compared to my monthly payment on my purchase. What about this situation: since I am saving money on my vehicle payment take half of what I saved and apply it toward the principal of the lease?

Also, you mentioned about getting a door ding and having to pay for it. I also purchased their coverage that takes care of unlimited door dings, minor dents, paint touchup, and windshield repair for three years. Nice plan for only $399. It was called Auto SafeGuard (www.myautosafeguard.com).

golic

Why would you want to put 10-20% down?

I would only putting that money down on a purchase. As far as a lease I would recommend that you don't put anything down whatsover. The only thing you should pay for is the first payment and tags.

...payment take half of what I saved and apply it toward the principal of the lease?

As strange as this sounds, there is no economic advantage of paying a lease off early. Unlike a loan where additional principal will reduce interest. On a lease you are committed to X payments for Y months equaling Z payments. No matter how you slice it, you are committed to Z amount.

Smart piece of mind on the door dinger insurance. Accidents happen and things are always out of your control, like an errant shopping court or letting your wife park the car in the garage *snikcer*

gr8nrg

For 36 months lease, 0 down, 12k/year, I got the following quotes: on BMW X5, $570/month + taxes and on Acura MDX, $446/month + taxes. X5 is a 3.0i BASE model, no options and MDX is premium BASE model, no options (I don't need any extra fancy stuff anyways). Are these decent deals, or do they seem a little high?

toast

The X5 has an MSRP of $44,470 vs the MDX $37,740. I think of it as getting 18% more vehicle going with the X5. However if you add 18% to the monthly lease payment for the MDX you get $526 compared to the $570 quote you received.

Both vehicles have the same 60% residual and about the same money factor (in AZ the BMW money factor is .001 compared to .00122 for the MDX this would be the equivalent of 2.4% for the X5 and 2.928% for the MDX).

It really boils down to which SUV you like more. Both have high residuals meaning you ar only paying for the portion of the car you are using (x5 15,288 MDX 11,854).

Make sure you ask the dealer for the money factor (the lower the better multiply this by 2400 to figure out the equivalent interest rate)

I was actually looking at both of these plus the Volvo XC90 and the Toyota 4Runner. The 4Runner is the best deal because of a very low money factor (.00055 which is equal to 1.32%) You need some money down but your interest is $1,800 less over the 36 month lease.

My quotes from dealers on the X5 came to $612.46 (including sales tax) a month plus about $2,500 in fees. The MDX came to 432.32(incl sales tax) plus fees of around $3,065.

I personally think the X5 is a better man car, I see quite a few women driving the MDX). Good luck on your lease

rroyce10

... ** X5 is a 3.0i BASE model, no options ....**

Base models 3.0's have the resale value of 2 day old bagels .... either get a better deal on the loaded one or move on to the MDX ...



Terry.

bdr127

Good MSNBC article on the popularity of leasing vs buying:

"Auto leasing finds new lease on life"

golic

Two points:

Good article but I think the title is misleading. Generally, "individuals" should use leasing as a savings mechanism. Rather than using as a way to get into a more expensive car.

I think if the car you want is too expensive, you should look into a car that is better for your budget than turn to leasing to make ends meet.

Second:

There is a cost for leasing car company to take a car back, put it through their marketing channels and sell it,” he said. “They’d rather sell it back to you, so try to negotiate, or if you think it’s worth more than its residual value, but it and resell it for a profit.”

Excellent point. I have always had it ingrained that you can take it or leave it for the residual. If the FMV of the car is at residual, it would be a good idea to see if you can knock off $1,000 to $2,000.

british_rover

For X5's and such and just never tracked down the figure. I guess that is why BMW can leas X5's that have the same MSRP as a Range Rover Sport for 100 something less a month. Their money factor is less then half of ours.

bdr127

I think this quote sums up what most buyers should ask themselves before they consider a purchase vs lease:

Some car consumers who have never thought about leasing a car might find it fits their lifestyle well Toprak added. “If you bought a car 8 years ago and it’s still running well, this might not be a good idea,” he said. “But if over the last 12 years if you bought a new car every two years, perhaps you should be leasing because of that pattern.”

There are way too many people burying themselves in negative equity because of their buying patterns that would be in much better shape if they just leased....

stickguy

If you are leasing s/t repeatedly, you are still paying for all the depreciation/negative equity, same as if you buy and sell too often.

There just aint no free lunch.

bobst

Leasing seems better than being super upside-down on a car loan.

I remember one poster who owed $25K on a car that was worth $13K. He will be paying off those loans for a long time.

golic

You are just treating the symptons by continous leasing and not the ailment.

If you are perpetually negative and can not get out of it, then the "smart" choice would be to find a car that will considerably lower your monthly nut (IE-you need to lower your price point).

Understand that it is not against the law to drive a car for 6 years, or believe it or not you can still keep a car after it has been paid off. *bobble*

cdnpinhead

unless you can write it off on your taxes as a business expense, is often a means to drive a car that you couldn't otherwise afford.

Appearance over substance -- imagine! Who would do such a thing? You are what your drive.

. . .or not.

Is actually driving the vehicle a factor? It certainly appears not to be. I've been active on a number of these boards over the past five years, and descriptions of road trips or fun competitions with other commuters over twisty roads are mostly absent.

Having (and being seen in) the thing appears to be what's important. Using it, not so much.

Oh boy.

harlanpenthous

Save my marriage. My wife wants to lease a new car and I want to lease a used car. Is one better than another? Does one save more money than the other in the long run? Do I need to purchase a used car warranty that would otherwise come with a new car lease? IS interest higher on a used car lease versus a used car lease. Is there a formula for determining our savings on a lease of a new versus a used car?

Thanks

bdr127

More often than not, used car leases are not particularly desireable. Most of the time you can even lease a NEW car for as much as the same model USED car. Of course, every model and every leasing institution is unique, so YMMV.

golic

Can you elaborate on your motivation for used versus new?

Is it purely cost? Also, what kind of car are you thinking about?

cosanostra

Smart piece of mind on the door dinger insurance. Accidents happen and things are always out of your control, like an errant shopping court or letting your wife park the car in the garage *snikcer*

My wife just did that to her Mini last week. :sick:

harlanpenthous

Yes, cost is the motivating factor here. We are contemplating a quality SUV such as a Mitsubishi, BMW and so on. We are using Consumer Reports as a guide to direct us to the best quality for the $. My question is are there real savings in a used vs a leased car. I was told that there are factors that need to be considered when leasing a used car such as paying a higher interest rate and warranty. Is there a formula for making the right decision?

british_rover

The best way to really see about relabilty of various vehicles is to look at a warranty grading chart and not Consumer Reports. CR does not have any money behind their predictions a warranty company does.

stickguy

Well, since leasing is basically just an alternate means of financing a car, sure you can do a used one. I know a local guy that has a private leasing company that does a ton of used ones (they find a car for you at auction, and then handle the leasing arrangement). They also do new.

To me, the focus of a lease ends up being the monthly payment, assuming you keep the other factors the same (say, always zero OOP). So, price a used one vs. a new one. Some dealers will lease a CPO car I think.

Finding the used one probably is one drawback. You also have to factor in the risk if it is out of warranty.

Something like a 1 YO BMW sounds like a good candidate, since you could do a 3 year lease and stay under warranty. But, will the payment go down by enough to make it worthwhile?

british_rover

We do leasing on our CPO rovers but the catch is you have to lease certain years.

You have to lease the first year of a major redesign. For example for Discos and Range Rovers you need to lease a MY 2003 vehicle. For Freelanders a Model year 2002 or 2004 would be the good way to go.

They also need to mileage that is well below average or they just don't lesae well.

kyfdx

...usually don't make good leasing candidates... As, british_rover states, the best deals are on 3 year old models that are coming off lease, because the dealers have a lot of them, and the finance company incentivizes them through low finance/lease rates..

But, if you are comparing leasing a new car vs. buying a used one... then the used one will almost always be cheaper in the long run, even though the initial monthly payment may be higher...

It is hard to get past the economics of a $45K car vs. a $30K car, whether new or used.. The lower priced car will almost always be cheaper... and if they are different years of the same model, it is a virtual certainty.

regards,
kyfdx
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gr8nrg

Just had a detailed quote on 2006 X5 sent to me. The lease is for 36 months 12k/year miles on 3.0i BASE silver metallic with no other options (as requested)

PRICE WITH AUTOMATIC TRANSMISSION: 44,470
SELLING PRICE: 42,150
MONEY FACTOR: 1.15
RESIDUAL FACTOR: 59%
MONEY DOWN: 0
MONTHLY PAYMENT: 520.66 + tax = $563
License: 343
Bank Fee: 625
Documentation fee: 45
Security Deposit: 0
First Payment: 563

#1. What is the bank fee and documentation fee and why do I have to pay them?

#2. Why is money factor 1.15 and not 1.1. Are they trying to rip me off and if so, how do I tell them to drop it to 1.1? I email the dealer and he said: yep MF is 1.1, but we're WAIVING your Security Deposit, so that's why it's 1.15. That sounds like a lot of cow dung to me.

#3.Is this a good, decent or average deal?

Please comment :confuse:

stickguy

Your going to give yourself an anxiety attack!

the doc fee is for them to handle the DMV, etc. work. Same as you would pay if you bought outright.

The bank fee is what bugs me the most about leasing. They charge you a fee for the privlege of having them lease you a car and charge you interest. It is part of all leases.

If you want it to go away, it can, but they will just move the $ somewhere else (such as increasing the sales price, so your payments will go up, and yo uwill be financing it).

They are upping the MF (I assume you are showing the interest rate equivalent, since that would be a real high interest rate!) since they are not going to have your security deposit to fall back on at the end of the loan, or in the bank earning them interest.

Think of it as getting a no money down mortgage. You will probably pay a higher interest rate, since they are assuming more risk.

In the big picture, that .05% isn't going to change the payment much.

You can, if you want, actually put up multiple SDs, and lower the rate, but you would be tying up more of your money.

As a deal, probably OK. The rate is good, but I have no idea if that is a good selling price or not. Not a fantastic residual figure, but you are getting a decent discount on the car.

For a 45K BMW, seems to be about what you would expect to pay on a nothing down lease.

british_rover

The X5 3.0 has zero and I mean zero resale value. He would probably be better off leasing a V8 model. I bet the payments would change only slightly and he would be getting a better vehicle.

The 3.0 X5 is also a dog it is the equivelant of the 318i from back in the day.

gr8nrg

But I don't care about resale value! All I want is to drive it for 36 months and dump it back on the dealer. I don't care what happens to the car afterwards and in NO WAY planning to buy it at the lease end. Why would I want a V8 to lease and spend more money on gas?! V6 is p l e n t y for my purposes. Now, does that change the deal or not?

british_rover

Wow you are wound up tight.

Residuals are based on the percivied resale value of the vehicle at lease end so a V8 car will have a much better residual. Possibly enough to offset the additional expense of the V8 option but you would need to have car_man run the two leases back to back keeping the terms identical except for the V8 option.

As far as gas goes you are making the mistake that many people do about 6 cylinder engines in SUV's. An SUV weighs so much that the 6 cylinder does not always mean better gas mileage. Oh and the X5 does not have a V6 it has a 3.0 inline Six. BMW does not make a V6 in any of their vehicles.

The EPA rates the V8 as getting better gas mileage then the 6 cylinder X5 on the highway.

Inline 6

V8 X5

In real world terms the 6 cylinder X5 might get even worse gas mileage then the V8 since you are going to have to wind it up a lot more to get the same acceleration of the V8.

Have you even driven these cars? Done any research at all or are you just messing with us?

kyfdx

stickguy has most of it right..

Doc fee: $45 .. Are you in CA? That seems to be the standard fee there.. in fact, I think the state restricts the maximum fee to $45 there..

Bank fee: $625.. AKA acquisition fee... This is charged by the finance company (the bank that is buying the car..to rent it to you.. BMWFS, in this case). Virtually every bank charges this.. It isn't really negotiable.. the dealer doesn't get it... They can mark up the fee.. it doesn't appear that your dealer is doing this..

Money factor: Your money factor is .00115 (notice the placement of the decimal point). The base fee is .0010 Your fee is higher, because you aren't making a security deposit... Make the security deposit and you will get .0010, as well.. BMWFS allows the dealer to mark up the MF by .0004, for extra profit... It doesn't appear that your dealer is doing this, either..

Is it a good deal? Let's review..

1) $2300 off MSRP on a fairly low-optioned unit.. This is fair.. maybe even good.. Might be able to take another $700 out of this number.

2) Base acquisition fee with no mark-up.. Good

3) Base money factor with no mark-up.. Good... though, I'd make the security deposit, and take the lower rate.. You get the security deposit back at the end of the lease.

4) BMWFS lease program on this vehicle.. Good.. low money factors... decent residuals..

Overall... a good deal..

I'd roll the acq.fee into the lease, and make a security deposit.. That will make your upfront money about the same (-$625 acq.fee... + $600 security deposit), and will probably raise your payment about $9/mo.. ($9 X 36 = $324, but you'll get $600 security back at end of lease)

Get them to knock another $700 off the price? Subtract $20/mo..

Really... you've got a dealer who has been totally upfront with the numbers.. and hasn't marked anything up for extra profit.. Sort of rare..

regards,
kyfdx
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kyfdx

In this case...the 4.4 V8 and the 3.0 six have the same exact residuals and money factors...

You couldn't come close to this lease price with the V-8 model..

regards,
kyfdx

gr8nrg

Well, thanks to stickguy and kfdx so much for you help and explanations. It all makes sense. I did not know that security deposit is refundable at the end of lease - but it makes sense. However, high MF is not, so it makes sense to pay 600 upfront and get it back then.

To "british_rover": wow, relax! I don't know who's wound up tight

As kydfx pointed out, I will not get nearly as good of a lease deal on V8 model, and honestly, after driving both, I feel no difference on the streets and highway.

12205

I am looking at leasing a luxury car.
My first lease after buying used cars and driving
them until the wheels come off.
However, I am now ready to drive my dream car.
Approx purchase price of $56K.

Here is the math I have done so far to justify considering the lease:
Purchase:
$3920 tax payment up front. 7%
$2000 down payment
Total up front capital outlay: $5920
Monthly payment: $1041, 60 months.
Yearly payment total: $12,492

Lease:
License, Fees, Upfront costs: $750
Payment: $861
Total yearly payments: $10,332

1st year capital outlay:
Purchase: $18,412
Lease: $11,832
Difference: $6580
Annual lease savings in year 2 and 3: $2160/yr.
3 year return if lease savings is invested: $10,900 @ 7%=763
Total 3 year savings and return with lease: $11,663

Further let's say at the end of 60 months I have paid off the car.
I now have an asset worth a fraction of what I have paid over 5 years
with no warranty. I will have paid something like $60K in payments
and will be able to sell it for maybe $20K. If I had leased those years
I could have taken $20K in savings and put it somewhere else.

I guess my thought is why put any more money than necessary in a depreciating asset like car. Take the difference and put it in more useful areas such a IRA, stocks, or just use it to enjoy other things in life. I have never thought of cars as good places for my cash. Particularly in year 1-3 of the cars life.

Any thoughts?

qbrozen

I'm not sure what the question is ... are you just saying that a lease is cheaper? Of course it is, that's why folks do it. If the terms work for you, then its tough to argue against. Just remember, at the end of 3 years, you have nothing when you lease. Then you need to start all over again. So whereas you'll have a 5-year-old car that could still be good to drive with no payments when you finance ... you'll never stop paying when you lease.

british_rover

I don't even know what you are leasing and I didn't look at the numbers past the 60 month part because you should never lease outside of your warranty.

That is why leasing luxury cars makes more sense then non luxury cars cause they carry a longer warranty then most cars.

Even then the most I would lease any luxury car for would be 42 months, I might do 48 if I was driving 10,000 miles a year, and most of my customers lease between 30 months and 39 months cause it just makes more sense.

qbrozen

actually, the 60 months was on the finance, not the lease. He never actually said how long the lease would be for, but since he mentioned "3 years" in so many other aspects of the equation, I assumed that's what the lease was for.

cdnpinhead

of how many miles per year were factored into his imaginary lease. Those who drive more than 15K mi/yr find leases much less attractive.

Having run numbers before for leases, the conclusion I drew was that a lease makes sense in two cases: 1) you can write off the lease payment on your taxes and/or 2) the lease is heavily "supported" by the manufacturer, in terms of an artificially high residual and/or a really low money factor.

If you drive a lot and pick a car that doesn't break after the warranty runs out, buying wins every time.

Leasing is (bar the two scenarios above) generally for people who can't afford the car they wish to drive.

rroyce10

... **Leasing is (bar the two scenarios above) generally for people who can't afford the car they wish to drive. ...**


Bingo....!



or, have a really firm grip on their future and they don't expect any changes in miles, lifestyle, job status or family scenario .........



Terry.