Lease or Buy?
Lease or Buy?
12-23-2003, 10:54 PM
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Buying is the best if your wanting to keep a vehicle for awhile and you drive more than 12,000/yr. If you have a business and use it for business, lease is better.
Kind of depends on your situation.
Kind of depends on your situation.
12-23-2003, 11:29 PM
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With a lease, you pay a monthly payment (just as you would a loan), and the dealer loans you a car to use, limited to about 12,000 miles a year. If your lease period is 3 years, then after the three years you give the dealer the vehicle back. Usually payments are cheaper than buying, due to the fact that after your lease period is up, you will be giving the vehicle back and will own nothing. Then they usually give you a buyout option, where you can pay so much and buy the vehicle from them if you want, but the price is usually way higher than if you bought a used vehicle of similar year/miles, etc. Basically you are renting a vehicle.
12-24-2003, 01:43 AM
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Kral is right. Ive leased a number of cars. Bought too. Im not an "expert" on anything on here Porsche but I think Im as close to one on this stuff.
Basically leasing really is just renting. You finance the part of the car you intend to use -- i.e. 3yrs worth or whatever. What leasing gives you is a chance to drive a much nicer car for around the same car payment as buying. However, you never build equity. On the other hand, you leverage the possibility of being upside down on the car to someone else, so you have no risk.
The general rule of thumb is if you plan to buy, dont finance longer than three years -- 42 months is okay in some cases. Any longer and depreciation exceeds payoff and you are upside down (owe more than the car is worth). Id say 75% of people driving cars are upside down. Fact is too many people think they can afford a more expensive car than they really can. A $20,000 car is an $800/mth car payment. Most people see these $300 month car payments and dont realize they are financing for absolute deathly lengths of 60 or even 72 months. You may as well just take a shotgun to yourself. In 9 out of 10 cases, if you cant afford to pay off a car in 36 to 42 months, you cant afford it. As always, the cheapest way to buy is to buy outright. Pay cash in full. Of course, if you want to finance and let your money work for you while you make payments, thats the other equally best option. You just have to run the numbers and see what the cost of money will cost you and what return in the market youll get. The difference will be your net gain. Youd have to decide if its worth it to go that route or pay in full. Most people cant pay in full. Most people arent smart about putting money in the market either. These are the 5-6yr finance folks. Im sure I offended a few folks on here that qualify.
In a lease, your term is in months. Usually 36 is pretty typical with 12-15,000 miles allowed per year. In a 3yr term, it really means you can dump 45K miles by end of term so not to worry if you are hi or low in year 1 unless you are forced to dump the car which is incredibly painful and expensive in most lease cases because you are bound and terminating the agreement can be several hundred or even thousands of dollars.
Your lease will have a "residual value" on it. Thats the agreed upon worth of the car at lease end. In this case, at the end of year three when you return the car. Why is that important? For the most part, you are simply paying the difference between the negotiated price of the car and the residual value. On a $20,000 car, the residual at end of year three might be $8500. Basically you finance $11,500 for three years along with some interest. Very simplified, but thats pretty much leasing. The residual value is rarely negotiable and is determined by a book the car companies use to project future depreciated values. A good car will depreciated around 47-52% in three years. Most Hondas etc are typically good cars to lease because when you return the car its still worth quite a bit for the dealer to sell as a used car. Chevys etc have poor residual value and thereore typically you must absorb that liability in your lease. So in many cases, a nicer car is actually cheaper to lease if it holds value. Sorry, that wont work on a Ferrari.
The one good thing about a lease is you make the finance company roll the dice on whether they can make money on the car when you return it. You could care less. Youll throw away the keys and move on with life. UNLESS of course your car happens to outperform the projected residual value. This is actually not as rare as one might think. Say the projected residual value was $8500 (they figured youd put 45K miles on it, normal wear and tear etc). Well you drove it 2K miles total and the car is still mint. The car is worth maybe $10,000 on the open market and you think you can sell it for that. You could buy the car for $8500 residual value then sell it yourself privately for $10,000. The important part here is if there is equity in that leased car, try to get a hold of it yourself rather than give it back to the dealer. On my WRX, its outpacing residual value fairly well. I should have $700-1500 equity in it. I may either force the dealer to roll that equity into a new lease, or I'll buy the car from the dealer at lease end, resell it to them at -- say half of the agreed equity in it -- and use the sum to put toward a new lease. Yes, I have actually bought a leased car from the dealer and resold it to them all in the same coffee break. Its purely paperwork. Its somewhat unusual, but if they want you to lease again, they'll listen to anything.
The long and short of it is if you have little money and want to drive a nice new car all the time, leasing is great. If you hate body shops and like peace of mind, leasing is the way to go. If you like a car always under warranty, leasing. If you love equity and want to have a car to run the living **** out of it into the ground, buy. If you are abusive on your car, buy. If you can easily puchase outright, buy. If you can finance for three years w/no problem and like the above plusses, buy.
Mostly leasing and buying is a matter of lifestyle and affordability. And in the long run, after doing it for a number of years, I can safely say neither one is necessarily more costly than the other.
Hope this helps get your feet wet.
Basically leasing really is just renting. You finance the part of the car you intend to use -- i.e. 3yrs worth or whatever. What leasing gives you is a chance to drive a much nicer car for around the same car payment as buying. However, you never build equity. On the other hand, you leverage the possibility of being upside down on the car to someone else, so you have no risk.
The general rule of thumb is if you plan to buy, dont finance longer than three years -- 42 months is okay in some cases. Any longer and depreciation exceeds payoff and you are upside down (owe more than the car is worth). Id say 75% of people driving cars are upside down. Fact is too many people think they can afford a more expensive car than they really can. A $20,000 car is an $800/mth car payment. Most people see these $300 month car payments and dont realize they are financing for absolute deathly lengths of 60 or even 72 months. You may as well just take a shotgun to yourself. In 9 out of 10 cases, if you cant afford to pay off a car in 36 to 42 months, you cant afford it. As always, the cheapest way to buy is to buy outright. Pay cash in full. Of course, if you want to finance and let your money work for you while you make payments, thats the other equally best option. You just have to run the numbers and see what the cost of money will cost you and what return in the market youll get. The difference will be your net gain. Youd have to decide if its worth it to go that route or pay in full. Most people cant pay in full. Most people arent smart about putting money in the market either. These are the 5-6yr finance folks. Im sure I offended a few folks on here that qualify.
In a lease, your term is in months. Usually 36 is pretty typical with 12-15,000 miles allowed per year. In a 3yr term, it really means you can dump 45K miles by end of term so not to worry if you are hi or low in year 1 unless you are forced to dump the car which is incredibly painful and expensive in most lease cases because you are bound and terminating the agreement can be several hundred or even thousands of dollars.
Your lease will have a "residual value" on it. Thats the agreed upon worth of the car at lease end. In this case, at the end of year three when you return the car. Why is that important? For the most part, you are simply paying the difference between the negotiated price of the car and the residual value. On a $20,000 car, the residual at end of year three might be $8500. Basically you finance $11,500 for three years along with some interest. Very simplified, but thats pretty much leasing. The residual value is rarely negotiable and is determined by a book the car companies use to project future depreciated values. A good car will depreciated around 47-52% in three years. Most Hondas etc are typically good cars to lease because when you return the car its still worth quite a bit for the dealer to sell as a used car. Chevys etc have poor residual value and thereore typically you must absorb that liability in your lease. So in many cases, a nicer car is actually cheaper to lease if it holds value. Sorry, that wont work on a Ferrari.
The one good thing about a lease is you make the finance company roll the dice on whether they can make money on the car when you return it. You could care less. Youll throw away the keys and move on with life. UNLESS of course your car happens to outperform the projected residual value. This is actually not as rare as one might think. Say the projected residual value was $8500 (they figured youd put 45K miles on it, normal wear and tear etc). Well you drove it 2K miles total and the car is still mint. The car is worth maybe $10,000 on the open market and you think you can sell it for that. You could buy the car for $8500 residual value then sell it yourself privately for $10,000. The important part here is if there is equity in that leased car, try to get a hold of it yourself rather than give it back to the dealer. On my WRX, its outpacing residual value fairly well. I should have $700-1500 equity in it. I may either force the dealer to roll that equity into a new lease, or I'll buy the car from the dealer at lease end, resell it to them at -- say half of the agreed equity in it -- and use the sum to put toward a new lease. Yes, I have actually bought a leased car from the dealer and resold it to them all in the same coffee break. Its purely paperwork. Its somewhat unusual, but if they want you to lease again, they'll listen to anything.
The long and short of it is if you have little money and want to drive a nice new car all the time, leasing is great. If you hate body shops and like peace of mind, leasing is the way to go. If you like a car always under warranty, leasing. If you love equity and want to have a car to run the living **** out of it into the ground, buy. If you are abusive on your car, buy. If you can easily puchase outright, buy. If you can finance for three years w/no problem and like the above plusses, buy.
Mostly leasing and buying is a matter of lifestyle and affordability. And in the long run, after doing it for a number of years, I can safely say neither one is necessarily more costly than the other.
Hope this helps get your feet wet.
12-24-2003, 03:48 AM
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A few points need clarifying
First and foremost...you are NOT given any special warranty with a lease. You get factory (or extended if you pay for it).
Secondly, a long term lease is not necessarily bad. You are NOT responsible for the residual value and who cares if you get upside down vehicle? You won't have to eat the difference. You can dump that on your bank!
Thirdly, on a typical finance you get a boatload of finance charges (leasing is much less) so you are upside down for most of the payment period anyway. So if you try to sell within the first couple of years on a purchase you will lose a ton also.
The basic difference between the leasing and buying is in which way would you like to lose your money...You can lease a fully loaded Eddie Bauer Explorer for $400.00 a month, and work 15,000 miles a year into the lease.
You turn it in in a few years and walk away owing nothing or getting into another fully loaded vehicle. -OR- You can buy a stripped down Explorer for the same $400.00, sell it in a few years and break even or make a meager profit. Was the few hundred bucks you got back worth the loss of comfort, features and options?
Last....THE RESIDUAL IS FULLY NEGOTIABLE!!! Your bank does NOT want the car back, ESPECIALLY at a loss. If you owe, let's say $10,000, and the car is worth $7000.00, your bank will almost always take the lower amount so that they don't have to deal with handling the car...the difference here, you get to get a discount that you maybe didn't get up front AND you have only financed $7000 instead of $35000 saving a boatload of finance charges.
A lease DOES NOT work on one level...If you want to change cars every two years, a lease is tough to break. I keep family cars about 5 years and usually lease them, this way my family gets the best possible car for the best possible price. I keep my Porsches 10+ years, so I would not lease one. (Their values do not crash enough in 5 years to get the extra discount.)
Secondly, a long term lease is not necessarily bad. You are NOT responsible for the residual value and who cares if you get upside down vehicle? You won't have to eat the difference. You can dump that on your bank!
Thirdly, on a typical finance you get a boatload of finance charges (leasing is much less) so you are upside down for most of the payment period anyway. So if you try to sell within the first couple of years on a purchase you will lose a ton also.
The basic difference between the leasing and buying is in which way would you like to lose your money...You can lease a fully loaded Eddie Bauer Explorer for $400.00 a month, and work 15,000 miles a year into the lease.
You turn it in in a few years and walk away owing nothing or getting into another fully loaded vehicle. -OR- You can buy a stripped down Explorer for the same $400.00, sell it in a few years and break even or make a meager profit. Was the few hundred bucks you got back worth the loss of comfort, features and options?
Last....THE RESIDUAL IS FULLY NEGOTIABLE!!! Your bank does NOT want the car back, ESPECIALLY at a loss. If you owe, let's say $10,000, and the car is worth $7000.00, your bank will almost always take the lower amount so that they don't have to deal with handling the car...the difference here, you get to get a discount that you maybe didn't get up front AND you have only financed $7000 instead of $35000 saving a boatload of finance charges.
A lease DOES NOT work on one level...If you want to change cars every two years, a lease is tough to break. I keep family cars about 5 years and usually lease them, this way my family gets the best possible car for the best possible price. I keep my Porsches 10+ years, so I would not lease one. (Their values do not crash enough in 5 years to get the extra discount.)
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12-24-2003, 10:05 AM
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If your young and want to drive a new car every 2 or 3 years LEASING IS FOR YOU, and you dont rent the car from a dealer, its the leasing companys bank (GMAC, CHRYSLER, BANK OF AMERICA ETC) You have 3 options at the end of the lease. You can buy the car, you can turn it in and walk away and you can turn it in and lease/buy another car and not worry about how much you owe on the car and if its going to be worth less then that. When you lease you make payments on the depreciation of the car during the 24,36,48 or 60 month lease term. To calculate payments on a lease they use the depreciation, residual and the money factor. No interest rates are applyed to a lease. Anyway, lease is good for people that like to drive expensive cars and dont want to pay that much. For instance i have brand new 04 Escalades at work you can buy for 1100-1300 for 60 months at a pretty competitive rate 4.9% now if you lease you can get the same 60.000 Escalade for 650-700/month for 36 months. Anyway, if you dont have a big downpayment and want a attractive montly payment, you need to lease. Otherwise you are going to owe more on the car then its worth after you drive the car for 1 day. On the otherhand if you have about 10K and want to keep the car for 4-6 years. BUY IT!.
12-24-2003, 10:43 AM
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Originally posted by Antonioali
yes you only pay tax on the monthly payment.
yes you only pay tax on the monthly payment.
Living in a metropolitan area i tell friends to first find out what the interest rate is (usually have to convert the "factor" into a rate). if the rate on a lease is competitive to buying i recommend they lease and put zero and i stress ZERO down. Roll everything into the payment.
My logic for this is if the car is stolen gap insurance picks up what would have been your down payment. If the car is damaged (accident or vandalized) your insurance pays for the repair, but if the repair is not up to your standards you wont get hit come trade in time as long as it meets the leasing co's minimums.
Now the financial. Lease the above mentioned escalade for 550 a month, and put the other 550 a month into a savings account. at the end of the lease if you like the car so much buy it, or as mentioned earlier trade it. if the car depreciated more than you planned it is the leasing cos problem.
my experiences as an advisor have been that the factory advertised specials are usually the best deal.
12-24-2003, 10:59 AM
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you dont pay tax on your trade if but if you are getting any rebates for the factory you pay tax on that. And its different laws on that for differant states. I have a CTS and just turned in my 03 escalade(company lease) and for me, leasing is the best thing because i can drive a new car every 2-3 years and i dont have to worry about payoffs. UNLESS I DECIDE TO TRADE OUT OF THE CAR 1-2 YEARS BEFORE THE LEASE IS UP.
12-24-2003, 12:44 PM
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Although the Residual Value CAN be negotiated, 9 times out of 10 they will not negotiate it or strings are attached (I have a couple times but found that every time I do the dealer just plays tougher in other areas I would have had better leverage so they can make up for the difference). And what you must remember is, most car dealers who DO move on the residual will just be stiffer on the negotiated price of the car. So its 6 of one and a half dozen on the other. In most cases though a higher residual value benefits you but in the end, its the negotiated price/residual difference you are financing so those numbers can move up and down and still reflect a similar overall amount its going to end up costing you. The potential negotiation of the residual would only really become important if you bought the car at lease end.
The problem with leasing for more than 36-39 months is you end up dumping enough money into the car that if you hung on a little longer, you could just own the damn thing. But what that means is if you decide to keep the car at the end of a 42-48 month lease and say finance the rest over 1-2 years, in actuality you really just financed the car from the very beginning. Im most cases I tell people if you want the car at lease end, buy it outright or walk away.
The three most important things to remember when walking into a dealership is
a) the guy behind that big counter knows exactly what number he needs to be at on every piece of the equation to reach his margin. All that crap about "going to my manager to see what they can do" is pure baloney. They know the answer before you even spit out the question.
b) Dealerships not only assume you are stupid, they are usually right. And they will throw in cap cost fees, disposition fees, and ridiculous money factors that border on thievery. They bury it in the fine print because most people dont read fine print. Educate yourself. All that stuff is just gravy money. You should never ever pay a disposition fee or anything like it. If they have it in the contract, cross it out. Pure gravy for them.
You do pay tax on the lease, but in doing so like most purchases where you get financed, you end up paying interest on the interest unless you decide to pay the tax up front.
c) Never ask the dealer a question you dont already know the answer to. This will tell you all you need to know when they open their mouths to see if they are honest guys willing to make it happen or just sheisters looking to finance your life away so you can pay $35000 over 6 years for a $16000 Civic.
The problem with leasing for more than 36-39 months is you end up dumping enough money into the car that if you hung on a little longer, you could just own the damn thing. But what that means is if you decide to keep the car at the end of a 42-48 month lease and say finance the rest over 1-2 years, in actuality you really just financed the car from the very beginning. Im most cases I tell people if you want the car at lease end, buy it outright or walk away.
The three most important things to remember when walking into a dealership is
a) the guy behind that big counter knows exactly what number he needs to be at on every piece of the equation to reach his margin. All that crap about "going to my manager to see what they can do" is pure baloney. They know the answer before you even spit out the question.
b) Dealerships not only assume you are stupid, they are usually right. And they will throw in cap cost fees, disposition fees, and ridiculous money factors that border on thievery. They bury it in the fine print because most people dont read fine print. Educate yourself. All that stuff is just gravy money. You should never ever pay a disposition fee or anything like it. If they have it in the contract, cross it out. Pure gravy for them.
You do pay tax on the lease, but in doing so like most purchases where you get financed, you end up paying interest on the interest unless you decide to pay the tax up front.
c) Never ask the dealer a question you dont already know the answer to. This will tell you all you need to know when they open their mouths to see if they are honest guys willing to make it happen or just sheisters looking to finance your life away so you can pay $35000 over 6 years for a $16000 Civic.
12-24-2003, 01:27 PM
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""The problem with leasing for more than 36-39 months is you end up dumping enough money into the car that if you hung on a little longer, you could just own the damn thing""
You wouldnt own it because if you had financed it the payment would be a lot higher then the 36-39 month lease. And thats one of the major reasons people lease, low payment.
You wouldnt own it because if you had financed it the payment would be a lot higher then the 36-39 month lease. And thats one of the major reasons people lease, low payment.
12-24-2003, 02:29 PM
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If you lease a car and have no intention of buying it when the lease is over, don't do anything to the car!.
Don't tint the windows, don't install a better stereo, don't put on a new suspension, don't fart in the seats, don't add any value or add anything to the car you cannot take off in 10 minutes or less. If you do they will either penalize you for not returning a properly resaleable car or they keep the goodies you added and now can't recover.
Don't tint the windows, don't install a better stereo, don't put on a new suspension, don't fart in the seats, don't add any value or add anything to the car you cannot take off in 10 minutes or less. If you do they will either penalize you for not returning a properly resaleable car or they keep the goodies you added and now can't recover.