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There's a $2000 cash incentive for buying and a .00004 money factor for leasing.
BUT... what I did was request a quote (via email). Once I got that number I asked how it translated into a lease payment and after several desperate attempts to get me in the dealership, he finally emailed me the numbers.
The MSRP was $33245 and he quoted me $28,302 (which is far below the incentive). Are you telling me that after quoting me that number he can turn around and say "oh, well if you lease the price is actually (fill in the blank)." ???
Help... please.... :sick:
I don't think of that as a difference in price negotiation - it is a rebate (from the manufacturer) to be applied after an acceptable price is reached, and that should be made clear.
If you talk lease numbers, you really need to check that everything adds up and that you are getting the special money factor.
MODERATOR /ADMINISTRATOR
Find me at kirstie_h@edmunds.com - or send a private message by clicking on my name.
2015 Kia Soul, 2021 Subaru Forester (kirstie_h), 2024 GMC Sierra 1500 (mr. kirstie_h)
Review your vehicle
Most salespeople would prefer you didn't know anything about how the lease is calculated..
If this is dealer seems less than forthcoming, you should probably try another one..
regards,
kyfdx
Edmunds Price Checker
Edmunds Lease Calculator
Did you get a good deal? Be sure to come back and share!
Edmunds Moderator
I guess I'm really disturbed that he told me that I need to decide which I'll be doing (buying or leasing). I'll decide that once I've received an acceptable purchase price, calculated and compared my payments in both financing scenarios.
However, I would advise you that if this step seems quite shady & obscure, it is unlikely to get better as the process goes along. I don't like to flat-out tell anyone what to do, but I'd skip along to the next dealership - ask a friend or colleague for a dealer recommendation if you can.
MODERATOR /ADMINISTRATOR
Find me at kirstie_h@edmunds.com - or send a private message by clicking on my name.
2015 Kia Soul, 2021 Subaru Forester (kirstie_h), 2024 GMC Sierra 1500 (mr. kirstie_h)
Review your vehicle
Thanks again for your input... Its GREATLY appreciated.
Im asking you for monthly payments because the selling price wouldnt
really
matter...seeing that your probably shopping 4 to 8 other dealerships.
We are
all going to give you the "best price" as far as selling price, on both
a
lease and a buy. If you where to tell me your best monthly payment on a
lease and the best price on a buy. I could beat those figures or at
least
come very close.
Is there a better time of the year for leasing and a better time to purchase.
I was under the impression that the end of the year or at least the second half of the year would be the best time to do either but after some reading, I've found conflicting information.
Also, I'm about to extend my current lease since I'm not having any good experiences with any salespeople. Does anyone know the answer to this question:
If I extend my lease for an additional 6 months and then find a good lease deal in the 3rd month, can I get into it assuming the dealer will make my last 3 payments?? What happens to the car?
Can some give me their 2cents?? Thanks.
Mara
I traded in my mazda 2005 .The trade covered the old loan,so there was no negative balance. I put down payment of $ 5375.00, also got $ 1000.00 lease incentive .
They told me that there are fees and dealer charges involved in the lease which we understand.
When I got home in NJ I read the papers
Guess what? The lease agreement shows that the Gross capitalized cost is $ 31,197.00
which includes the $ 595.00 acquisition fee. I called the dealer and told the salesman about that ( How come I get charged $31 K for a car with a 22K MSRP.)
He told me that he will ask the manager and will call me back. ( DID NOT YET )
Last night I Emailed the dealer my concern.( They did not answer or acknowledged my Email ) Maybe is GOOD FRIDAY and the boss is off.
Today i got a courtesy phone call from Mazda USA : She asked me how was my experience with the dealer .I told her that everything was great with the exception that they charged me 10K over the MSRP. She said that is strange ,maybe is a mistake in typing ,and she will talk with them. I told her to call me back. If there was a mistake in typing 3 instead of 2 it should have raised a red flag Its already 2 weeks since I was there. They never called or email me. I will give them few days so they can answer.
If it was a mistake I understand,but it looks like they taught that I was a tourist from NJ and will not find out about the discrepancy. The salesman was a young kid who knew nothing ,but his boss was a slick guy,temperamental and elusive with$ figures,typical extravert actor who likes to hear himself acting and talking .
So guys be aware of the leases that are 1oK over the car price or 50% fees and dealer charges of the value of the car.
What should the punishment for the dealer be?( expand your imagination on this )
PS Should I go to court for this or call an arbitrator.?
EDIT: Never mind, I looked at your other post and found the information there.
Yup, you were taken for a ride.
Two culprits here: The dealer, who stuck it to you.
And you, who consummated a process you didn't understand.
I don't know if you will be able to get any of your money back, either. Two parties came to an agreement, and they signed it. That's pretty straightforward.
Whether you'll be able to do anything about it will depend on state law, it'll likely require an attorney, and you're far away.
You might consider leaving the matter alone, or call them on the phone and try to bluff your way into a settlement. Many options, none of them very good.
I'm not condoning what the dealer did. After realizing you were an uninformed buyer, he should have charged you sticker, hiked your money factor, maybe sold you fabric protection, and sent you on your way. This dirtbag really went above and beyond. But I'd be surprised to find he violated any law.
BTW, it has occurred to me that this might all be a silly joke. It wouldn't be the first time someone has led us around by the nose in the forums. But I think you're legit.
Good luck to you.
-Mathias
I traded in my mazda 2005 .The trade covered the old loan,so there was no negative balance. I put down payment of $ 5375.00, also got $ 1000.00 lease incentive .
They told me that there are fees and dealer charges involved in the lease which we understand.
When I got home in NJ I read the papers
Guess what? The lease agreement shows that the Gross capitalized cost is $ 31,197.00
which includes the $ 595.00 acquisition fee.
Yep you got hung. Here is how it came down. The adjusted cap cost (Cap cost after rebates and money down) cannot exceed 115% of MSRP before discount packages.
MSRP $22235 + $5375=$27610 X 115%=31751.50 - $595=$31156 max selling price. The $1000 rebate was used to probably cover inceptions.
I am going to guess you negotiated a payment and not a price first.
If you ever go to lease a car negotiate as a normal deal and when negotiations are done then ask what your lease payment will be. the make sure that number matches the cap cost fig on the contract.
The salesman went to talk with his boss. They sat at the computer and did the calculations. He informed me that there are fees and charges and interest on the loan ,which I understand. He told me that My trade is worth the same amount as the balance of the loan. 2005 Tribute with 19K miles . I Got $ 12.9 K which is about $500.00 below blue book value,but that is ok.I did not see the figures on the new car ,only the lease amount of $448.60 per month for 48 months. If you look at the lease you do not realize how it works.Gross capitalized cost ,minus capitalized cost reduction, rent,depreciation and other terms. They add everything and start from there . You do not realize this because you are used to see the price of the car plus tax plus dealer charges plus loan interest. On the lease they work from the top down ,so its more confusing.
I am not afraid getting stuck . I will call next week and request an explanation how come that my 22K car is sold for 31K . They have to explain how they arrived at that figure. The difference is too big. Its a new car and is financed by Mazda USA.
It could be a mistake in typing the MSRP instead of 21K they might have typed 31K
If it was not a mistake they have the burden of proof to show that they did an arm lenght deal Its a new car and Mazda USA has rules that dealers must follow.
Today the market is very competitive and they do not want bad exposure,specially with today technology and internet.
I give them the chance to come clean on this ,and nothing against them at this point.
What I wrote are the facts as it happened ,and I wait from an explanation from them
I put down $5375.00 which have to be substracted from the MSRP not added.
$22235.00 X115% =$25,570.00
$22235.00-5375=16860 X115% = $19389.00 This does not include the $ 1000.00 rebate.
Their adjusted cap came to $ 25,848.00 which is more than 115 % .
I did not negociate the payment. He told me that he gives me a good deal.
Please take a look at the other board Where I posted all the figures and let me know. Thaks
If that's how these guys operate, I'll wager they have plenty of 'bad exposure' already. Lots of dealers do, lots of dealers ARE lousy, and lots of them do great business.
There are plenty of thriving dealerships that are honest and straightforward. Nothing wrong with a profit, nothing wrong with selling at sticker, but they went overboard with you.
And no, it wasn't a mistake. You got it explained very well with the 115% rule. Your payment is $450/month, high but not excessive. It's the $5k down payment where the real problem lies.
No mistake and nothing illegal, just a lousy way of doing business. I'm not sure that calling them and asking for an explanation is going to accomplish anything. It's been expained pretty well already, I think.
-Mathias
They have to explain how the down payment was applied to the lease calculations.
$22235.00 X115% =$25,570.00
No thats what you wanted them to do, not what they did. if your contract reads what you say it reads they did exactly what I said. You agreed to a payment, they took your money down and backed into the payment. It is a crappy way to do business and I don't in any way advocate it but that is what happened. They made $5300 plus the mark up in the Mazda. I would guess it was around a $6500 deal
Minus any negative equity.
Just cuz they said there wasn't any don't make it so.
From another forum:
I trade in my 2005 Mazda Tribute ( 19 K miles ) for $12,900.00
That sounds about right for a low-miler if it's nice. MIGHT have been a grand or two high, in which case it makes the deal less horrible. It all depends what the '05 was worth in real $$$.
-Mathias
I think this qualifies as an impulse purchase. The casinos in Vegas (& probably everywhere else) cater to such an approach -- easy come, easy go.
I'll be interested in hearing how this turns out. You're as far away from how I acquire a vehicle as it's possible to get, but I'm always willing to learn something new.
That said, once I've run my numbers, I'm quite willing to see what can be done in those locations to which I travel on business. I have a OTD price, and if someone across the country can meet it, I could be driving a car home, as opposed to riding the airplane.
I am curious if anyone knows the in/outs of used car leasing. I have gotten very good at figuring lease payments for new cars. But it seems different for used ones and I am curious if any of you have had an experience with it.
I would like to know how you set depreciation percentage and whether you use the original MSRP and the new purchase price for the payments or the suggested purchase price and the new agreed upon price.
Thanks
tidester, host
SUVs and Smart Shopper
A simple way on a newer car (say 1 YO) is to the calcs from new with a 1 year longer term. So, if a new one is 50% res. at 4 years, and you want to lease the 1 YO for 3 years, figure on 50% of orig. MSRP as a reasonable figure for a residual. Then just subtract from your negotiated cap cost, and you got depreciation.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
Leasing was designed for the customer who likes to trade cars every two to three years and not have to worry about the ramifications of it. Some where it along the line it got revamped to being considered a low payment program.
I have never leased a vehicle and I am planning to lease a Chrysler Town and Country or Jeep. I might get the lease for $170 per month with $500 down for 27 months. Is this a good deal? Looks like the entire lease process will cost me < $5000 for 27 months. I have a small business and I am planning to take tax advantages. Please advice.
Thank You. :confuse:
http://www.edmunds.com/caradvice.html
There are lots of other great links with such no cost information on the web.
Here is yet another perspective on this 4 year long debate - a mathematical description of the differences between the 2 modes of financing a car. I am a fairly recent member here, and wonder why someone has not done this analysis already on this thread.
Disclaimer: I am not employed by Edmunds, or affiliated to any auto manufacturer or dealer. This article is not a solicitation for a sale or a lease of a vehicle.
Summary: Do not lease, always purchase the car, and with cash.
Target: Want to be behind the wheels of a new car every few years.
Constraints/Assumptions: We want to
(1) Buy only what we can afford.
(2) Spread the expense evenly over the months we will be driving the car
(3) Interest in a bank account is compounded every month
(4) Have a car all the time for commuting and personal lifestyle (visiting family and friends, getting groceries, going to church, taking kids to school, etc).
Definition of variables:
Cost of the car (in todays dollar, not including TTL): C
Current value of the car (function of time): V
Desired monthly payment: M
Number of months to drive a car: q
Depreciation rate (explained below): k
Estimated annual inflation rate: f%
Money market interest rate after taxes (APR): i%
Dealer/bank finance charges (APR): p%
State sales tax for lease/purchase: t%
Depreciation rate: So far, I have not come up with a universally accepted mathematical model of depreciation. We just know that a car loses its value very fast during the first few months, and this rate slows down as time goes on. Lets propose to model this behavior as a falling exponential function, given by
V = C * exp (-kt),
where t is the elapsed time in months, k being the depreciation rate. The model need not be very accurate, and the estimation of "k" need not be very precise, either. Here is how to estimate k:
Estimate the # of months (say, x) it takes for the value of the car to drop to half its original cost. Then
0.5 * C = C * exp (-kx) (At t = x, V = 0.5C)
ln (0.5) = -kx (take natural logarithm on both sides)
k = 0.693147/x (divide both sides by -x)
Example: if x=36, k = 0.019254. In general, for cars with a higher resale value, x will be larger, causing k to be smaller, and vice versa. In other words, A higher resale value means a longer time is required for the value of the car to drop to half its initial cost.
In the following comparison, lets use a 40 months lease on a $40,000 car, with the dealer financed APR of 6.9%, or a money factor of 6.9/2,400 = 0.002875.
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Leasing the vehicle for q months:
Monthly cost = Depreciation/q + tax/q + finance_charges + other_fees/q ... eq(A)
Depreciation = C - C * exp (-kq)
= 40,000 * (1 - exp (-0.019254*40))
= 21,482.44
Final (residual) value of the car = C - 21,482.44 = 18,517.56
Sales tax on the car = C * t / 100 = 40,000 * 6.25 / 100 = 2,500
Money factor MF = p / 2,400 = 6.9/2,400 = 0.002875
finance charges = (40,000 + 18,517.56) * MF = 168.238
Lets assume the benevolent dealer lets us drive away with no capital cost reduction, documentation fees, lease inception fees or any other charges. So, monthly payment is
21,482.44 / 40 + 2,500 / 40 + 168.238 = $767.80
If we add up a $200 fees for title and registration and spread the cost over these 40 months, lets say we can drive the car for $773/month for 40 months. Every 40 months, we go back to the dealer and do the similar calculation.
-----------------------------------------------------------------------
Purchasing the vehicle (a similar one in price) every q months:
When to buy and start the cycle:
From assumption #4, right now we have a set of wheels. We keep driving the old clunker and saving the monthly amount of M (or more) in a money market account (for a high return) until saved_money + trade-in value of current car is greater than C + TTL
Money to be saved up front = C * (1+ t/100) + registration
In this example, this is 40,000 * (1 + 6.25/100) + 200 = 42,700
Buy the car with cash, and start the timer for cyclic buying. After q months,
the money saved in that money market account is
M + M * (1 + i/1200) + M * (1 + i/1200)^2 + ... + M * (1 + i/1200)^(q-1)
= M*q + (i*M/1200) * [q*(q-1)/2]
= M*q * (1 + (q-1)*i/2400)
Depreciated value of the car after q months = C * exp(-kq)
Left hand side of an equation: Money in hand to buy the next car =
M*q * (1+(q-1)*i/2400) + C * exp(-kq)
Right hand side of the equation: Cost of a new car at the beginning of the next cycle =
Cost * inflation_factor * sales_tax_factor + registration
C * (1 + f/1200)^(q-1) * (1 + t/100) + registration
Using the same numbers from the above example, we get an equation:
M*q*(1+(q-1)*i/2400) + C*exp(-kq) = C*(1+f/1200)^(q-1)*(1+t/100) + 200 ... eq(B)
For a 40 month cycle, q=40. Lets say the money market rate is 5.25%, and after tax deduction, i = 3.5%. Lets also assume the current inflation rate is 2%. Plugging in the numbers,
M*40*(1+39*3.5/2400) + 40000*exp(-0.019254*40) =
40000*((1+2/1200)^39)*1.0625 + 200
M * 42.275 + 18517.56 = 45351.805 + 200, giving M = 639.48
If we keep saving about $640 every month in a money market account yielding 5.25%, we can drive a new $40,000 car every 40 months, which depreciates to half its value in 36 months.
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Leasing: $773/mo + possible other charges
Purchase: $640/mo
Purchase wins by at least $133/mo.
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Equations (A) and (B) are the basic equations governing the monthly expense for a lease and a purchase, respectively. Equation (A) is valid in the states of TX and IL only, where the full value of the vehicle is taxed. For other states, the equation for lease can be modified as
Monthly cost = (Depreciation/q)*(1+t/100) + finance_charges + other_fees/q ... eq(C)
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Comments on Edmunds' TCO
========================
Equation (B) can be reformatted as
M = (C*(1+f/1200)^(q-1)*(1+t/100) - C*exp(-kq) + 200) / (q*(1+(q-1)*i/2400))
This is the average monthly cost to own the vehicle for q months. Add to this
(a) I = bi-annual_insurance/6 and
(b) G = gas_cost_per_gallon * miles_driven_per_year/(12*mpg)
(M+I+G) * q is the total cost to operate the vehicle for q months.
I am not sure what models Edmunds use for depreciation or repair costs. If we stay under warranty all the time, repair cost should be negligible. Perhaps Edmunds uses a more sophisticated (actual data based) depreciation model to come up with the TCO. However, it doesn't account for the resale value at the end of the term, so its TCO computations appear to be inflated.
----- Contd
Other advantages of Purchase:
============================
The required monthly savings is not governed by any contractual obligations. The above equation is only an estimate. During the ownership, if we want to buy a more expensive vehicle for the next cycle or reduce the cycle time of q months, we just bump up M (save more). The equation tells us by how much.
The cycle can be suspended at any time for a few months. If we need a few grands for a family emergency or a European vacation, we just stop the auto related savings of $M for a few months and lenthen the cycle. The depreciated value will not change much if we change q from 49 to 52. Such a suspension will not get our car repossesed, as opposed to leasing or financing.
We get to keep the title and the liberty to restart the cycle any time we want to. Just like buying the 1st car of the cycle, any time the saving + depreciated value of current car exceeds the cost of the new one + TTL, we are ready to buy the next car.
If we need to lower M, the amount saved monthly, we just increase q, the number of months we drive the current car. In the extreme case, this is also known as "driving the vehicle until the wheels fall off". Using the exponential model, the resale value falls to 0 only asymptotically. In the above example, for k = 0.019251, for 10 years of driving, we get the value as V = C * exp(-0.019254*120) = 40,000 * 0.0992136 = $3,968.54. If we drive it for 15 years, the trade-in value is V = C * exp (-0.019254*180) = $1,250.02.
We do not worry about mileage. Need to drive the car, just drive on. No charge for additional mileage. For too much driving, the model of depreciation can be altered with the driven miles factored in.
No need to scramble to get a new car at the end of a cycle. Nobody is taking the current car away. If a new model is coming up or we want a more expensive car next time or we want to wait for some year end clearance sale, we simply prolong the cycle. The more we delay, the more is the buying power.
No need to buy GAP insurance, we are always buying the car within our means, with saved money. We just need the insurance to get the current worth of the car back in case it is wrecked - and restart the cycle.
-----------------------------------------------------------------------
During the weekend, our friend joel0622 on the sales frontline was not very happy about a few customers who wanted to buy
a $30K+truck with $0 down and $400/month. Here's how to do it:
In the equation (q-1 simplified to q for brevity in exponent)
M*q*(1+i*(q-1)/2400) + C*exp(-k*q) = C*(1+t/100)*(1+f/1200)^q + other_fees,
put in
M = 400
C = 30000
i = 3.5 (interest earned after taxes)
f = 2 (annual inflation rate)
t = 5 (assuming sales tax in your state is 5%)
other_fees = 200
Now, lets say you sell excellent trucks, whose trade-in value drops to half of the initial cost over 45 long months. Evaluate k as -ln(0.5)/45 = 0.0154. So you have the equation
400*q*(1+3.5*(q-1)/2400) + 30000*exp(-0.0154*q) = 30000*1.05*1.001667^q + 200
Solve for q, you get 44.8. Round it up to 45 months - this is cycle time. Put the value of q in the above equation to check for M - the monthly savings required - it comes out to $399.922.
The solution: Tell the customer to open a saving account at a bank offering 5.25% interest, and save $400 there every month. With the money saved, s/he can buy a new truck worth $30,000 every 45 months, give or take a few months for varying market conditions. The cycle starts once s/he comes up with the 1st $30,000, using his/her trade-in, proceeds from stock sales, or whatever other source.
Now, lets say your trucks do not have that good a resale value, and the trade-in value drops to half in only 27 months. Then you evaluate k as -ln(0.5)/27 = 0.02566. For this value of k, the equation becomes
400*q*(1+3.5*(q-1)/2400) + 30000*exp(-0.0256*q) = 30000*1.05*1.001667^q + 200
Solve for q as before, you get 69.33. Round it up to q = 70. Put this value of q in the equation
M*q*(1+3.5*(q-1)/2400) + 30000*exp(-0.0256*q) = 30000*1.05*1.001667^q + 200
Solve for M, and it comes out to be $397.43.
The solution: Similar to the solution above, only change is that the cycle time for buying the next truck is 70 months, give or take a few. This is also where a warranty of 6 years or more comes in handy.
In reality, the cycle time will be anywhere between 45 and 70 months. The customer needs to keep an eye open as to when the left side of the above equation becomes larger than the right side. At that point, s/he is ready for the purchase of his/her next vehicle.
-----------------------------------------------------------------------
Happy car shopping to all the Edmunds members.
Best wishes, - msindallas
1) The car manufacturer isn't playing with the numbers by using an artificially high residual value and/or providing a lower-than-market-rate money factor.
2) You can't write off the lease payment as a business expense for tax purposes. Tax law favors leasing over purchasing.
Like you, I've always purchased my cars outright & have paid cash (or paid off the loan in a few months) the last couple of times. However, I did study leasing fairly carefully last time & concluded just what you did, though much less rigorously.
However, BMW, Mercedes & others have lease payments that have caught even my attention. I swore I'd never lease a car, but now I'm not so sure. If nothing else, I can buy the car when the lease expires. We'll see. My money market account continues to grow as I drive my 7-year-old car with 111K miles on it month after month. Next fall I will have been in the BMWCCA for the obligatory year & qualify for a worthwhile discount.
ln (0.5) = -kx (take natural logarithm on both sides)
k = 0.693147/x (divide both sides by -x)
Well when you put it that way it all makes perfect sense
About 1 out of every 1000 car buyers/dealers (me not being the one) would have a clue what you are talking about.
Like said before, you are really over analyzing the whole car purchase thing.
1. Pick a car
2. Do a little research
3. Strike a deal
4. Drive the car
5. When you are tired of that car return to step 1.
For anyone who said its not rocket science I belive you have proved them wrong
If you want a more expensive car, save more per month or for a longer time.
The more your current car depreciates, the longer you will have to save.
Oh, and for lease vs. purchase, each situation is unique, so the outsome will depend on the particulars of the lease. That, and the fact that you have cost certainty with the lease, but for a purchase, you are assuming (hoping?) to get a specific residual value when you go to sell.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
Although, if you have the resources (and discipline), you can make payments to yourself along with the bank. This is a real good idea if you start out with a cheapo lease. Put the payment savings into the new car account.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
That, and the fact that you have cost certainty with the lease, but for a purchase, you are assuming (hoping?) to get a specific residual value when you go to sell.
While leasing out a car, the bank assumes certain risks. I am not proposing we take any extra risk. The only risk (whether we will get resale value at next cycle) comes from estimating "k", the depreciation factor. I think the banks are pretty conservative with their money and estimates, so we can use their numbers directly. Example:
While car-shopping, we ask the dealer about lease of the same vehicle, what deals they have, and what is the residual at the end of the term. These are legit questions, right? Lets say the answer is "We are running a 27 month lease, and at the end of the term the residual is 63%". Put the numbers in the equation:
0.63 = exp (-k*27)
-k * 27 = ln(0.63) = -0.462
k = 0.462/27 = 0.017112
There, now we use this "k" in the other equations. Even this risk is mitigated by the fact that at the end of term, if the resale value has dropped a bit more, we could just wait a couple of months to save up the money for the loss.
For the pictorially inclined, the equity you grow looks like a slowly rising sawtooth waveform, with sharp drops at the points of successive purchases and a slow (almost linear, but actually exponential) rise to the next peak.
Joel, most of us do follow your 5-point programme. The problem comes when we need to decide how much to pay for it.
For anyone who said its not rocket science I belive you have proved them wrong
Now, now, this is not rocket science. The equation C*exp(-kt) is known in the scientific world as the "exponential decay" curve. It is mostly used in nuclear engineering (not my field), to determine the "half life period" of a radioactive isotope.
cdnpinhead: Buy or lease your next car, just do the math to see which method suits you better. If you do find a situation where leasing is less expensive, I'd like to see the numbers.
I am sure most of us have heard the sales pitches:
(1) When thinking how much down payment to make:
"Why do you want to block your money? A car is not an investment, it is just a depreciating asset. You should never put your money into something that is depreciating. Invest it wisely, and use the financing you are getting".
(2) While trying to negotiate the price:
"You think the car costs too much? Have you considered leasing? This option used to be available only to big businesses, but now individuals can lease cars, too. This is growing so much in popularity! You pay less money to drive an expensive car, and get a new car every 2 or 3 years with no headache about its resale value".
I so wish I read the Edmunds forums back then and did my calculations. A high pressure environment like a car salesman's desk is no place to solve differential equations, I tell you. Next time a salesman makes that pitch, I will just throw the numbers on his face. This has been such a nice homework for me for the next purchase. I hope you, all the other forum readers, can use it, too.
Best wishes, -MS.
MS, may I introduce you to my wife? After fifteen minutes with you, she might think that I am normal after all.
Generally speaking, the break even point of leasing vs purchase is 75 months. If you will keep a car longer then 75 months, buy it. Otherwise, continue to lease. On the flip side, as a business expense you can only depreciate the car up to five years. If your business can afford it, leasing is best.
For Joe Consumer who lives paycheck to paycheck, the option will be a lease because Joe Consumer is already living beyond his/her means.
Again, its always cheaper to purchase and drive the car into the ground. Then again, with all the electronics under the hood that begin to fail 10 miles after the warranty period expires, maybe leasing is the only option?
I think I'll go get a bicycle (can it be leased?).
Hahahaha, Thank you, but I already have one wife to drive nuts. She keeps telling me "Just go buy the damn car and quit spending time on Edmunds"! I think she is already sick of me dragging her to test drives.
And they say men are insensitive! OK, I'll be behaving from now on. Regards, - MS.
Nothing exceeds like excess.
You make me feel old, because just reading through your post made me think of so many aphorisms.
For instance: "Garbage in, Garbage out".
All the formulas in the world are not going to give good results if the input ain't right.
Quoth he:
Depreciation rate: So far, I have not come up with a universally accepted mathematical model of depreciation.
No kiddin'
We just know that a car loses its value very fast during the first few months, and this rate slows down as time goes on. Lets propose to model this behavior as a falling exponential function, given by
V = C * exp (-kt),
Physicists have a joke about this, it goes:
"Let the cow be a sphere."
Depreciation looks different for every car.
And then I didn't see anything in your analysis about maintenance and repair, especially out-of-warranty repair.
I've made many automotive decisions in my life, most of them good, some of them not so much, and I've kept track of my money.
The idea to "save up until you can buy with cash" is exactly what I've done over the years, but I would probably not do it again. 'Cuz, while you're "making payments to yourself", as you and others are fond of saying, you have, what?
YOU HAVE CAR EXPENSES!
Where do you kids get these high-falutin' ideas? The most expensive car I've ever had, mile for mile, was a '92 Aerostar that I bought used for $3,600 and kept for three years. Nothing major went wrong, but it nickled-and-dimed me to death. My '03 Sienna, bought new and now at 75k, cost just a hair less per mile if I'm right on its present value.
NO WAY could I have kept repairing and driving the A'star 'until the wheels fall off' while saving up $24k in the bank.
Instead, I used the 0% option and had $600 payments for 3 years. And basically -0- maintenance costs during that time.
I'm no friend of leasing, and have never done it, but leasing is GREAT on high-dollar cars where you can walk away from a potential desaster. Remember our friend with the BMW lease who was worried about the DSG transmission? Right on, brother! Turn in the car and walk away, several thousand dollar better off that if he had bought it.
Gimme a $200/month $0 down lease on a Civic any day of the week... IF the miles are kept in budget, that's a very cheap way to drive a car.
Similarly, buy them new and sell them after 3 years if you have programs like the GM Card or "Subaru Bucks" available to you. If not, avail yourself. I drove a brand-new Vibe for < 10 cents/mile and sold it while it was still under warranty. Some time within the next year, I expect to start that cycle again.
I realize I'm getting all preachy about this. But for some reason it grinds me to see people get analytical about a subject that does not lend itself to a global analysis at all. Every model is different, and predicting the future is impossible.
What will gas cost a year from now? $2.20/gal? Five bucks?
People with calculators and spreadsheets wrote all those leases on SUVs in the mid-90s... three years later, the average loss at auction was over $4,000. Lots of banks got out of the leasing business, which is to say they got out of the car business. Because they did not understand how it worked.
The same principles are at work in your formulas, MS.
Please refrain from giving sweeping advice to people. They might act on it.
Cheers,
-Mathias.
After four years of buying/leasing cars is that the answer to MOST questions is "it depends." There are no absolutes.
Right now, the cheapest transportation is to buy a new 2007 Corolla and sell it after three years. You can get a 2007 new for UNDER Black Book wholesale on the 2006. You can probably do the same on most fuel efficient subcompacts and compacts. But that is assuming that you have a good credit rating and have a good clean driving record.
I wish that all vehicle decisions could be made by pumping a few variables into a spreadsheet.
If a customer wants to acquire a new car to drive every predetermined number of months and pay for it in equal monthly instalments, compare the cost of leasing the car and purchasing it, with associated expenses like fuel, insurance, repair and maintenance being the same in the two cases.
Most of the equations we have in the long post for the monthly lease payments are well known and published. For the purchase option, the only model we proposed is for depreciation - which I personally think is pretty close to reality.
V = C * exp (-kt)
We have also explained why it is OK for the model not to be perfect, and the conclusions still hold. Now, Mathis and british_rover don't like this model. What is your alternative proposal? What is the model that the bank and/or you guys use when you lease out a vehicle? Surely you dont pluck the numbers like 63% and 57% out of thin air. Lets use the same model you use and plug it in to see if lease or purchase is a better option, in terms of $$ flowing out of the pocket of a customer.
Gimme a $200/month $0 down lease on a Civic any day of the week... IF the miles are kept in budget, that's a very cheap way to drive a car.
The above statement does no comparison between the cost of lease and purchase. It assumes that a customer's mind is conditioned to accept $200 to be a (cheap) low monthly cost to drive a Civic. For more savvy marketing, $199/month would sound a lot better than $200, too. Now, this is an Edmunds forum for smart shoppers, not a screamer ad in the local paper. Lets cut to the chase - here's an offer:
Tell us the terms of the lease, initial vehicle cost and depreciated value at end of term, the money factor, tax rate, and other applicable fees. Lets see how a Honda dealer will let us lease a Civic for $200/month, and for how long. Then, we can use the math and do a comparison if it costs more or less to own the same car for the same term. Everybody reading this forum can decide for himself/herself.
Depreciation looks different for every car.
Of course it does. Thats why we use a depreciation rate (k) in the calculations, used in the term exp(-kt). It is different for every car, and we have also suggested how to evaluate it based on half-value estimation or directly from the lease offer. Furthermore, even the estimate of k need not be accurate for comparison purposes.
And then I didn't see anything in your analysis about maintenance and repair, especially out-of-warranty repair.
Read the problem statement at the top - these costs are supposed to be the same whether you lease the car or purchase it. I also made a comment on Edmund's TCO - where these factors, together with fuel and insurance should be included.
Please refrain from giving sweeping advice to people. They might act on it.
We are not advising anybody on lease or purchase. We just proposed a methodology so that everybody can do their own math and do what is best for them. If you think the equations are wrong, tell us what they should be. For my numbers, purchase is a winner. From now on, they can put any amount of spin on the sales pitch, but unless they show me the numbers as to why leasing is more cost efficient I am not going to lease a car. And I will show them the numbers why, on a spreadsheet on my laptop.
Btw, does anybody need help on how to solve/evaluate those equations and come up with the numbers using a MS Excel spreadsheet (that MS is for MicroSoft, not the author)? No programming required!
My first reaction to the first long post was to ask whether the poster had ever heard of the KISS principle.
No I haven't. Please enlighten us. I did read on BBC online news a few days back that if you visit Argentina, custom dictates that you kiss every man and woman you meet except the dentist. Now based on that, I wouldn't advise anybody on taking a vacation there, or not.
After four years of buying/leasing cars is that the answer to MOST questions is "it depends." There are no absolutes.
You are absolutely right, there are no absolutes (pun intended). WWIII could break out next year, or we could get hit by another meteor. In either case, this whole debate is moot. Since we are not predicting the future here, lets stick to the lease-purchase comparison with "everything else being equal".
Cheers, - MS.
Weren't you the same person who was trying to have a bank do a reverse auto loan/lease on a car for you?
That is your point of view. We could make it real simple - just walk up to the dealer, read what is printed on the sticker and write a check for the same amount - everybody is happy. Since we dont do that, we get into all this bargaining, shopping around and cost comparison crap. "We (the car-shoppers) didn't start this fire, either". :shades:
Weren't you the same person who was trying to have a bank do a reverse auto loan/lease on a car for you?
Yessir, the same person. Now that I have done my homework, I know how to use my money that I have been saving over the years. Thank you again for explaining to me why the bank didn't want to do what I proposed.
Regards, - MS.
See this wikipedia entry: http://en.wikipedia.org/wiki/KISS_principle
"The acronym KISS is known to have been in use during the Apollo project in the 1960s." (from the article).
[Sigh] Some people may not like it, but numbers do not lie.
Please keep your [sighs] to yourself. I do not like being condescended to.
I don't know what "the numbers do not lie" is supposed to mean in this context. You haven't provided any numbers except for the depreciation constant "k", which I will agree or disagree with as soon as you tell me which car we're talking about.
It is OK to criticize the Math[..]
I have no intention of criticizing your math. I'm saying your math is irrelevant because your problem isn't well defined.
You have to pick a car, THEN you can look at depreciation, cost of ownership, interest rates, and all that other stuff and make a decision. Picking the wrong car is far and away the most expensive mistake you will make. Getting the interest rate wrong, unless it's 30%, is peanuts by comparison.
Since we are not predicting the future here, lets stick to the lease-purchase comparison with "everything else being equal".
But that's silly.
OF COURSE we're predicting the future, 'cuz that's when all the money has to be paid. And there are many imponderables.
What I'm saying is the lease-purchase decision comes very late in the game, after a car has been picked out, and it includes a lot of variables such as out-of-warranty repair costs. And all you've got to go on is probability. One thing I like to do is take a look at the "worst-case" scenario.
That's why leasing an E320 looks a lot more attractive to me than leasing a Corolla. It has little to do with math; I'm simply assuming "normal" terms such as I know I can get with decent credit.
The problem of selecting a car simply does not lend itself to be cast in a mathematical formula, however simple or complex.
BTW, are you sure you want to use the pluralis majestatis in your posts?
We are not advising anybody on lease or purchase.
If anyone is interested, I can provide the translation for "pompous" into German...
Cheers,
-Mathias
[bows] for the entertainment part. I like your posts, too. I don't post there, but I read the stories from the sales frontline regularly. I genuinely felt bad for boomcheck at his honda episode and wish him well at nissan. I wish all you guys well. Good wishes to your sales staff, too.
We are glad you won't be coming to see us because there is no way we could sell you a car. You know to much
Now I am hurt [pout]. Whats wrong with selling a car to me? I am only going to use the bobst approach! Figure out whats a decent price, and offer it in writing, valid for that day only. If you can do the deal, we do it. If not, I walk. Thats simple enough, isn't it?
Now, if I get that sales pitch on leasing again, I will know how to react instead of looking all confused and "I'll have to think about it".
You know, I've been called "anal" and "stupid" on this thread, but no one has pointed out (yet) whats wrong with my logic or come up with an alternative so informed people can make a decision on leasing vs. purchasing. These personal attacks will get you nowhere in a logical argument.
I'm saying your math is irrelevant because your problem isn't well defined.
Do the rest of you agree? I think it is very well defined, I even put it in bold in the last post. In fact, it is the subject of the thread! You may not like my English, that's too bad. Deal with it.
Mathis: I'm sorry, my friend. It has everything to do with Math. You may not like the customer to do the math when it is time to make the decision between lease/purchase, but if they do, they will know exactly why they are making the selection and how much it will cost them.
Talking about predictions, I will point out 1 thing in the car buying cycle we are considering here. Lets talk with numbers: The car sells today for $40,000, residual at the end of 36 months is 57%=$22,800. You buy the car, and calculate the money you need to save for 36 months for the next car purchase. Lets assume no inflation, for simplicity. After 36 months, you will have $17,200+TTL+change to buy your next car worth $40,000 again.
Now, when you go to the dealer, he states, "Sorry, I cannot give you $22.8K for trade-in". The reason?
[1] "The wear and tear is more than acceptable"
[2] "You got too many miles on your car"
[3] "Market conditions have changed from 3 years back"
[4] "Thats KBB value? Ask Mr. Kelly to write you a check"
[5] "I have to put in $4K in that car to sell it"
Now, this is assuming most of the car salesmen except those on Edmunds are out there trying to fleece us - get every penny out of our wallets they can. They call it a home run or something else, we call it rip-off. OK, instead of calling each other names, lets call it capitalism. We need a car, so lets play their number games and beat them at it.
The solution: As time goes on, the depreciation slows down, and the money in your bank increases. As long as the salesman will not give you the right trade-in value and a good deal for the next car, keep driving the present car. Both the bobst method (final offer in person) and the jipster method (shopping by e-mail) can be very handy in this situation. The point is, you do not lose your car at the end of the buying cycle, and cannot be roped into making a hurried and financially unwise decision at the time. When you do buy that next car, do the same calculations over again with new numbers and restart the cycle.
There- thats the solution for Mathis' concern about predicting the future. Any other thoughts? Regards, - MS.
Disclaimer: I am not advising people on whether to buy cars or lease them. As forum members, we are discussing which method is better. Anybody reading these forums can crunch the numbers and make his/her own decision. - MS.
It's interesting that our even-more-anal-than-me (who knew this was possible?) buddy has not factored in the tax implications for the self-employed or others who can write off car expenses.
Auto manufacturers that prop up their brands with ridiculous residuals and/or interest rates baked into their leases tend to change the rules as well. Where is that addressed?
Unlike our friend, I don't want to take the time to demonstrate the various scenarios in a rigorous manner. However, 40 years in engineering & finance makes me as prickly as the next person when condescension enters the picture.
It's all about the assumptions, not the grinding through of the formulae. Something about frictionless pullies & massless ropes comes to mind. Boundary conditions, and all that. . .
It's all about the assumptions, not the grinding through of the formulae. Something about frictionless pullies & massless ropes comes to mind. Boundary conditions, and all that. . .
That's beautifully put.
Why couldn't I say it like that?
Exactly. Our new friend is so overjoyed at having it figured out that he never went back to check his assumptions.
msindallas writes:
Mathis: I'm sorry, my friend. It has everything to do with Math. You may not like the customer to do the math when it is time to make the decision between lease/purchase, but if they do, they will know exactly why they are making the selection and how much it will cost them.
My name is Mathias.
I'm happy we're friends.
I'm not in the car business, never have been. Just one of the guys here. My profession is in my profile.
As time goes on, the depreciation slows down
For most cars.
Not for all cars.
Know anyone who bought a Mini the first year out...What depreciation? Those things had GREAT resale.
A friend of mine ordered a PT Cruiser before they came out and got it for sticker. When they hit the dealerships, the price for walk-ins was sticker + $2k. For months.
He had "no" depreciation in the first year... then it accelerated.
My Vibe was sorta like that because I got it for $13 and sold it for $11,500 30 months later. Don't believe it? I'll show you the paperwork. No trade-in involved.
Gas hit $3 and the value of my car went up instead of down. Not a lot, mind you, but it did.
Aaaaand here, the much-discussed "depreciation curve" for the Honda Accord LX: http://www.msu.edu/~steine13/cars.html
That's a bread-and-butter million-seller, and the depreciation is constant for seven years or so.
I'm gonna try once more:
Your math is OK (I didn't go through it, but it looks OK at first blush). As "math" goes, your stuff is tedious but straightforward.
Your reasoning, based on your assumptions, is flawless.
The assumptions are [not correct].
You state the problem in terms of you've picked the car, here's the solution.
In real life, the first and most important step is to pick the car. Based on what you like, expected depreciation, rebates & other programs, expected reliability, etcetera.com.
THAT's where the action is.
This financing business -- the number crunching lease vs. purchase -- is tiddlywinks by comparison.
I can work out a finance payment in my head to within ten bucks.
So can you.
I'm not saying you're "wrong".
I'm saying you're barking up the wrong tree.
-Mathias
With too many variables, there cannot be a basis for comparison. I've proposed a method to pin down the monthly cost of owning a car vs. leasing it, derived the formulae and shared them with y'all, and it is up to you how to use/modify/discard them. I know this is going to work for me personally. Once you have the basic principles, it is easy to put in tax implications and any other level of complexity you want to - but it is your comparison, your money, and your decision whether to buy or lease.
If I've appeared condescending to anybody, I do apologize for that sincerely. Wasnt my intentions to belittle anybody. I do like the forums and enjoy the posts of so many writers. Lets end this debate and move on. Best wishes, - MS.