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Man, I have to say this thread is informative because I started a thread about purchasing a car and I was leaning towards buying. Now I'm not so sure. The Benz dealership was pushing me to lease. I can afford to pay for the car outright but the problem that still keeps me up at night is cutting a check for $35K. My wife and I want to buy a house and my idea was to stay in this rental for 2 years so that it allows me to recoup some $ to help with the downpayment on said house. My problem is two fold though: if I buy, I plan on trading it in at the end of the warranty. When I walk into the lot, I at least have some collateral to play with and just end up paying the difference between the trade in value and whatever the next car is worth. Leasing doesn't give me that option, I'm basically renting and turning in the keys at the end of it and do the whole thing over again. So that's my conundrum, I totally get a car loses 15% so I'm not sure why my brain can't process the fact that I'm paying in full for a depreciating asset.
Based on your comments here and without all the details of your situation, you are a perfect customer to consider leasing. Notice I didn't say perfect customer to lease... Since you would plan on trading at end of warranty anyway, why take a risk?
You should have a sales rep run numbers for you for a lease for two or three years. I suggest a three year lease with enough mileage built in that you don't worry. If you drive 15k a year, then calculate the lease for 15k a year, not the 10 or 12k that is the advertised special.
Lease terms:
Capitalized cost = purchase price. Know this ahead of time. It can be negotiated just like a purchase.
Capitalized Cost Reduction (CCR) = down payment. I recommend zero unless you need to hit a payment.
Residual value = buyout (roughly). Dealer may pad it a bit but the residual is the guaranteed value.
Mileage penalty = worst case scenario. If job or life changes and you go over allowed mileage, what's it cost?
GAP coverage = no risk to you coverage. If car gets totaled, you owe nothing. Get it.
If you negotiate for a capitalized cost that is a fair deal and lease a Benz with a decent residual value, you can leave your money in the bank and make payments on the car you want without killing a chance to own a home. At the end of the lease you do a little homework and identify what the car is actually selling for on the market. If your buyout (residual value or guaranteed lease end value) is a great deal you can buy it or negotiate with the dealer to get some of that equity applied to your next car. If it isn't a good deal, you flip dealer the keys and say c'ya.
However, I find it very interesting about the idea of renting/leasing stuff that depreciates, and buying stuff that appreciates. That's a very interesting idea. When you look at it like that, it makes perfect sense.
This is a sometimes-dangerous, often-abused, over-simplification.
The problem with the quoted statement above is it implies one can somehow skirt depreciation by not buying it. Erm, no, it's built into the lease term. There's the book price which is the foundational basis of the calculation. Think of it as the selling price. There's the (pre-calculated) value after xx numbers of years and yy numbers of mileage. They call that the "residual value". The difference between the 2? Spread over the lease term? There's the depreciation you're paying for.
Oh yeah, there's a transactional cost for all of it, that's the "money factor". Think of it as the interest cost if you were to finance a purchase.
Amortization is amortization. They can call it 10 different things. In the end, you want something (=a car), youre gonna pay the cost to use it.
Who's at the other end of the transaction? (answer: the dealership)
Is there a clear advantage for the consumer in leasing? (answer: there is none)
Because why would they want to be left holding a stinking depreciated asset at the end of the lease term? (answer: they dont)
What is the dealership's primary objective? (answer: to move cars off the lot)
*okay its to make money, but thats how they make money.
They offer it to you with either a purchase, financed-purchase, or lease option. All the math, actuarial work, credit risk, profit calculations have been done by them. To insure cars move off the lot at favorable terms to them. There's no free lunch in it for you.
This is a sometimes-dangerous, often-abused, over-simplification.
The problem with the quoted statement above is it implies one can somehow skirt depreciation by not buying it. Erm, no, it's built into the lease term. There's the book price which is the foundational basis of the calculation. Think of it as the selling price. There's the (pre-calculated) value after xx numbers of years and yy numbers of mileage. They call that the "residual value". The difference between the 2? Spread over the lease term? There's the depreciation you're paying for.
Oh yeah, there's a transactional cost for all of it, that's the "money factor". Think of it as the interest cost if you were to finance a purchase.
Amortization is amortization. They can call it 10 different things. In the end, you want something (=a car), youre gonna pay the cost to use it.
Who's at the other end of the transaction? (answer: the dealership)
Is there a clear advantage for the consumer in leasing? (answer: there is none)
Because why would they want to be left holding a stinking depreciated asset at the end of the lease term? (answer: they dont)
What is the dealership's primary objective? (answer: to move cars off the lot)
*okay its to make money, but thats how they make money.
They offer it to you with either a purchase, financed-purchase, or lease option. All the math, actuarial work, credit risk, profit calculations have been done by them. To insure cars move off the lot at favorable terms to them. There's no free lunch in it for you.
Often times the manufacturer inflates the residual on the lease, so leasing can sometimes be a good deal, HOWEVER, buying is a better deal if your plans don't align with the lease terms - either in terms of how long you want to drive the same car, or how many miles you will put on it. That, I think, is a much better rule of thumb than "rent depreciating assets and own appreciating ones".
This is a sometimes-dangerous, often-abused, over-simplification.
The problem with the quoted statement above is it implies one can somehow skirt depreciation by not buying it. Erm, no, it's built into the lease term. There's the book price which is the foundational basis of the calculation. Think of it as the selling price. There's the (pre-calculated) value after xx numbers of years and yy numbers of mileage. They call that the "residual value". The difference between the 2? Spread over the lease term? There's the depreciation you're paying for.
Oh yeah, there's a transactional cost for all of it, that's the "money factor". Think of it as the interest cost if you were to finance a purchase.
Amortization is amortization. They can call it 10 different things. In the end, you want something (=a car), youre gonna pay the cost to use it.
Who's at the other end of the transaction? (answer: the dealership)
Is there a clear advantage for the consumer in leasing? (answer: there is none)
Because why would they want to be left holding a stinking depreciated asset at the end of the lease term? (answer: they dont)
What is the dealership's primary objective? (answer: to move cars off the lot)
*okay its to make money, but thats how they make money.
They offer it to you with either a purchase, financed-purchase, or lease option. All the math, actuarial work, credit risk, profit calculations have been done by them. To insure cars move off the lot at favorable terms to them. There's no free lunch in it for you.
No one said you avoid depreciation completely when you lease. You are in fact paying some of the depreciation - and in return you get exclusive use of the vehicle for a set amount of time. It's a quid pro quo arrangement. The advantage is you are paying for your exclusive use of the vehicle without investing a lot of capital in it. When you buy a car, you have to put down a large percentage of its price - it's the not optional requirement of the deal. Leasing requires no such investment. So if you want to drive a $50k vehicle, the minimum $10k down-payment to buy it stays in your pocket to invest elsewhere if you lease instead. You also need won't pay a dime in maintenance for a leased car (if you wisely choose one of the brands that offer 3 years of free maintenance).
There are advantages and disadvantages to both leasing and buying. Each individual has to the decide for the themselves which is better based on their situation. For me, a car lease is another monthly bill for stuff I enjoy daily but don't buy, like my cable bill. I don't care if my car payments never end. My cable bill and gas/electric bill won't ever end either. I'll buy a second home before I buy a car. Why? Because real estate makes me money when I sell it, and cars do not.
The problem with the quoted statement above is it implies one can somehow skirt depreciation by not buying it.
No one is saying that. The statement you quote even acknowledges that a car is going to depreciate. The purpose behind leasing is that you only pay the depreciation for the portion of the car that you use.
This is a sometimes-dangerous, often-abused, over-simplification.
The problem with the quoted statement above is it implies one can somehow skirt depreciation by not buying it. Erm, no, it's built into the lease term. There's the book price which is the foundational basis of the calculation. Think of it as the selling price. There's the (pre-calculated) value after xx numbers of years and yy numbers of mileage. They call that the "residual value". The difference between the 2? Spread over the lease term? There's the depreciation you're paying for.
Oh yeah, there's a transactional cost for all of it, that's the "money factor". Think of it as the interest cost if you were to finance a purchase.
Amortization is amortization. They can call it 10 different things. In the end, you want something (=a car), youre gonna pay the cost to use it.
Who's at the other end of the transaction? (answer: the dealership)
Is there a clear advantage for the consumer in leasing? (answer: there is none)
Because why would they want to be left holding a stinking depreciated asset at the end of the lease term? (answer: they dont)
What is the dealership's primary objective? (answer: to move cars off the lot)
*okay its to make money, but thats how they make money.
They offer it to you with either a purchase, financed-purchase, or lease option. All the math, actuarial work, credit risk, profit calculations have been done by them. To insure cars move off the lot at favorable terms to them. There's no free lunch in it for you.
I don't disagree with anything you've said. I'm just looking at both sides objectively. I've, historically, been in the "Never lease" camp. My a big fan of Dave Ramsey and I would rather live without a car payment. Problem is, for the better part of the past 20 years, I have been making car payments. I'm making car payments on a car that I have had for over 5 years now, and the thing isn't paid off. I'm tired of the car would like something else, but I can't afford brand new or even a couple years old. Not for what I am wanting. And I happen to be someone who enjoys driving and doesn't look at vehicles as simply point A to point B tool. I love cars and trucks, especially fast muscle cars. So, I'm probably always going to be paying on a car in some form or fashion. Especially if it's what I want to drive.
Having said that, it might be where leasing makes more sense. Maybe not always, but there have been times in my life where if I had leased, I would have been better off. Only thing is, I don't believe for me, leasing is something that makes sense more times than not. but for others, they look at car payments as payments they make for cable. They are paying for the privilege to drive something nice and new all the time. They don't want to be seen in a beater. They want to be seen as being successful.
I've started to come around to the idea of leasing.
One advantage that I had never considered before is the ability to conduct a "long term test drive" of a vehicle before making the final decision as to whether you really want to buy it or not.
One advantage that I had never considered before is the ability to conduct a "long term test drive" of a vehicle before making the final decision as to whether you really want to buy it or not.
Particularly with a guaranteed price at the end that doesn't change regardless of market conditions.
Typically leasing a car allows you to drive a more expensive vehicle than you could otherwise afford, since you're just paying for the depreciation on the car, instead of actually owning it. It also means you get a new car every three years or so.
Which is great, if driving a nice new car is important to you. If not, it's usually a better financial move to buy a car.
the good thing about leasing at least for me is I am on a very fixed income and just one intake gasket repair would cause my finances to get turned upside down. In my case leasing a car STOPS all repair costs, and any suprise repair costs.... for me thats HUGE.............. at lease every month I KNOW my monthly costs for a car will not exceed my payment,fuel and insurance cost. I have a friend that needs a good car and they cannot afford repairs. I posted about that here in the forums too .... I also wont need to worry about maintenance and tire replacement ect.... My biggest issue with owning a car is maintenance as it seems every time a car goes in the shop for repairs or service it costs 800 to a grand!!! At least leasing keeps me on my budget and I get no suprises... and for those that say they will charge for wear and tear when you turn it in, I have never had that happen and I am on my 3 rd lease at the same reputable dealer................ For those on a limited income if you can afford a lease and stay with in the mileage peramaters I recommend it... and say goodbye to big repair bill suprises
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.... I also wont need to worry about maintenance and tire replacement ect.... My biggest issue with owning a car is maintenance as it seems every time a car goes in the shop for repairs or service it costs 800 to a grand!!! At least leasing keeps me on my budget and I get no suprises... and for those that say they will charge for wear and tear when you turn it in, I have never had that happen and I am on my 3 rd lease at the same reputable dealer................ For those on a limited income if you can afford a lease and stay with in the mileage peramaters I recommend it... 
and say goodbye to big repair bill suprises
