Purchase 3-Year Breakdown--This Seems Off

tonspiketonspike Member Posts: 4
edited December 2017 in General
Please let me know if my math is off, as this seems ridiculous to me:

Let's say I purchase a vehicle new for $40,000 in California. According to CarMax's car payment calculator (https://www.carmax.com/car-financing/car-payment-calculator), I would pay $5,550 in tax, title, tags, and fees.

We're at $45,550 for the vehicle. Amortized for 84 months at 3% with zero down, we're at $602/month.

Let's say I keep the vehicle three years and it depreciates $13,000 in this time. $13,000 / 36 = $361.

My monthly amortized payment of $602 + $361 in monthly depreciation = $963.

That means over the course of three years, I paid $34,668, or $963 a month.

Am I missing something here? That seems absurd--and I'm not even including maintenance and insurance! Why would I not just lease said car for $450/month with free maintenance included, and then get a new one at the end of three years?

Comments

  • kyfdxkyfdx Moderator Posts: 201,024
    tonspike said:

    Please let me know if my math is off, as this seems ridiculous to me:

    Let's say I purchase a vehicle new for $40,000 in California. According to CarMax's car payment calculator (https://www.carmax.com/car-financing/car-payment-calculator), I would pay $5,550 in tax, title, tags, and fees.

    We're at $45,550 for the vehicle. Amortized for 84 months at 3% with zero down, we're at $602/month.

    Let's say I keep the vehicle three years and it depreciates $13,000 in this time. $13,000 / 36 = $361.

    My monthly amortized payment of $602 + $361 in monthly depreciation = $963.

    That means over the course of three years, I paid $34,668, or $963 a month.

    Am I missing something here? That seems absurd--and I'm not even including maintenance and insurance! Why would I not just lease said car for $450/month with free maintenance included, and then get a new one at the end of three years?

    Wouldn't your amortized monthly payment already include the depreciation?
    You are mixing up cash expenses with non-cash expenses.

    Plus, you aren't considering trade-in tax credits.
    Also, what $45,000 selling price vehicle can you lease for $450/mo?

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  • tonspiketonspike Member Posts: 4
    kyfdx said:

    tonspike said:

    Please let me know if my math is off, as this seems ridiculous to me:

    Let's say I purchase a vehicle new for $40,000 in California. According to CarMax's car payment calculator (https://www.carmax.com/car-financing/car-payment-calculator), I would pay $5,550 in tax, title, tags, and fees.

    We're at $45,550 for the vehicle. Amortized for 84 months at 3% with zero down, we're at $602/month.

    Let's say I keep the vehicle three years and it depreciates $13,000 in this time. $13,000 / 36 = $361.

    My monthly amortized payment of $602 + $361 in monthly depreciation = $963.

    That means over the course of three years, I paid $34,668, or $963 a month.

    Am I missing something here? That seems absurd--and I'm not even including maintenance and insurance! Why would I not just lease said car for $450/month with free maintenance included, and then get a new one at the end of three years?

    Wouldn't your amortized monthly payment already include the depreciation?
    You are mixing up cash expenses with non-cash expenses.

    Plus, you aren't considering trade-in tax credits.
    Also, what $45,000 selling price vehicle can you lease for $450/mo?
    Do amortized monthly payments include depreciation? Isn't the loan just covering what I paid for the vehicle and not what I would lose after X amount of time? I know depreciation is factored into leases.
  • kyfdxkyfdx Moderator Posts: 201,024
    tonspike said:

    kyfdx said:

    tonspike said:

    Please let me know if my math is off, as this seems ridiculous to me:

    Let's say I purchase a vehicle new for $40,000 in California. According to CarMax's car payment calculator (https://www.carmax.com/car-financing/car-payment-calculator), I would pay $5,550 in tax, title, tags, and fees.

    We're at $45,550 for the vehicle. Amortized for 84 months at 3% with zero down, we're at $602/month.

    Let's say I keep the vehicle three years and it depreciates $13,000 in this time. $13,000 / 36 = $361.

    My monthly amortized payment of $602 + $361 in monthly depreciation = $963.

    That means over the course of three years, I paid $34,668, or $963 a month.

    Am I missing something here? That seems absurd--and I'm not even including maintenance and insurance! Why would I not just lease said car for $450/month with free maintenance included, and then get a new one at the end of three years?

    Wouldn't your amortized monthly payment already include the depreciation?
    You are mixing up cash expenses with non-cash expenses.

    Plus, you aren't considering trade-in tax credits.
    Also, what $45,000 selling price vehicle can you lease for $450/mo?
    Do amortized monthly payments include depreciation? Isn't the loan just covering what I paid for the vehicle and not what I would lose after X amount of time? I know depreciation is factored into leases.
    If you are trying to figure actual costs at the end of three years, then:
    Depreciation
    Finance charges
    Taxes and fees

    Your actual finance payments don't matter, if you are trying to compare apples to apples.
    The amounts you consider are the same, whether you buy or lease. The lease is easy to figure, because it only includes the amounts above. Finance is harder, because you may be paying the loan down faster than depreciation (or, maybe not).

    To assess the finance route, you have to estimate the trade-in value at the end of three years (if that's the term you are comparing), and compare that to the loan balance at the end of three years. Then take that positive or negative amount, and adjust the amount in payments you made over that term.

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  • texasestexases Member Posts: 9,800
    Yep, you're double dipping. For more insight into car costs, try out the 'True Cost to Own' calculator on Edmunds. Here's a Pilot for example:
    https://www.edmunds.com/honda/pilot/2017/st-401691093/cost-to-own/
    Note that over 5 years there are $17,453 in depreciation on the $37,165 car, so about 47%, with finance charges at $4415. I guess a 5 year loan is assumed.

    Your calculation has you paying twice for the car, both in purchase price and in depreciation.
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