Leasing Cars... Can we all afford it?

To tell you the truth, I’m not from the nicest area but I can promise you that at least 80% of the cars are over $18,000 each and at least 48% of them are leased. Why do we have to roam around in Mercedes 4X4’S? Why not save ourself the extra 20grand and get a GMC jimmy? Is it because we want to be noticed? Is it becuase we want out neighbors to be jealous? Truthfully I think it is. This isn’t the most important topic so i’m sorry if I wasted your time but I thought about it tonite when driving around in an '87 firebird that gets me where I gotta go and I couldn’t be happier. Honestly though… How many of you lease? and why do you do it? Sometimes I know there are great deals… but how bout when you spend so many thousands on the monthly payments and then comes the day they tell you how many more thousands you have to pay and your mouth drops. Has that happened to you because I could name at least 5 cases of it in my immediate family. But wasting all of that money is worth the jealousy that our neighbors have for us I guess? Tell me whatcha think


Thoughts by Chrissy
“What you think is what you think…but what I think is how it is.”
-me’00

Why continually have car payments by always leasing cars?

You can have a car paid for, if you do it right, in about the same amount of time it takes to run the course of a normal lease, am I right?

Maybe I should stick to science…I’m better at it than economics.

you are right… it’s exactly what i am saying


Thoughts by Chrissy
“What you think is what you think…but what I think is how it is.”
-me’00

All the people I know that lease are concerned first w/ image. “I get to drive a new car every 3-4 years. Screw the cost.”
Nearly all of them also know nothing about cars beyond driving, so always being under warranty is a plus (to them).
The only real advantage I can see is that you could beat the hell out of the car and turn it in before it dies completely. Fun at somebody elses expense.

Personally I look at people who drive really expensive cars and think “wow, there goes a shallow person with messed up priorities”. Not always true, perhaps, but that is the first impression I tend to get. Me, I own my '89 Toyota station wagon and I like it.



Teeming Millions: http://fathom.org/teemingmillions
“Meat flaps, yellow!” - DrainBead, naked co-ed Twister chat
O p a l C a t
www.opalcat.com

In general, leasing is a tremendously poor economic proposition when compared to buying.

First and foremost: when you buy a new car, even the most inept of buyers knows to negotiate downwards from the “full boat” MSRP - the Manufacturer’s Suggested Retail Price.

When you lease, that step is almost universally buried behind the leasing figures. Next time you consider leasing, ask the leasing/sales manager, “At what percent of MSRP was the capitalized cost figured?”

After he drops his jaw, because customers aren’t supposed to know such things, he may weasel or he may give you an answer. The answer will range, in all likelihood, from 100% to 125%. That is, in most cases, the capitalized cost (the base cost of the car that is used to figure the cost of the lease) is at least the full MSRP - and in many cases more!

This is the trap that people fall into, though, who are “payment” shoppers. “I don’t care about all those complicated figures. It changes every time I go to a different dealer. That’s why I stick to something simple, like my payment.”

Even payment buyers give up huge concessions when they buy a car that way. Leasing adds another layer of confusion to to mix – and confusion is the car dealer’s friend, and your enemy.

That said, I will allow that there may be certain rare circumstances in which a lease makes sense for an individual. But for the vast majority of individuals, it is not a good choice.

[slight hijack]
The way to buy a car is simple. It just requires doing homework ahead of time. Figure out what your available cash is. This is the sum of three things: your equity in your current car, if any; the downpayment you can make, if any; and the “loan cash” you can buy.

“Loan cash” refers to the amount of money that a payment will buy you. At home, away from the dealer, you figure out what payment you are comfortable with making. Check on the interest rate you will be getting. Then dig out your middle school math book. The monthly payment and the interest rate will let you figure out what the loan amount would be. THIS is what you take into the dealer, along with the other two figures. As far as the dealer is concerned, you are paying cash. If you let the dealer “help” you with the payment plan, you will lose.

You should discover the equity in your current car by cleaning it thoroughly and shopping it around. Go to three or four used car places and try to sell it. Don’t actually sell it - but try hard. The highest figure you leave with is your car’s fair wholesale value.

Figure out what new car you like. Then check Edmund’s New Car Prices. This lists every new car, the MSRP, and the dealer’s true cost.

Figure out if the dealer’s true cost, plus a reasonable (2%-3%) profit is within the bounds of your available cash. If it isn’t… STOP. You can’t afford this car.

If it is… go in and negotiate. Offer him a 1% profit. See what happens. Be willing to get up and leave.

Disclaimers: I have never leased a car, although I have studied the process thoroughly. I have bought two new cars, one with a loan (a 1987 Nissan Sentra) and one for cash (1996 BMW 328i).

I bought the new car for cash because after I finished making my car payments for the Nissan… I KEPT MAKING PAYMENTS, to myself. I set up a separate account, and paid into it every month. I kept the Nissan for nine years, while my friends drive new cars every three years.

Now I have a snazzy (but four-year-old) car. I will keep it at least another six years.

And I’m still making car payments to myself, every month. :slight_smile:

[/sligh hijack]

  • Rick

pmh, that is no the case at all. When you return it, they charge you for every little mark there is on it. You have milage limits too…It adds up.

However, if you work for the right comp. they can give you a leased car as part of your job benefits. This works well for them.

I have lots of family and friends that lease. I have one brother that has two really nice automobiles that he owns…and then he leases one also for his wife. I have no idea why they do that. I never checked into leasing because I know I would put too many miles on a vehicle because of the distance I drive to work. But leasing a car to me is like renting an apartment. You pay out your hard earned money to enjoy the moment. But in the end you wind up with nothing to show for it.


“Do or do not, there is no try” - Yoda

Leasing a car is the biggest legal rip-off auto dealers have managed to come up with for the general public. Almost ALL TELEVISION CAR COMMERCIALS I see now don’t advertise the purchase price, but display the cost of a down payment for leasing!

The only benifite to leasing is if you have a business and it can be deducted as a business expense, but if you drive a lot of miles, like I used to, then it is not worth it because they don’t give you much mileage.

But, then, the car industry is an expert at suckering the general public from the manufacturers rebate – which is added onto the sale price of the car, to confusing purchase and loan agreements to warrenties that cover your new car only if something goes wrong on Feb. 29th, during a hurricane in Brazil. I have tried for years to find out the average buyers price for a new car, knowing well that most will double that for retail, but even retired car dealers decline to say. (What is this? A super secret club or something?)

Not being an absolute moron, I have looked at the $150 replacement headlight assembly for a Ford 1986 utility van, observed the $2 worth of plastic in it, along with $2.50 worth of hardware and tried real hard to figure out how the Ford company justifies the price gouging.

I had a 1967 Pontiac years ago, which had a mean engine BUT a Teflon coated timing gear, which came apart at 64,000 miles (Almost all of them did, I discovered), the fine plastic then got into the oil and jammed up the engine. The repair cost was large, if you salvaged the motor – having to melt out every oil port in the block of the now melted plastic teeth – and the REPLACEMENT timing gear was, guess – STEEL!!

So, if anything to do with automobiles offer you a good deal, stand back 20 feet and examine it closely, poke it a little and see if it explodes, have a lawyer examine it in detail, and carry a cattle prod for fending off high pressure sales men and women when you actually walk onto the lot, wire them up to a lie detector when you ask questions, and, even then, you might get screwed.

Here’s an even better way to buy a car. Save up the money ahead of time and you won’t have a lease OR loan to pay off! Say for instance a payment on a new car would be $500 a month for 5 years; a whole crapload of that is interest and if you could put $500 a month in a savings account or mutual fund for 3 years you’d have enough to walk into a dealership and drive out with a new car no strings attached. The only difference is when you actually get the car. Of course it’s up to you, some people don’t mind still having payments to make on their car when they go in 7 years later to trade it in for another!


Love stinks! (Yeah, yeah!)

A more insidious problem with financing a car is what dealers call being “in the bucket” or “upside down” on a car.

“No downpayment!” “Drive off the lot!” Similar come-ons mean that they are financing the complete sale price (which is often more than you should pay, anyway). The moment you drive the car away, it loses a great deal of value… this means that for months or years, you owe more on the car than the car is worth. And when they promise “We’ll pay off your existing loan!” they’re simply rolling that balance on to your new loan. Result? You’re even MORE in the bucket than before.

Dealers that trumpet, “Bring in any trade-in, and we’ll give you $1000! Drive it, push it, tow it on the lot - we don’t care!” All they’re doing, of course, is adding that $1000 to their bottom line somewhere else.

“$1 over invoice!” Listen for the weasel words, “Actual invoice may not reflect true final cost to dealer.”

Sometimes you can get cars for under dealer cost… but only if you’ve agreed to the dealer’s financing, which will make him $2100 in “F&I” (finance and insurance) profit. What does he care if he sells you a car for $200 under his true cost then? By the way, that loan insurance that the dealers sell you is a HUGE profit for them. It insures that if you die, your loan will be paid off, so as not to burden your wife and kids with the car loan. BUT: if you die at the beginning of the loan, your family gets, let’s say, $20,000. If you die at the end of the loan, five years later, your family gets… $355, or whatever the final payment due is.

For the same amount of money, you could buy level term life insurance for five years, which would pay out $20,000 on the first day and $20,000 on the last day of the policy.

A buddy of mine used to sell cars for a local dealership. His boss’ words: "It doesn’t matter which pocket we get the money from… just don’t leave any money in their pockets.

  • Rick

LOL, I believe it. The car I just bought was an end of year model so I knew I had that going for me. (For anyone who doesn’t know, once the next year’s cars start rolling into the dealership the current year’s cars still sitting around become harder to sell and the dealer is more willing to negotiate.) I went in with a nice round amount of money that I was willing to pay for a car and told him that was what I had and that was it. I got him to within a few hundred and he said “Here’s what WE paid for the car and here’s what you’re asking us to take – don’t you think we should make SOME money on it?” I told him “You aren’t going to make ANY money if I walk out of here without buying a car!” I got him down to within a $100 of what I was willing to pay and he finally gave up and said “Ok, but I’m NOT GIVING YOU THE FLOOR MATS!” LOL! Like I can’t find a better deal than $100 floor mats; what are they – solid gold!!! A funny postscript to that is a few months later a got a recall notice in the mail letting me know of a potential problem with -uh-huh- the floormats! Bwahahahaha!

By the way, Bricker, I’d like to state that if OpalCat had a category for the person who thinks most like yourself and you agree with 99% of the time, I’d have to vote for you. :slight_smile:

I’ve seen dealers rattle off about what it costs them, but knowing what they are like how are we to know if they aren’t making up some crap about that? www.edmunds.com can dealer invoice a car for ya. whew.

Every hear of their 50/50 warrentees? That means if anything happens, the buyer pays both halves. Saw some dealers laughing about this once.

One of the main advantages of leasing is that you don’t have to pay less tax on it than buying a car.

My uncle got his van leased because he was under bankruptcy and he couldn’t own it.
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Then again, there’s a 99% chance I’m wrong, so someone correct me on any of this.

handy, by “beat the hell out of it” I meant “driving with one pedal on the floor at all times” not neccesarily hitting anything or putting a lot of miles on the car. Sorry about not making myself clear. :frowning:

Car dealers are one of the few businesses who still legally make a living by lying to the general public and what is even more astonishing, the people put up with it. Car dealership owners in my town are some of the richest people here. They are also people that I would not like to have to rely on for anything.

What burns me up about the whole automotive industry is that they willingly allow people to drive in cars and trucks with dangerous defects in them from time to time because correcting the problem would cost a few million. That indicates that profit is much more important to them than human life.

Some time back, the old Pinto is a good example because engineers KNEW the exposed rear tank was a danger but correcting it was costly. Then came that Dodge pickup with the exposed side tanks that exploded if hit in the side. Interestingly for all, in the 1950s, a way to keep gas tanks from exploding was developed. The tanks were filled with a fine mesh of steel – which, say in a 5 gallon tank, took up the total space of about 1/4 gallon. Filmed demonstrations showed that regular fuel tanks, when shot with a high caliber rifle, with various levels of fuel in them, exploded violently. The tanks using the mesh just LEAKED.

Get it? LEAKED. NO BOOM! This technology was never incorporated in fuel tanks because, apparently, the mesh A: added a little weight, B: added cost, C: took up volume (out of 5 gallons, the mesh took up 1/4 gallon in space). and D: added a little bit of time to the manufacturing process. I think the main thing was the added cost. Aircraft and automobile makers do not like digging into profits. (Like why certain national aircraft who fly over the ocean DO NOT have life rafts on board in case of a crash because they cost!)

Think of how the mesh would have prevented thousands of automobile fires and, especially, might have stopped the massive fires in air crashes.

Remember how the drivers compartment in cars USED to be reinforced? Cars USED to have crash bars in the doors, while trucks did not. Not anymore. Economics. I’ve also observed that the ‘crush zones’ on ‘economy’ cars NOW incorporate much of the drivers compartment.

Some guys I used to know liked to rebuild older cars, especially those from the 50s and 60s because of the durability of the roof and passenger structures. Later, in the late 70s, they started incorporating roll bars in cars they rebuilt because the roof structure and passenger compartments were unsafe. They pointed out to me that automobile makers could easily do the same with minimal cost and that some foreign luxury car makers already had, but most American car makers chose not to.

You like the new front wheel drive cars? Not that we had any choice in the matter, but front wheel drive has been around since before the 1950s. What you probably did not know is that if you wreck the transmission in a front wheel drive car, you are going to have to pay something like 4 times what you would to fix a regular transmission. You know those SUVs they brag about having automatic, ‘smart’ 4 wheel drive? Essentially that means the 4 wheel drive is engaged all of the time and what they don’t tell you is that the drives will wear out faster than regular 4 wheel drive that YOU control and you get to pay a fat repair bill.

Since car makers care so little about you, what makes you think car dealers will give a hoot either? The only way they are ever going to straighten up is to get government regulators involved, and they have a massive lobby.

You know the converters on the car exhaust system? It cuts down on carbon monoxide and some pollutants? Right? Well, it spews out sulfur dioxide, which turns into sulfuric acid which creates acid rain which turns lakes into desserts and burns holes in plants. Cool, huh?

Good post, Sentinel. If anyone is interested in more about the foulness of the American auto industry you may want to read Unsafe at Any Speed by Ralph Nadar or On a Clear Day You can See General Motors. Sorry, the author escapes me on that one.

I don’t know how historically accurate the movie Tucker: A Man and His Dream was but it showed a lot of the same thing you’re mentioning. Preston Tucker was the first automaker to propose safety belts; when the “big 3” heard, they balked at the cost and refused to include them as standard until public outcry demanded it some 20 years later. (Going from memory, not sure of the exact time frame.) Good movie too, BTW.


“Open up! It’s the pigs!”

Wow. Lots of misinformation here about leasing.

Here’s the bottom line: Leasing may be better than buying, or it may not be. It depends on the lease, specific tax advantages to you, the type of vehicle, etc.

Leasing can have many tax advantages. For one thing, if there is sales tax in your state or province, you only pay tax on the lease payments, which typically wind up being only 15-20% of the purchase price of the car over the term of the lease. For example, we leased a '98 Windstar. It was worth $28,000. If we had purchased the vehicle, we would have paid 7% tax on the full $28,000, or about $1960 in tax. By leasing, we paid 7% tax on the lease payments, which were $265/mo for two years. Total tax paid: $445.20, deferred over two years instead of being up-front. Also, if you can use your vehicle for business purposes a lease may have big tax advantages, because you can deduct the full lease payment as a cost of doing business, whereas if you buy the vehicle you can only claim a percentage of depreciation, and sometimes it’s as little as 50% of the depreciation. That can wind up being a difference of hundreds or thousands of dollars a year in tax savings for a lease over buying yourself.
How much you pay for a lease will depend on how much the vehicle depreciates. In effect, when you lease you are paying for the depreciation on the vehicle while you drive it, plus financing charges, plus dealer profit. When you buy the car, the dealer will set a ‘residual value’, which is based on market assessments for that vehicle, the number of miles per year you will drive it, etc. If the car is worth $20,000, and they set a 2-year residual of $16,000, then your lease payments will represent paying $4000, plus the aforementioned dealer profit (which will be built into the original purchase price), plus financing charges.

This brings us to the second advantage of leasing: If the market for those vehicles collapses and they depreciate faster than you thought they would, the dealer takes the loss instead of you. On the other hand, if the vehicle holds its value better than expected, you can buy out the lease at the residual value, sell the vehicle, and pocket the difference. When we traded in our Windstar, the residual was set at $21,800, but 98 Windstars with those options are selling for about $19,000. Ford took a bath on those Windstars, and their lots are full of used ones because no one bought out their leases - they gave them all back.

Some claim that leasing is stupid, because if you buy the vehicle you are building equity, while if you lease you have to give the vehicle back and get nothing. This is true, but depending on the depreciation rate of the vehicle and the length of your loan term, the vehicle can depreciate faster than you are paying it off. So you could buy that '98 Windstar, drive it for two years, and find you still owe $22,000 on it even though it’s only worth $19,000. Now you have a liability instead of equity. And loan payments are almost always much higher than lease payments. Often they are double.

Often buying IS smarter than leasing. It really depends on the specific nature of the deal, and no two vehicles are the same. My advice - negotiate the purchase price of the vehicle FIRST, before you tell the dealer how you are going to finance it. Also, don’t tell them if you have a vehicle to trade (they’ll often offer you a ‘better’ price if they know you have a trade, because once they’ve got you hooked on the low vehicle price they’ll offer you less on the trade - which gets them all their money back and then some).

Once you’ve got a firm purchase price, now you can negotiate trades, financing, etc. Have them do up the financing for the lease and a loan, and compare the two. Find out what the residual value is that they are offering you, then do a bit of research in the used car market to find out if it’s reasonable. Once you’re armed with all the information you need, make the best choice.

I don’t think anyone mentioned that a lease often requires higher insurance coverage than a purchase. You’re not just insuring yourself but the lease company. Add it to the TCO.

Do your homework. The $12 cost of a Consumer Report’s price report will tell you the invoice cost of a vehicle as well as the dealer holdback and advertising charge.

I’ve found the best thing I can do is to arrange financing through my credit union before I set foot on the lot. When the salesman starts throwing payments at me without consideration of a down payment or the final price I can ignore it. When I bought my truck there was no negotiation. I offered $300 over the dealer’s hard cost and that was it. I didn’t have to be a bully but they knew if they tried to “bump” me I’d have walked out the door. I got a sweet financing deal that combines all the best features of a conventional loan and a lease and didn’t have to put a penny down. I now own the first vehicle in my life with a warranty and have not had a second of buyer’s remorse. :smiley:


My Jesus fish can beat up your Darwin fish but forgives it instead.