Well, let us get back to the OP and the kind of car he might want to buy- which certainly isn’t a $30000 car.
It can be a good idea to buy a late model used car, if there is still time/miles left on the warrenty. Note that I suggested a 1 year old Toyota or Honda.
Certainly you want to keep your maximum monthly payment in mind when you buy a car. But also- you don’t bargain from there, as Sam Stone said. You bargain from the total price of the car. And, you generally don’t want payments beyond 60 months, nor a lot less than that, either (sometimes you’ll see a dealer advertise a 0% financing deal, but with only 24 month financing. Mosts dudes can’t afford those monthly payments. If you were ready to pay “cash”, then sure, why not?)
Leasing is generally a bad idea. You make a “down payment”, you make monthly payments, and then you own nothing. You could easily end up owing a lot of “milage” charges too. CR agrees with this. However, sometimes dealers have some really incredible lease deal, in which case it can be a good idea.
If you don’t make a significant down payment, at some time in your financing you’ll be “in the bucket” or upside down". This is why you don’t buy a car without that down payment, or money in the bank, or for 7 years of payments.
Civics rawk. And for such a small car, we found them to be pretty good in a collision: our former Civic was in two major accidents (one head-on, one a 4-car-pileup on a Beltway exit ramp) and we walked away from both. OK, the second accident did that poor Civic in, so we went out and immediately replaced it with a new Civic.
The one downside - and reason we don’t own two of them: I’m tall for a woman (5’11") and find the seating position of the Civic to be much too low; I have a lot of trouble climbing into and especially out of the Civic. When it’s finally time to replace our 10-year-old Caravan, I’ll definitely be looking for something else with
height. Maybe jack a Civic up on those silly-looking raised frames I see on pickup trucks
This is the SDMB? Why are we still going on with these generalities?
“Don’t bargain from monthly payments.”
Why not? Is there something in my valuation that I’ve missed? It seems to me that monthly payments give a much better view of the total cost of the car than the list price. Certainly, be wary of hidden fees and what not, but that has nothing to do with monthly payments. I use lease payments because they incorporate a guaranteed depreciation schedule, sure you can do it with purchase financing too, but figuring out a depreciation schedule on a new car is much harder and that means more risk for the buyer, and of course, risks have premiums.
“If you were ready to pay “cash”, then sure, why not?”
Uh… because money costs money? Isn’t that pretty basic economics?
“Leasing is a bad idea…you own nothing”
Why is owning nothing a bad thing? Cars DON’T appreciate in value! This is, in fact, precisely what the car salesman told me the other day. “Don’t lease our Shitbox, you don’t own it! :eek: Ownership is important and that’'s why you should pay 2x as much every month!” Uh… NO. I want a car I can use NOW, If I wanted to OWN a 10 year old Ford Focus so badly, I’ll just buy one right now for $300 or however much they end up costing, not pay for it over 5 years. :rolleyes:
This is simply a trick, the seller is trying to tell YOU wnat you want (you have to own the car!) when most people just want to have a new car to drive around. Do you actually, deep down, year to drie the same crappy car in 5 years?
You maybe right on all acounts as it relates to the OP, but it would be much more useful to provide him with the tools to evaluate each prospect on the same apples-to-apples basis, don’t you agree?
Thanks for the correction – poor choice of words on my part. I should have said “repairs” instead of “maintenance”. One should of course still change the oil and stuff.
Well, if your the kind of person that always has to be driving a “new” car, buys models that depreciate fast, and has surrendered to always having a car payment then leasing may be for you.
If you are more sensible then it makes sense to buy to own. I bought my 1997 Honda Accord brand new off the lot for $16,000. Drove it for 9 years, put 160,000 miles on it, had no major repairs done (sans oil, filters, tires, brakes, fluids), and I just sold it last month for $3,500.
So, at $16,000 - $3,500 + $2,000(maintenance) = $14,500 over 108 months my cost of owning figures out to be about $134/month.
Someone leasing new Accords over 9 years (3 at 3 years each) would have the luxury of always having a newer car to drive, but they’d be penalized for mileage (I averaged 18K per year) and would be paying waaaay more than $134/mo.
I admit that some – perhaps even many – car salesmen do love it. I am married to one, however, who does not. He actually comes home depressed sometimes because people come in terribly upside down (earlier referred to as in the bucket) and make bad decisions. He has, on more than one occasion, sent people away and told them, “Your best economic decision is to keep driving this car until it’s paid off. You might find someone to sell you another car and completely mess you over, but it won’t be me.” He is delighted to work at a dealership for which the aforementioned behavior does not result in an immediate loss of employment. I know this is a hijack, but I always feel I must defend Mr. Stuff. You may now cue Tammy Wynette’s Stand By Your Man.
I’m sorry, did you ask something about cars? Oh, yes. ahem
Have you considered a Pontiac Vibe? A new base Vibe will run you about $16K, and they’re great little cars. We’d drive one, except we can’t get it with a dual-fuel CNG option. If you are a devotee of Japanese manufacturing, you may wish to know that the Vibe is a Toyota Matrix with different skin. And it’s cheaper. (It also doesn’t hold residual value well, though, if that’s a consideration.)
If you don’t like that idea, I’ll add to the love for the Civic. I loved that little car, and I wish we’d never sold it. Especially not to get into a lease. What were we thinking? Thank goodness it’s over now.
I just got my second Chevy Malibu, and my mom is still on her first.
I am on my second, because my first Malibu Maxx was T-boned by an Explorer who ran a light going about 45 mph, and drove me into a telephone pole.
The witnesses to accident called the accident in to 911 as a fatality accident, and couldn’t believe when I got out with only bruises, and some very minor air-bag burns on my forearms. It’s hard not to recommend a car which saved your life.
Additionally, I get and average 28 mpg, and I LOVE my car!
Not necessarily, and not for people who are less sophisticated at economic calculations than you are. If you start out bargaining from the monthly payment you can afford to pay, they will adjust the payment schedule to make sure they hit your target, but may effectively jack up the price of the car by adding to the number of monthly payments you must make. It’s the flip side of the teaser “You can have this product for $50 a month!” That’s fine as far as it goes, but how many months are we talking about? Two? 22? 200? Monthly payments tell you nothing about the price of the car unless you total them up. So you start with “this is the total price I will pay” and then you move to “and I can pay that price at X dollars per month.” You don’t start with the latter, because then you lose control of the former.
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Certainly, be wary of hidden fees and what not, but that has nothing to do with monthly payments. I use lease payments because they incorporate a guaranteed depreciation schedule, sure you can do it with purchase financing too, but figuring out a depreciation schedule on a new car is much harder and that means more risk for the buyer, and of course, risks have premiums.
That depends on the car you’re buying. Cars don’t appreciate, but some depreciate much more slowly than others – specifically, Hondas and Toyotas hold their value much better than pretty much any American car you can name. On a very good quality, low maintenance car, if what you’re looking for is the lowest possible cost of overall ownership (be it per mile, per trip, or per year), you’re not going to jump from lease to lease (where the cost of use is pretty constant), you’re going to buy (where the cost of use decreases the longer/farther you drive it after it is paid off).
I bought my Honda Civic new because Civics hold their value so well that getting a gently used one (less than two years, less than, say, 25,000 miles) was not enormously cheaper – and would have been pretty darn difficult to do, since gently used Civics are pretty thin on the ground. I was willing to pay the differential to have all the bells and whistles and to have a car I knew the history of. I paid it off over three years, and the cost to me (at a $15,000 purchase price and currently 118,000 miles) is now is about 13 cents a mile. That amount will only go down the longer I drive it – and I hope to drive it at least another 80,000 miles.
There’s no way a lease turned in at the end of two or three years would work out to be anywhere near that good a deal.
Granted, the analysis changes when you have a vehicle that: (1) has higher maintenance costs; (2) depreciates faster; and/or (3) just won’t run that long or far before it craps out. But in terms of investing in a car and reducing your transportation costs over time, it seems clear the best option is to find a highly reliable car and to buy it, not lease it. I would lease a Jag; I wouldn’t lease a Honda.
This is simply a trick, the seller is trying to tell YOU wnat you want (you have to own the car!) when most people just want to have a new car to drive around. Do you actually, deep down, year to drie the same crappy car in 5 years?
I checked around for the best interest rate, and called up the dealership with the lowest I could find, and asked them to match or beat it.
They couldn’t. However, prior to going into the dealership, I put in a credit application to the bank with the lowest rate, and the dealership did all of the rest of the work for me.
Because Monthly payments are meaningless, as they can then extend the number of payments etc to make the payment $ amount come out right, even though the custoemr is paying LOTS more. Here’s an example (numbers are from the OP) “I want to buy a car and I want my monthly payments to be $200/month” = “Sure, so give us $4,000 down and $200/month for 72 months @7.9%” (that’s a real normal used auto loan %). Total price of car= $19,000 or so. But let us say the OP bargains based upon price instead. = 48 months @$199 (same MONTHLY payments, note) @ 5.9 (good customer loan rate available from some Credit unions) +$4000 down= total price of car= $13500 or so. Bargaining based upon payments costs him $5,500. Bad idea. Trust me, my Dad used to sell cars.
Now, as to “you own nothing”. Oddly enough- I just paid off my car, after 60 months of payments. The lease payments would have been $50/month less. So, I would have saved $3000, yes? But according to Edmunds and Kelly, my car is still worth around $6000 for a trade-in and $7200 for a private party sale. Thus, if I had leased, I ‘d now have to give my car back to them, or buy it. I’d be out $3000 to $4000 by leasing as I wouldn’t have an asset. True, cars depreciate, not appreciate, but even depreciated my car is still a valuable asset. And, if I had leased, it’d be their car, not *my * car now. I "earned/saved’ at least $3000!
Honda Civics are fine cars, but they’ve gotten bigger and more expensive over the years. A current Civic is about the size of an early Accord. So I’d suggest that the OP consider the Honda Fit instead, as that’s more in line with what a Civic used to be. (I also like the fact that’s it’s available as a four-door hatchback, which is what I want to get next.)
And I still don’t agree with kawaiitentaclebeast’s argument in favor of leasing instead of buying a car and running it into the ground. Someone said that Consumer Reports said that owning is cheaper than leasing and I think that Cartalk also said the same thing. It might be nice to have a new car every two years as kawaiitentaclebeast does, but I like the fact that I don’t have car payments to make.
You’re ignoring the TVM, at 0.5%/month cost of capital it works out to be $216/month, ignoring the maintainance cost.
Let me just clarify here: What you want is what you want, but none of the examples given above are a fair comparison for leasing vs buying. A fair comparison would be to compare the cost of the car with the cost of leasing a car for 3 years and then either buying the car out, or buying another 3 year old Civic. The difference is that with financing, you bear the risk of any change in the car’s value in 3 years versus your projected value. In addition, do you have any real way of projecting the depreciation schedule of your car? Would you trust the schedule your dealer uses for leases?
Essentially, you are paying for a put option at the end of the three years to sell the car at the dealer’s residual value.
I’m not saying either way is absolutely better than the other, the investor can determine his own risk appetite, I am trying to come up with a reasonable and accurate way to value each cashflow series. I gave an example above of how MSRPs do not illustrate accurately the depreciaton schedule of different cars, and thus would be a poor guide for the actual cost of the car, regardless of whether you are buying or leasing, and thus, simply arguing on list price perhaps isn’t the best way to go about it.
I just played with some figures assuming purchasing a 20,000 car at 6% interest for 4 years, with an end value of 10,000 - vs leasing it (and essentially making payments on 10,000, as that’s what depreciates) at 7% - I’m assuming the “interest rates” for leasing are a bit higher than purchasing.
Buy the car: Payment of 469.70/month, total of 22,545.65. You could then sell that car for 10,000 - so your “net” cost (or loss in value) is 12,545.65.
Lease the car: payment of 239.46 a month, total of 11494.20. So, you’re out a bit more overall (let’s ignore excess-mileage fees, wear-and-tear fees, or whatever) if you purchase than if you lease.
At the end of the 4 years though, you own that first car.
4 years after that, you still own that purchased car, now worth, say, 5,000. So your net out-of-pocket is 17,545.65 (total payments, minus the present value of the car).
If you’ve leased, you have to spend another 11,494 - or more - for the next 4 years, so you’re out 22,998.39 total. And you have no 5,000 car to drive or sell.
Now, my purchase prices and future values are WAGs but hopefully they serve to illustrate why it doesn’t make financial sense to lease in the long term. Most cars last, and run pretty darn well, for a lot longer than 4 years. My 10-year-old Dodge Caravan is even still running fairly well and I haven’t had a car payment in 7 years.
I’m sorry Mama Zapa, but that is also ridiculous. See my above post.
Your consumption preferences are also irrational. If your 10 year old Dodge Caravan (one of the worst rated vehicles ever for reliability, IIRC) was so great, why would you buy a new car at all? Why not buy a 10 year old Dodge Caravan to start with, drive it for 4 years, sell, buy another, etc? You’ll save even more money that way. Yet people who are buying new cars apparently do so on the basis that they can live with a 5 year old car in 5 years. If you can do that, why don’t you buy a 5 year old car now? Are you saying that owning a new car gives you a quantifiable benefit today but not 5 years down the road?
You cannot know if leasing is better than purchasing without knowing the specifics of the deal. Sometimes leases work out better, sometimes loans do. This assumes we’re comparing the same activity, which is driving a new car for two or three years and then turning it over for another new car. That in itself is a very expensive way to drive, whether you lease or buy.
Ideally, the decision to lease would be value-neutral. The lease payment would be set at the difference between the cost of the vehicle new and its residual value at the end of the lease period, plus the cost of financing. If that were the case, then buying and selling the car at the end would work out exactly the same (i.e. your payments would be based on the full price of the vehicle, but then you’d claw it back when you sold the vehicle later).
Cons to buying are that you’re taking a risk with the resale - market conditions could change after you buy the vehicle and you may find that it’s not worth what you thought it would be after 2 or 3 years. With a lease, the risk is absorbed by the car company. It also saves you from the hassle of selling the vehicle. If you’re in the habit of just taking the vehicle back to the dealer and trading it in, the dealer will only give you wholesale, so your cost skyrockets. To realize the full residual value of the vehicle, you have to sell it privately.
On the flip side, the interest rate on leases is usually higher, there can be other fees involved, you are limited in the number of kilometers you can drive, and you have to be careful about the dealership, because some will try to hit you with extra wear-and-tear charges when you bring the vehicle back, charging you extra for every little scratch they can find on the vehicle, rock dings in the windshield, fabric scuffs, etc.
We leased a Ford Windstar a few years ago and made out like bandits. Ford had an incentive on where we got a Windstar for $199/mo with $2000 down for two years. I did the math, and realized that Ford had set the residual ridiculously high on them (this was right at the peak of the minivan boom). They would have to sell the Windstar for $19,000 or so after two years to break even on the deal. This was also a vehicle we knew we wouldn’t want for long - we wanted a minivan while our child was an infant and we’d have to load and unload strollers, put the baby in a car seat, etc. Once the kid was old enough to be self-mobile, we could go back to a sedan or SUV and dump the lumbering hulk.
Anyway, when we handed the keys back to Ford, identical lease return Windstars were going off the lot for $15,000-$16,000. Had we bought instead of leased, our payments would have been duoble, and we would still have owed more than that on the vehicle. We would have taken the bath instead of Ford.
Right, as I said above “However, sometimes dealers have some really incredible lease deal, in which case it can be a good idea.”. I am assuming that dudes want a new car and want to drive it for at least 5 years, and that they will run a very real risk of exceeding that miles you get when you lease. However, if you do like to drive a new car every couple-three years, maybe leasing might be better. AND, even CR sez that sometimes the Manuf has some incredible lease deals.
But- in todays car market, with an average driver- buying is usually a better deal. However- do compare, you never know. I have heard there’s some damn good lease deals on Mercedes (which the OP isn’t in the market for, anyway).
