Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Location: San Ramon, Seattle, Anchorage, Reykjavik
2,254 posts, read 2,734,754 times
Reputation: 3203
Quote:
Originally Posted by Remington Steel
Are you implying that most people who lease cars are "broke"?
Yes, based on my observations. They owe more than they are worth and typically can't afford to pay cash so lease or get a loan. This includes business owners as well. Cash flow is irrelevant.
Location: San Ramon, Seattle, Anchorage, Reykjavik
2,254 posts, read 2,734,754 times
Reputation: 3203
Quote:
Originally Posted by sirtiger
All cars are rentals in a way you put it.
Not the cars I pay cash for. If you run a net worth calculation and your car goes in the liabilities column, it's a rental. If it's in the asset column, even if it is depreciating, it is not a rental.
The notion of paying interest on a depreciating asset.
What do the two have to do with each other?
You pay interest for the use of cash belonging to somebody else, regardless of whether the underlying asset depreciates.
I have plenty of cash and can buy my cars without a loan, but I love using financing (either leasing or loans) because it's basically free money. The imputed interest rate on my current lease is nearly zero, and the actual interest rate on my last car loan was 1.9%. During the same time, I was earning >10% on my mutual fund investments. Paying cash would have been dumb.
As far as why I lease now, some people don't understand that there are leasing tricks that allow you to get amazing deals on leases. There is an entire forum dedicated to it- leasehackr . The deal I got for myself on my current lease is so good that if I were to continue making the payments on the car, it would take around 10 years before my total cash out of pocket equaled the MSRP of the car that I'm leasing. Factoring in PV and opportunity cost, more like 12 years.
The key is that the residuals are a percentage of MSRP, but they don't move based on reductions in the selling price. You can get a 10% discount off of MSRP, and for a car like mine, that represents a 26% discount on the total lease cost over the term. High residuals and low selling prices are the key. Also you need to make sure you get the lowest imputed interest rate possible (basically near zero these days).
So on this $56k car that I negotiated down to $49k, I pay a total of $15k to use it for 3 years. I keep the other $34k (and get to avoid paying sales tax on the other $34k) and invest it at 10+%. After three years, I've earned over $10k on my mutual fund.
So in three years, on net as compared to being a cash buyer, I pay $5k and the cash buyer pays $49k. If I do this every three years, I pay $9k in 9 years and get a new car every three years. Sure beats paying $49k in year 1 and having a 9 year old car in year 9.
Even ignoring the investment aspect (i.e. if you finance the car purchase instead of paying cash you can negate the difference in opportunity cost), I pay $45k over 9 years (15k x 3) and the outright buyer pays $49k over 9 years. I get a new car every three years, but the cash buyer has a 9 year old car in year 9. Maybe it's worth $5k or $10k, but he's also had to repair it and maintain it in that time (both free with many leases). I also get brand new safety technology every three years whereas the outright buyer is nearly a decade behind towards the end.
Remind me again why leasing is so evil?
Last edited by NYCresident2014; 10-25-2017 at 11:51 AM..
Depends on your standpoint. If your goal is to always drive a late model car and don't mind the monthly payment, leasing is probably a smarter move because if you buy and trade every 2-3 years you'll probably lose your tail each time.
I've never leased before, but I'm looking at a 2017 Ram 1500 4x4, and the local dealership is offering $8,000 (yes, eight thousand dollars) in additional rebates for lessees. Capitalized cost comes all the way down to $33k on a truck that stickers for $52k.
If I were to lease this truck, and then decide a few months later to buy it out, would I save money over buying it without the lease? They want $41k as a purchase price. I'm sure I can get them to come off another thousand or two if I showed up and went through the whole charade with the salesman.
I have to be missing something here, correct? Otherwise, why wouldn't you lease, then buy out the lease at a later date? I know there will be fees to buy out the lease, but not $8,000 in fees.
You pay interest for the use of cash belonging to somebody else, regardless of whether the underlying asset depreciates.
I have plenty of cash and can buy my cars without a loan, but I love using financing (either leasing or loans) because it's basically free money. The imputed interest rate on my current lease is nearly zero, and the actual interest rate on my last car loan was 1.9%. During the same time, I was earning >10% on my mutual fund investments. Paying cash would have been dumb.
As far as why I lease now, some people don't understand that there are leasing tricks that allow you to get amazing deals on leases. There is an entire forum dedicated to it- leasehackr . The deal I got for myself on my current lease is so good that if I were to continue making the payments on the car, it would take around 10 years before my total cash out of pocket equaled the MSRP of the car that I'm leasing. Factoring in PV and opportunity cost, more like 12 years.
The key is that the residuals are a percentage of MSRP, but they don't move based on reductions in the selling price. You can get a 10% discount off of MSRP, and for a car like mine, that represents a 26% discount on the total lease cost over the term. High residuals and low selling prices are the key. Also you need to make sure you get the lowest imputed interest rate possible (basically near zero these days).
So on this $56k car that I negotiated down to $49k, I pay a total of $15k to use it for 3 years. I keep the other $34k (and get to avoid paying sales tax on the other $34k) and invest it at 10+%. After three years, I've earned over $10k on my mutual fund.
So in three years, on net as compared to being a cash buyer, I pay $5k and the cash buyer pays $49k. If I do this every three years, I pay $9k in 9 years and get a new car every three years. Sure beats paying $49k in year 1 and having a 9 year old car in year 9.
Even ignoring the investment aspect (i.e. if you finance the car purchase instead of paying cash you can negate the difference in opportunity cost), I pay $45k over 9 years (15k x 3) and the outright buyer pays $49k over 9 years. I get a new car every three years, but the cash buyer has a 9 year old car in year 9. Maybe it's worth $5k or $10k, but he's also had to repair it and maintain it in that time (both free with many leases). I also get brand new safety technology every three years whereas the outright buyer is nearly a decade behind towards the end.
Buy new or nearly new cars. Pay cash. Drive them until a major subsystem fails ( as in, cost to repair approaches the cost of a replacement vehicle). Rinse. Repeat.
I’m closing in on another lease deal and couldn’t be happier with the process. Leasing if you understand it can certainly fit your objective and there’s nothing wrong with it. Most people who are entirely against haven’t done it and don’t really understand the functionality of doing it
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
