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I've done this before. It worked out well for me because at time of lease expiration I happened to have cash to buy the vehicle outright. I wouldn't say I got an amazing deal buying a used car as such, but I did happen to know the vehicle was in mint condition and I enjoyed driving it.
When I first leased the vehicle I actually could have/should have just purchased it then and there as I could have afforded it (thus avoiding interest rate payment, fees, and the need for higher insurance coverage as dictated by the lease agreement).
In the OP's situation they need to really ensure they are doing something that makes fiscal sense as I don't necessarily feel good about leasing anymore (I have a prior post on this general topic area somewhere here where I explain my reasoning). My general advice... don't lease and buy what you can comfortably afford. If you cannot afford your dream vehicle today, then work towards changing that situation for the future.
My general advice... don't lease and buy what you can comfortably afford. If you cannot afford your dream vehicle today, then work towards changing that situation for the future.
Car loans used to be for 3 years. Even if you stretch it out to 4, a $30,000 car with $2K down at 0% interest still costs ~$580 a month. That's big bite.
Car loans used to be for 3 years. Even if you stretch it out to 4, a $30,000 car with $2K down at 0% interest still costs ~$580 a month. That's big bite.
And I saw most folks taking it out to five years (the interest rates were the same out to five, usually.) On new cars especially, 6 or even seven years wasn't uncommon.
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?
Ultimately, it's all about unknown future interest rates. If you lease with the intention of getting a loan to buy it at the end, interest rates may be higher at that time. If you get a long loan now, at least you know what the rate will be. Leasing and then financed buyout is basically an adjustable rate loan on a car, in some sense.
That said, I don't think either route is wise in the long run - better to save up and pay cash for it the old fashioned way. If you're deep in debt you are chained to your job and no matter how stressful it gets you have no out.
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.
The alternative is buy a cheaper car and save your $350 a month until you can pay cash for the more expensive car. if you borrow money for school, then borrow money for a car, you'll be unable to save anything and end up borrowing even more for a wedding, vacations, and then you're in debt to your eyeballs or forced to take a job you hate.
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.
that would be an ideal scenario for me. Since you got a good deal on the lease, I thought I'd ask another question regarding negotiating a lease. What I have offered to me is the following for a base model 2014 CRV 2WD:
"no money down" for 199/mo for 36 months. The residual is around $13,400. The fine print is as follows: $0 Due at Signing Lease Offers: Lease with $0 down payment, $0 first month’s payment, $0 security deposit. Excludes tax, title, license, and $499 dealer processing fee, on approved HFS super preferred credit.
What should I be pushing the dealer for in this deal? The rep said what will be due at signing will equal around 2,500. Should I push for a lower amount at signing, or lower monthly payments, etc.? Any help will be appreciated.
On the other hand, the same dealer has offered the CRV at 22,363 OTD. I'm trying to get him to go lower.
In the end, like so many have said, I will not put myself into long-term, potentially disastrous debt for this car, but I am just trying to see if I can make it within my league through one of these two options.
The alternative is buy a cheaper car and save your $350 a month until you can pay cash for the more expensive car.
He had a "cheaper" car. What that meant was getting stranded and calling me all the time. Kids these days drive the car until it stops. With an older car you have to constantly watch and listen. You think they notice that scratchy noise coming from the front? They'll wait until a $60 brake job balloons to $500. He was moving out of state and I could not see him and us worrying every time he gets behind the wheel.
that would be an ideal scenario for me. Since you got a good deal on the lease, I thought I'd ask another question regarding negotiating a lease. What I have offered to me is the following for a base model 2014 CRV 2WD:
"no money down" for 199/mo for 36 months. The residual is around $13,400. The fine print is as follows: $0 Due at Signing Lease Offers: Lease with $0 down payment, $0 first month’s payment, $0 security deposit. Excludes tax, title, license, and $499 dealer processing fee, on approved HFS super preferred credit.
What should I be pushing the dealer for in this deal? The rep said what will be due at signing will equal around 2,500. Should I push for a lower amount at signing, or lower monthly payments, etc.? Any help will be appreciated.
On the other hand, the same dealer has offered the CRV at 22,363 OTD. I'm trying to get him to go lower.
In the end, like so many have said, I will not put myself into long-term, potentially disastrous debt for this car, but I am just trying to see if I can make it within my league through one of these two options.
Bump
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