Let's Talk Leasing
01-31-2013, 10:38 PM
#1
Let's Talk Leasing
Leasing was always a dirty word in my family growing up. We always purchased new cars and kept them for 5-10 years. Are there times when leasing actually is a good idea? I don't fully understand how it all works with the money factor etc. I thing I like about it is you already know what the car will be worth when the lease is up. I took a bath on my wife's GL450 which dropped over 10k in value last year. It's 5 years old but seems like a pretty steep decrease for 1 year.
01-31-2013, 11:54 PM
#2
Rennlist Member
I was raised not to lease as well. However, my CPA talked me into it because of the business tax benefit (while we still have it). 'Money factor' is simply interest; the tax benefit roughly offsets this. You still pay for the depreciation, but in some cases (well negotiated price from MSRP, manufacturer incentives, cars that hold their value) this ends up not being a lot. And, as you mentioned, this is known in advance; if the car drops in value unexpectedly (bad economy, model turns out to be undesirable, you create some accident history), you are protected. You also save on sales tax, only paying on the amount of the lease (a big benefit for those in areas approaching 10%). If you change cars every 3-4 years anyway, leasing can be the least expensive way of doing so.
Downsides are that you cannot modify the vehicle, and if you plan to return it, it must be kept in excellent condition. And if you really like the car and end up keeping it at the end of the lease, it could be the most expensive way of purchasing the car.
Downsides are that you cannot modify the vehicle, and if you plan to return it, it must be kept in excellent condition. And if you really like the car and end up keeping it at the end of the lease, it could be the most expensive way of purchasing the car.
01-31-2013, 11:55 PM
#3
It is still a dirty word, IMO and I will not go into to the pros of cons of it...... I am sure others will chime in for you. Run numbers as applicable is my advice.
Two reasons to lease IMO.. one is like you mention, hedging against massive drop in book value (which is becoming all to common for German automobiles) , and the second is if for business purposes where you can take all the depreciation / deduction, but talk to your tax advisor about that, do not listen to me.
There is a third reason to lease when manufacturers artificially raise the residual values to offer cheap leases (same in principle as hedging against drop in value) to move inventory and take the financial hit at a later point (ie: after the current CEO cashes in his options) and they just show the mega losses as a one time charge due to 'deteriorating' market conditions or some other made up excuse like that, instead of an operating loss so wall st. will allegedly look favorably upon them... but enough of that rant. Bottom line, you might as well take advantage of it if it suits your needs.
FWIW leasing because you can't afford the car outright or the monthly purchase payments thereof, is also an extremely bad idea, but again, I am not the one who should be giving you financial advice.
As to answer your other question.. Money factor is simply an expression of interest rate (or perhaps APR.. do not recall 100% which at the moment). Multiply money factor x 2400 to get the interest rate and see if it makes sense for you based on the current rates & your individual circumstances. . I honestly have not bothered to figure out why it is expressed in this manner. I am sure there is a good reason for it.
Simply put in a lease for those not familiar, you do not pay the entire value of the car + interest. You pay the difference between the purchase price and the predicted residual value at the agreed rate of interest amortized over the course of the lease period.
There are fees for initiating the lease and either a flat fee if you do not purchase at the end of lease or any combination of fees + charges for wear and tear on tires, etc. Some are negotiable, some are not depending upon the lessor.
Capital cost reduction is another term for down payment (ie.. the money you do not finance).
If you are savvy and can afford the car outright but are leasing for the sake of the above mentioned reasons, you can also consider a fully paid up lease, where you pay the entire amount of the lease without the interest up front in one go if this option makes sense depending on how you want to use your available resources. In this case you pay the purchase price minus the residual and the fees.
Also depending on the state you are in,sales taxes are either figured in initially or on the lease payments every month as a separate line item.
Hope that helps.
Two reasons to lease IMO.. one is like you mention, hedging against massive drop in book value (which is becoming all to common for German automobiles) , and the second is if for business purposes where you can take all the depreciation / deduction, but talk to your tax advisor about that, do not listen to me.
There is a third reason to lease when manufacturers artificially raise the residual values to offer cheap leases (same in principle as hedging against drop in value) to move inventory and take the financial hit at a later point (ie: after the current CEO cashes in his options) and they just show the mega losses as a one time charge due to 'deteriorating' market conditions or some other made up excuse like that, instead of an operating loss so wall st. will allegedly look favorably upon them... but enough of that rant. Bottom line, you might as well take advantage of it if it suits your needs.
FWIW leasing because you can't afford the car outright or the monthly purchase payments thereof, is also an extremely bad idea, but again, I am not the one who should be giving you financial advice.
As to answer your other question.. Money factor is simply an expression of interest rate (or perhaps APR.. do not recall 100% which at the moment). Multiply money factor x 2400 to get the interest rate and see if it makes sense for you based on the current rates & your individual circumstances. . I honestly have not bothered to figure out why it is expressed in this manner. I am sure there is a good reason for it.
Simply put in a lease for those not familiar, you do not pay the entire value of the car + interest. You pay the difference between the purchase price and the predicted residual value at the agreed rate of interest amortized over the course of the lease period.
There are fees for initiating the lease and either a flat fee if you do not purchase at the end of lease or any combination of fees + charges for wear and tear on tires, etc. Some are negotiable, some are not depending upon the lessor.
Capital cost reduction is another term for down payment (ie.. the money you do not finance).
If you are savvy and can afford the car outright but are leasing for the sake of the above mentioned reasons, you can also consider a fully paid up lease, where you pay the entire amount of the lease without the interest up front in one go if this option makes sense depending on how you want to use your available resources. In this case you pay the purchase price minus the residual and the fees.
Also depending on the state you are in,sales taxes are either figured in initially or on the lease payments every month as a separate line item.
Hope that helps.
Last edited by rpilot; 02-01-2013 at 12:20 AM.
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Tomcatz (02-03-2023)
02-01-2013, 01:55 AM
#4
Rennlist Member
I think leasing is a dirty word because it's typically structured so that you're buying a new car every 1-3 years. No matter how you pay for it, buying a new car every 1-3 years is not the quickest way to retirement. That's being bad, dirty. In your case with the GL450 you would have taken a bath either way, as a five year lease would have been ugly and buying it and selling it just as the new and highly praised new GL450 was released accelerated the depreciation of the last model.
I keep bringing this up but only because I'm amazed by it. Porsche prices their 991 so that most sticker for $100k+ shocking some 997 owners. Then PFS offers a two year, 15k mi/yr lease with a 75% residual. They are either desperate to move 991's or strongly believe they priced the 991 right.
I keep bringing this up but only because I'm amazed by it. Porsche prices their 991 so that most sticker for $100k+ shocking some 997 owners. Then PFS offers a two year, 15k mi/yr lease with a 75% residual. They are either desperate to move 991's or strongly believe they priced the 991 right.
02-01-2013, 02:43 AM
#5
In agreement with everything said sofar. Leasing is for those who want a new car in 3 years regardless. It's even easier if you have the business tax benefit. I leased my last two bimmers because they inflate the residual and the lease rates are great. You still have to negotiate as a cash purchase before bringing the lease into question. I am most likely goingto lease a 991 c2 because as mentioned above the residual on 2 year 15k lease is 75%! That is fantastic! I am paying 800 for my 68k bimmer over 3 years and porsche wants to give me a 98k 911 for 1000 over 2 years! That's a great deal IMHO. Ymmv but I'm no idiot in regards to finance (spent the last 6 years studying finance) and leases certainly make sense when you can put the capital to work.
02-01-2013, 12:07 PM
#6
Burning Brakes
I have only leased twice, and both times on much cheaper vehicles. I change cars often and on both of those, the rate was good enough to warrant "renting" the car for three years. In general, Texas is not a good leasing state because you have to pay all of the sales tax upfront. Then if you were to buy out the lease at the end, you'd have to pay it again, as you'd be buying the car from the leasing company. Some captive lenders here offer up balloon note programs which have the lower payments of a lease but without as much of a tax penalty if you decide to buy the car at the end of the term.
I go through cars pretty quick. Any way I do it, lease, finance, or buy outright, I know I'm going to take a big depreciation hit somewhere. Not the smartest thing to do financially, but I like cars and will likely keep doing this until I retire.
Some cars lease better than others. BMW is well known for their great lease deals, it's a major part of their marketing plan. I don't think PFS's are that great. Even with a high residual, the MF isn't really market value, and I personally just can't imagine shelling out over $1k a month for lease payments unless I could write it off (which I can't.)
I go through cars pretty quick. Any way I do it, lease, finance, or buy outright, I know I'm going to take a big depreciation hit somewhere. Not the smartest thing to do financially, but I like cars and will likely keep doing this until I retire.
Some cars lease better than others. BMW is well known for their great lease deals, it's a major part of their marketing plan. I don't think PFS's are that great. Even with a high residual, the MF isn't really market value, and I personally just can't imagine shelling out over $1k a month for lease payments unless I could write it off (which I can't.)
02-01-2013, 02:11 PM
#7
It's a well worn path. Really, it's so worn, it's a trench.
I've had numerous leases over the last six or seven years in the USA, since interest rates came down to all-time lows. You can search for my posts over the last two years to see threads of conversation that are still valid data.
Of course there are tax implications, but the bottom line is comparing income from investments to the cost of borrowing. Deductions and write-offs all come into the decision for a business operator, but Porsches tend to be a red flag for the tax man … there really aren't too many businesses where the lease of a Porsche fits the revenue model.
In short, a factory subsidized lease on a car that's already say 10% discounted on purchase price can represent the very cheapest way to drive/own the vehicle even when insurance or other accounting is in the picture. The shorter the duration of ownership, the better in high sales tax states. But for any car over about $50K, the math is pretty straightforward in a 10% sales tax environment like California. As noted, so long as the sales tax is on consumption, not an upfront "hit." Get a decent discount on purchase price, keep the cash in your investments, drive the car for a year or ten, at any given point, unless you did something out of the ordinary like a 10K mile road trip then wanted to end the lease early, the numbers work out at break-even or in your favor. If you start the deal well, after the initial front-loading of the lease product, you're "accumulating equity" in the car and the interest burden is not usury. As ever, if you need the lease to "afford" the car, you can't afford the car. If the buyer has net worth and liquid assets far beyond the value of the lease, then the lease is a useful product. Google "lease comparison" and it's easy enough to find sites that allow the consumer to make a fully informed purchase.
I've had numerous leases over the last six or seven years in the USA, since interest rates came down to all-time lows. You can search for my posts over the last two years to see threads of conversation that are still valid data.
Of course there are tax implications, but the bottom line is comparing income from investments to the cost of borrowing. Deductions and write-offs all come into the decision for a business operator, but Porsches tend to be a red flag for the tax man … there really aren't too many businesses where the lease of a Porsche fits the revenue model.
In short, a factory subsidized lease on a car that's already say 10% discounted on purchase price can represent the very cheapest way to drive/own the vehicle even when insurance or other accounting is in the picture. The shorter the duration of ownership, the better in high sales tax states. But for any car over about $50K, the math is pretty straightforward in a 10% sales tax environment like California. As noted, so long as the sales tax is on consumption, not an upfront "hit." Get a decent discount on purchase price, keep the cash in your investments, drive the car for a year or ten, at any given point, unless you did something out of the ordinary like a 10K mile road trip then wanted to end the lease early, the numbers work out at break-even or in your favor. If you start the deal well, after the initial front-loading of the lease product, you're "accumulating equity" in the car and the interest burden is not usury. As ever, if you need the lease to "afford" the car, you can't afford the car. If the buyer has net worth and liquid assets far beyond the value of the lease, then the lease is a useful product. Google "lease comparison" and it's easy enough to find sites that allow the consumer to make a fully informed purchase.
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02-01-2013, 03:05 PM
#8
It's a well worn path. Really, it's so worn, it's a trench.
I've had numerous leases over the last six or seven years in the USA, since interest rates came down to all-time lows. You can search for my posts over the last two years to see threads of conversation that are still valid data.
Of course there are tax implications, but the bottom line is comparing income from investments to the cost of borrowing. Deductions and write-offs all come into the decision for a business operator, but Porsches tend to be a red flag for the tax man … there really aren't too many businesses where the lease of a Porsche fits the revenue model.
In short, a factory subsidized lease on a car that's already say 10% discounted on purchase price can represent the very cheapest way to drive/own the vehicle even when insurance or other accounting is in the picture. The shorter the duration of ownership, the better in high sales tax states. But for any car over about $50K, the math is pretty straightforward in a 10% sales tax environment like California. As noted, so long as the sales tax is on consumption, not an upfront "hit." Get a decent discount on purchase price, keep the cash in your investments, drive the car for a year or ten, at any given point, unless you did something out of the ordinary like a 10K mile road trip then wanted to end the lease early, the numbers work out at break-even or in your favor. If you start the deal well, after the initial front-loading of the lease product, you're "accumulating equity" in the car and the interest burden is not usury. As ever, if you need the lease to "afford" the car, you can't afford the car. If the buyer has net worth and liquid assets far beyond the value of the lease, then the lease is a useful product. Google "lease comparison" and it's easy enough to find sites that allow the consumer to make a fully informed purchase.
I've had numerous leases over the last six or seven years in the USA, since interest rates came down to all-time lows. You can search for my posts over the last two years to see threads of conversation that are still valid data.
Of course there are tax implications, but the bottom line is comparing income from investments to the cost of borrowing. Deductions and write-offs all come into the decision for a business operator, but Porsches tend to be a red flag for the tax man … there really aren't too many businesses where the lease of a Porsche fits the revenue model.
In short, a factory subsidized lease on a car that's already say 10% discounted on purchase price can represent the very cheapest way to drive/own the vehicle even when insurance or other accounting is in the picture. The shorter the duration of ownership, the better in high sales tax states. But for any car over about $50K, the math is pretty straightforward in a 10% sales tax environment like California. As noted, so long as the sales tax is on consumption, not an upfront "hit." Get a decent discount on purchase price, keep the cash in your investments, drive the car for a year or ten, at any given point, unless you did something out of the ordinary like a 10K mile road trip then wanted to end the lease early, the numbers work out at break-even or in your favor. If you start the deal well, after the initial front-loading of the lease product, you're "accumulating equity" in the car and the interest burden is not usury. As ever, if you need the lease to "afford" the car, you can't afford the car. If the buyer has net worth and liquid assets far beyond the value of the lease, then the lease is a useful product. Google "lease comparison" and it's easy enough to find sites that allow the consumer to make a fully informed purchase.
02-02-2013, 01:36 AM
#9
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77% residual and a 3 month rebate (3x my other cars monthly payment) for a 24 month term made the #'s work for me. And because I'm not sure I'll drive the car for many more than a few years, it's a relief to not pay full sales tax.
02-02-2013, 10:43 AM
#10
Instructor
Today is a different ballgame. Nearly any new car everyone will say "never buy new" because of depreciation but also "never own out of warranty" because of the massive complexity and inability to maintain and repair cheaply (im looking at you dual clutches! )
Like it or not cars are becoming as disposable as cell phones. If you want to own a car forever and be fiscally responsible or whatever then you should buy a used, less complex, car to start with.
Most new high end cars in 2012 are solidly in the "don't own out of warranty" category though. Unless you flip them every 3 years you are running counter to the industry direction and are at risk.
In an environment where it makes more sense to flip cars regularly and where the manufacturers all make leasing more attractive in order to enable that, I think that leasing makes a lot more sense. Unless youre a multi millionaire that can buy cash and not care about depreciation hits if you sell on a whim
02-02-2013, 12:53 PM
#11
How does this 3 month rebate work? Is there a specific brand/model that you must be coming out of? For instance range rover was running something similar when I got my last x5 that required you to be coming from essentially a German SUV. Does porsche require you to be in say an m3 or xk or sl? Can I use this to pay off three months of my x5? A link to this offer would be much appreciated.
02-02-2013, 01:44 PM
#12
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It was something the dealer offered after seeing what I drove to the lot (MB e coupe). Not much info shared, closest thing I could find online was a "Welcome to Porsche" page on the Porsche site that seemed outdated.
02-02-2013, 02:15 PM
#13
How does this 3 month rebate work? Is there a specific brand/model that you must be coming out of? For instance range rover was running something similar when I got my last x5 that required you to be coming from essentially a German SUV. Does porsche require you to be in say an m3 or xk or sl? Can I use this to pay off three months of my x5? A link to this offer would be much appreciated.
End of Term Lease Loyalty Program
If you are leasing with Porsche Financial, you may be eligible to have 12 payments waived with a new lease through Porsche Financial.
The Porsche Conquest Program
The Porsche Conquest program allows anyone with a non-Porsche vehicle to upgrade into a new 2013 Porsche Panamera or 911 and we can use your exisiting lease payments even if you do not trade in your vehicle as a rebate. Up to $4500.
Restrictions apply.
02-02-2013, 02:28 PM
#14
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I believe Porsche will compensate you with 3X your monthly payments of up to $1500 to get you out of a "comparable" car. You must currently be in the lease and it must be in the same name as the new Porsche lease.
The new Porsche Lease Loyalty program is interesting as well. I believe they will cover up to 12 mos. of your 991 lease to get you into a new lease. I begin a 12 month lease in May. If it weren't for the start up fees, I'd get a new 991 every month.
D
The new Porsche Lease Loyalty program is interesting as well. I believe they will cover up to 12 mos. of your 991 lease to get you into a new lease. I begin a 12 month lease in May. If it weren't for the start up fees, I'd get a new 991 every month.
D