Buy New Car Now or Wait End of Lease?

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Broadway2018
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Joined: Sat May 13, 2017 3:34 pm

Buy New Car Now or Wait End of Lease?

Post by Broadway2018 » Wed Mar 13, 2019 11:05 am

Hi Everyone, after getting out of debt and trying to turn things around, my partner and I are wondering what to do about our cars.

Situation
Mazda 3 - Owe $3500, KBB Offer of $7k - has had many issues and we want to get a used Crosstrek around $16k with more safety features
Subaru Outback - Lease, could trade in at a $2-3k loss now, paying $360 a month, lease-up July 2020. I want to buy a Subaru legacy for less than $18k.

The goal would be to pay cash for the next 2 cars and keep them. We could save up enough cash by the end of this year. My main issue is the Subaru Outback, I could continue paying on it, however I know I will not keep it and at the end of the lease, it would be $23k to buy. Should I just dump it now and buy something for $18k instead of paying more money into the car?

onourway
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Re: Buy New Car Now or Wait End of Lease?

Post by onourway » Wed Mar 13, 2019 11:11 am

Unless I misunderstand I would keep the lease. Turning it in early means you pay an extra $2-3k for which you receive nothing in return. If you keep the lease, that money instead pays for a full year or so of your use of that vehicle. When you are done with the lease, you can buy an $18k car at that point, and it will have an extra 2 years of life in it to boot.

psteinx
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Re: Buy New Car Now or Wait End of Lease?

Post by psteinx » Wed Mar 13, 2019 11:15 am

The outback lease has 16 months to go, at $360/mo, so ~$5760 remaining. You say you could trade it in at a $2-3K loss, but is that assuming you trade at the place you're leasing from? If so, it's likely a concessionary trade of some sort, where they're making a bigger profit somewhere else - for example, by giving you less of a discount on what you're trading for.

Even if you could get out of the lease with no other strings for the mid-point of your range ($2500), then you're saving about $3260. Divide that $3260 by the number of months which that lease would have otherwise covered you for (16), and you're now at a real cost, of keeping (rather than dumping) the lease of about 3260/16=~$204/mo. At *that* price, it probably pays to keep the lease. The depreciation on a relatively newer, good used vehicle is going to be close to that (maybe a shade less). Chalk it up to experience.

As for the Mazda 3 - it sounds like that one is owned, with a loan on it. If it's a bit of a beater and you want a newer car for various reasons, including perhaps safety, then trade it up. But from a pure financial standpoint (minimizing costs), it's usually (though not always) cheaper to keep an old car running.

lazydavid
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Re: Buy New Car Now or Wait End of Lease?

Post by lazydavid » Wed Mar 13, 2019 11:31 am

I would go sell the Outback (yes you can do this on a lease).

Topic Author
Broadway2018
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Re: Buy New Car Now or Wait End of Lease?

Post by Broadway2018 » Wed Mar 13, 2019 6:00 pm

lazydavid wrote:
Wed Mar 13, 2019 11:31 am
I would go sell the Outback (yes you can do this on a lease).
So my payoff is $27k and I think at a dealer I could get $25k. But since I am in MD I paid full taxes so if I trade in I also get the tax credit. If I found something for ~$18k, I could pay ~$20k out the door. It's still cheaper I guess then paying another $5400 towards a lease and then still paying the money, Right?

delamer
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Re: Buy New Car Now or Wait End of Lease?

Post by delamer » Wed Mar 13, 2019 6:58 pm

Broadway2018 wrote:
Wed Mar 13, 2019 6:00 pm
lazydavid wrote:
Wed Mar 13, 2019 11:31 am
I would go sell the Outback (yes you can do this on a lease).
So my payoff is $27k and I think at a dealer I could get $25k. But since I am in MD I paid full taxes so if I trade in I also get the tax credit. If I found something for ~$18k, I could pay ~$20k out the door. It's still cheaper I guess then paying another $5400 towards a lease and then still paying the money, Right?
Have you actually found the vehicle that you want for $18,000?

What does your partner want to do?

Hamberders
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Re: Buy New Car Now or Wait End of Lease?

Post by Hamberders » Wed Mar 13, 2019 7:25 pm

I would get rid of a leased car only if I had positive equity in it; that is to say if its used market value is higher than its buyout price. If that’s the case, one could buy the leased car and sell it, or one could possibly trade it in at a dealer.

If the buyout price is higher than the market value, that means the car has depreciated more than what what was actually paid towards the estimated depreciation. In that case I would continue paying off the estimated depreciation at the monthly rate under the terms of the lease.

lazydavid
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Re: Buy New Car Now or Wait End of Lease?

Post by lazydavid » Wed Mar 13, 2019 7:26 pm

Broadway2018 wrote:
Wed Mar 13, 2019 6:00 pm
lazydavid wrote:
Wed Mar 13, 2019 11:31 am
I would go sell the Outback (yes you can do this on a lease).
So my payoff is $27k and I think at a dealer I could get $25k. But since I am in MD I paid full taxes so if I trade in I also get the tax credit. If I found something for ~$18k, I could pay ~$20k out the door. It's still cheaper I guess then paying another $5400 towards a lease and then still paying the money, Right?
That sounds about right to me.

onourway
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Re: Buy New Car Now or Wait End of Lease?

Post by onourway » Wed Mar 13, 2019 7:45 pm

Broadway2018 wrote:
Wed Mar 13, 2019 6:00 pm
lazydavid wrote:
Wed Mar 13, 2019 11:31 am
I would go sell the Outback (yes you can do this on a lease).
So my payoff is $27k and I think at a dealer I could get $25k. But since I am in MD I paid full taxes so if I trade in I also get the tax credit. If I found something for ~$18k, I could pay ~$20k out the door. It's still cheaper I guess then paying another $5400 towards a lease and then still paying the money, Right?
This seems to be on the assumption that the $5400 buys you nothing. In fact it buys you use of the vehicle for each of those remaining months, at a rate approximately equal to the depreciation the vehicle will incur. This is exactly how a lease is intended to work. Paying extra money to get out of the lease early makes no sense. Your new vehicle will also cost you in depreciation, it will just be less visible in the short term as you “own” it.

I agree I would not turn in the lease unless the buyout is less than what you can sell it for.

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jabberwockOG
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Re: Buy New Car Now or Wait End of Lease?

Post by jabberwockOG » Wed Mar 13, 2019 7:57 pm

The only thing worse for a regular consumer (non business) to do than lease a car is to then terminate the lease early. You are already paying thru the nose for a new car you could not afford to buy. Terminating lease early transaction costs and repurchase costs for replacement will just make the financial outcome worse.

Cars and homes are some of the biggest financial costs/purchases in life. In the future save up your money and pay in full cash for cars, and then drive them at a minimum for 10 years. If you cant afford new, shop carefully for a great condition very reliable used car. Also critical to research and learn how the new (and used) car business works, and also how to set up for, and then effectively negotiate a fair purchase price, to not get repeatedly fleeced on car transactions. It's really pretty simple but it starts with saving money for a car purchase well in advance of needing a car and then being patient, persistent, and 100% businesslike and professional when making the purchase (new or used).

No more leases.

BeneIRA
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Re: Buy New Car Now or Wait End of Lease?

Post by BeneIRA » Thu Mar 14, 2019 6:15 pm

I think you left out quite a bit of information that would make quite a bit of difference. How much is your emergency fund? Income? Investments? Own a home or rent? Kids? Their ages and your age? All of those play a factor in making the right call here. If by debt you meant your mortgage and you have no mortgage, the answer is very different than if you are renting, have virtually no E-fund, are 55 years old and have few investments. You get the point,

Without knowing that information, I can only agree that dumping the lease early makes no sense. Just ride it out for a while longer, ideally until the lease ends, save on the maintenance and enjoy a new car. You'll get a 1.5 year newer car if you wait. For my first car, I leased it and regretted it ever since. I turned it in after the lease was done and bought a used car and haven't looked back. Learn from it and just ride it out. It doesn't make sense to eat the extra cost to get out early. I would expect the leased car is newer and/or better and you don't have to be attached to it since you don't own it.

macarose
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Re: Buy New Car Now or Wait End of Lease?

Post by macarose » Thu Mar 14, 2019 7:04 pm

There are a lot of mildly amusing ways you can blow your financial brains out.

Leasing a car and then moving on to a new car is definitely one of the easiest ways to toss your savings down the toilet. If that's where you want to go consider the following...

The AVERAGE car on the road has been over 11 years old for several years now.

New car reliability is getting worse, not better. Feel free to take a deeper dive into this site.

http://www.dashboard-light.com/

As an auto auctioneer and long-time part owner of a an auto auction I have seen countless late model cars fall like rocks when it comes to resale value. From the mid-30s new to just the mid-teens in 36 months. That's one hell of a poison pill to put into your portfolio.

I'm sure you're going to buy a new car for one simple reason. You're a debt addict who is completely oblivious to the economics of car ownership. Educate yourself and learn to make a healthy commitment with a well depreciated car that will endure.

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