I currently own an EV, but I’m going to get rid of it for … reasons. I’m going to get another EV, but the technology and models are changing very fast these days. So rather than buy another EV, I’m considering leasing for a few years until better options are available.
What factors should I consider for a lease? How do I get a good deal? Also, I’m not very good at negotiating, and in fact I detest the whole idea of it. For that reason, I’m considering going through the Costco Auto Buying program. In that program, after deciding on the vehicle and options, Costco puts you in touch with the Costco program representative at the dealer, and everything is a fixed, discounted price. No haggling. (With 1 exception, I’ve used this program for every car I’ve bought over the last {mumble, mumble} decades.)
How can I reduce my overall leasing cost? And are there disadvantages of doing so?
a. How much would my cost be reduced (roughly) if I were to pay the initial charge and all the monthly payments up front? Is this worth it, and is it wise?
b. Alternatively, is there an interest-earning account I could initially fund with less than the total monthly payments that would earn enough interest over the lease term to fully cover all of the payments, and would automatically make the monthly payments for me? Sort of like a reverse annuity? Is there a name for this type of vehicle?
Thanks for your advice for this leasing newbie.
J.
The only thing I can say about leasing is that it’s like getting on a treadmill that you can’t get off of. When you buy a car you can trade it in and use that money to put down on a new car. When you turn in a lease, you get nothing so you end up leasing again.
One of the phrases that gets tossed around regarding leases is “You can get a nicer car than you can afford.” I’ve seen it here. Years ago someone at Consumer Reports used it. What???
If you’re being smart and have Reasons to not buy, do not think like this. Get a car that you could afford if your were buying.
That’s not always the case. Up until my current car, I always leased. A trick I picked up along the way was that, when you’re done with the car, don’t ‘return’ it, but rather sell it to them (ie trade it in). The trick is to keep an eye on the blue book value. Depending on the lease’s residual, there’s usually a point in the last 6 months or so of the lease when the car’s value is higher than the residual. In effect you’re no longer underwater/upside down. At that point, you sell the car to the dealership (or anyone else for that matter), pay off the car and pocket the difference. If you’re leasing a new car, you can have them use the difference as all or part of the down payment.
A few years back, I walked out of the dealership with a new leased car and a check for $9k. It was during a chip shortage and used car values spiked.
I’ve thought about this recently. I’ve always owned my cars. At this point, my 2016 Mazda only has 18K miles on it and may outlast me. But if I wanted to drive a newer car, a lease would be less cash outlay and I may or may not even be driving by the time the lease ends. Seems like I’m the winner in that scenario, but I’m completely unfamiliar with leasing.
Let me expand on this a little. The car that I’d really like to buy isn’t currently available. I’d like a luxury sedan with well over 400 mile range, that is fast charging with a very large nationwide charging network. The autopilot functions must be outstanding. It also has a large, nationwide network of dealers from which service is readily available. The car you are currently thinking about? This isn’t the forum for politics, but that is the one with “reasons”. Additionally, getting prompt service from them isn’t possible. The car that comes closest is one of the Lucid Air models but their financial survival is a risk, and their service is also not quickly available.
Everything else I have found falls short of what I want. I’m hoping in 3 years it will be available.
I have leased cars several times and always came out just fine. I leased my present car, a 2021 Toyota Rav4 for 3 years and was so happy with it I bought it at the end of the lease. By then inflation had raised the value of used Rav4s to the point I could have bought it at the fixed residual value and resold it for a modest profit.
You can lower the payments on the lease by paying more up front. You can lower the overall cost by allowing fewer miles on the lease. Standard terms around here are 10,000 miles per year. If you drive less, negotiate the lease for fewer miles. Toyota had free scheduled maintenance included in the lease so that was some savings.
Previous posters are correct in that at the end of the lease you do not have any built up value. But you saved a lot of money by not paying the full car value. My 3 year lease cost $325/month for a total of $11,000. Sales tax was $936. The residual value at the end was $18,000 and that is what I bought the car for. Dealers at that time were asking about $22,000 for comparable cars if you could find one.
To have purchased the car with a 3 year loan would have cost over $950/month and sales tax would have been $2300. So I would have paid about $36,000 for the car. In reality if I had wanted to purchase the car in 2021 I would have done a 5 year payoff period. No way I could afford $900+ a month.
Like with most things with cars and money, there are two distinct financial components to the deal. The legit paying for the depreciation you’re consuming. And the illegit over-paying for interest, fees, and general trickfuckery.
The key is to have an honest idea of the price of the car to buy it for cash, the legit depreciation rates per time & mile, a legit financing rate on that depreciation with your credit rating, and a solid estimate of your actual annual mileage. Then “buy” that much depreciation and only that much depreciation at that fair interest rate. And bargain like hell to not pay for anything else and be ready to walk away if you don’t get it your way.
Leasing is inherently not comparable to buying something well-used then driving it another 25 years until it just won’t go, then selling it to a scrap dealer for $50. Folks with that POV will cynically and wrongly claim all leases are ripoffs. Nope. It can be a totally fair aboveboard transaction. And make complete economic sense for somebody who wants an always-new car. Or you can be scammed by a dealer if you’re incautious or underinformed.