Is it better to lease a car? (windshield, sedans, van)

[PNW-type-gal]

A $25,000 car, at 4% for 5 years, is $450 a month (according to a rate calculator I used). The life of that car is 7-10 years, especially at 10,000 miles a year, given the OP's stated yearly mileage.

So, if the original poster kept the car for 8 years:
(purchase) $450 a month for 60 months = $27,000
(lease) $450 a month for 96 months = $43,200

That's an awful lot of money to pay for the privilege of driving a shiny new car. Is it REALLY that important to have a new car? The 8 year old car also has a residual value of maybe $5,000, which I'm not even counting in the discussion.

[SpeedyAZ]

I'm not a fan of leasing cars, it seems a dumb idea to make a monthly payment on something that in 3 years, you won't own. Depending on the price of the car, leasing might not actually save you that much money in 3 years versus buying it. AND if you find out you don't like the car for whatever reason, you're stuck in a lease and the only way to get out of would be pay HUGE penalties or wait until the lease runs out. At least if you purchase it, you can sell whenever you want.

[Sayantsi]

Originally Posted by PNW-type-gal

A $25,000 car, at 4% for 5 years, is $450 a month (according to a rate calculator I used). The life of that car is 7-10 years, especially at 10,000 miles a year, given the OP's stated yearly mileage.

So, if the original poster kept the car for 8 years:
(purchase) $450 a month for 60 months = $27,000
(lease) $450 a month for 96 months = $43,200

That's an awful lot of money to pay for the privilege of driving a shiny new car. Is it REALLY that important to have a new car? The 8 year old car also has a residual value of maybe $5,000, which I'm not even counting in the discussion.

Well, your math is really wrong - where are you coming up with 96 months as a lease term? Also, lease payments are typically half a car payment, so that's not correct either...

Yes, buying used or keeping a car longer saves money. Some people just like to drive new cars - who are we to say what they should drive?

Leasing and buying cost about the same over the term (say 3 years). The advantages to both depend on what you plan to do with the car after those three years.

[Sayantsi]

Originally Posted by SpeedyAZ

I'm not a fan of leasing cars, it seems a dumb idea to make a monthly payment on something that in 3 years, you won't own.

So if you buy a car, but then sell it in three years, will you own it? No, you'll just pay more for it over those three years. You have to keep in mind, people lease cars because they DON'T want to own them - they want to use them for a period and then move on to something new.

Depending on the price of the car, leasing might not actually save you that much money in 3 years versus buying it. AND if you find out you don't like the car for whatever reason, you're stuck in a lease and the only way to get out of would be pay HUGE penalties or wait until the lease runs out. At least if you purchase it, you can sell whenever you want.

Again, if you try and sell a 1 yr old car, you will lose thousands of dollars. No one pays what a dealership would ask for a new car for your used car - you can easily lose $3k.

OT, but the magic times to sell cars are at 3 years, 5 years, and 7 years. The best time to buy is 3 years imo - cars have typically depreciated 50% and will only depreciate another 25% over the next 3 years. There's also a huge market for 3 year old cars as its a popular lease term.

[PNW-type-gal]

Originally Posted by Sayantsi

Well, your math is really wrong - where are you coming up with 96 months as a lease term? Also, lease payments are typically half a car payment, so that's not correct either...

Yes, buying used or keeping a car longer saves money. Some people just like to drive new cars - who are we to say what they should drive?

Leasing and buying cost about the same over the term (say 3 years). The advantages to both depend on what you plan to do with the car after those three years.

Thanks, but I can add and even multiply.

I'm just taking an 8 year period, and laying out 2 scenarios. In one method, the OP buys a car on a 5 year loan, and in the other scenario the OP simply just leases cars (probably more than one, and you can probably add lease origination fees, lease termination fees, etc etc) for the entire 8 year period. Granted, the leased car is probably a luxury car versus a plainer car for purchase.

I'm not telling the OP what to do, but I am pointing out what it's costing them, especially since the OP started off with a statement that he/she was unhappy with what the lease was costing. In my household, we're seeing the effects of rising prices all over the place, and taking stock of what various things cost us. This is just an example.

[sean98125]

Leasing cars is great for the renter's ego because they get to drive around in brand new cars all the time, but it just isn't a terribly bright move financially for individuals. It is an awful lot of money to spend just to impress yourself and your neighbors.

[Sayantsi]

Originally Posted by PNW-type-gal

Take a good long look at the value of the car new versus the value of the car off-lease - given current lease terms, it's very common to be upside down at the end of the lease.
.

This is where residuals are important. When you draft a lease on a car, the dealership looks at what the car is projected to be worth in three years. lets say a $30k car will be worth 50% in three years. Thus, when the dealer gets the car back, they can only sell it for market, or $15k. So, they charge you the deprecated value - $15k, over the term, 3 years.

Lets say the car is actually worth 20k after 3 years - you've paid $15k into a car that can now be sold for $20k, so you've paid into the actual value of the car by $5k - not good for you, but good for the dealer - they made money. Lets say the car is only worth $10k, now you are ahead and the dealership is out $5k - not good for it, and if you decide to buy the car off lease, you can save some money.

This are big differences simplified to expound on the point, but no one wants to lose so dealerships are very good about pricing leases to where the market will be. The numbers are actually very close to market in most cases, and leasing can protect you in some cases. Did you lease an SUV three years ago? Lucky you, you now can get away from that almost worthless vehicle without suffering the depreciation - the dealer is stuck with that now. You can't be upside down in a lease like you can when you purchase a car.

Also, continually leasing a vehicle means you never have any equity in the car you drive and you'll always be making those lease payments. Do you really want to have $500 payments (or the equivalent) forever?

You never have equity in the car, and that's the point. Take the $15k you didn't have to put into the car (a depreciating asset) and put it into an appreciating asset. Like a 5% money market account. Or a 7% conservative fund. Or a bond. make money with that equity rather than have it tied in a car that will lose value each year.

If you don't want to have payments, buy a car, pay it off, and keep it - once its paid for, your equity slowly depreciates, but don't think you're not paying money each year - you are losing money on a car each year you own it until it eventually bottoms out. When you buy, you're just throwing in all the money up front and letting it decrease over a longer period of time. A $30k car always costs $30k (plus interest on what you borrow) whether you lease or buy - its just a game of when the money goes over what time period.

Think of cars this way - after 3 yrs they are worth 50%, 6 yrs they are worth 30%, 8 years, 25%.... older cars lose less value. Modern cars are so well built, they easily last 8 years and we are even seeing factory warranties on cars going out to 7 years now.

The best thing you can do to minimize what you lose on a car these days is buy a 3 yr old car for half the price, maybe get a pre-owned warranty with it, and keep it for 3-5 years. That said, people like new cars, so if you want a new car every 2-3 years but don't want to deal with the hassle of selling them yourself, leasing is a good choice.

[Sayantsi]

Originally Posted by PNW-type-gal

Thanks, but I can add and even multiply.

I'm just taking an 8 year period, and laying out 2 scenarios. In one method, the OP buys a car on a 5 year loan, and in the other scenario the OP simply just leases cars (probably more than one, and you can probably add lease origination fees, lease termination fees, etc etc) for the entire 8 year period. Granted, the leased car is probably a luxury car versus a plainer car for purchase.

I'm not telling the OP what to do, but I am pointing out what it's costing them, especially since the OP started off with a statement that he/she was unhappy with what the lease was costing. In my household, we're seeing the effects of rising prices all over the place, and taking stock of what various things cost us. This is just an example.

Okay, i can see what you are trying to do, but you're comparing apples to oranges.

Lets say a buyer buys/leases a $30k car in the year 2000. The term is 3 years. So:

Year / Buy / Lease
2000 / $10k / $5k
2001 / $10k / $5k
2002 / $10k / $5k

So, at the end of the term, the buyer either owns the car and has spent $30k, or is off to lease another car or buy the leased car, and is out $15k.

So, if the buyer keeps the paid off car another three years, it costs him/her $0, but the car is only worth $15k. Meanwhile, another lease on a $30k car is another $15k.

Now, its 2006, and you either have a six year old car that you spent $30k on, or a 3 year old car and $30k in lease payments. Lets say the buyer holds onto the car for another three years versus leasing - this is where buying starts to pay off.... but remember, a six year old car is going to need maintenance as things will break. Assuming 12k mi a year, that car now has 72,000 miles on it and is worth $10k.

Now, its 2009, and assuming zero repair bills, you either have a nine year old car with 108,000 miles that you spent $30k on and is now worth about $6k, or a 3 year old car and $45k in lease payments. Lets assume that a nine year old car has needed $5k in repair work over the years - the net difference is $10k you come out ahead by keeping that car for nine years - that is a significant savings, but anyone who has owned an old car will tell you, old cars cost money and peace of mind, and can break at inopportune times. The trade off is money for peace of mind at this point, plus driving an old car versus the newer cars with updated styling, safety features, etc.

[PeacePlease]

This is my personal view.

If you know you will always be making car payments (on this one and future cars) and always want to be in a newer car and can stay within the mileage limit and keep it in good shape then go for a lease. If you want to get a car that you can pay off as fast as possible and keep for few years afterwards, then a buy is better.

If you have small kids or a dog that might ride in the car then forget the lease :-)

I leased three times in the past. They were from different manufacturers. That was (mostly) before getting married and having kids. The experience was ok, however the return process was a real pain in the rear. All three dealerships used all sort of pressure games to get me to lease another car from them. The last car I leased was an Acura RL. The dealer said he couldn't take the car back without an inspection by someone they use. That person had to come to my house and inspect the car. Every single scratch was on his report. Not only that, when returning the car, I was about 8k miles over the limit. That was a painful experience and that is when I decided to stop leasing.

[Sayantsi]

Originally Posted by PeacePlease

Not only that, when returning the car, I was about 8k miles over the limit. That was a painful experience and that is when I decided to stop leasing.

At 10¢/mi, that's $800. At 30¢/mi, thats $2400 - this is why it is important to understand your mileage when you lease and to have a low cost per mile in the contract.