Lease vs. Financing (again!!!)
11-10-2014, 10:08 AM
#1
Instructor
Thread Starter
Lease vs. Financing (again!!!)
Sorry that this is probably the 189609th thread talking about lease vs buy but please for fun see my analysis and see if it makes sense. Just to mix up the topics a bit with a numerical one.
GT3 Msrp = 150K (in USD)
Tax = 8.63%
No money down
Lease for 2 years, 62% residual and 4.8%, 7.5K miles
"VS"
Buy and keep for 2 years, 1.89%, 72 months loan Expense write off, opp cost etc etc don't count here.
Lease option
Total payments = $3087 x 24 = 74,000
Buy back value of the car = 92,380
Financing option
Total payments (incld tax)= $2395 x 24 = $57,500 Loan balance after 24 months = 110,668
Assuming a trade-in value of 110K after 24 months with less than 15K miles which I think is reasonable for this car if the world economy won't fall off the earth:
I will do a dealer trade with no tax at the end of the lease, I will net 110K - 92,380 = approx $18K in equity. Total ownership = 74K - 18K = 54K
For financing, it's a wash if I financed the car at 110K.
Therefore, it looks like leasing (54K) is better than financing (57.5K) and also with a downside protection in case of getting into an accident.
Am I wrong in my logics?
GT3 Msrp = 150K (in USD)
Tax = 8.63%
No money down
Lease for 2 years, 62% residual and 4.8%, 7.5K miles
"VS"
Buy and keep for 2 years, 1.89%, 72 months loan Expense write off, opp cost etc etc don't count here.
Lease option
Total payments = $3087 x 24 = 74,000
Buy back value of the car = 92,380
Financing option
Total payments (incld tax)= $2395 x 24 = $57,500 Loan balance after 24 months = 110,668
Assuming a trade-in value of 110K after 24 months with less than 15K miles which I think is reasonable for this car if the world economy won't fall off the earth:
I will do a dealer trade with no tax at the end of the lease, I will net 110K - 92,380 = approx $18K in equity. Total ownership = 74K - 18K = 54K
For financing, it's a wash if I financed the car at 110K.
Therefore, it looks like leasing (54K) is better than financing (57.5K) and also with a downside protection in case of getting into an accident.
Am I wrong in my logics?
11-10-2014, 10:25 AM
#2
Three Wheelin'
You only going to drive $7,500 miles? Why are you comparing a six year loan to a two year lease? Are you leasing, taking the option to buy in two years? Won't your trade be worth less than now in two years? How are you avoiding tax when executing option? And, are you thinking of saving $3.5k based upon all of these assumptions including estimated $110k residual value?
Dan (suggests making Porsche / credit union or bank run the numbers for certainty)
Dan (suggests making Porsche / credit union or bank run the numbers for certainty)
11-10-2014, 10:57 AM
#3
Instructor
Thread Starter
You only going to drive $7,500 miles? Why are you comparing a six year loan to a two year lease? Are you leasing, taking the option to buy in two years? Won't your trade be worth less than now in two years? How are you avoiding tax when executing option? And, are you thinking of saving $3.5k based upon all of these assumptions including estimated $110k residual value? Dan (suggests making Porsche / credit union or bank run the numbers for certainty)
I can do a five year loan and the difference with a six year at the end isn't much because the interest rate is the same at 1.89%. Two year lease is because I will probably get something else in 2 years.
You can just trade your lease in. No need to buy and then lease. The dealer will handle all for you.
I was actually just trying to analyze if both options will end in same or similar costs. I would suggest lease because of the down side protection in case the car is damaged during these 2 years as it will be driven aggressively.
11-10-2014, 12:22 PM
#6
RL Community Team
Rennlist Member
Rennlist Member
I don't have an answer for you but I just seriously hope, from a purely selfish standpoint, that if the MSRP of my GT3 was ~150k it doesn't take a 40k depreciation hit in 2 years.
Good luck with your decision.
Good luck with your decision.
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11-10-2014, 12:35 PM
#8
Three Wheelin'
Yes, considering weather in my area and it's not a DD, 7500 miles a year is pretty much it.
I can do a five year loan and the difference with a six year at the end isn't much because the interest rate is the same at 1.89%. Two year lease is because I will probably get something else in 2 years.
You can just trade your lease in. No need to buy and then lease. The dealer will handle all for you.
I was actually just trying to analyze if both options will end in same or similar costs. I would suggest lease because of the down side protection in case the car is damaged during these 2 years as it will be driven aggressively.
I can do a five year loan and the difference with a six year at the end isn't much because the interest rate is the same at 1.89%. Two year lease is because I will probably get something else in 2 years.
You can just trade your lease in. No need to buy and then lease. The dealer will handle all for you.
I was actually just trying to analyze if both options will end in same or similar costs. I would suggest lease because of the down side protection in case the car is damaged during these 2 years as it will be driven aggressively.
I was quoted approximate $300 for Gap insurance. My view is damage is a non-issue.
If you're going to "probably get something else in two years," the answer is obvious. You lease.
11-10-2014, 12:46 PM
#11
Instructor
Thread Starter
11-10-2014, 12:47 PM
#12
Instructor
Thread Starter
11-10-2014, 01:04 PM
#13
Rennlist Member
^, I like leasing for that same reason. Diminished value is taken out of the equation. This is only useful if your residual truly reflects the value or is higher at at end of lease term. In this case a residual of 62% is in favor of the finance company. When you turn in a car with an accident they'll just give you the residual value and not the $110k that you seek
11-10-2014, 01:07 PM
#14
I looked hard at lease vs. buy as well. I would have bought out the lease and sold the car myself as the residual is conservatively low. I think you would have to formally buy the car as well before you would get the tax trade credit.
What it came down to for me was it bothered me too much to pay 4.8% interest and I can't get as low as 1.89%. You'd pay almost $12000 in interest for 2 years compared with less than $10k on the loan if you kept it for the full 72 months. Only $5k in interest for 24 months.
What it came down to for me was it bothered me too much to pay 4.8% interest and I can't get as low as 1.89%. You'd pay almost $12000 in interest for 2 years compared with less than $10k on the loan if you kept it for the full 72 months. Only $5k in interest for 24 months.
11-10-2014, 01:23 PM
#15
It sounds as though you have your mind made up on leasing it.....so what exactly is the question?
^^and to the above yes, you would have to buy the car, pay the sales tax, then trade the car to get the credit....you don't get the tax credit on a lease turn in but you could get an equity credit if the trade is worth more than the residual....but then the dealer has the power is you need to either buy the car or turn it in....
^^and to the above yes, you would have to buy the car, pay the sales tax, then trade the car to get the credit....you don't get the tax credit on a lease turn in but you could get an equity credit if the trade is worth more than the residual....but then the dealer has the power is you need to either buy the car or turn it in....