Leasing vs. Purchasing

jlawrence01

In addition to the KYFDX's usual fine advice, there are several other factors:

1) lower auto insurance on the older car.
2) fewer transaction costs.
3) far more flexibility should your circumstances change.
4) far less financial risk.

steine13

Buying (or leasing) a new car is not a good way to get out of debt..


Another statement like that, and we'll have to cancel your CCBA membership.

In this forum, I'd have to agree with you, though.

-Mathias

black_tulip

Calculate the cash flows for the two scenarios, discount them by the appropriate rate and choose the one that has the higher NPV. The lease option may have a higher NPV, if your CC interest rate is sky high (and you can not get a decent rate) and the lease is heavily subsidized by someone.

cdnpinhead

Of course, you're correct.

A useful response would be to give numerical examples of each of the two approaches, then to discuss the relative merits.

Do you wish to be helpful. . .

or correct?

black_tulip

Do you wish to be helpful. . .

or correct?

I do not know how to attach a spreadsheet to my post. Nor do I have the time. It is hard to explain the calculations in plain text.

The idea behind my post was not to spoon feed, but to point him in the right direction. If he is interested, he can find out how to do these calculations. One good resource is
http://www.teachmefinance.com

Instead of criticizing me, why don't you yourself give numerical examples?

Do you wish to be helpful or just want to slam me? Geez!

Kirstie_H

with the personal comments, OK? It really doesn't add to the discussion here.

qbrozen

Because this car will be for my daughter who will attend graduate school in LA for 5 years, then will go wherever she can find work.

AH! ok. so now we know what its for, who will be driving it, etc. My advice is to buy a slightly used certified car outright. You get something that is just as good as new (lets say less than 15k miles) AND, in most cases, when certified, the warranty is even better than when it was new (many certified warrantys are 100k mile compared to the factory 36k mile warranty).

you won't have to worry about the number of miles. And, in the end, if you buy the right car, it will still have some value and can be driven longer, sold, traded in, or what have you.

scottinky

We are currently considering selling or trading our 1995 C220 Benz. I am looking
at possibly a major repair for a broken crankshaft pulley, and I do not want to keep
putting money into this car. My wife likes the new Jetta, but I am curious as to
what kind of lease payment we would have with about 4K of negative equity. I don't
know how much I can help her pay towards a new ride, but having a warranty is a huge issue at the moment.

redline65

If anyone is interested, I've uploaded a lease calculator spreadsheet I put together that allows different figures to be plugged in for leasing vs. buying, and you can compare the total cost of a lease to the total cost of a purchase (minus residual value). It will also calculate the money factor on the second tab if you know the cost of the lease. Please let me know if there are mistakes.

http://h1.ripway.com/RedlineJunkie/Public/LeaseCalculator.xls

bdr127

Ha! We have Websense internet filtering here at work, and your link is blocked as "Malicious Web Sites".... :P

jproctor

My soon to be 21 year old son is in the Navy. What is the minimum age for a lease?
Doesn't drive many miles and has a below average driving record.

phyke

If the answer already exists, please direct me to it, otherwise, here's the question:

I'm incorporated (S corp.) in NY. Currently financing an '03 Altima 3.5 SE and have $10,013 left in payments (~2yrs left) and 87K miles on it (we drive a lot, but expect not to in the future). We want to get rid of the Altima due to the high miles since we will be left having paid about $27K with a car that has insane high miles on it. The wife and I are trying to decide if we should lease or buy.

I keep reading that, if incorporated, it's best to lease due to write-offs. However, from what I know, that only works in your favor, in NY at least, if the car you lease is worth more than $25K, since that is the most you can write-off over 5 years (on a purchased car). Aren't I better off financing a car costing $25K or less and owning it at the end, since i can write that amount off as well.

Whereas with leasing, I'm a slave to higher monthly payments, higher insurance cost, and will always have to worry about car payments. Is the tax break really worth it?

If someone has experience with this and can recommend either buying or leasing for an incorporated individual, I would greatly appreciate it. Thanks.

cti

I don't know what the minimum age is. But why don't you suggest he get a beater? I am a sailor myself, and service members are constantly selling vehicles cheap.

I see far too many of my fellow shipmates getting in over their heads buying their first car. They get hit with hideous interest rates and overpay all the time.

By the way, what is your son's rate?

corvette

Don't know if the poster from May 8 is still around, but I'll give it a go: You're right, you can write off the entire cost of a purchased car by depreciating it (not sure there is a dollar limit for federal tax purposes). But, in five years, when the car is actually worth $8000, you sell it for $8000, but it's on your books as being worth $0, so you either realize taxable income from the sale of depreciated property, donate the car to charity, or keep it forever so as not to trigger taxes. Bottom line, talk to your tax guy and look at the total cost (taxes included) of buying and leasing.

phyke

Thanks, corvette. I will now read this over and over a few times to actually understand.

rmlinn

I have Pathfinder MF/residuals for May for 36 months but have been adviused by the salesman that their "best deal" is on a 39 month lease. Anybody have info on this? I'm a little wary because the Pathfinder only has a 36 month warranty.

mercedesboi

Ok, I hope I'm in the right spot to ask these questions...

1. If I don't have a down payment and I want to lease a new car, but I have a trade-in, will the dealer take what could have been a down payment from my trade-in value? For instance, if my car is worth $10,000 and the dealer wanted $3,000 down payment for the new lease, would they give me $7,000 pay-off on my trade-in?
If I owed $10,000 on my current car , I would then have to finance the remaining $3,000 with my current loan, right?
So I would have a lease payment, plus the loan payment from my old car for whatever was left that the trade-in didn't cover, right?

2. I'm currently driving a 2002 Accord, but I want to get something newer and I think a lease would work out well for me. I owe $14,000 on the Accord, and it's only worth $10,000 - so I'm upside down $4,000. I assume that doesn't get worked in to the lease.

Thanks everyone for your help!

qbrozen

Just like a loan, negative equity can be worked into a lease. But there is a limit, of course, just like a loan.

With a lease, the cap cost is the amount you are leasing. Let's say you are looking at a car with a $30k MSRP. You negotiate down to $28k. But, you have no down payment, so the fees that you are failing to pay out of pocket get added back in. Now you're cap cost is $29k, let's say. Oh, but now you have $2k negative equity in your trade. That now bumps your cap cost to $31k. So now the paperwork shows you basically leasing $31k on a $30k car.

I'm sort of oversimplifying, but it is pretty simple. If you have negative equity in your trade (which you are saying you do) and you have no downpayment, then you could be in for a tough time ... depending on the vehicle you are looking to lease. If it has big discounts, then no problem.

bobst

You have a nice 2002 Accord but not much cash on hand. I think you should keep the car until 2011 or 140K miles, whichever comes first.

In the meantime, if you accumulate enough money to buy a new car for cash, then it would be OK to buy a new car.

stars4304

Hello everyone. I was wondering if I can get your opinions on the option to purchase a car when the lease is up.

My friend, who has been wanting to get the 06 Touareg, is deciding to do this because payments to finance the car is too much.

From what I know, it would be a lot better to just finance from the start. How much more can she expect to spend? Do you guys think it's worth doing this just to have the car that you want?

bobst

"Do you guys think it's worth doing this just to have the car that you want?"

Of course not.

There are a lot of nice cars these days for very reasonable prices. She should reduce the stress in her life and buy a car she can easily afford. No fancy options. I was 53 years old before we got our first car with alloy wheels and a moonroof.

stars4304

Thanks for your reply

corvette

If she can't afford the payments to finance a Touareg, she won't be able to afford the repair bills on it once the warranty is up.

lexiedriver

I'm about to purchase a vehicle and the seller is currently leasing it through LF. Do I make a check payable to seller andthen wait for them to payoff the lease and send me title?
What is the usual process for this? Can I go into a Lexus dealer with the seller and pay off their lease on the spot?

Thanks in advance

vang

We are looking at picking up a Cadillac SRX now (new) or in late summer (used).

Both my wife and I are able to write off our business use of the vehicle, but from what a friend has explained the tax incentives are relatively equal for lease vs. purchase (we are in Canda).

Our 03 Jetta GLI was supposed to be with us for longer than 3 yrs, but our needs/wants have changed and we want to move into the CUV/Wagon market. We purchased the Jetta cash, and can purchase the SRX cash as well.

Cost of the new SRX is about 46K USD, while the same car used with about 8K should be had for about 33K USD. We would get the certified extended warranty (6 yr/100K)

Assuming that we want to change vehicles every 3 yrs, we are trying to figure out if we should purchase or lease in our scenario.

My first instinct is to purchase the used vehicle, getting rid of monthly payments and that 'drive off the lot' depreciation.

Any advice is appreciated.

Van G

chrangela

Please help. I pay cash for most everything I buy. I usually don't finance, but doing so is straighforward as it boils down to finding the lowest interest rate and reducing any extra charges. I'm looking at a lease for a car that is $48k and the payments for a 10kmiles 36 month lease add up to about $30 over the life of the lease. Does this sound right? Can someone provide a quick tutorial on the things I should look at in financing?

Thanks,
Angela

blane

chrangela,

This should help.

http://www.edmunds.com/advice/leasing/articles/78385/article.html

Kirstie_H

Hi chrangela,
Can you tell us what vehicle you're looking at? We can send you to a discussion where you can get more specific advice on the vehicle you want.

wbb56

My 10 year old Explorer won't pass the State's emissions tests unless I spend approx. $2500. So, after 247,000 miles I'm going to retire it. I've looked for weeks-driven 15+ cars, and finally decided that the new BMW 525i is the car I want. In the past I've always paid cash or finanaced my cars-never leased. I didn't really consider leasing until I investigated BMW's lease rates and the Edmunds' forums. BMW seems to offer some the best lease deals in the industry. Which leads me to my question(s).
The 525i that I've priced is $46800 (negotiated price). The monthly lease rate for a 36 month 15k lease is approximately $520 (based on my calculations-I could be a little off). Auto financing rates in this area are 7.5-8%. Home Equity Line/Loan rates for me are 7.75-8.5%.
At this point in my life I would rather not pay cash-nor make a large down payment for a car to keep the payments reasonable. I'd rather preserve the cash for other uses--most notably a new baby!
So leasing seems like a decent way to proceed--but since I know so little about it, I want to make sure it's the right thing to do--especially if I buy the car at the end of the lease (which I intend to do) and keep at minimum of 6 years.
The Home Equity line is attractive as well, since I do not have any kind of mortgage on my house.
So..would it make sense to pay for the car using a Home Equity Line or Loan.. or better ..would t make more sense to use home equity to purchase the car--or lease it?
Maybe a compromise--lease it for 36 months--then buy it with the home equity. Since the effective lease interest rate is around 1.7%.

Any thoughts, opinions, suggestions? Thanks very much!

cccompson

Inasmuch as you can't beat the lease interest rate of 1.7% (whether actual or effective), leasing would seem to be the easy choice.

If you still like it after 3 years, then you can make whatever decision is best for you at that time.

kyfdx

You just can't pass up the BMW lease rate on the 525i..

If you lease it, don't put any money down... get the maximum value out of the low finance cost..

Also, negotiate the lowest price possible, then make sure that the dealer is using the base rate money factor and only charging $625 for the acq.fee.. Most BMW dealers will mark-up both of those numbers for extra profit..

regards,
kyfdx

ronaldc

Can you negotiate a lower residual than set by the leasing company or manufacturer?
Knowing I will over the allowed mileage, I plan on purchasing the vehicle at lease end. Rather than financing the residual value at used car rates,negotiating a lower buy out at the outset results in a lower amount financed. I know the payments will be higher on the lease, but with the low interest rate factors being offered by some manufactures, the incresed depreciation could be financed for less interest charges.

cccompson

Interesting question. Just a guess but since a lower rate would favor the lender, I can't see why they wouldn't be open to the possibility, so ask 'em.

dtownfb

If you are planning to buy the vehicle after lease, why not just purchase a vehicle now and bypass leasing? Esp. if you know you will go over with the mileage. Leasing and then financing will definitely be more expensive then just financing.

As far as negotiating a lower residual, I always thought it was set based on mileage at the end of lease. But you can always ask. IF you can negotiate the residual, please come back and post it so others can possibly use this information.

joel0622

dtownfb makes a great point. If you plan on buying it buy it now. Multiply your monthly lease payment times the term of your lease, add that figure to the buy out figure + the taxes on the buy out figure + finance charges if you plan on financing the buy out. If your lease is 3 years and you finance the buy out for 4 that is seven years you will be paying on this car.

IMHO, you stated before that your house is paid for. Could you have used a tax deduction this year? If you use the Home Equity line of credit you can write off the interest paid on your taxes next year. Just a thought

ronaldc

I am considering buying, but leasing offers me a greater tax write off.

ronaldc

I did the calculations: The total lease cost plus the financed residual resulted in a savings of $3700.00 vs straight purchaes. This results becasue of the low interst rate factor being applied to the inflated lease.

joel0622

Angela, if you are a cash buyer usually ask the dealer if there is any advantage to pre-paying your lease. Through Ford if you pre pay it you can get us much as 2 points knocked off the lease rate.

hans4

Please help---I am new at this--
A dealer has offered me the buyout price for a leased 2004 XC70 w/ 25000 mi for $26,000. Also,the option to purchase an extended 100,000 mi/or/3 yr certified warranty for an additional $1500. I have been offered $6000 for my 1999 XC70 w/ 96000 miles. Dealer has assessed my car to be in Excellent condition (stated that rarely or never happens). He says there is no room for negotiation as the buyout price is stated on lease agreement (showed me a copy). Is this a good deal?

dtownfb

I would love to see those calculations. Did you add sales tax to the financing after the lease and the higher interest rate for used car loan?

If you are getting a tax advantage, then just lease and forget about purchasing afterwards. Just make sure you have enough miles allowed so yo don't have to pay an overage amount at the end of lease.

ronaldc

I plan on purchasing the vehicle at lease end and have the wife use it for personal. I would then enter into another lease for business purposes. I will post in a few days and provide you with my comnputations.

ronaldc

Lease v. Purchase
MSRP $33,500
Purchase: $30,000 plus 5% sales tax= $31,500.
$31,500 @ 5.5% for 60 months=601.68x60=$36,100

Lease: Cap $30,000
Residual 40%x$33500=$13,400
Rate .00059 = 1,41%
Lease $511x36= $18,396 (Includes 5% ST)

Purchase at End
$13,400 + 5%Sales Tax= $14,070
$14,070 @6% for 24m=623.59x24=$14,966

Total lease+purchase=$33,362
Total if Purchase $36,100
Savings $2,738

My original computation had a lower residual value
resulting in a greater savings.I recomputed the lease at 40% as a more realistic figure.

kyfdx

You forgot to add in the acquisition fee for the lease.. generally $600-$700 added into the cap cost..

Still leaves you $2000 to the positive side by leasing..

But, most cars that have that kind of leasing incentive (low money factor) would also have some sort of purchase incentive (3.9 financing or $1500 rebate).

Not saying it can't happen.... but, it would be a rare case...

regards,
kyfdx

dtownfb

Thanks for sharing the calcs. It looks like it works in this case but I'm still very hesitant on purchasing after leasing. I guess you do have the flexibility of not having to make that decision for 3 years. Of course you then have to worry about the mileage overage.

What car are you thinking about doing this with?

ronaldc

One auto I was considering was the Nissan Murano.

sbhattacharya

A little cautionary tale - I was looking to take over a short term lease, so I went to the websites swapalease.com and leasetrader.com.
This is what I learned - that swapalease is cheap but unreliable - most of the cars on swapalease are already sold, often several months out of date.
And that leasetrader, despite charging fees for membership and creditchecking everyone on the site - so giving the impression of running a tight ship, in which every buyer and seller is properly vetted - will happily take a transfer fee from you for cars that are simply ineligible.
This happened to me - I paid Leasetrader $150 to organise the transfer of a Ford Escape, but the financing company refused - they didn't permit transfers on cars that had less than 13 months left on the lease. So now I have no car, Leasetrader has my $150 and they're refusing to pay it back on account of "it's not our fault, it's the seller".

SO THE MORAL OF THE STORY - AVOID LEASETRADER.COM!

maradag

Ok, so I'm not expert in leasing but I do know that the selling price (cap cost) is the price you negotiate for the car which makes your payments lower. (Right??)

Check out the email that I received from the dealer salesperson:

"The selling price would be different on a buy and on a lease (im sure
you
researched it). My guess is that you would need to know first if your
A.
going to be leasing B. if your going to be buying and C. when you would
be
making your "final" decision. Whatever number you get on a lease that
you
think is the best number run it by me since you are shopping prices.

Let me know."

What?????!!!!! What kind of crap is he trying to pull?? someone tell me if I'm completely off base here, but last I looked/read, there's no difference in the price if you buy/lease. I've read time and time again, that you should negotiate the price of the car as if you were going to purchase it... So, what's the deal??

Somoeone help me out here because I'm really starting to lose my mind with these sneaky, lying salespeople!!

Thanks,
Maradag

Kirstie_H

He would like the selling price to be different on a buy vs lease. The "I'm sure you researched it" is rather condescending, suggesting that if your research showed otherwise, it was just plain faulty.

You can either make him an offer that is not contingent on whether you lease or buy, or just walk on over to another dealership.

kyfdx

The only time that would be true... is if a carmaker has a killer lease plan, and offers cash rebates for buyers only, to even out the incentives.

Honda Accord is a good example. If you buy, there is a $750 dealer cash incentive... but, if you lease.. no dealer cash incentive, but they have below-market money factors.

If you tell us what kind of car you are shopping, we might know if that is the case in your example.

Your dealer doesn't sound like he is very forthcoming, however..

regards,
kyfdx

maradag

Oh Bless You!!!! I thought after all the time I spent trying to figure out leasing that I didn't know a gosh darned thing....

I want to know all my options so I can make a decision that works for me... it doesn't help when you have not nice(I'm substituting for much nastier words here) salespeople who really try to throw you off.

I posted the same message in the make/model forum and someone there told me that I have to realize that there are different incentives that apply to lease or purchase but they don't apply to both.

So there's a $2000 cash incentive on this car (mind you I was quoted far below the MSRP less the incentive). Do you think that makes any difference in the quotes that I've received??

Thanks again!!
Maradag.