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If you have to lease it, then you can't afford it.
LOL! i got 4 posts into this thread before actually laughing out loud.
I can afford to pay cash for almost any vehicle (within reason) on the road, but i lease exclusively. Why? Because i prefer to give the bank and my insurance company the liability for total loss and depreciation. Financing, or paying cash for high dollar depreciating assets makes almost no sense, unless you truly plan on driving the vehicle until the doors fall off.
With that being said, i purchased 2 cars when the leases were over (2001 A6 2.7T and 2004 allroad 2.7T) because the residual value was favorable in comparison to the actual value of the vehicle at the time. More recently, I let the bank deal with the depreciation miscalculation on my 2007 A6, as it was worth much less than calculated at lease-end.
If you lease because you're focused ONLY on the monthly payment - maybe you can't afford the car. If you lease because you actually understand how it works - you're smart.
It's call leverage. Some people lease cause it make sense for them. Some finance cause they don't want to tie up large chunk of money in paying cash. Every situation is different.
When I was selling cars, the formula I came up with in my head based on everything I saw was basically that any amount you finance for 60 months should be no more than half what you make in a year for it to be comfortable and minimize risk in case of job loss, etc.
For example, if you gross $30k/yr, you should look at something no more than $15k total financed (tax, lic, APR over 60 months). This will give you a $250/mo payment. 30k gross is $2500 gross per month, which means your car payment will take up 10% of your monthly earnings before insurance or gas. That's absolutely sustainable and there's nothing about it that's "living outside your means," plus there are tons of totally-awesome cars you can find at that price point that are a few years old (why buy a base Hyundai when you can get a low-mileage midrange Honda or VW for the same?).
The problems are when you gross $30k/year and you want to finance a car that's $40k. That's a $700 payment with no down, and that's practically a third of your monthly income. Unless you get a wicked awesome promotion between now and when your term is up, you are looking at a rocky 5 years in which you'll likely not be able to put any money aside for anything. Any of those little curveballs that life sends you can put you into debt for years, and if you manage to actually hold onto the car through the end of your contract term, you'll be starting at zero with a five-year old car worth less than half what you dug your hole for.
I have payed for vehicles with cash but have had to finance others.
If given an option I'd rather pay cash out of pocket as opposed to financing.
However most of us don't have in our pocket, the cash for a newer used car. And some of us don't have in our pocket, the cash for a 25 year old jalopy.
So with that said, if I see a car that I want to buy, then i buy it, even if it means financing....unless i can't get financed or I don't think I can make the monthly payment.
I would say that there's nothing wrong with financing if one approaches the transaction with the mindset that this is a depreciable asset that they are purchasing. So many times I hear people say that they are "investing" in a car, which is completely the opposite as it is a commitment to ongoing expense with respect to certain fixed and variable costs. Financing would add a fixed cost for a specified period, and should be calculated as such, including the likely maintenance/repair expenses during the finance period.
Even with rare classics when an "investment" can be made, the market can be volatile. And, such cars are not primary vehicles that are used to get to/from work, etc.
Sometimes, emotion overcomes logic and people end up with more vehicle than their budget will allow, which results in taking a loss when selling it, rolling upside down loans into new(er) cars, etc. Used responsibly, financing can be a tool that can help someone purchase a vehicle, but the individual needs to be realistic about balancing wants and the realities of their budget to do so.
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All the world's a stage, and all the men and women merely players: they have their exits and their entrances; and one man in his time plays many parts, his acts being seven ages.
~William Shakespeare (As You Like It Act II, Scene VII)
For the last several years I've tried the "only buy as much car as you can afford to buy with cash" route. The problem is, many of those cars have been money pits to such a degree that I might as well have just had a car payment anyway. So after 8 years with no car payment, I finally broke down and financed a low-mileage car whose major maintenance issues are still years down the road. As long as I'm going to throw money at a car one way or another, I might as well make my cash flow situation a little more predictable. Not to mention it's nice having a car where every feature and button actually works and I don't have to worry about when and where I'll be stranded next. When you have your tow truck guy on your cell phone's speed dial, it's time to upgrade.
Financing and leasing should be a CHOICE. If you HAVE to borrow money in order to purchase your vehicle, then you are living above your means. There are some people who finance/lease because they don't want to tie up capital; there's nothing wrong with that, but those people are in the minority.
My rule is simple: you should buy a car that is 1/2 of your disposable income OR 1/5 of your liquid net worth
If everyone did this, repo guys would be out of business!
I was somewhat debating this with a colleague over lunch today. He has ALWAYS financed his vehicles for 4-5 year time periods while paying between $900-$1100 each month. I think he's absolutely crazy.
Doesn't anyone purchase vehicles with cash anymore? Doesn't it make sense to save up until you can pay off the vehicle in full rather than paying an exorbitant amount of money in each month?
Aside from having a business, I don't see any reason why someone would want to pay all this interest each month?
I can't see ever financing a vehicle, if I can't pay for it in cash, it's above my financial means. I trade my primary vehicle up every 3 years or so but always make sure I have enough to cover the difference between my trade-in value and the new vehicle I want.
I can't see any benefit in financing...
I would figure that most new vehicles, and possibly used vehicles, are financed.
Most people don't have $3,000, never mind $30,000 in the bank.
$1,000 a month over 60 months sounds like an expensive car payment. What is the principal? $45,000 or so? I wouldn't spend that much on a vehicle. I'd be fine with a 2010 Chevy Malibu.
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