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.
^^ITA in regards to Hondas. I bought my first one in 2000 new and my husband is still driving it. I just bought a brand new CR-V and plan to drive it for a long time. It didn’t make sense to pay a couple thousand dollars less for a car with 30K miles.
Yep. Leasing is the most expensive way to "own" a car. If thats a decision you can afford and want to make, fine. but it is what it is.
I would argue that if you want a specific make/model/trim, buying would be less expensive for that particular vehicle. But if one could be flexible in picking a similar class vehicle, and focus on a vehicle that the manufacturer wants to move, you can find a better deal by leasing.
and was a reason I shied away from a lease some time back, as I don't want to be limited to 10-12k / year.
It's not really a negotiation. The different lessors allow different amounts of miles per year for lease. 10 and 12k are the most popular, but 5, 7.5, 10, 12, 15, 18 are also common. The residual value is fixed dependent upon mileage, so you just pick the mileage you need. Your payment increases for more miles as the residual value is lower. But this is one part of a lease where no negotiation is involved as the RVs are set monthly based upon model/trim/region.
The key thing to consider is if you select more than 12k miles per year, what the warranty impact is if you select a 3 yr lease. E.g. if vehicle has 3 yr/36k mile warranty, and you select a 3yr/15k per year lease, the last 9k miles will be without warranty coverage.
I would argue that if you want a specific make/model/trim, buying would be less expensive for that particular vehicle. But if one could be flexible in picking a similar class vehicle, and focus on a vehicle that the manufacturer wants to move, you can find a better deal by leasing.
Here is some actual data.
2018 Acura MDX
Current dealer incentive regardless of payment method-$750
This means the dealer’s cost basis on a remaining 2018 MDX is being reduced by that amount. They can pass that savings along without affecting their margin.
Current additional incentive for lease only on Technology model or higher-$2,200
This means that the dealer has an additional $2,200 to work with if you lease one of those trim levels.
The purchaser pays $2,200 more than the lessee on the way in.
Here is some actual data.
2018 Acura MDX
Current dealer incentive regardless of payment method-$750
This means the dealer’s cost basis on a remaining 2018 MDX is being reduced by that amount. They can pass that savings along without affecting their margin.
Current additional incentive for lease only on Technology model or higher-$2,200
This means that the dealer has an additional $2,200 to work with if you lease one of those trim levels.
The purchaser pays $2,200 more than the lessee on the way in.
Incomplete. Do the full analysis across the term of lease versus loan.
I’ll give you my take on why leasing makes more sense than most people think.
In a nutshell, leasing diverts nearly all the downside risks associated with buying a depreciating asset.
The cheapest way to buy a car is to pay cash and drive it until the wheels fall off. Most people can’t or won’t choose this option.
Let’s talk about a conventional 60 month car loan on a $30,000 vehicle. Put down 20%, add tax/fees/dmv and you are taking a loan for around 26K. At a competitive interest rate you can expect a payment of $450-$460.
Lease that same car for 36 months and 12,000 miles per year. Do NOT put down a “cap cost reduction”. You are doing two things when you do so-
Lowering the leasing company’s upfront cost for THEIR vehicle
And
Prepaying a portion of your monthly lease payments. Both are a bad idea.
If you select a quality vehicle with a strong residual (future value), your lease payment should be 10 to 20 percent lower than that 60 month loan payment.
Here is how you win virtually every time.
Total your leased car.
You have no skin in the game. Modern leases include GAP protection-this is a policy the leasing company takes to make themselves whole again in the event of a theft or a total. Remember that your insurance company will pay on the vehicle’s value at the time of a loss, not the amount owed. If you total it, you walk away less your insurance deductible.
If you bought with 20% down and totaled in the first year, the depreciation would cause the insurance company to pay far less than you paid for the car-after all it’s a used car now. Say good bye to a good portion if not all of your down payment.
Get into an accident that causes substantial damage but does not total the vehicle.
If you are leasing, as long as your insurance fixes the car all you have to do is ride out the lease to the end and turn it in. The scarlet letter assigned to that car via CARFAX is not your problem.
If you own that car you suffer the diminished value when you sell it.
Let’s look at the end of the lease.
The car has a value at this point that may be in line with the purchase option (fixed and established at lease signing). It may not be. Here is how you win either way.
A dealer can treat your leased car as a trade in even though you don’t own it. If it ends up being worth more than the buyout, that is YOUR equity to apply to your next car no matter how you buy/finance/lease that one. Want to keep the transactions separate? Take your leased car to Carmax. In some cases they will cut you back a check for the equity in a car YOU DO NOT EVEN OWN.
If it is worth less, that means the leasing company guessed wrong. The loss falls on them. It also means that you paid on less depreciation than actually occurred. In a lease, each $1000 equates to about $29 per month. If the car is worth $2,000 less than the residual, your payment should have been $58 higher per month than it was. Again, you win.
Let’s address the classic argument “leasing is stupid because you don’t have anything at the end”.
What does the person in the above 60 month finance equation “have” at 36 months?
Well-they have 24 monthly payments left on a car whose warranty is expired. They have a car that may need tires and/or brakes. Their equity in the car is likely not any more than that $6,000 down payment from 3 years ago that they lost opportunity cost on while it sat in their garage depreciating.
Leasing becomes even more sensible as your car becomes more expensive. The ratios expand on a $50,000 car (and yes, that’s what the shiny new SUV in your neighbors driveway costs).
Next argument-“I drive too many miles to lease”.
Many Triangle families drive their primary family hauler far more than 12,000 miles per year. Great. Build the miles in-it’s cheaper than trying to get out of that 3 year old car with 60-70k miles on it. The dealer will deduct far more for those miles on a trade in than they would have cost in a lease. Example-on a three year lease to convert it from 12k to 15k miles per year you drop the residual (buyout) by 2%. On a $30,000 car that’s only $600 in additional depreciation to pay on over the course of 36 payments. Take your owned car to a dealer and the standard mileage deduction is 20 cents per mile. The same 9,000 miles that cost you $600 in depreciation during your lease devalue your own car by $1800 at trade in time.
Need to take a family trip? Rent a car for the week. Need a big vehicle a couple weeks per year? Why would you drive a vehicle 52 weeks per year whose capabilities you only need two of those weeks? Take the rented minivan or suburban to the beach. Trash it. Fill it with sand and fast food wrappers. Drop it off and drive your car home.
We have leased my wife’s car since 1995. I have a company-provided vehicle. When we lease, I put down nothing at all-I have them roll the first payment and the fees into the lease payment. Payment goes up by $30 per month but now I have NO money exposed. I have never bought a set of tires. I have never paid for anything but basic maintenance-oil changes, tire rotations, the occasional air or cabin filter. I have taken more than one of her leased cars to Carmax and gotten a check back for equity-in some cases that happened 6 or even 12 months prior to the end date of the lease because the resale market was so strong on what she was driving (hint-avoid Nissan, Hyundai/Kia, and Volkswagen, brands whose high percentage of fleet sales to rental car agencies kill their resale value). She is always in a car with the latest safety technology. She is always under warranty.
The only way leasing doesn’t make sense if is you totally blow out your miles (no one’s fault but your own) or trash it physically (see example one for whose fault that is).
Cars depreciate. You can’t control it. They are not an investment. Putting $20,000 down on a $50,000 vehicle that is worth $40k the minute you get it home is pretty ridiculous. Use the bank’s money. Mitigate downside risk. Drive something that is always under warranty. Or pay cash if you can afford to and you think the idea of writing a check for something that is worth 20% less than you paid for it the day after you drive it home sounds like a good move.
Bottom line, you've had a car payment for 23 straight years. We have a car that we paid off 5 years ago, we've spent less than $5000 maintenance since then....broken down into a monthly payment it's way less than a leasing payment.
I have three good friends here who've been driving he same vehicle since they moved here in 2006.
I am hard pressed to believe they are spending more than a monthly lease payment on maintenance, since they are all reasonably intelligent people.
Bottom line, the catch phrase "leasing is great if you don't mind always having a car payment" is absolutely true. Since you have a company owned for your other car it's probably 6 of one half dozen of the other, also means you're only insuring one vehicle as well. it's also great if you need the latest and greatest vehicle, are leery of maintenance issues and so on.
There are way too many variables involved to say one is better than the other for every single person at any given time. We've leased a couple vehicles over the years and are happy we did both times for various reasons. But it wasn't the right decision the last time we needed a vehicle, so we didn't.
Bottom line, you've had a car payment for 23 straight years. We have a car that we paid off 5 years ago, we've spent less than $5000 maintenance since then....broken down into a monthly payment it's way less than a leasing payment.
My bottom line-
I have had a 100% fixed cost of keeping a no more than three year old vehicle in my driveway for the last 23 years. It is absolutely predictable, fits my budget, and leaves me without any of the exposure car owners have whether they trade every three years or buy and hold.
As I stated in the very first sentence of my first post in this thread, the cheapest way to drive a car is to pay cash and drive it until the wheels fall off. If a 10 year old car serves your needs, great. If that allows you to spend less than I do, that's great too.
Neither one of these options is a "wrong" choice. I spent considerable time writing my long post in an effort to offer information to those who dismiss leasing without understanding it.
Let's assume that you can either lease or purchase at a zero net margin for the dealer just to make the comparison as level as we can.
Buy
$46,088 sale price
3% sales tax on the whole car-$1,382.64
Fees (title. dealer fees. tag) $700 (approximate but close)
Total to buy-$48,160.64
20% down-$9,632.13
Balance to finance-$38,528.51
60 months at 2.9% APR (current special finance rate, lower than SECU for reference)
Monthly payment $690.78
At 36 months, the buyer has laid out $34,500.21 to put the car in their driveway for that period of time.
$1,382.64 of that number is sales tax, paid up front on the vehicle's entire purchase price. You still have an obligation of $16,578.72 (24 more payments of $690.78).
Lease
Lease based on $43,888 sale price thanks to the $2,200 lease incentive
No sales tax up front-you are leasing so the payment is taxed monthly at 3%
Fees up front $700 (no different than the purchase
Lease also includes $595 acquisition fee for setup and GAP protection
Zero down other than first lease payment (for the first 30 days driving) and fees
36 month/15,000 mile per year lease
Lease money factor .00035 (converted to an interest rate-0.84% apr)
Monthly lease payment $560.39 including 3% NC sales tax
COD $1,283.25
At 36 months, the lessee has laid out $20,896.90 to have the car in their driveway for that period of time. Only $608.58 of that amount is sales tax, because you pay tax as you go when you lease. You have paid $774.06 less in taxes at the three year mark. Who likes lower taxes? I do.
Their cash flow is ahead by $13,603.31.
Let's talk about the buyer's equity position at this point.
The residual buyout on the above lease is $25,789.40. If we use that figure as a trade in value on the buyer's 3 year old car, their equity position against their payoff at that point is $9,210.68.
At this point the lessee is still ahead by $4392.63. That's fine except for the fact that the $9210.68 in equity is not liquid. The buyer can't extract that equity unless they part with the vehicle. They are actually still ahead the same $13,603.31 in cash.
The lessee does not care what the car is worth. If it is worth more than that $25,789.40, it's a gain if they trade out of it. If it is worth less, it is not their liability.
The lessee spent $13,603.31 less to put the same car in their driveway for the same period of time.
The owner's car needs tires and brakes-the lessee turns the car in.
If the lessee's car was involved in an accident, none of the above math changes. They turn the car in.
If the buyer's car was in an accident, it does not have the same value and that liability falls on the buyer.
The lessee can buy out the vehicle for $25,789.40 plus sales tax. That's $26,563.08. That puts their total outlay for the 36 month lease plus the buyout in cash at $47,459.98. Most people who lease will not buy out their leased vehicle. It is not usually the most cost effective solution. They will usually lease again.
The buyer has laid out $9,632.13 5 years ago plus 60 payments of $690.78 at the point the vehicle is paid off (assuming the loan is kept out the full 60 months). Their total outlay is $50,808.93, which includes the interest paid over the life of the loan of $2,918.29.
Let's review.
At 3 years, the lessee is $13,603.31 ahead with no downside exposure other than a $350 lease turn in fee which is waived if the car is traded or if the lessee buys out the lease. This number also assumes that the buyer had $9,632 in liquid cash or trade to put down-most people don't. Some people will also choose to finance for longer than 60 months. The $13,603.31 is actually a conservative estimate of how far ahead in cash flow the lessee will be.
In this example, the interest rate on the 5 year loan is 2.9% and the interest rate on the 3 year lease is 0.84%. Who likes less interest? I do. The leasing company is selling the car cheaper and buying down the rate to get you to lease because they want the car back in 3 years so the dealer can sell it again as a Certified Pre-Owned car.
At 5 years, assuming a buyout in cash, the lessee is still $3,348.95 ahead.
If you want to buy a car and drive it for 10 years, great. Some of us don't. If you trade every 3-5 years, leasing is an option that way more people should research.
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.
