Buy a car ... lease a car (insurance, luxury, vehicle, 2014)

[SouthSeasLifestyler]

So, we are used to buying a car outright, but a lot of our friends are leasing a car. When asked, they say that is just the way it is done here? Not sure about that being a good enough reason! If I bought, I would be buying a new car.

So why do people lease vs buy?

SSLifestyler

[Hemlock140]

Leases require more down payment, but then much lower monthly payments. The penalties for too many miles will
get you at the end but if you drive less than 10-12,000 miles a year, it costs you less overall to have the car for
that period of time. I wouldn't do it myself, because I don't need to have the latest car every 2-3 years, we normally
keep them at least 10 years and try to pay them off early to avoid some off the interest. We just bought a 2014 Escape and were able to get the price down by $5,000 from sticker, and interest at less than 4% with only the trade down.

[Inkpoe]

For some, it's a status thing (nice, newer auto).

For others, they don't drive enough to justify the cost of owning but want a car there just in case. (Note, this is based on friends' experience) A lot of times you have to take it in monthly or so for a check up and there's a mileage "limit" per month (go over that you pay).

There's less maintenance.

Some like new updates and safety features and this is a better way of updating, rather than losing out on depreciation.

I wouldn't say it's the norm here, but there are people who do lease. Personally, I drive way too much to justify the cost of a lease; so I wouldn't be leasing.

[tjarado]

Do not lease a car unless you can deduct the cost as a business expense, or you want a vehicle that you really can't afford. That is why so many folks in the USA lease. And in that case it is ALWAYS an economically poor, i.e. more expensive option.
Depreciation is built in to the leasing cost structure; trust me, you are paying for it as part of the monthly expense.
FWIW, almost HALF the monthly payment goes directly to the loan servicer, and is a very lucrative profit, especially on luxury vehicle like BMW's, Mercedes, etc. I know because I worked for the auto finance division of JPMChase 10 years prior to retiring.
I have never, nor would I ever entertain that option unless I wanted to blow a wad in my last years on a dream car. Probably won't happen though.

[mkarch]

Originally Posted by Hemlock140

Leases require more down payment, but then much lower monthly payments. The penalties for too many miles will
get you at the end but if you drive less than 10-12,000 miles a year, it costs you less overall to have the car for
that period of time.

If you do lease you should put as little down as possible, preferably 0-down. The reason for this is if the car is totaled gap insurance doesn't cover the down payment. If you have good credit, and you should if you're considering leasing, most manufacturers do offer a 0-down option that is actually cheaper per month than the down payment amortized over the lease term (Honda/Acura leases in particular). Any lease program that requires a down payment is probably not a good choice unless you have some other financial reason to put $ down.

The best lease deals do tend to be on 10-12K/yr, but most allow you to pre-purchase mileage or have a higher mileage limit from the outset. This of course gives you a lower residual and higher payments, and might disqualify you from getting the lowest money factor as well - but again, it all comes down to the specific vehicle, leasing company and what kind of rate you qualify for.

Lastly, certain manufacturers subsidize their lease programs to a greater degree than others and it's heavily dependent on the model. BMW in particular tends to inflate residuals in order to move certain models, and at any given time the lease deal on a 7 series might be amazing while a 3 series is mediocre. BMW also allows you to put down multiple security deposits to lower the money factor and that usually turns out to be a very good deal if you do that instead of putting money down. Audi for instance is generally known for having comparatively lousy lease deals because they don't subsidize as much or as often.

Bottom line, it's going to depend heavily on the make, model and promotions offered as to whether a particular lease is better than a loan or paying cash.

[mkarch]

Originally Posted by tjarado

Do not lease a car unless you can deduct the cost as a business expense, or you want a vehicle that you really can't afford. That is why so many folks in the USA lease. And in that case it is ALWAYS an economically poor, i.e. more expensive option.
Depreciation is built in to the leasing cost structure; trust me, you are paying for it as part of the monthly expense.
FWIW, almost HALF the monthly payment goes directly to the loan servicer, and is a very lucrative profit, especially on luxury vehicle like BMW's, Mercedes, etc. I know because I worked for the auto finance division of JPMChase 10 years prior to retiring.
I have never, nor would I ever entertain that option unless I wanted to blow a wad in my last years on a dream car. Probably won't happen though.

That's an old way of thinking. The industry has moved towards a model where car costs are treated more like a utility payment than buying something to own. It certainly makes more sense if you're buying cutting edge tech heavy cars that will be obsolete in 4 years, vs a commuter car you'd prefer to keep for a decade.

Depreciation is built in to the cost of ownership HOWEVER you pay for the car, leasing just sets this cost up front so you don't have to guess what the car will be worth at some future date.

Leasing is certainly more expensive than paying cash in most cases, though there are examples where this isn't the case (inflated residuals where you pay less than the actual depreciation, reduced money factors, etc...) but ultimately whether a lease deal is good depends on the inception cost, turn in cost and the money factor. Sure, some people ignore this and end up paying through the nose but that's not a problem unique to leasing nor is it a requirement of leasing.

[Hemlock140]

Moderator cut: orphaned quote
We are simply answering questions, not encouraging car use. While I have 3 cars, I commute by bus every day. Living in the suburbs on the eastside there is decent public transportation to work centers like downtown Seattle, but we still need cars to survive. There is no local bus to groceries and other shopping,
to visit friends/relatives or go on vacations. This is the Seattle Area forum, it's not limited to the city itself where people can get by without a car.

[cocaseco]

Originally Posted by Hemlock140

Leases require more down payment, but then much lower monthly payments. The penalties for too many miles will
get you at the end but if you drive less than 10-12,000 miles a year, it costs you less overall to have the car for
that period of time. I wouldn't do it myself, because I don't need to have the latest car every 2-3 years, we normally
keep them at least 10 years and try to pay them off early to avoid some off the interest. We just bought a 2014 Escape and were able to get the price down by $5,000 from sticker, and interest at less than 4% with only the trade down.

My experience is that lease take less down, often zero. I see only two reason for leasing; 1) You want a car that you can't otherwise afford, 2) You can deduct it through a business. The ability to 100% deduct the lease payment is a huge advantage over purchasing and deprecation deductions.

[SouthSeasLifestyler]

Thanks everyone. That does clarify for me the leasing thing. It is something that I never heard of downunder, so I wanted to clarify it, and to make sure I wasn't making a mistake by buying.

. I don't want to make any financial mistakes due to not understanding things here. There is so much I have to learn in such a short time, and everyone here has been so free with their knowledge and advice, so I seek it, and that requires me to provide details for context. So that is why I ask these questions, not to upset you or anyone else. Also, I am trying to see if we can manage here with just one car for a family of four. We care for the environment, too. Peace, mate!

SSLifestyler

[greggd1]

There isnt much of a difference..

If you want a new car every 3-5 years and drive about 12k miles per year, I would recommend you lease.

If you are going to keep your car for a long period of time 5+ years, buy it or lease then buy.

I had a leased car and at the end of the term, I bought it from the leasing company/Chase. 3 years making payments and at the end of the lease, I negociated a buyout with them. In the end, the down+monthly payments+payoff was about 5% under the original sticker price.

So, in a way, I made payments with no interest and the option to walk away after 3 years.