What do you think? I’ve never leased a car before in my life. But I have what I think is a pretty decent opportunity right now.
I vaguely get the idea that with leasing, your payments are a little lower; you get to drive a nicer car than you maybe otherwise could, but it’s like rent. When you’re done paying all that money, you still don’t own a car.
What have been the experiences of the Teeming Millions, and what are your recommendations?
Do you have to repair the car with leasing?
Personally id say buy the car outright. Everything else is too expensive:)
Pretty much, except with some leases, you have the option of paying a certain amount of money when it expires and owning the car, though it’s cheaper to just buy the car in the first place.
Leasing is almost always far more expensive in the long term than owning. You are paying interest on twice the value of the car, plus the difference between what it will be worth when your lease is over, and what it costs new.
If you own it outright, you will only play interest on the difference between the price of the car and your down payment.
Leasing makes sense if you don’t drive very many miles, want to drive a new car every couple of years or don’t care about money.
Buy a car, put down as much as you can, pay it off as quickly as you can, and drive it until the wheels fall off. You will be far ahead of those who lease.
BUY, BUY, BUY, unless: 1> you are one of those who don’t drive over 10000 miles/yr AND you really want a new car every 2-3 years, OR 2> there is a huge loss-leader lease deal on the care you want.
PS_ I advise Saturn.
When I had to make this choice recently on a new car, I got quotes both ways from the dealership and then set up two scenarios and compared buying vs. leasing in each scenario.
First, I considered if I leased the car and then just walked away after the lease was over. I compared that to buying by considering how much money I would end up spending if I bought the car and then sold it after 36 months (the lease period). True, this took some estimation of the value of the 3-year-old car but there is data out there to help you out. There are wide disparities depending on the make/model of car, so be careful.
Second, I considered if I wanted to buy the car after I was done leasing it. In order to compare it to a purchase, I took the difference between the monthly payments on the purchase plan and the monthly lease payments and put them in a savings account. So I was effectively paying the purchase payments anyway, but socking some away for later (with interest of course) and paying some to the leasing company. At the end of the lease, I have a nice down payment ready for the remainder of the car purchase. In my case, the lease period was 36 months and the purchase period was 48 months, so I then calculated my monthly payments on the rest of the car over 12 months, after paying my down payment from the savings. If the monthly payments are lower than the monthly purchase payments, then leasing is the better option.
In my case, leasing worked out better in both scenarios, so I leased the car, and yes, I am faithfully socking away money for a down payment when I decide to buy it used. Oh, and I get 15,000 miles per year on the lease (and since I plan to buy it after the lease term anyway, it doesn’t really matter).
And by the way, I recommend Honda, Mazda, or Toyota. American cars blow.
That’s a reasonable rule of thumb but, as with all rules of thumb, there are times when it isn’t true. Accountants can work wonders … I’m driving a leased car right now. That’s partly because my wife is in an LLC with another woman, my wife is paying off a car we bought, the other woman has a leased car, and there are some legalistic “parity” considerations that make it advantageous for my wife’s “side” to have a leased car too … so the CIO {grin} gets a '96 Jag XKS convertible. There’s some favorable tax stuff, too, because it’s leased by the corporation, but I don’t have a prayer of explaining them because of my total failure to comprehend them. I just shut up and drive the Jag …
Excerpts from Clark Howard’s Book:
Consumer Survival Kit III
Buying:
You decide what you can afford then you go out and find the car you want.
Leasing:
The dealer sets rates on a complicated deal that better serves the dealer than you. You get more car than you would otherwise drive, but you are left with nothing (except possibly debt).
From Clark Howard’s email newsletter:
Decide how much you can spend, then go online to do research and get financing. I got a loan pre-approved from http://www.carfinance.com, and they sent me a check-draft that I cold take into the dealership and use to negotiate a “cash” deal. Then, when I showed them I was financing, they were able to beat their already “rock-bottom” offer, plus reduce the cost of the car further to entice me to let them finance it.
Always buy - leases are designed for people too immature to buy what they can afford. (Or for rich people - I’m not that rich.)
On the side-topic, I drive a Honda and a Saturn. Both are excellent - but Saturns are, generally, exactly what they seem to be… low-cost, high-quality cars made by a company that is customer-oriented.
Thanks for all of the great input.
Turns out I have an even better opportunity to buy outright. A sweet deal through the in-laws on a sharp-as-hell Chrysler Sebring JXI convertable.
Milossarian:
Never, NEVER, NEVER buy a car from family.
A friend of mine bought his first car from his parents, 6 weeks after his wedding - his “nice” in-laws sold it (a used station wagon) at Book Value! Had to be at least 6-8 years old. Less than 3 month later, the transmission dies. Papa-in-law’s comment? “Gee, that’s too bad. I guess you’re out of luck.”
:eek:
Hey! I have a Sebring Convertible JXI Limited with autostick and leather. Great car. Mine’s a '98. Bought it new at the start of '99. It was a demo. Sticker was $28,900. I got mine for $22,500 with 320 miles on it.
If you don’t mind my asking what is the year and specs? What are you paying? (I’m curious to know what they are going for.)
This is a 1996, 30,000 miles, 2.2 V-6, automatic, leather, CD player, alloy wheels, air bags, power everything, for $14,500. That’s a grand or two under blue book – at least where I live – and we’re doing some ‘creative financing’ to make the initial monetary burden even less on me and the missus.
You can always check out the value of your car, both trade-in and what you could expect to pay for it retail - at the Kelley Blue Book web site
sdimbert: I hear what you’re saying. I’m 100 percent convinced that they don’t know of any potential problems with the car. If by chance something does go wrong with it, I’ll just assume it’s the risk you take when you buy any used car, and I won’t hold it against them.
enterprise.com lets you buy their old rentals. They usually sell at 25,000 miles for the book value. That’s a car that is still the same year usually. Saves a lot of bucks, one price, no haggle, great guarantee [or so they said].
If you lease, they make a mint when you bring the car back because they charge for every little spot, nick, etc that you have on their car…
These posts saying that leasing is ALWAYS bad are crazy. Some of you just don’t understand the concept.
When you lease, you are essentially paying for the depreciation on the vehicle. The dealer will figure out the ‘residual’ value of the vehicle at the end of the lease term. The difference between that and the purchase price, plus financing costs, plus dealer profit, equals your lease payment.
If the vehicle’s used value at the end of the lease happens to equal the calculated residual value, then the only difference between leasing and buying would be the intangibles like cost of financing, tax benefits, etc.
People think a lease is bad because “You don’t own anything at the end”. This is true, but the payments are typically much lower than buying. If you took the difference between the lease payment price and the cost of financing the purchase of the vehicle over the same term, and invested it in an account earning 10%, you’d probably have more equity in the bank at the end of the lease term than you’d have equity in the car if you bought it. And the equity in the bank is liquid. To realize the equity in the car you have to manage to sell it at market value.
BTW, don’t take it as a given that you’ll have equity in the car if you buy it. If you put down a low down payment and stretch the term out to 60 months, there’s a very good chance that for the first two or three years you’ll have negative equity (i.e. if you sell the vehicle the sale price won’t pay off all of the owed amount on the vehicle). It’ll depreciate faster than you’re paying it off.
Other advantages to leasing:
The entire lease payment is tax deductable if you use the vehicle for business. If you buy the car, you can only deduct a certain percentage of the depreciation. Leasing usually winds up saving you taxes.
If your state has a sales tax, you only pay tax on the lease payment. If you buy the vehicle, you pay tax on the entire purchase price. This saves you roughly half of the sales tax, which can be as much as 4-6% of the purchase price of the vehicle.
Up-front costs for leasing can be higher, but they can often be lower, too. Dealers will often have special lease incentives that make leasing very attractive. Dealers like leases because they can sell you more car for the same payment, and because they guarantee themselves at least a potential sale of another new vehicle when the lease term runs out.
Leasing forces the dealer to take a gamble on the future of the car market. The car manufacturer has to guess what the vehicle will be worth in 3 years when your lease expires, in order to set your payments. If the market is substantially higher than the residual, you’ll have the opportunity to buy the vehicle at the residual price. If the market collapses and used vehicles like yours are selling for lower than the residual value, you can just hand the keys over and let the dealership eat the difference. Ford took a bath on its 2-year leases for the Windstar in 1998, and many cities have overflow lots full of them because every lease return came back and no one bought them out. Ford has had to sell those vehicles at auction back to the dealerships so they could sell them for a lower price. Our Windstar had a residual of $20,900, but the market price was more like $19,000. Ford had to eat the difference.
Drawbacks to leases:
People who lease often buy more vehicle than they can afford, because the payments are lower. A new $30,000 vehicle can easily depreciate $4,000/yr for the first 3 years. If you can’t afford to throw away $4,000 in depreciation, you can’t afford the vehicle. Unfortunately, leasing looks much more affordable than buying, even if they wind up costing you the same amount of money.
People who lease are much less likely to bargain for the best price, or shop hard to get the vehicle they really want. Leasing ‘seems’ like renting. It’s not a permanent decision, so people aren’t as careful.
Leasing has mileage limits. If you go over them, the costs mount rapidly. On the other hand, if you don’t drive at all, you don’t save any money. If you buy a car and only drive it 5,000 miles a year, it will be worth more than if you drove it 20,000 miles a year. But for a lease, it’s all the same. So you get the best value from a lease if you drive very close to the lease limit per year. No more, no less.
You CAN do the math on this stuff. Get the dealer to show you all the fees and finance charges for both options. Find out the residual price on the vehicle. Go work the numbers for yourself, and you should be able to calculate the total cost of ownership of both options. I’ve done that four times in the last six years. Leased 3, bought 1.
One more comment: If you’re not maxing out your RRSP’s, leasing can be much better than purchasing, for the simple reason that your payments come from after-tax income. If you take the difference between the lease payment and the loan payment and put it in a tax-sheltered investment, the tax savings can be substantial.
Sam Stone is making an assumption here that may not be valid.
If you want to drive a new car every two or three years, than leasing and owning may indeed be competitive with one another.
As I said in my previous post, if you are the kind of person that wants to drive a new car every couple of years, than money is not really a top concern.
The idea that leasing car every couple of years is competitive with buying one and driving it for 7-10 years or more is completely ridiculous.
Of course not. But you’re comparing apples and oranges. The specific question is, “I want a new car. Should I buy or lease?” Not whether it’s smart to buy a new car in the first place.
In my opinion, the best value can be had if you buy a car that’s 2-3 years old, with low kilometers. It may have a year or two of warranty left, it’ll probably look and run like new, yet cost half of what a new car will.
If I didn’t have the money to buy a 2-year old car, I’d buy a beater like a '69 Chevy Pickup truck for $500 and drive it until it died.
Personally I’d go for owning it.
I bought a new car a couple years ago. It would have cost me a fortune if I had leased it.
But alas… I paid in cash.
You gotta love green. It was a cute little neon. It fits my body perfectly.
Well, before doing either, rent the same model from a car rental agency & see if you like the way it drives…Saves you a mint.
I take Clark Howard’s advice very seriously: Never lease a car unless you plan on trading in every two years.
Making a down payment on something you will never own defies logic. Dealer’s love leases, and that should be a red flag to anybody considering a lease. Also consider that your insurance premium will be much higher.
Leases are for those who can afford to drive a new car every couple of years. If you cannot afford to purchase a model, you should never lease it. Leasing a car amounts to charging it on a credit card and making minimum payments.
The smartest thing to do is to buy something two to three years old with low milage, that you can finance over two or three years.
But hey, some people don’t mind getting screwed just so they can cruise around in a car they can’t afford. You’re smarter to skimp on the car payment and put the difference into your dream home.
Another warning about leasing from the Clark Howard show – some companies use the end of the lease as an opportunity to pad their profits. The standards for returning the car might be extremely high, i.e. only a detailed car would pass their inspection, so every one else gets hit with a high cleaning charge. Also, some companies are known to “find” damage at the time the car is turned in and add a few hundred dollars to “repair” it.
A second warning is about longterm leases. Some dealers will tell you that for the balance of the lease the car will be worth more than the remaining payments, so at anytime you can sell the car, and use the “profit” toward a new one. This is the reverse of what really happens–the car is normally worth less than the outstanding payments, so if you try to get another car, you end up with still having to pay off some of the old loan balance plus the loan for the new car at the same time.