New Car: To Lease or Not To Lease?

In My Humble Opinion
21

Yes, I do believe I said my choices were unusual.

Actually, I’m driving an 8 year old car and an 11 year old truck right now.

I think you fail to understand something - I never sell my car. I drive it until it is junk. If you never re-sell it or trade it in then the resale value is irrelevant. For ME the value of a vehicle is what it does, not what I can sell it for because I don’t intend to sell it.

Nope. It’s largely because if I buy it new I know it’s been taken care of from day one. I don’t have to worry about what some previous owner did or didn’t do to it. Granted, with warranties now available on used cars that is not the concern it used to be, but back when I started driving warranties on used cars was a laughable idea. Given how infrequently I purchase a vehicle sometimes a new thing shows up and I don’t take advantage of it right away.

WTH? What amazing safety breakthrough occurred in the last 15 years? Cleaner? I’ve never had problems with my vehicles passing state emissions tests (probably because I keep up with the maintenance). More fuel efficient? My car gets 40 mpg - is there a non-hybrid that gets better than that today? More comfortable? In what way? My car and my truck have seats you know, I’m not sitting on a milk crate bolted to the floor. I don’t get this “order of magnitude” thing you’re talking about.

And your dismissal of the over mileage issue? I’m not driving those miles because I think it’s fun, those trips aren’t optional. The only way to cut down how many miles I put on my vehicles is to get a third one, which will just cost me more money.

Yes, I know you’d never buy and use vehicles the way I do - the difference between you and me is that I’m not scolding you for your choices.

Your method means I will never be without a car payment. Mine means 2 out of 3 years I’m not making a car payment and I can use that money for something else. Instead of having a loan and paying interest I can invest that money and be earning interest instead!

Again - I never resale my vehicles. At least, I haven’t for 30 years. I don’t anticipate that changing. There is nothing to “recover” from resale because resale doesn’t happen. Well, OK, I get a token amount from the junkyard but I don’t think that’s what you meant.

I buy a vehicle for transportation, not as an investment. Then again, you’d no doubt disagree with my choices in details - for example, my car does not have electronic locks, remote starting, or any of that frippery. I don’t see a need for that sort of thing, and I don’t want to spend my money on it. That sort of thing is important to other people and I don’t criticize their purchase of them. To each their own.

22

Personally, I dislike the idea of leasing. I don’t want to get in trouble for cosmetic damage to the car; I don’t want to have to treat it with kid gloves and worry that they’re going to screw me on checkin. I guess I think of it like renting cars for shorter periods - is that generally a positive experience? Not so much.

I did end up buying a new car instead ~4 years ago. I was looking to buy used to avoid the depreciation, but I bought a Honda Element, and I wasn’t really going to save much buying a car even a couple of years old (and, at the time, one or two years old was all that was available since it’s a newer model). For 1k or so, I’d just as soon get the paint color and features I wanted and know for a fact they didn’t do anything stupid with it. With other manufacturers, I would have just looked at models a couple of years old - surely it’s just as exciting to get a 2 year old great-condition car as it is to get a brand new one, knowing you’re not taking a huge hit the moment you leave the lot.

I’m happy I bought it - it was paid off nearly 2 years ahead of schedule, just by tossing money at it when I felt flush. And I wasn’t, through this time, making all that much, really. So now I have a 3 year old Element in the color I like, with the features I like, that’s mine and paid off. No repairs but regular maintenance ever needed on the thing, and it’s fun to drive, and perfect for road trips. When I go through hard, gross Iowa winters, I don’t worry so much about the car interior, and I especially like having no car payment. :slight_smile:

So, up to you really, but you can buy a fun car that’s also reliable and a comparatively good investment. If you really need to swap out cars every few years, then maybe leasing is for you. But personally, I get a heck of a lot more excited by having the extra money now to use for vacations, or electronics, or whatever than I would have had by having a different car for the last year on a new lease.

23

OP here.
Interesting discussion. I’ve learned a few things and been inspired to go find out a few other things. I’ve given up on the lease idea, mainly due to the mileage limit but also because I just feel better about owning and I do tend to keep my cars for a long time. I think on some level I knew all along I wasn’t going to lease, but it was something I needed to consider and then let go so I didn’t regret passing it up. Part of the process.

So I’m heading to Carmax this weekend with my eye on a couple of '07s, a Sebring sedan and a Caliber hatchback. I think I could be happy with either of these and they fall well within my price range.

Thanks for all the input!

24

Since my original assertion was that leasing is better in every possible scenario, I explained every possible scenario. My point is that even with your example, you would be better off with a lease. As I made clear, you choosing to drive the car until it’s worth nothing is fine, that’s purely a personal preference. I own a 17 year old car myself, I have no problem with your preference.

25

You certainly have NOT convinced me I’d be better off with a lease.

26

If you don’t want to be convinced, there’s not much more I can do for you. I think you are simply confused by the second part of my explanation, which won’t apply to you if you do decide to keep the car after the lease period is up. Maybe it is better if you just read the first part and ignore the remainder.

Your fixation with “having a car payment” is also telling. Rest assured, you are paying for the car, how many installments you choose to do it in is utterly irrelevant to this discussion.

27

I’ve owned five cars which I purchased used. All have been excellent. Basically, what I look for is a car someone else leased for a couple of years. Because the lease terms really kick you for mileage and damage, these cars are almost always in excellent condition, low mileage, and well-maintained.

I shop for a car that is two to three years old, with 25 to 30K on the clock*. Cars in this range are almost always previously leased cars. I keep them for four to six years.

Following this strategy, I’ve never been burned. Let someone else take the 10K hit you take driving a new car off the lot.

  • for used Volvos, I go up to four years and 40K.
28

FWIW, Edmundshas an article where they estimate the costs associated with buying new vs. used vs. leasing. They’re conclusion is that over a 5-year period, leasing costs the most money, although leasing is the cheapest option up front.

29

Have you read the article? I can tell you exactly what it’s worth. less than nothing

30

Yes, I read it. It looked to me like a fairly reasonable calculation, given some simplifying assumptions. Obviously those assumptions won’t precisely fit every individual situation.

Care to share any specific criticisms?

31

Most of it has been covered somewhat in my earlier posts. The comparison tells us absolutely nothing because they are comparing financing one car with a 3 year loan and owning it for 5 years versus leasing two cars for the same 5 year period. This comparison may be useful for young children, but I didn’t need Edmund’s to tell me that owning two cars costs more than one. At least they are consistent in their final conclusion that buying a used car would be cheaper. Maybe for their next project, they can commission a study to determine if it is cheaper for me to buy all my clothes second hand from Goodwill instead of new?

Even if they had tried to compare two things that are actually similar, like, for example, leasing a car for 3 years versus financing a car for three years, their methodology is in any case incorrect. The compare monthly payments, and have a calculation for interest paid, but ignore the fact that cash has opportunity costs. Their conclusion is essentially that if you take out a loan and pay it down faster, you pay less interest. True, in the same sense that you can save on rent by buying a house, ignoring the minor quibble that houses aren’t free. Following their logic, the obvious conclusion is that you should buy the car outright from day 1, with your unlimited reserve of free cash, since that way, you pay less interest!

There’s also the fact that down payments and monthly payments are variable for both financing and leasing, but really, at this point we are so laughably far beyond the intellectual scope of the piece that there is no point in continuing. I asked if you had read it because I could not determine whether your post was serious or some kind of satire.

32

I think you are missing talking about “money factors” and other things that are thrown into the lease calculations. If all you were paying was the difference between the initial sales price and the depreciation, many cars which have very low depreciation would be very affordable to lease, but this is not necessarily the case.

33

We leased a 2006 Toyota Highlander Hybrid for three years- 20k miles a year (we drive a lot for work). When the lease was about over, we took the car to a body shop so they could touch up the paint (a hundred bucks or so) where it had been scratched and dinged over the years, got the car detailed (another hundred bucks or so).

The buyout on the Toyota was $14k, I think (maybe $15, it’s been a while).

I went to Honda and they offered me $20k as a trade in on the Toyota (high end of the middle Blue Book Value). Honda cut a check to Toyota for the $14k, $2k was used down on a lease on a new Accord, rest of the money went in the bank.

So, as I see it, at least- leasing is a bad idea if you get cars that depreciate tons (Hondas and Toyotas hold their value better than others). Leasing is also a bad idea if you do a shitty job arguing the basis of the car when you sign the lease. Leasing is also a bad idea if you aren’t good at either selling cars or negotiating trade in values. If you’re good at these things, though, you can end up at least even on the deal.

34

Here is an explanation of what the cost of the lease actually is.

35

** Throatwarbler Mangrove **: you have not discussed what percentage of capitalized cost the lease is figured at. I believe this is a fatal flaw in your assertions.

Four friends have leased cars that I was privy to details on. In each of their cases, the MSRP was the “initial cost,” and the wholesale cost was the end of lease cost. In essence, you are paying the depreciation between the MSRP and the dealer’s true wholesale cost at the end of the lease term.

But even the most green buyer knows he won’t buy a car for the MSRP. Yet, somehow, when it’s part of a lease, these terms seem seldom negotiated.

I grant that an astute negotiator can get a good lease deal. I deny that the majority of lease deals are good.

36

Your friends got hosed then. I mean, I have no doubt that this is the standard procedure and most folks just accept it, thinking that’s how it has to be, but I most certainly did not work my leases this way. I walked in with the invoice of the car and each time ended up with an “initial cost” below even the invoice.

Edit: I realize that sounds a little more hostile than necessary. No hostility intended, I just whipped up a quick response! :slight_smile:

37

If at the end of your lease, your Toyota was worth $10k instead of $20k, then if you had leased, you would only have paid original price - $14k instead of original price -$10k. So the more your car depreciates, the better off you would have been with the lease. That’s in theory, anyway. Obviously car dealers are not stupid and set their depreciation amounts accordingly, but as you can see in your own example, you have not lost anything either when the situation is the opposite(car has “high” actual residual value. High in quotes because it’s all relative). In both cases you are better off leasing.

As far as whether you are good at selling cars or negotiating trade in values, this is true regardless of whether you buy or lease. If you are bad at negotiating, then you won’t get a very good deal buying the car either. This has no bearing on the buy vs lease decision.

38

Oh, I simply meant the depreciation value in the sense of me being able to resell it or trade it in. If the car was only worth, say, $10k at the end of my lease, then to buy out, I’d still have to pay an additional 4k out of pocket on the lease or whatever. My point is that leasing is definitely advantageous when you have a car that at the end of things is worth more than the buy out, because you can just sell the car and pay off the lease (or trade it in and pay off the lease), then pocket the difference.

39

Are you referring to the absolute amount of depreciation paid for throughout the term of the lease? As Diosa’s example aptly illustrates, it doesn’t really matter what the residual value is. The value of your asset at the end is what it is regardless of whether you buy or lease the vehicle. If Diosa had instead purchased her Toyota outright with cash at the beginning, at the end of the period, she takes it to Honda, Honda gives her $20k for it. Her balance sheet position is unchanged.

40

If you had financed the car instead, and at the end of the period it was worth $10k, then you have an asset worth $10k that you paid [original price] for. This is the same position you would be in if you decided to pay the extra $4k, or $14k, whichever way you want to think of it, at end of the lease. Of course, since you have the lease, you don’t have to do this.