Lease a car or buy a car

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SemperFi79
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Lease a car or buy a car

Post by SemperFi79 »

I have always paid for my car and recently looked at purchasing a Mercedes sedan. The salesman said that most Mercedes owners lease. Huh? This is a cash deal, however he said you are better off leasing because if you hold on to your car for less than 3 years, you can get 3 new ones for the same amount of money if you purchase the car outright today. I was wondering if there is anyone that has leased and found it more cost effective? I understand about mileage being a consideration, and we don't have any idea on how much travel per year we will do now that we are empty nesters wanting to travel. Most of the time we have held on to our vehicles for 10 plus years. I have heard from other Mercedes owners that they just keep on running, which is similar to my Toyota experience. Thanks for your insights
delamer
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Re: Lease a car or buy a car

Post by delamer »

The lease is a better deal for Mercedes, not you. Particularly if you normally keep your cars for 10+ years.

We have bought several 2 or 3 year old luxury vehicles (Audi, Mercedes, Lexus). All were in excellent condition and much cheaper than a new model.
kjvmartin
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Re: Lease a car or buy a car

Post by kjvmartin »

You can usually find a lease special (not on a Mercedes, probably) for under $250 a month x 24 months.

Over 10 years, that's $30,000. You can have a brand new car every two years for a total outlay of $30,000 and never pay for any upkeep.

Or, you can spend $30,000 now on a brand new car and have a car worth a few thousand at the end which will probably recoup your upkeep cost.

I don't know enough about expensive cars to extrapolate if they work the same.
harrychan
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Re: Lease a car or buy a car

Post by harrychan »

Ask the dealer what happens after leasing the 3 cars. The answer is you have no car.

Also consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
This is not legal or certified financial advice but you know that already.
German Expat
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Re: Lease a car or buy a car

Post by German Expat »

Leasing rarely makes financial sense except in special circumstances.

For electric cars a while ago you could get super low leasing rates (e.g. 99$ per month) and I have a friend who leased 2 and really liked them. With electric cars getting better with longer range and pricing going down it made financial sense.

Also if you want a new car every couple of years it can make sense. With European cars you can have higher repair costs and by leasing you could stay inside the warranty. There used to be super deals for BMW's years ago with very high residuals and low lease factors and we did lease 3 BMW's with European delivery (saved us a rental car there as well). When that stopped we bought.

For you if you like to drive your cars for 10 years leasing is not attractive. Also you would really need to scout the car and finance forums to learn the in and outs because there are a lot more moving parts than just negotiating for a price (which you still need to do while leasing).
sf_tech_saver
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Re: Lease a car or buy a car

Post by sf_tech_saver »

We really enjoy having a new car every 3 years so we are on our second BMW lease.

I previously bought outright and drove for ~6 years but one major engine repair took the trade-in value of the $65k car down to $3k--with only 65k miles on it.

With German cars they either get you with the lease, or they get you with high dealer repair costs. Pick the poison/risk you prefer.

You certainly might be able to drive for 20 years without a major repair like this hitting....but I prefer to just understand that we pay about $700/month for a relatively new Germany SUV at all times. Once you take the plunge to a more luxury German car why not just treat it as an expense and get out of the repair-risk-management game?
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camillus
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Re: Lease a car or buy a car

Post by camillus »

sf_tech_saver wrote: Sat Mar 23, 2019 3:14 amOnce you take the plunge to a more luxury German car why not just treat it as an expense and get out of the repair-risk-management game?
So you are saying that since the cars you prefer are so mechanically unreliable, it makes sense to lease. The premise to your justification doesn't jibe with my sensibilities.
snowox
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Re: Lease a car or buy a car

Post by snowox »

camillus wrote: Sat Mar 23, 2019 3:37 am
sf_tech_saver wrote: Sat Mar 23, 2019 3:14 amOnce you take the plunge to a more luxury German car why not just treat it as an expense and get out of the repair-risk-management game?
So you are saying that since the cars you prefer are so mechanically unreliable, it makes sense to lease. The premise to your justification doesn't jibe with my sensibilities.

+1
Jags4186
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Re: Lease a car or buy a car

Post by Jags4186 »

I would say most people lease Mercedes because most people can’t afford to buy Mercedes. The *cheapest* Mercedes with no options is $32,500. They have dozens of models between $40,000-$80,000 and more than a handful of models $100,000+. (Edit I just looked and there are multiple $200k+ models!) I live in an expensive area but it is predominantly middle class—homes are on the low end $350k and up to $1 million in the town I live in. I live in a home closer to the bottom of that range and the houses around me are in that range. It’s amazing for me to see people who have cars in their driveway with MSRPs 25%+ of their home value.

I look at it this way:

If you want a new car every 3 years and don’t drive excessive mileage, leasing is usually cheaper and far less aggravation than buying/selling/buying/selling.

If you only need a car for a certain time period—say 2 years—again, leasing is usually better than buying and far less aggravation.

If you need a car with a minimal outlay and you have little money, leasing is pretty good because you can find barebones budget models for $99/mo. It’s hard to beat a new car for $99/mo.

If you want to spend the least amount of money on a car, buy a deeply discounted new car or a gently used car, reliable make, drive it reasonably (no hard acceleration/braking), do all preventative maintenance and drive it into the ground.
Rus In Urbe
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Re: Lease a car or buy a car

Post by Rus In Urbe »

I know two kinds of people: those who buy cars and those who lease.

I belong to the first group. We have always bought cars in cash, often used, but not always. Always well maintained and long-lasting. Yes, we can afford any car we want, any car. We drive a four-year-old Subaru Forrester and between two of us, we share one car.

I have a lot of friends and acquaintances who lease cars, and always have. They are constantly upgrading their automobile and they have to have the latest model with the latest features. They get to know the salespeople at the showroom where they lease; leasing and picking out a new car consumes a lot of their time and energy. They often natter on about "how much money they are saving" by leasing; one of them said to me recently that he has "almost a FREE CAR!" They often sound like car salesmen themselves.

I have run the numbers on leasing cars. It does not work for me. Ever.

What I have noticed about my friends who lease cars is that they always seem short of money.

Whether these two things correlate, I cannot prove. Just saying.
I'd like to live as a poor man with lots of money. ~Pablo Picasso
Ready3Retire
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Re: Lease a car or buy a car

Post by Ready3Retire »

You can usually find a lease special (not on a Mercedes, probably) for under $250 a month x 24 months.

Over 10 years, that's $30,000. You can have a brand new car every two years for a total outlay of $30,000 and never pay for any upkeep.

Or, you can spend $30,000 now on a brand new car and have a car worth a few thousand at the end which will probably recoup your upkeep cost.

I don't know enough about expensive cars to extrapolate if they work the same
In this example, the Present Value of 12 monthly payments over 10 years with a 2.5% interest rate is about $26,500. Comparing to the "buy" option, and assuming the residual value funded any repair costs, the lease looks like a better option. This assumes no significant down payments for the new leases every 2-3 years.
navyitaly
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Re: Lease a car or buy a car

Post by navyitaly »

People are out of touch..in 2019 there are no zero down $99 per month leases anywhere and barely any $249..cheapest is like $279-$299 for anything halfway decent. Interest rates are up and residuals are down.
Jags4186
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Re: Lease a car or buy a car

Post by Jags4186 »

navyitaly wrote: Sat Mar 23, 2019 7:07 am People are out of touch..in 2019 there are no zero down $99 per month leases anywhere and barely any $249..cheapest is like $279-$299 for anything halfway decent. Interest rates are up and residuals are down.
1) Interest rates are super low and decreasing
2) higher residuals help lease deals.

Just a cursory google search I found a Honda Civic LX automatic for $99/mo and $1495 down (includes 1st months payment) for 36 months. That’s $137.78/mo. I’m confident you can negotiate better than the advertised price on a website. I have a Honda Civic LX manual and that car’s MSRP is $800 less than the automatic...so if you go that route and negotiate a little you might get really close to that $99/mo total cost (of course not including taxes).

https://www.planethondanj.com/planet-ho ... -specials/
Last edited by Jags4186 on Sat Mar 23, 2019 7:21 am, edited 1 time in total.
kjvmartin
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Re: Lease a car or buy a car

Post by kjvmartin »

navyitaly wrote: Sat Mar 23, 2019 7:07 am People are out of touch..in 2019 there are no zero down $99 per month leases anywhere and barely any $249..cheapest is like $279-$299 for anything halfway decent. Interest rates are up and residuals are down.
I found that true when I briefly lived in a rural area, but in a major metropolitan area with a lot of competition there are always options in that range. I am driving a nearly loaded Chevrolet Equinox with $0 down at $250 per month with 15k miles per year allowed over 2 years. It took about an hour of internet shopping and e-mailing to arrive at that deal. I have 4 more payments remaining. I am considering the same lease again or going for a base model or a Malibu for $90 less per month this time.
Nissanzx1
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Re: Lease a car or buy a car

Post by Nissanzx1 »

We have two older Mercedes in the garage now. They are pretty good cars, but nowhere even close to Toyota reliability overall. Cars today are engineered to extract your cash on the service drive if, God forbid, you use the dealer after the warranty period. There are so many features in the modern car, things will go wrong. The emissions systems alone have many components and nearly all are expensive...

Salesmen get extra factory incentives when they write a lease. If a salesman pushes for something, red flag.

As far as leasing, the payment amounts are attractive. But, I’m not giving anyone $5000 lump sum upfront (non-refundable) to rent anything...

As another poster pointed out I do observe our friends and relatives. Those with car payments monthly seem to struggle. They struggle to meet housing and retirement goals. They are also more likely to turn to a credit card for necessities when the money runs out early. Leasing is still a car payment after all... with the added bonus of the dealer keeping the asset after the fun is over.....
wije
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Re: Lease a car or buy a car

Post by wije »

harrychan wrote: Sat Mar 23, 2019 12:14 amAlso consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
How does auto insurance play with leased cars?
sambb
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Re: Lease a car or buy a car

Post by sambb »

if you keep cars for 2-4 years, leasing is favorable (and you can predict your mileage)
If you keep cars >7 years, buying can be favorable
Ive done both and there are pros and cons
There are good and bad ways on both sides
one other nuance - bought, was hit by another car, the car now has an accident on carfax, and its value is much lower as a trade in. lease wouldve been better. There are opposite arguments also.
In the end, the differences may only be a few thousand dollars depending on the car, so perhaps the best lesson is to make enough/save enough so this small amount is irrelevant
ncbill
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Re: Lease a car or buy a car

Post by ncbill »

Nissanzx1 wrote: Sat Mar 23, 2019 7:46 am We have two older Mercedes in the garage now. They are pretty good cars, but nowhere even close to Toyota reliability overall. Cars today are engineered to extract your cash on the service drive if, God forbid, you use the dealer after the warranty period. There are so many features in the modern car, things will go wrong. The emissions systems alone have many components and nearly all are expensive...

Salesmen get extra factory incentives when they write a lease. If a salesman pushes for something, red flag.

As far as leasing, the payment amounts are attractive. But, I’m not giving anyone $5000 lump sum upfront (non-refundable) to rent anything...

As another poster pointed out I do observe our friends and relatives. Those with car payments monthly seem to struggle. They struggle to meet housing and retirement goals. They are also more likely to turn to a credit card for necessities when the money runs out early. Leasing is still a car payment after all... with the added bonus of the dealer keeping the asset after the fun is over.....
Well, yes, you should never put money down ($0 CCR)...roll it into the monthly lease payment instead so it's covered by gap insurance.

Though on some brands you can "buy down" the money factor to lower the monthly payment via multiple, refundable security deposits (MSDs)

And remember with leasing there's always something "on sale" so the more flexible you can be the better deal you'll get.

I.e., what mid-size SUV is the best deal this month vs. I must have this particular brand & model of mid-size SUV.

Those who are interested in how leasing works should spend some time over on leasehackr [sic] dot com.
PGR
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Re: Lease a car or buy a car

Post by PGR »

delamer wrote: Fri Mar 22, 2019 11:22 pm The lease is a better deal for Mercedes, not you. Particularly if you normally keep your cars for 10+ years.

We have bought several 2 or 3 year old luxury vehicles (Audi, Mercedes, Lexus). All were in excellent condition and much cheaper than a new model.
+1
hudson
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Re: Lease a car or buy a car

Post by hudson »

SemperFi79 wrote: Fri Mar 22, 2019 11:16 pm I was wondering if there is anyone that has leased and found it more cost effective?

I have heard from other Mercedes owners that they just keep on running, which is similar to my Toyota experience.
Years ago I started shopping for a new low end Saturn, Toyota Corolla, or the equivalent. Any down payment would have been on a credit card. As I shopped around, I asked each salesman for the lowest monthly payment. I probably visited 6 dealers and asked for their best deal....lowest monthly payment. I had not thought of leasing. The Saturn dealer said, "What about a lease/buy 7 years at .5% interest." I bought it. It was under $100 per month. I believe the Corollas would have busted my budget at $130 a month. I actually paid it off in one year using mileage reimbursements, then we drove the wheels off. So yes, that was more cost effective than buying....one time.

Do Mercedes compare to Toyotas as to longevity? I'm not an expert, but I've heard that Mercedes are expensive to maintain compared to Toyotas. My experience is that Toyotas have long lives with low maintenance costs.

IF I was going to lease, I would pay about $40 to get James Bragg's Fighting Chance Package. He can help you with the math on leasing and coach you if you need it. I've found lease contracts to be mysterious. I've used his service 3 times to buy cars...and will use it again. https://www.fightingchance.com/auto_leasing.php

James is the oldest guy in the picture in a 2012 USA Today article: https://www.usatoday.com/story/money/ca ... e/1749101/

I read the article early one morning, emailed it to him (in CA...3 hours behind) He hadn't seen the article. He called me and thanked me. Several times when buying a car, I was having problems negotiating a price for a new car. He quickly diagnosed the problem and put me on the right track.
Last edited by hudson on Sat Mar 23, 2019 12:18 pm, edited 1 time in total.
harrychan
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Re: Lease a car or buy a car

Post by harrychan »

wije wrote: Sat Mar 23, 2019 9:05 am
harrychan wrote: Sat Mar 23, 2019 12:14 amAlso consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
How does auto insurance play with leased cars?
They pay the dealer. You get nothing.
This is not legal or certified financial advice but you know that already.
bsteiner
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Re: Lease a car or buy a car

Post by bsteiner »

Jags4186 wrote: Sat Mar 23, 2019 6:49 am ... It’s amazing for me to see people who have cars in their driveway with MSRPs 25%+ of their home value. ....
We had an estate where the decedent's car was worth more than her home.
Thesaints
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Re: Lease a car or buy a car

Post by Thesaints »

Whenever you lease, you have to pay full collision coverage insurance, which on a new car tends to be quite expensive.
delamer
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Re: Lease a car or buy a car

Post by delamer »

harrychan wrote: Sat Mar 23, 2019 12:12 pm
wije wrote: Sat Mar 23, 2019 9:05 am
harrychan wrote: Sat Mar 23, 2019 12:14 amAlso consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
How does auto insurance play with leased cars?
They pay the dealer. You get nothing.
The $5000 would be covered if you opt for gap insurance.
squirm
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Re: Lease a car or buy a car

Post by squirm »

why would you listen to a sales guy? you're doing it right, just buy it outright and keep it for ten years. you'll be better off.
Hamberders
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Re: Lease a car or buy a car

Post by Hamberders »

A lease is just an amortization of the estimated depreciation of the car over the term of the lease. It's a loan for how much the car is anticipated to decrease in value.

If interest rates are low and you like getting new cars every three years, always having a car under warranty, and enjoying new auto technologies as they come, then a lease may be appropriate.
stoptothink
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Re: Lease a car or buy a car

Post by stoptothink »

snowox wrote: Sat Mar 23, 2019 6:41 am
camillus wrote: Sat Mar 23, 2019 3:37 am
sf_tech_saver wrote: Sat Mar 23, 2019 3:14 amOnce you take the plunge to a more luxury German car why not just treat it as an expense and get out of the repair-risk-management game?
So you are saying that since the cars you prefer are so mechanically unreliable, it makes sense to lease. The premise to your justification doesn't jibe with my sensibilities.

+1
This sounds like the rationale the sales manager used to try to sell me an extended warranty on my jetta. He literally said, do you know how much it costs to repair a VW? My response: so, you are telling me that the vehicle you are trying to sell me is unreliable - do you want to take a second and think before coming back with another sales pitch? He really didn't understand, so I said if he wants to continue talking about the extended warranty I am going to walk down the street and buy this car from your competitor. Finally, silence.

If you are really concerned about the day-to-day reliability of a vehicle, why exactly would you buy it unless it is a toy? That being said, if you are one of those people who can't resist the urge to get a new car every 3yrs, you probably are better off leasing.
Jags4186
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Re: Lease a car or buy a car

Post by Jags4186 »

delamer wrote: Sat Mar 23, 2019 1:36 pm
harrychan wrote: Sat Mar 23, 2019 12:12 pm
wije wrote: Sat Mar 23, 2019 9:05 am
harrychan wrote: Sat Mar 23, 2019 12:14 amAlso consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
How does auto insurance play with leased cars?
They pay the dealer. You get nothing.
The $5000 would be covered if you opt for gap insurance.
You’re required to get gap insurance on a lease. It pays the dealer. Your cap cost reduction is lost. That’s why you should never pay cap cost reduction.
delamer
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Re: Lease a car or buy a car

Post by delamer »

Jags4186 wrote: Sat Mar 23, 2019 2:40 pm
delamer wrote: Sat Mar 23, 2019 1:36 pm
harrychan wrote: Sat Mar 23, 2019 12:12 pm
wije wrote: Sat Mar 23, 2019 9:05 am
harrychan wrote: Sat Mar 23, 2019 12:14 amAlso consider this. If you put say $5000 down and the car gets totalled the minute you drive off the lot. That $5000 is gone.
How does auto insurance play with leased cars?
They pay the dealer. You get nothing.
The $5000 would be covered if you opt for gap insurance.
You’re required to get gap insurance on a lease. It pays the dealer. Your cap cost reduction is lost. That’s why you should never pay cap cost reduction.
My mistake. It has been a long time since my one lease.

And I do now remember that you should never put any money down on a lease.
malabargold
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Re: Lease a car or buy a car

Post by malabargold »

I don’t think the brand matters

Buy a 2-3 year old car to avoid the biggest
Depreciation hit:
run it into the ground or until it is no longer safe and reliable
Aku09
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Re: Lease a car or buy a car

Post by Aku09 »

As a general rule of thumb a good lease is the monthly payment equivalent to 1% msrp of the car (ie 50k car monthly payment $500 or less). There are several lease forums (I use leasehackr) that can give you advice on specific deals as some cars lease better than others. Rebates/incentives constantly change based on the brand and region you are in.

Not a Bogleheads thing to do but I leased a new truck with msrp of 63k and change for $505 a month for 3 years. I don’t drive a ton of miles and my old car was giving me problems. Shouldn’t have to worry about any maintenance other than oil changes.
Sam1
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Re: Lease a car or buy a car

Post by Sam1 »

Leasing is popular because it lowers the monthly payment amount someone has to pay. It’s more expensive to own and almost all of the new cars, especially luxury cars, are leased.

Most people can afford a $500 bmw lease payment but NOT a $1200 car loan payment. Which is why they lease. Then they continue to lease bevause at the end of the lease they don’t have a car to trade in. They can probably come up with $2k for the next lease, but not the amount that would make a car loan on the same car possible. This is how most Americans live.

The problem is that if you do the math it’s very clear that unless you’re truly buying a new car every three years, it’s best to buy.

Also curious about the zero down leases posters keep talking about. I see numerous car ads and the lease ads always have a downpayment of $2-3k. Don’t I see the same TV ads that someone in a rural part of my state sees? Also most of the leases advertised are low mileage leases.

Also the argument that you get to drive a new car every three years is silly. Who actually does that, especially with a luxury car? A new BMW should be completely fine to drive for 5 years without even thinking about wanting to buy another car. They don’t even change models that often. I can’t imagine wanting a new car every three years and renting it.
Trader Joe
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Re: Lease a car or buy a car

Post by Trader Joe »

SemperFi79 wrote: Fri Mar 22, 2019 11:16 pm I have always paid for my car and recently looked at purchasing a Mercedes sedan. The salesman said that most Mercedes owners lease. Huh? This is a cash deal, however he said you are better off leasing because if you hold on to your car for less than 3 years, you can get 3 new ones for the same amount of money if you purchase the car outright today. I was wondering if there is anyone that has leased and found it more cost effective? I understand about mileage being a consideration, and we don't have any idea on how much travel per year we will do now that we are empty nesters wanting to travel. Most of the time we have held on to our vehicles for 10 plus years. I have heard from other Mercedes owners that they just keep on running, which is similar to my Toyota experience. Thanks for your insights
Buy, do not lease.
H-Town
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Re: Lease a car or buy a car

Post by H-Town »

Sam1 wrote: Sat Mar 23, 2019 6:53 pm Also the argument that you get to drive a new car every three years is silly. Who actually does that, especially with a luxury car? A new BMW should be completely fine to drive for 5 years without even thinking about wanting to buy another car. They don’t even change models that often. I can’t imagine wanting a new car every three years and renting it.
Yeah, I had to try really hard to follow that argument. So sorta like... $500 a month... heck yeah, I want a new car every 3 years. It's just $500 a month, right?
denovo
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Re: Lease a car or buy a car

Post by denovo »

Rus In Urbe wrote: Sat Mar 23, 2019 6:58 am I know two kinds of people: those who buy cars and those who lease.

I belong to the first group. We have always bought cars in cash, often used, but not always. Always well maintained and long-lasting. Yes, we can afford any car we want, any car. We drive a four-year-old Subaru Forrester and between two of us, we share one car.

I have a lot of friends and acquaintances who lease cars, and always have. They are constantly upgrading their automobile and they have to have the latest model with the latest features. They get to know the salespeople at the showroom where they lease; leasing and picking out a new car consumes a lot of their time and energy. They often natter on about "how much money they are saving" by leasing; one of them said to me recently that he has "almost a FREE CAR!" They often sound like car salesmen themselves.

I have run the numbers on leasing cars. It does not work for me. Ever.

What I have noticed about my friends who lease cars is that they always seem short of money.

Whether these two things correlate, I cannot prove. Just saying.
+1
"Don't trust everything you read on the Internet"- Abraham Lincoln
delamer
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Re: Lease a car or buy a car

Post by delamer »

Sam1 wrote: Sat Mar 23, 2019 6:53 pm Leasing is popular because it lowers the monthly payment amount someone has to pay. It’s more expensive to own and almost all of the new cars, especially luxury cars, are leased.

Most people can afford a $500 bmw lease payment but NOT a $1200 car loan payment. Which is why they lease. Then they continue to lease bevause at the end of the lease they don’t have a car to trade in. They can probably come up with $2k for the next lease, but not the amount that would make a car loan on the same car possible. This is how most Americans live.

The problem is that if you do the math it’s very clear that unless you’re truly buying a new car every three years, it’s best to buy.

Also curious about the zero down leases posters keep talking about. I see numerous car ads and the lease ads always have a downpayment of $2-3k. Don’t I see the same TV ads that someone in a rural part of my state sees? Also most of the leases advertised are low mileage leases.

Also the argument that you get to drive a new car every three years is silly. Who actually does that, especially with a luxury car? A new BMW should be completely fine to drive for 5 years without even thinking about wanting to buy another car. They don’t even change models that often. I can’t imagine wanting a new car every three years and renting it.
I live in a major metro area, and the only manufacturer that advertises $0 down leases is VW. All the rest advertise leases with money down so they can offer a lower monthly payment.

But leases are negotiable and you can eliminate the downpayment (which increases the monthly payment, of course, all other things being equal).
av8r316
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Re: Lease a car or buy a car

Post by av8r316 »

Leasing is a win for the manufacturers and dealers if they convince you to buy more expensive cars and/or more frequently.

Leasing can be a win for the customer if they understand and exploit the structure and terms of a lease.

IF you are disciplined enough to NOT change your behavior (e.g. not get more expensive cars with greater frequency), THEN you can use the lease to your benefit.

The cost to drive X car for Y miles over Z years is completely independent of the owner and financing.

Holding X, Y, and Z constant (the big IF), the decision to buy, finance, or lease is simply a matter of economics.

All one needs to do is compare the return on cash (buy) to the financing rate (finance) to the money factor rate (lease). Some manufactors intentionally set the leasing rates below the financing rates (i) to make the monthly payments even more attractive in the hopes that you’ll end up leasing a car that’s more expensive than you otherwise would’ve bought, and (ii) because they want you to lease because you MUST return to a dealer to turn-in the car, and auto manufacturers and dealers are willing to pay a lot of money just to have you show up, and you’re naturally in the market for a new car (unless you’re not replacing the car you’re turning in).

Therefore, even if your intention is to “buy” a particular car at a particular price, your best deal may be to “lease” that car for X years at the low rate, and then exercise your call option to “buy” it at the predetermined residual value (that was used to calculate your payment) at lease end. If you don’t want to pay any interest, you can do what is called a single-pay lease, and make all the lease payments up front.

Another benefit of leasing is that the monthly/single-pay payments are only amortized down to the residual value, not down to zero (which is why lease payments are less than financing payments). When I hear people say “At the end of a lease, you don’t own anything”, I say “Yes, I do. I own more cash.” This is the cash you would use to buy the car at lease end.

One significant consideration when calculating the total cost of leasing is the lease fees; specifically, the acquisition and turn-in/purchase fees. These costs can eat up, or be even more than, the aforementioned benefits that can be found in leasing.
Sam1
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Re: Lease a car or buy a car

Post by Sam1 »

What stands out to me about your post is that you say you have driven cars for 10 years. Why change to driving a new car every three years?!

It’s very easy to do the math by calculating a small downpayment and monthly lease for the next 3 years followed my 2 more leases. Then factor in buying the same car with a car payment for 3-5 years followed by some maintenance costs over the next five years. Then assume some residual value for the car at the end of 10 years.

The math says that it’s truly better financially to own unless you’re going to buy and sell new cars every few years. From your past history of driving cars a good 10 years it doesn’t sound like you’re a strong candidate for a new car every few years at an increased cost.
TheGreyingDuke
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Re: Lease a car or buy a car

Post by TheGreyingDuke »

I was interested in dipping my toe into the electric vehicle waters but did not want to own it with the pace of technology change. What with various incentives (state and Federal) was able to lease a Honda Clarity for $200 a month all in, nothing down, taxes and fees rolled into the monthly). I get to test drive it for three years, 36k miles. This includes gap insurance and $500 worth of repairs (if needed) at turn in.

It winds up at $.20 a mile and if I go over the 36k (unlikely) it remains at $.20 a mile. For me, the "put option" that I have is important.
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
Winston19
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Re: Lease a car or buy a car

Post by Winston19 »

TheGreyingDuke wrote: Sun Mar 24, 2019 7:20 am I was interested in dipping my toe into the electric vehicle waters but did not want to own it with the pace of technology change. What with various incentives (state and Federal) was able to lease a Honda Clarity for $200 a month all in, nothing down, taxes and fees rolled into the monthly). I get to test drive it for three years, 36k miles. This includes gap insurance and $500 worth of repairs (if needed) at turn in.

It winds up at $.20 a mile and if I go over the 36k (unlikely) it remains at $.20 a mile. For me, the "put option" that I have is important.
Leasing electric vehicles that are eligible for the tax credits seems to make a lot of sense now due to the pace of change, and the ability to take advantage of the tax credits.
donaldc
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Re: Lease a car or buy a car

Post by donaldc »

Having owned several generations of S class and different E classes over the years, Mercedes are notoriously unreliable cars which are ridiculously expensive to repair.
Thus I recommend lease or buying extended warranty. This is not a car you should own without warranty protection.
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SemperFi79
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Re: Lease a car or buy a car

Post by SemperFi79 »

donaldc wrote: Tue Mar 26, 2019 12:30 pm Having owned several generations of S class and different E classes over the years, Mercedes are notoriously unreliable cars which are ridiculously expensive to repair.
Thus I recommend lease or buying extended warranty. This is not a car you should own without warranty protection.
I’m curious why you keep buying them if they are “notoriously unreliable”? Much like the Range Rover owners ive spoken with they like the vehicle and put up with the unreliability. I have not heard from friends who’ve owned a Mercedes that they thought they were unreliable. Expensive in maintenance but many have over 200,000 miles on them. I am looking at an E class so your comments are disconcerting.
Topic Author
SemperFi79
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Re: Lease a car or buy a car

Post by SemperFi79 »

Sam1 wrote: Sun Mar 24, 2019 7:01 am What stands out to me about your post is that you say you have driven cars for 10 years. Why change to driving a new car every three years?!

It’s very easy to do the math by calculating a small downpayment and monthly lease for the next 3 years followed my 2 more leases. Then factor in buying the same car with a car payment for 3-5 years followed by some maintenance costs over the next five years. Then assume some residual value for the car at the end of 10 years.

The math says that it’s truly better financially to own unless you’re going to buy and sell new cars every few years. From your past history of driving cars a good 10 years it doesn’t sound like you’re a strong candidate for a new car every few years at an increased cost.
I have to agree with your comments. As it is a cash deal and I hold onto and maintain my cars for 10-15 years before replacing. All good feedback on people’s thoughts and experience.
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SemperFi79
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Re: Lease a car or buy a car

Post by SemperFi79 »

av8r316 wrote: Sun Mar 24, 2019 12:50 am Leasing is a win for the manufacturers and dealers if they convince you to buy more expensive cars and/or more frequently.

Leasing can be a win for the customer if they understand and exploit the structure and terms of a lease.

IF you are disciplined enough to NOT change your behavior (e.g. not get more expensive cars with greater frequency), THEN you can use the lease to your benefit.

The cost to drive X car for Y miles over Z years is completely independent of the owner and financing.

Holding X, Y, and Z constant (the big IF), the decision to buy, finance, or lease is simply a matter of economics.

All one needs to do is compare the return on cash (buy) to the financing rate (finance) to the money factor rate (lease). Some manufactors intentionally set the leasing rates below the financing rates (i) to make the monthly payments even more attractive in the hopes that you’ll end up leasing a car that’s more expensive than you otherwise would’ve bought, and (ii) because they want you to lease because you MUST return to a dealer to turn-in the car, and auto manufacturers and dealers are willing to pay a lot of money just to have you show up, and you’re naturally in the market for a new car (unless you’re not replacing the car you’re turning in).

Therefore, even if your intention is to “buy” a particular car at a particular price, your best deal may be to “lease” that car for X years at the low rate, and then exercise your call option to “buy” it at the predetermined residual value (that was used to calculate your payment) at lease end. If you don’t want to pay any interest, you can do what is called a single-pay lease, and make all the lease payments up front.

Another benefit of leasing is that the monthly/single-pay payments are only amortized down to the residual value, not down to zero (which is why lease payments are less than financing payments). When I hear people say “At the end of a lease, you don’t own anything”, I say “Yes, I do. I own more cash.” This is the cash you would use to buy the car at lease end.

One significant consideration when calculating the total cost of leasing is the lease fees; specifically, the acquisition and turn-in/purchase fees. These costs can eat up, or be even more than, the aforementioned benefits that can be found in leasing.
Great economics outline. Makes sense and after more research after this posting I’ve decided to buy, not lease or finance. Leasing and all the particulars, while you help make more sense of it I’m not interested in staying on top of all that. Instead just buy and hold onto for 10+ years like we always do. Thanks for the great insights.
Quickfoot
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Re: Lease a car or buy a car

Post by Quickfoot »

If you are looking at luxury cars lease new and buy used. Luxury cars depreciate so rapidly you can get a 2-3 year old used one for half the cost, buying a new luxury car makes zero sense as you are going to pay an inordinate amount of depreciation. You are better off buying 2-3 years old every 3 years than leasing new every 3 years because the majority of depreciation on the used vehicle has alread occured.

Modern Audi and BMW cars are only slightly behind Toyota for reliability and are ahead of the majority of traditional consumer brands.
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dm200
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Re: Lease a car or buy a car

Post by dm200 »

For me - there are several factors why I conclude that leasing (for personal use) makes no sense:

1. A lease (under the covers) is a balloon loan on which interest is paid for the term of the lease with the final balloon payment due at the end of the lease. Except for the guaranteed value, not much different than a balloon car loan.

2. The leasing company does some degree of work and, therefore is financially compensated for what it does. That money comes from the person signing up for the lease. No FREE lunch. How can MORE work and MORE costs equal better value?

3. In some jurisdictions, there is a tax applied to lease payments or agreements.

Especially with good credit, new auto loans may have very, very low interest rates.

For business use, leasing may make financial sense because of tax breaks for auto expenses. Some folks leasing for business (for valid business reasons) may need a more upscale and late model vehicle. No tax expert here, but that is my understanding.
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SemperFi79
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Re: Lease a car or buy a car

Post by SemperFi79 »

stoptothink wrote: Sat Mar 23, 2019 2:27 pm
snowox wrote: Sat Mar 23, 2019 6:41 am
camillus wrote: Sat Mar 23, 2019 3:37 am
sf_tech_saver wrote: Sat Mar 23, 2019 3:14 amOnce you take the plunge to a more luxury German car why not just treat it as an expense and get out of the repair-risk-management game?
So you are saying that since the cars you prefer are so mechanically unreliable, it makes sense to lease. The premise to your justification doesn't jibe with my sensibilities.

+1
This sounds like the rationale the sales manager used to try to sell me an extended warranty on my jetta. He literally said, do you know how much it costs to repair a VW? My response: so, you are telling me that the vehicle you are trying to sell me is unreliable - do you want to take a second and think before coming back with another sales pitch? He really didn't understand, so I said if he wants to continue talking about the extended warranty I am going to walk down the street and buy this car from your competitor. Finally, silence.

If you are really concerned about the day-to-day reliability of a vehicle, why exactly would you buy it unless it is a toy? That being said, if you are one of those people who can't resist the urge to get a new car every 3yrs, you probably are better off leasing.
This story made me laugh, as I would have said the same thing. Too often they are caught up in the forest and can’t see through the trees of logic. As for reliability, I do as much research as possible and understand there’s no sure thing....much like my nightmare Subzero which is supposed to be oh so reliable. 😱
TheGreyingDuke
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Re: Lease a car or buy a car

Post by TheGreyingDuke »

dm200 wrote: Thu Mar 28, 2019 11:26 am For me - there are several factors why I conclude that leasing (for personal use) makes no sense:

1. A lease (under the covers) is a balloon loan on which interest is paid for the term of the lease with the final balloon payment due at the end of the lease. Except for the guaranteed value, not much different than a balloon car loan.

This is true AND it comes with a put option, I can test drive it for three years and decide if I want to keep it or not

2. The leasing company does some degree of work and, therefore is financially compensated for what it does. That money comes from the person signing up for the lease. No FREE lunch. How can MORE work and MORE costs equal better value?

True, they need to collect the monthly payment and decide on a residual. A loan requires the former and the latter is determined by several entities, a matter of looking it up (and possibly modifying it to make the lease more attarctive
3. In some jurisdictions, there is a tax applied to lease payments or agreements.
I am assuming that those jurisdictions also tax a purchase so same difference

Especially with good credit, new auto loans may have very, very low interest rates.
My interest rate (aka MoneyFactor)on my current lease is .9%

For business use, leasing may make financial sense because of tax breaks for auto expenses. Some folks leasing for business (for valid business reasons) may need a more upscale and late model vehicle. No tax expert here, but that is my understanding.
With diligence a lease can be financially sound, the biggest drawback is the complicated nature of the transaction, one needs to be well-informed to make a go of it.
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
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dm200
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Re: Lease a car or buy a car

Post by dm200 »

With diligence a lease can be financially sound, the biggest drawback is the complicated nature of the transaction, one needs to be well-informed to make a go of it.
There are and have been situations where a lease (with 20/20 hindsight) was beneficial to the person leasing the car. Even in those situations, however, I do not believe any amount of diligence could have predicted it.

The situations I refer to are when the contracted residual value at the end of the lease greatly overstates the value of the car at that time.
TheGreyingDuke
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Re: Lease a car or buy a car

Post by TheGreyingDuke »

dm200 wrote: Thu Mar 28, 2019 3:55 pm
With diligence a lease can be financially sound, the biggest drawback is the complicated nature of the transaction, one needs to be well-informed to make a go of it.
There are and have been situations where a lease (with 20/20 hindsight) was beneficial to the person leasing the car. Even in those situations, however, I do not believe any amount of diligence could have predicted it.

The situations I refer to are when the contracted residual value at the end of the lease greatly overstates the value of the car at that time.
Actually, the deals with a high residual are very desirable, the higher the residual the lower the "rent" charge for the car. If the car sells for $35,000 and the residual is $25,000 I pay for the $10,000 (this is a bit of a simplification). If the residual is $20,000 then the rent goes up to $15,000. Much better off with a higher residual.
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
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