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What would you say about a strategy to buy a car you otherwise couldn't afford at the moment through leasing? I guess this is more of a math question than a leasing vs buying one.
I'm referring here to the predetermined buy-off/residual rate of leased cars. At the predetermined buy-off/residual rate (58% according to one place I talked to), the car is yours if you want it at the end of 36 mos for 58% x MSRP. For Honda CRVs, for example, the predetermined cost is around 13,500 at the end of the leasing contract. I really don't drive much and will likely stay within the mileage restrictions, so to me I'm looking at a well-maintained CRV with under 36k miles for between 13-14k three years from now. Does it make sense mathematically to look at it this way?
As everyone knows, one attractive part about leasing is the relatively low monthly payments. Alternatively, you could get a similarly low monthly payment through financing a car if you stretched the loan out, but that increases the total amount you're paying for the car in the long-term and is thus not desirable. So if you can't afford at the moment big monthly payments and don't want to lock yourself into an interminable loan, then leasing is the best bet for the first 36 months.
Now I don't necessarily think leasing to buy is a way to get the car cheaper, but it's a way to sort of purchase the car through the back door so to speak if you can't afford monthly payments over a three to four year finance loan, since in the end you're going to finance or pay outright for a 13,500k car. And once you add that 13+k to the lease payments and fees you paid during the leasing contract, it equals or comes close to the OTD cost you would have had to shoulder had you financed in the first place for the same car. Is this a sound strategy to buy a car without locking yourself into a 7-8 year loan?
Like you said - it all depends upon the math. The higher the residual, the higher the later purchase price will be - but... the lease payments are lower if the residual is high.
Like you said - it all depends upon the math. The higher the residual, the higher the later purchase price will be - but... the lease payments are lower if the residual is high.
Just to be clear, don't I have the option of buying at the residual and nothing above that? Just wanted to see if you meant there is a difference between the residual and a "later purchase price".
What would you say about a strategy to buy a car you otherwise couldn't afford at the moment through leasing?
That's how my son owns his car today. Leased an 09 Subaru Legacy for two years at $250 a month then financed the residual for 3 more years at $350 a month. Those who pooh pooh the lease to buy option should suggest an alternative that a young man right out of college can afford.
As long as you have good credit and get a good lease rate it can make a lot of sense for someone in your position. You make low payments for the first 36 months then by the time it's time to buy, your payments would be much less than had you financed from the get go. I suggest a 36 month finance where your finance payments will be just slightly higher than what your lease payment was. Long term you may pay more but it will hurt you pocket much less and give you financial flexibility in the mean time and free up $ for other expenses.
If the 'money factor' (APR) on the lease is comparable to finance rates and the residual is realistic, it's an OK strategy. The primary advantage is you get to decide whether to keep the car or turn it in after the term. If your needs change, car is a lemon, or was repaired after a wreck you have the option to give it back and absolve yourself of any problems.
Leasing *just* for affordability reasons is usually a bad idea, but with good credit and a solid plan it can work to your advantage.
What would you say about a strategy to buy a car you otherwise couldn't afford at the moment through leasing? I guess this is more of a math question than a leasing vs buying one.
I'm referring here to the predetermined buy-off/residual rate of leased cars. At the predetermined buy-off/residual rate (58% according to one place I talked to), the car is yours if you want it at the end of 36 mos for 58% x MSRP. For Honda CRVs, for example, the predetermined cost is around 13,500 at the end of the leasing contract. I really don't drive much and will likely stay within the mileage restrictions, so to me I'm looking at a well-maintained CRV with under 36k miles for between 13-14k three years from now. Does it make sense mathematically to look at it this way?
As everyone knows, one attractive part about leasing is the relatively low monthly payments. Alternatively, you could get a similarly low monthly payment through financing a car if you stretched the loan out, but that increases the total amount you're paying for the car in the long-term and is thus not desirable. So if you can't afford at the moment big monthly payments and don't want to lock yourself into an interminable loan, then leasing is the best bet for the first 36 months.
Now I don't necessarily think leasing to buy is a way to get the car cheaper, but it's a way to sort of purchase the car through the back door so to speak if you can't afford monthly payments over a three to four year finance loan, since in the end you're going to finance or pay outright for a 13,500k car. And once you add that 13+k to the lease payments and fees you paid during the leasing contract, it equals or comes close to the OTD cost you would have had to shoulder had you financed in the first place for the same car. Is this a sound strategy to buy a car without locking yourself into a 7-8 year loan?
As you said if you get the right lease.
I've leased 2 cars in a row now and for me it's worked great but only because of the great bank rates.
My current lease was 0 down and they even paid the tax and license as part of the lease. My payment is $300 per month so that is $3600 per year. Multiply that by 39 months and that equals $11,700 in lease payments. Add the residual of $14,000 and that adds up to $25,700 on a car that had a $27,000 sticker price. To me it's a good deal. I feel like I have a 39 month test drive.
Now the car has been flawless and I like it a lot so I have no reservations in buying it out at the end, but if these lease deals are around next June I'll lease it again.
I get tired of having the same car after two or three years. No buy here on my lease after it is done
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