Any situations car leasing makes sense?
Any situations car leasing makes sense?
Thanks to all of you for your dedication in helping people make wise investment decisions. You have certainly helped us by reading all your posts.
I was just wondering if it ever makes financial sense to lease a car. My understanding is that for people who want/need a new car every few years, this may make sense, but I was interested in the rest of us who don't trade cars that frequently......are there still any circumstances where this may make financial sense?
Thank you.
I was just wondering if it ever makes financial sense to lease a car. My understanding is that for people who want/need a new car every few years, this may make sense, but I was interested in the rest of us who don't trade cars that frequently......are there still any circumstances where this may make financial sense?
Thank you.
Re: Any situations car leasing makes sense?
Controversial here in the case of low interest rates, but I say no, never. It is never wise to borrow money to purchase an automobile, and that is essentially the nature of a car lease (IMO).
Re: Any situations car leasing makes sense?
My wife does not understand high finance and investing terms, investment allocations, ROI etc.
When we were looking to buy or lease a car many years ago, the salesman laid out the lease details and my wife and I went to lunch to discuss the deal.
She had one question. "So you mean we pay several hundred dollars a month for 3 years and then give them the car back and we have nothing to
show for it, or you buy the car and have a lot of equity after 3 years?"
We bought the car after she asked her question.
We do keep our cars 5 or more years though.
Dan
When we were looking to buy or lease a car many years ago, the salesman laid out the lease details and my wife and I went to lunch to discuss the deal.
She had one question. "So you mean we pay several hundred dollars a month for 3 years and then give them the car back and we have nothing to
show for it, or you buy the car and have a lot of equity after 3 years?"
We bought the car after she asked her question.
We do keep our cars 5 or more years though.
Dan
Dan999
Re: Any situations car leasing makes sense?
I have a neighbor who likes to spend on very fancy "high-end" cars. Currently a Maserati . He always does a 3 year lease even though buying would not be a problem. The super fast depreciation of such cars makes leasing worthwhile according to him.
Last edited by hicabob on Fri Mar 20, 2015 12:17 pm, edited 1 time in total.
Re: Any situations car leasing makes sense?
Thanks for the quick replies!
What you both said is what I think also. I just wanted to make sure I wasn't missing something......like if the depreciation of a new car outweighed the monthly expense of a lease, especially in this low rate environment.
What you both said is what I think also. I just wanted to make sure I wasn't missing something......like if the depreciation of a new car outweighed the monthly expense of a lease, especially in this low rate environment.
Re: Any situations car leasing makes sense?
Although I haven't reached this point myself, I do believe it is possible to become so rich that leasing a car makes perfect sense. You never have to hassle with the maintenance issues of older cars, and the few thousands (or even few tens of thousands, depending on the car) of dollars that you "lose" on the lease won't be missed much. In other words, what makes "financial sense" varies depending on exactly how much money a person has.
Re: Any situations car leasing makes sense?
I think there is but you have to accept your paying for it. As you say, someone who wants a new cars every couple of years AND can afford the negative cash flow - meaning not skipping savings AND can satisify the requirements of the lease on milage (excess milage is almost fatally expensive). IMO it makes far more sense then borrowing to buy a new car every few years with balloning car loans. Even with zero interest payments it's costly.
I'm now in the buy new with cash and drive into the ground crowd but I have be a cash poor petrol-head in the past (maybe some still in there) so understand the serial new/different car thing and wish I had looked at leases more carefully in hindsight (for the new cars).
I'm now in the buy new with cash and drive into the ground crowd but I have be a cash poor petrol-head in the past (maybe some still in there) so understand the serial new/different car thing and wish I had looked at leases more carefully in hindsight (for the new cars).
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Rob |
Its a dangerous business going out your front door. - J.R.R.Tolkien
Re: Any situations car leasing makes sense?
I also don't like all of the small print in the dealer's contract. I like to see the car and the price.... and I buy my cars used at CarMax.
Re: Any situations car leasing makes sense?
Virtually everyone leasing cars goes for the more expensive models, something they wouldn't want to actually pay for.
There is a definite stigma against leasing, but sometimes (read: rarely. I'm not a car guy and haven't run the numbers) I wonder about a cheapo car lease strategy: paying three years of an economy car before generally hopping to the next one, for someone more allergic to major car repairs and non-routine maintenance than cheapo cars. Of course, buying a well-built workhorse that doesn't cost too much and driving it into the ground is almost always going to be the cheapest way to go.
There is a definite stigma against leasing, but sometimes (read: rarely. I'm not a car guy and haven't run the numbers) I wonder about a cheapo car lease strategy: paying three years of an economy car before generally hopping to the next one, for someone more allergic to major car repairs and non-routine maintenance than cheapo cars. Of course, buying a well-built workhorse that doesn't cost too much and driving it into the ground is almost always going to be the cheapest way to go.
Re: Any situations car leasing makes sense?
I've never leased a car so I may be wrong on this, but it seems that the opposite would be true. In other words, cars with the highest residual (the LOWEST depreciation) at the end of the lease period make more sense to lease?hicabob wrote:I have a neighbor who likes to spend on very fancy "high-end" cars. Currently a Maserati . He always does a 3 year lease even though buying would not be a problem. The super fast depreciation of such cars makes leasing worthwhile according to him.
As a related sidebar, I've noticed a few commercials lately for $99/month leases. I think one was a VW Jetta with zero down (what they call "sign then drive" ). It's probably a stripped-down base model, but I'd be willing to bet even the stripped down model would depreciate far more than $99/month over 3 years.
Re: Any situations car leasing makes sense?
Quick, someone tell Volkswagon before they go out of business!Tamales wrote:As a related sidebar, I've noticed a few commercials lately for $99/month leases. I think one was a VW Jetta with zero down (what they call "sign then drive" ). It's probably a stripped-down base model, but I'd be willing to bet even the stripped down model would depreciate far more than $99/month over 3 years.
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Re: Any situations car leasing makes sense?
No, there is never a situation where leasing a car makes sense.riley42 wrote:Thanks to all of you for your dedication in helping people make wise investment decisions. You have certainly helped us by reading all your posts.
I was just wondering if it ever makes financial sense to lease a car. My understanding is that for people who want/need a new car every few years, this may make sense, but I was interested in the rest of us who don't trade cars that frequently......are there still any circumstances where this may make financial sense?
Thank you.
Re: Any situations car leasing makes sense?
The only time I can see it making sense would be if you have made the decision that you want to be driving a new car every 3 years and realize how expensive that is. Even then I'd want to do the math and see if it doesn't still make more sense to buy and sell that often instead of leasing.
Re: Any situations car leasing makes sense?
Correct. Leasing works best with cars that retain more of their value over the first few years. What you have to finance in a lease is the purchase price less the residual value at the end of the lease. I would think that a high-end car like a Maserati would age well, keeping lease costs manageable relative to buying outright.Tamales wrote:I've never leased a car so I may be wrong on this, but it seems that the opposite would be true. In other words, cars with the highest residual (the LOWEST depreciation) at the end of the lease period make more sense to lease?hicabob wrote:I have a neighbor who likes to spend on very fancy "high-end" cars. Currently a Maserati . He always does a 3 year lease even though buying would not be a problem. The super fast depreciation of such cars makes leasing worthwhile according to him.
As a related sidebar, I've noticed a few commercials lately for $99/month leases. I think one was a VW Jetta with zero down (what they call "sign then drive" ). It's probably a stripped-down base model, but I'd be willing to bet even the stripped down model would depreciate far more than $99/month over 3 years.
I think the only time leasing makes "sense" is if you like always having a new car and are willing to accept paying for that indefinitely. In that case, rolling over leases every 3 years might make more sense than buying new and selling and buying new every 3 years.
In our case we are on a staggered car/van cycle. We have a 2008 Ford Fusion and a 2012 Honda Odyssey (that replaced a 1996 Dodge Grand Caravan). If we get 16 years out of the current models, we'll be looking at new cars in 2024 and 2028, at which point our kids will be grown and we may not want a mini-van. Of course, we might be looking at helping the kids with (probably used) cars in a few years when they start driving.
Re: Any situations car leasing makes sense?
I am going to be the voice of dissent here and say that sometimes it does make a lot of sense to lease. When you lease you lock in the "resale" (or turn-in) of the car so you are not subject to having to sell it and the losses that often come associated with that.
Also many automakers are heavily dependent on leasing to move their product (BMW, Mercedes etc sell around 60% of their volume through leases) so that's where they put their incentive money. In other words by leasing one can have access to more incentives (given by the manufacturer, not the dealer) than if one was purchasing. I used to work for a major automaker and the lease subsidy spending was staggering. They have monthly payment targets to meet and put the incentives needed to get there.
Of course, leasing is only a good option for people who like to always drive new cars and with enough credit to qualify for the better deals. My recommendation is to look for the manufacturers advertised specials and go for one of those. Don't walk into a dealer and let them give you a lease price - it will be heavily padded.
Also - regarding the comment that cars that depreciate less are better candidates for leasing - I agree with that. However there are cases where automakers with very high depreciation (Jaguar comes to my mind) have to offer leases that are competitive so they put the incentives to reach a competitive number and eat the loss. This makes it a better proposition to lease the car, as the manufacturer is the one taking the hit for the depreciation differential.
Also many automakers are heavily dependent on leasing to move their product (BMW, Mercedes etc sell around 60% of their volume through leases) so that's where they put their incentive money. In other words by leasing one can have access to more incentives (given by the manufacturer, not the dealer) than if one was purchasing. I used to work for a major automaker and the lease subsidy spending was staggering. They have monthly payment targets to meet and put the incentives needed to get there.
Of course, leasing is only a good option for people who like to always drive new cars and with enough credit to qualify for the better deals. My recommendation is to look for the manufacturers advertised specials and go for one of those. Don't walk into a dealer and let them give you a lease price - it will be heavily padded.
Also - regarding the comment that cars that depreciate less are better candidates for leasing - I agree with that. However there are cases where automakers with very high depreciation (Jaguar comes to my mind) have to offer leases that are competitive so they put the incentives to reach a competitive number and eat the loss. This makes it a better proposition to lease the car, as the manufacturer is the one taking the hit for the depreciation differential.
Last edited by sk2101 on Fri Mar 20, 2015 2:33 pm, edited 2 times in total.
Re: Any situations car leasing makes sense?
One other context I can think of: if you're living someplace where you need a car, but you know you'll be moving at point X to a place where you don't need a car.
Thus, if you live in Michigan and need a car, and you know in 2-3 years you'll be moving to London, why bother owning a car? Lease one, turn it in, and avoid the hassle of having to sell when you move.
(Even then, it might not be the best pure financial decision....but avoiding the PITA factor of selling a car when you're getting ready to move does have value.)
Thus, if you live in Michigan and need a car, and you know in 2-3 years you'll be moving to London, why bother owning a car? Lease one, turn it in, and avoid the hassle of having to sell when you move.
(Even then, it might not be the best pure financial decision....but avoiding the PITA factor of selling a car when you're getting ready to move does have value.)
Re: Any situations car leasing makes sense?
Generally no, but I think it has to be evaluated on a case by case basis.
I did lease a couple of cars about 15 years ago because at the time, the interest rates were low AND the particular models had artificially high residual values on the lease.
The last few times I've purchased cars, the leases clearly did not make sense.
I did lease a couple of cars about 15 years ago because at the time, the interest rates were low AND the particular models had artificially high residual values on the lease.
The last few times I've purchased cars, the leases clearly did not make sense.
Re: Any situations car leasing makes sense?
Financially there are very few reasons, if any, to lease a car.
for other reasons some people feel it is worth it.
for other reasons some people feel it is worth it.
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Re: Any situations car leasing makes sense?
Sounds like my brother, although his latest is an AMG E63. Would save himself a ton of money if he would stop buying and then trading in these brand new sports and luxury cars every 2yrs and just leased them.hicabob wrote:I have a neighbor who likes to spend on very fancy "high-end" cars. Currently a Maserati . He always does a 3 year lease even though buying would not be a problem. The super fast depreciation of such cars makes leasing worthwhile according to him.
Re: Any situations car leasing makes sense?
+1. At some point, convenience and time saved are worth more than money.Rupert wrote:Although I haven't reached this point myself, I do believe it is possible to become so rich that leasing a car makes perfect sense. You never have to hassle with the maintenance issues of older cars, and the few thousands (or even few tens of thousands, depending on the car) of dollars that you "lose" on the lease won't be missed much. In other words, what makes "financial sense" varies depending on exactly how much money a person has.
I've always preferred just buying my cars outright. But I'm sure there's some scenarios where it might be worth it:
Depreciating valueEveryone's already mentioned this but the rate at which a new car depreciates could potentially outweigh leasing a car if you get a good deal on a lease.
Reputation: You might work at a job where it pays to have a nicer/newer car. I read a post from a doctor on this site that said this was something he considered "silly, but necessary for business". I would guess because his patients assumed if he had a nice car he's well off, and if he's well off, he's probably a good doctor.
I could see this happening especially if you made house calls for certain jobs, too.
Luxury: I think most people allow themselves a "fun money" amount, some people decide to throw that at getting a new car every few years. As long as you fit this into your budget and live within your means it's fine. Just as long as you realize this is a luxury thing, not a necessity.
Example: You wanna go to the movies every Friday, I'd rather rent a $1 movie and put the rest in savings for a new car. I might be behind on watching everything ever, but a new car is more fun to me. To you, being able to see your favorite movies ASAP is more important. Nothing is wrong with either, it's just a matter of preference.
Budget planning: I might be wrong on this since I've never leased a car, but potentially I'd think this would mean you'd have a set rate to pay on your car and you wouldn't have surprise costs (maintenance)to worry about. You can just always spend that same amount every month. So you wouldn't have need for a "car fix emergency fund" and you could invest that money instead. (Assuming you don't use credit cards as "car fix emergency fund)
Re: Any situations car leasing makes sense?
Lease deals *can* be good. For example there was an article in WSJ recently how dealers can't now unload Nissan Leaf's (Leaves? ) coming off lease at anywhere near the residual value Nissan assumed in offering those leases. If Nissan is losing, somebody is winning and it's the people who got those leases, which I've read people crow about having here. It wouldn't be a practical car for me but it seems like those people got a good deal.
A lease is a relatively better deal if you can legitimately count the car as a business expense in self employment/small business than if not.
I don't see a bright dividing line between 'financially makes sense' and 'otherwise makes sense'. As somebody else mentioned, if you have the money and you reasonably value your time in dealing with car problems very highly, being able to tell the manufacturer '*your* car is broken, take car of it' might make financial sense. 'Financial sense' for consumer items is hard to separate from just 'what I want to do that I can afford to do'. That said it's obvious that one major idea of car leases and loans in general is to allow people to 'afford' more car, or more frequent replacement of car, than they could afford for cash. And equally obviously there are lots of people saving less than they should on account of loading up with big lease or loan payments for stuff they don't absolutely need.
A lease is a relatively better deal if you can legitimately count the car as a business expense in self employment/small business than if not.
I don't see a bright dividing line between 'financially makes sense' and 'otherwise makes sense'. As somebody else mentioned, if you have the money and you reasonably value your time in dealing with car problems very highly, being able to tell the manufacturer '*your* car is broken, take car of it' might make financial sense. 'Financial sense' for consumer items is hard to separate from just 'what I want to do that I can afford to do'. That said it's obvious that one major idea of car leases and loans in general is to allow people to 'afford' more car, or more frequent replacement of car, than they could afford for cash. And equally obviously there are lots of people saving less than they should on account of loading up with big lease or loan payments for stuff they don't absolutely need.
Re: Any situations car leasing makes sense?
Yes there are circumstances where leases make sense. But they are limited. I did a lease in 2013 for the following reasons. I needed a new car as my old one had 140k miles. I had limited taxable money that I wanted to spend but enough money in tax free accounts. I am in the 25% tax bracket. So a big withdrawal to pay cash for a new car would cost the value of the car plus 25% plus 6% sales tax. A very big penalty for cash. But I have enough pensions and SS etc. monthly income to afford a monthly payment for a new car so the only issue was how much per month.
So the choice is lease or buy. Well a lease gives you much lower payments versus a purchase and then you can still buy the car (at a nice low fixed price) at the end of the lease if you desire. Plus a lease car is taxed differently. Sales tax is only added on the monthly payment so very little sales tax is paid up front. So I chose leasing. I leased a top end Subaru for $300 per month for 39 months. Any 60 month purchase of the same car would have a monthly payment of at least $500 or more. More than I wanted to spend. And I can still buy my current car at the end of the lease and start a new loan or pay cash as I will be into RMD by that time and paying 25% tax anyway. Or I can lease another new car for about the same money. Plus leased cars are still under warranty and can be fixed for free where older cars have issues but are lower costs.
So yes in some instances leasing works.
And finally I think car technology is currently changing rapidly. Cars are becoming computers on wheels with smart driving systems, smart engines that sip gas and BIG expensive batteries. So what I want in a car now may be obsolete and not desirable in 2-3 years. So I think renting or leasing at this time may be better.
So the choice is lease or buy. Well a lease gives you much lower payments versus a purchase and then you can still buy the car (at a nice low fixed price) at the end of the lease if you desire. Plus a lease car is taxed differently. Sales tax is only added on the monthly payment so very little sales tax is paid up front. So I chose leasing. I leased a top end Subaru for $300 per month for 39 months. Any 60 month purchase of the same car would have a monthly payment of at least $500 or more. More than I wanted to spend. And I can still buy my current car at the end of the lease and start a new loan or pay cash as I will be into RMD by that time and paying 25% tax anyway. Or I can lease another new car for about the same money. Plus leased cars are still under warranty and can be fixed for free where older cars have issues but are lower costs.
So yes in some instances leasing works.
And finally I think car technology is currently changing rapidly. Cars are becoming computers on wheels with smart driving systems, smart engines that sip gas and BIG expensive batteries. So what I want in a car now may be obsolete and not desirable in 2-3 years. So I think renting or leasing at this time may be better.
Re: Any situations car leasing makes sense?
For most people and most situations most leases seem like a bad idea. It is nice to drive a nice new car every 3 years - but you pay a lot for that feeling. I know several people who leased and then changed jobs and had a much longer commute - they were stuck either paying something like 25cents a mile or leaving the new car home and driving the station car.
I never leased. Car dealers are good at what they do. It is hard enough trying to negotiating a good deal on a straight purchase. A bit more if you have a trade in - and triple if you are leasing. With leasing you have too many moving parts, the down payment, the guaranteed value at the end of the lease, the interest rate, the length especially if it is odd like 38 months, the extra mileage charge mileage.
And then after you sign and drive and return the car to the dealer who sold you the car what if it has a ding or two. Oh that will cost a bit - but I tell you what - since your are a repeat customer let me see if I can have the manager waive that charge if you plan to lease another car.
No thanks - the dealer now has all the cards and I am liable to be a life time customer.
I never leased. Car dealers are good at what they do. It is hard enough trying to negotiating a good deal on a straight purchase. A bit more if you have a trade in - and triple if you are leasing. With leasing you have too many moving parts, the down payment, the guaranteed value at the end of the lease, the interest rate, the length especially if it is odd like 38 months, the extra mileage charge mileage.
And then after you sign and drive and return the car to the dealer who sold you the car what if it has a ding or two. Oh that will cost a bit - but I tell you what - since your are a repeat customer let me see if I can have the manager waive that charge if you plan to lease another car.
No thanks - the dealer now has all the cards and I am liable to be a life time customer.
Re: Any situations car leasing makes sense?
I don't know enough about accounting to know the details but it is my understanding that for a business(or a self employed person) there can be a tax advantages to leasing compared to buying.
For someone that had a temporary longer term need for a car, like someone from overseas working in the US for a few years, a lease can also make sense if they can reliably predict when they will no longer need the car.
For someone that had a temporary longer term need for a car, like someone from overseas working in the US for a few years, a lease can also make sense if they can reliably predict when they will no longer need the car.
Re: Any situations car leasing makes sense?
It makes sense for electric cars, especially when the finance company made very optimistic assumptions regarding residual value. The Federal tax credit is rolled into the capitalized cost. This is especially true in states where there are extra incentives, such as Washington's sales tax exemption or Colorado's credit of up to $6,000 (with that full amount only realistically achievable for purchases but still prorated for leases).
Add the incentives and low running costs up and total cost of ownership of an electric car, whether bought or leased, is quite amazingly low.
Add the incentives and low running costs up and total cost of ownership of an electric car, whether bought or leased, is quite amazingly low.
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Re: Any situations car leasing makes sense?
Leasing makes sense in GA for Nissan Leaf model brand new cars.
Most of the leases of these cars are at $250 per month for 2 year leases. Total Cost = 250*24 = 6000
You get 5k back as tax credit spread across two years .
People that are driving 30 to 40 miles one way are saving on gas costs compared to charging costs.
If you are in market for a car, then insurance is needed either for this car or a regular gas car. So you can have a "green car" for two years for very less out of pocket.
Most of the leases of these cars are at $250 per month for 2 year leases. Total Cost = 250*24 = 6000
You get 5k back as tax credit spread across two years .
People that are driving 30 to 40 miles one way are saving on gas costs compared to charging costs.
If you are in market for a car, then insurance is needed either for this car or a regular gas car. So you can have a "green car" for two years for very less out of pocket.
Re: Any situations car leasing makes sense?
1. Leasing might make sense IF the vehicle is used for business and there are tax advantages to doing so.
For personal use:
2. I do not know or understand the tax credit aspect for electric vehicles - so I cannot comment on that.
3. I do NOT believe it makes sense to lease for personal use:
a. FACT: A lease (under the covers) is a balloon loan with smaller payments for principal & interest with a guarantee residual value at lease end.
b. It can be expensive to get out of a lease early if your needs change in that time.
c. If you drive fewer than the allowed miles, you are paying for miles you do not drive
d. If you drive more than the allowed miles, you pay a premium per mile driven
e. c and d above may happen if your driving habits or needs change.
f. You still pay for insurance and most of the costs of ownership
g. You may be (depending on jurisdiction) added taxes if in a lease.
h. Leasing adds a layer of "work" that someone has to do (and are getting compensated for doing so). The customer (through the lease payments) pays for that.
4. MY OPINION: One reason a lease may look like lower cost than financing is that this is a balloon loan - NOT a fully amortized loan (under the covers of the lease).
5. When you finance a car (purchase) and you want to trade it in, sell it, or whatever - you just do it and as long as you satisfy the loan - you never need to talk to someone from the financing entity. With a lease, you are "captive" to talking to the leasing entity when the lease is up - and they will work to "sell" another lease.
For personal use:
2. I do not know or understand the tax credit aspect for electric vehicles - so I cannot comment on that.
3. I do NOT believe it makes sense to lease for personal use:
a. FACT: A lease (under the covers) is a balloon loan with smaller payments for principal & interest with a guarantee residual value at lease end.
b. It can be expensive to get out of a lease early if your needs change in that time.
c. If you drive fewer than the allowed miles, you are paying for miles you do not drive
d. If you drive more than the allowed miles, you pay a premium per mile driven
e. c and d above may happen if your driving habits or needs change.
f. You still pay for insurance and most of the costs of ownership
g. You may be (depending on jurisdiction) added taxes if in a lease.
h. Leasing adds a layer of "work" that someone has to do (and are getting compensated for doing so). The customer (through the lease payments) pays for that.
4. MY OPINION: One reason a lease may look like lower cost than financing is that this is a balloon loan - NOT a fully amortized loan (under the covers of the lease).
5. When you finance a car (purchase) and you want to trade it in, sell it, or whatever - you just do it and as long as you satisfy the loan - you never need to talk to someone from the financing entity. With a lease, you are "captive" to talking to the leasing entity when the lease is up - and they will work to "sell" another lease.
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Re: Any situations car leasing makes sense?
Count me among the ones going against the majority. Leasing makes a lot of sense in some scenarios, and not at all in others. It all depends on situation.
- I would never buy a current generation EV. The tech is way too bleeding edge, and regardless of what KBB or TrueCar say, I wouldn't want be stuck with a 4 year old car needing $10k worth of new batteries -- or a car with 25% of the range of new tech 4 years from now. Lease it instead and let the finance company take on the risk of what the true value of the 3-4 year old EV will be.
- Anyone who has worked for an auto finance company can tell you that manufacturers incentivize leases all the time. This means they either artificially raise the residual value, lower the finance rate, or add a down payment to the lease -- or all 3. Many people also qualify for Supplier or even Employee pricing at some OEMs -- bringing the amount financed, the diff between the purchase price to the residual price, much closer. I can tell you first hand of people who have leased a $20k car new for ~$100/month, 10k/year. I don't care if you go buy your beloved used Civic or Corolla and drive it for 100 years, you're going to have a very hard time beating $3,600 for 3 years use of a new car - or any reliable car. No repairs, no maintenance, not a worry in the world - just change the oil when needed. Purchasing that same car would be > $300/month for 5 years, or the equiv of over 15 years worth of leasing and driving a new car.
- There are many professions where image and reputation are significant factors in the performance of their job. Sales guys come to mind, but there are others. Selling a car every 2-3 years is a PITA and has significant transaction costs. Many people in these types of jobs can justify any additional leasing costs for "the cost of doing business".
This said, I've never leased because my daily work commute is too many miles. But if I changed jobs or moved closer, I would certainly consider it if I discovered a hot deal on car I wanted. And you need to be able to accept the fact that incentivized leases are usually only offered on high volume model with excess inventory. So if you looking to get a Corvette, BMW M3, or any other car that is in high demand... no, leasing will not likely make sense. But if you have flexibility, it very well can.
- I would never buy a current generation EV. The tech is way too bleeding edge, and regardless of what KBB or TrueCar say, I wouldn't want be stuck with a 4 year old car needing $10k worth of new batteries -- or a car with 25% of the range of new tech 4 years from now. Lease it instead and let the finance company take on the risk of what the true value of the 3-4 year old EV will be.
- Anyone who has worked for an auto finance company can tell you that manufacturers incentivize leases all the time. This means they either artificially raise the residual value, lower the finance rate, or add a down payment to the lease -- or all 3. Many people also qualify for Supplier or even Employee pricing at some OEMs -- bringing the amount financed, the diff between the purchase price to the residual price, much closer. I can tell you first hand of people who have leased a $20k car new for ~$100/month, 10k/year. I don't care if you go buy your beloved used Civic or Corolla and drive it for 100 years, you're going to have a very hard time beating $3,600 for 3 years use of a new car - or any reliable car. No repairs, no maintenance, not a worry in the world - just change the oil when needed. Purchasing that same car would be > $300/month for 5 years, or the equiv of over 15 years worth of leasing and driving a new car.
- There are many professions where image and reputation are significant factors in the performance of their job. Sales guys come to mind, but there are others. Selling a car every 2-3 years is a PITA and has significant transaction costs. Many people in these types of jobs can justify any additional leasing costs for "the cost of doing business".
This said, I've never leased because my daily work commute is too many miles. But if I changed jobs or moved closer, I would certainly consider it if I discovered a hot deal on car I wanted. And you need to be able to accept the fact that incentivized leases are usually only offered on high volume model with excess inventory. So if you looking to get a Corvette, BMW M3, or any other car that is in high demand... no, leasing will not likely make sense. But if you have flexibility, it very well can.
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Re: Any situations car leasing makes sense?
Good thread. Any leasors willing to detail their end of lease math? I'd be interested in knowing how close the lease deal came out vs. residual value etc. obviously there are soft or intangible value items for both lease and buy which are harder to factor than the raw numbers...but the math details would be interesting for a sample set of vehicles
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Re: Any situations car leasing makes sense?
Yup. I'm one of those Nissan Leaf lessees. Mine is due to be returned in January 2016, and will be.Johno wrote:Lease deals *can* be good. For example there was an article in WSJ recently how dealers can't now unload Nissan Leaf's (Leaves? ) coming off lease at anywhere near the residual value Nissan assumed in offering those leases. If Nissan is losing, somebody is winning and it's the people who got those leases, which I've read people crow about having here. It wouldn't be a practical car for me but it seems like those people got a good deal.
The residual value on the lease contract is around $19k - I have heard of some lessees getting markdowns to $12k.
I will probably not buy it still, though. But I may extend the lease another 6 months or 1 year if NMAC lets me, as it doesn't look like there will be any new longer-range EV on the market as of my lease return date. Well, other than the Tesla S, but I can't justify its cost.
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Re: Any situations car leasing makes sense?
The main reason to lease seems to be an inability to afford a car of that class?
ie you'd have to raise a car loan (and maybe you can't do that given other debts) or cash that you don't have?
So it's about having a car nicer than you could otherwise afford OR having a car at all?
On 'new fangled' cars like electric vehicles, where technology change is very fast, it seems to make sense.
I think I have just talked myself into a BMW i3 .
ie you'd have to raise a car loan (and maybe you can't do that given other debts) or cash that you don't have?
So it's about having a car nicer than you could otherwise afford OR having a car at all?
On 'new fangled' cars like electric vehicles, where technology change is very fast, it seems to make sense.
I think I have just talked myself into a BMW i3 .
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Re: Any situations car leasing makes sense?
I went for a 3 year Nissan Leaf lease (5/14 to 5/17), would never lease anything other than an EV. Dealer gets the $7500 Fed rebate. Some partially 'pass it on' to the leasee in a low lease rate. Some don't.
I made a spreadsheet for gas savings, depreciation of existing cars versus miles driven and age, cost of kWh, etc.
Looked like the new car would cost us $60/mo out of pocket net. Forgot the higher insurance rate on a new car/lease, maybe +$50/mo.
Still, v happy with the car and well worth the (net) cost.
The extra $5k credit in GA going to the leasor basically makes the car FREE, and explains the huge adoption rate of Leafs in Atlanta.
In 2014, EVs were 1.5% of new car sales/leases in the US (excluding trucks, since there are no EV truck models yet).
I made a spreadsheet for gas savings, depreciation of existing cars versus miles driven and age, cost of kWh, etc.
Looked like the new car would cost us $60/mo out of pocket net. Forgot the higher insurance rate on a new car/lease, maybe +$50/mo.
Still, v happy with the car and well worth the (net) cost.
The extra $5k credit in GA going to the leasor basically makes the car FREE, and explains the huge adoption rate of Leafs in Atlanta.
In 2014, EVs were 1.5% of new car sales/leases in the US (excluding trucks, since there are no EV truck models yet).
Last edited by just frank on Mon Mar 23, 2015 8:33 am, edited 1 time in total.
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Re: Any situations car leasing makes sense?
Cars are depreciating assets, and you're going to have to embrace that there is an annual expense regardless of lease vs buy. If the time (and money) you save on maintenance and stress is worth more than a few hundred dollars a year in cost difference, and you can afford it, then leasing is a good option.
You can easily lease a decent car with an acceptable annual mileage for less than three thousand dollars a year. You can buy a similar car for about $25k. Interest rates might as well be zero, so the break even is about 8 years in this case. I consider it a fair trade to always have a newer car, never have to worry about maintenance, and have nothing at the end of eight years than to have to deal with an eight year old car with 100k miles.
If every eight years I'm out a few thousand dollars, it isn't going to move my retirement date. Alternatively, you could just say I'm trading this value for not having cable, except that this probably costs less.
It makes sense if it provides you with more utility than your other marginal choices. The people who are saying it never makes sense are applying their values to everyone.
You can easily lease a decent car with an acceptable annual mileage for less than three thousand dollars a year. You can buy a similar car for about $25k. Interest rates might as well be zero, so the break even is about 8 years in this case. I consider it a fair trade to always have a newer car, never have to worry about maintenance, and have nothing at the end of eight years than to have to deal with an eight year old car with 100k miles.
If every eight years I'm out a few thousand dollars, it isn't going to move my retirement date. Alternatively, you could just say I'm trading this value for not having cable, except that this probably costs less.
It makes sense if it provides you with more utility than your other marginal choices. The people who are saying it never makes sense are applying their values to everyone.
Re: Any situations car leasing makes sense?
There is never a situation where sweeping generalizations are always true.Trader Joe wrote:No, there is never a situation where leasing a car makes sense.riley42 wrote:Thanks to all of you for your dedication in helping people make wise investment decisions. You have certainly helped us by reading all your posts.
I was just wondering if it ever makes financial sense to lease a car. My understanding is that for people who want/need a new car every few years, this may make sense, but I was interested in the rest of us who don't trade cars that frequently......are there still any circumstances where this may make financial sense?
Thank you.
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Re: Any situations car leasing makes sense?
I am a Boglehead, but I felt good once when I bought a new car on a 4 year lease.
I leased that car up to 7 years ago, then bought it and still drive it with nearly no repairs needed. We drive our cars for 10-12 years. The monthly lease payment was less than what I paid in repairs over the last year for the previous car, so I was driving a brand new car for less than before, not increasing our household expenses. I reasoned, that I did not want to touch my retirement savings, but let it get paid as a household expense, and by that reduce spending for other things which we might not need. 2 years before that we had bought a new car from our savings, but doing that twice in 2 years was simply too much for us.
I leased that car up to 7 years ago, then bought it and still drive it with nearly no repairs needed. We drive our cars for 10-12 years. The monthly lease payment was less than what I paid in repairs over the last year for the previous car, so I was driving a brand new car for less than before, not increasing our household expenses. I reasoned, that I did not want to touch my retirement savings, but let it get paid as a household expense, and by that reduce spending for other things which we might not need. 2 years before that we had bought a new car from our savings, but doing that twice in 2 years was simply too much for us.
Re: Any situations car leasing makes sense?
We leased our cars when we moved to Europe. Did not want to deal with moving a lot of cash to Euros. Also knew that repatriation might be short notice and didn't want the hassle of selling cars in addition to the rest of the chaos associated with moving.
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Re: Any situations car leasing makes sense?
I believe there are a few (very few) scenarios where it makes sense. For example, several of my coworkers have recently leased Nissan Leafs. With the federal and state tax credits for electric vehicles, the lease payments are ~$200/mo. This is less than what they were paying for gasoline monthly. Therefore, they're coming out slightly ahead in terms of monthly auto expenditures and essentially getting a 'free' car to drive for a few years.
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Re: Any situations car leasing makes sense?
To give you one data point, the last BMW 3 series I turned in had a residual value of $27K in my contract. The going wholesale prices at that time was $20-21K.Wannaretireearly wrote:Good thread. Any leasors willing to detail their end of lease math? I'd be interested in knowing how close the lease deal came out vs. residual value etc. obviously there are soft or intangible value items for both lease and buy which are harder to factor than the raw numbers...but the math details would be interesting for a sample set of vehicles
I am not brand loyal, I usually get the car that is "on sale" with the best deal. So Lexus had some sale going on and I lease one for $3k/year including taxes. I thought hard and could not come with a scenario where buying a decent car (even used) would be cheaper than that. I also usually choose shorter leases (24-27 months) so I don't have to replace tires.
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Re: Any situations car leasing makes sense?
I am in this boat. After the tax credit and a modest trade in on a car I had for 15 years, my effective monthly payment on my Leaf is $25/mo. I don't know if state congress is currently active but there is a bill to eliminate the tax credit. I have no idea if it will pass. My wife and I both work from home and our life is an approximately 3-5 mile radius so it is perfect for us. We also have another car in case we have to drive further than 40-50 miles.niceguy7376 wrote:Leasing makes sense in GA for Nissan Leaf model brand new cars.
Most of the leases of these cars are at $250 per month for 2 year leases. Total Cost = 250*24 = 6000
You get 5k back as tax credit spread across two years .
People that are driving 30 to 40 miles one way are saving on gas costs compared to charging costs.
If you are in market for a car, then insurance is needed either for this car or a regular gas car. So you can have a "green car" for two years for very less out of pocket.
Now, there is also the question of what to do when my lease is up.
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Re: Any situations car leasing makes sense?
I would much rather buy a high end car that is 2-4 years old every 2-3 years privately.
1)Likely still on full warranty
2) you can have some other sucker eat the steep part of the depreciation curve
3) While you are driving your "new to you" high end automobile you can keep your eyes out for a "deal".
4) You get the novelty of a newer vehicle every few years without eating the price tag
1)Likely still on full warranty
2) you can have some other sucker eat the steep part of the depreciation curve
3) While you are driving your "new to you" high end automobile you can keep your eyes out for a "deal".
4) You get the novelty of a newer vehicle every few years without eating the price tag
Re: Any situations car leasing makes sense?
A couple of years ago I attempted a mini-analysis of the typical lease vs loan options available to a car buyer - I thought that knowing the terms of both options I could solve for the required investment return that would steer me towards the better deal - the trade-in or "residual" value was the big key unknown that upended the analysis ; I looked at the warranty or lease period only , since that would eliminate maintenance expense but again not knowing the residual value with a high statistical confidence was the problem .Wannaretireearly wrote:Good thread. Any leasors willing to detail their end of lease math? I'd be interested in knowing how close the lease deal came out vs. residual value etc. obviously there are soft or intangible value items for both lease and buy which are harder to factor than the raw numbers...but the math details would be interesting for a sample set of vehicles
The automakers and the big dealerships have access to a huge used car database that can be used to price out lease and loan terms profitably ; for me then it just came down to things like personal preference , e.g. a new car more often , etc. etc. and other subjective criteria as already mentioned above .
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Re: Any situations car leasing makes sense?
Advantages of a lease:
In most states, you only pay tax on the % of the car that you leased. If you purchase the car, the whole amount is taxed.
If at the end of the lease, the car is worth more than the residual, you have the first option and can purchase the car. You can keep it or resell it for profit.
If at the end of the lease the car is worth much less than the residual, you made out, and underpaid for your use of the car.
If you get in an accident and there is a loss of value, no problem, it's the dealers problem.
Disadvantages
Extra costs are the money factor (interest rate) may be higher than what you could get through your credit union and the return/bank/disposition fees.
If the car gets totaled/stolen, you don't get your money down back, so never put any money down or prepay a lease.
Examples:
I did a lease on a big Mercedes SUV GL450. The buyout was almost 10k higher than what the dealer listed it for after I returned it. I didn't like the vehicle and wanted to try something else, so I returned it. If I had purchased it and paid tax on the whole thing my cost of ownership would have been much higher.
My wife's BMW 328xi- When the lease was up, the car was over mileage and looked new. She still loved it and would have leased the same car but 3 years newer and now 10% more expensive. We purchased an extended warranty and bought it out. It is 7yrs old now and with 95k makes us money every day she drives it.
Leasing can be cost a slight premium due to higher money factor and bank return fee, but generally it is a win-win and limits downside risk.
In most states, you only pay tax on the % of the car that you leased. If you purchase the car, the whole amount is taxed.
If at the end of the lease, the car is worth more than the residual, you have the first option and can purchase the car. You can keep it or resell it for profit.
If at the end of the lease the car is worth much less than the residual, you made out, and underpaid for your use of the car.
If you get in an accident and there is a loss of value, no problem, it's the dealers problem.
Disadvantages
Extra costs are the money factor (interest rate) may be higher than what you could get through your credit union and the return/bank/disposition fees.
If the car gets totaled/stolen, you don't get your money down back, so never put any money down or prepay a lease.
Examples:
I did a lease on a big Mercedes SUV GL450. The buyout was almost 10k higher than what the dealer listed it for after I returned it. I didn't like the vehicle and wanted to try something else, so I returned it. If I had purchased it and paid tax on the whole thing my cost of ownership would have been much higher.
My wife's BMW 328xi- When the lease was up, the car was over mileage and looked new. She still loved it and would have leased the same car but 3 years newer and now 10% more expensive. We purchased an extended warranty and bought it out. It is 7yrs old now and with 95k makes us money every day she drives it.
Leasing can be cost a slight premium due to higher money factor and bank return fee, but generally it is a win-win and limits downside risk.
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Re: Any situations car leasing makes sense?
I have leased 4 Mercedes in a row.
I like to lease because I drive a lot of miles. I also like to drive a new car.
I lease my cars for 45,000 miles. When a car gets to 44,000 miles, I take the car back and get a new one. I put no money down other than the initial lease payment, and some random $400 fee.
I don't pay miles overage ever because the dealer is always willing to write of the excess month. (In other words, if I bring the car back in month 30 of a 39 month lease, the dealer writes off the remaining 9 months if the car is under its mileage allowance.)
I avoid maintenance and repair costs (other than tires). All maintenance is included.
I always drive around in a new car, and I never have to deal with the car breaking down.
I pay about $600 a month for my lease. I look at it this way: I rent a Mercedes for $20 a day. That's less than 10 minutes wages for me.
I like to lease because I drive a lot of miles. I also like to drive a new car.
I lease my cars for 45,000 miles. When a car gets to 44,000 miles, I take the car back and get a new one. I put no money down other than the initial lease payment, and some random $400 fee.
I don't pay miles overage ever because the dealer is always willing to write of the excess month. (In other words, if I bring the car back in month 30 of a 39 month lease, the dealer writes off the remaining 9 months if the car is under its mileage allowance.)
I avoid maintenance and repair costs (other than tires). All maintenance is included.
I always drive around in a new car, and I never have to deal with the car breaking down.
I pay about $600 a month for my lease. I look at it this way: I rent a Mercedes for $20 a day. That's less than 10 minutes wages for me.
Petrocelli (not the real Rico, but just a fan)
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Re: Any situations car leasing makes sense?
If you are self employed or use your lease for non-commuting business related activities a portion (or all) of the costs can be deducted as a business expense.
I don't really consider a car as an 'asset' because it's not something I'd be ready or willing to turn into cash - so I think leasing can make sense as opposed to fully owning a depreciating asset. For the record I own an older model Honda outright but I've been considering leasing.
I don't really consider a car as an 'asset' because it's not something I'd be ready or willing to turn into cash - so I think leasing can make sense as opposed to fully owning a depreciating asset. For the record I own an older model Honda outright but I've been considering leasing.
Re: Any situations car leasing makes sense?
Lots of great points here. One thing that I didn't see mentioned or at least noted more than fleetingly (unless I missed it), is the fact that sometimes there are things in life that go beyond just strict dollars and cents. In that vein, one advantage to leasing is that safety tech is always improving and being updated. I fully understand and respect the idea of buying a car and driving it into the ground. But a 10 or 12 or 15 year old car just doesn't have all the safety features and protection of a new car, even one that's three years old and coming off lease. I'm not saying that this should be the only consideration. But it's one factor or variable that goes beyond the mere financial number crunching and analysis related to the purchase or lease of a new car, and sometimes it seems an overlooked aspect here on BH.
- Petrocelli
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Re: Any situations car leasing makes sense?
Actually, I don't write off my car. However, I get 57.5 cents a mile, which is more than my mileage overage on my car (which is 25 cents a mile) . Also, my car gets about 30 mpg on long trips, so gas cost is about 15 cents a miles. So I figure I am actually making money off of business travel!knowsnothing wrote:If you are self employed or use your lease for non-commuting business related activities a portion (or all) of the costs can be deducted as a business expense.
Petrocelli (not the real Rico, but just a fan)
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Re: Any situations car leasing makes sense?
Indeed.fund wrote: One thing that I didn't see mentioned or at least noted more than fleetingly (unless I missed it), is the fact that sometimes there are things in life that go beyond just strict dollars and cents. .
And let's not forget the value of that "new car smell" every 2-3 years.
Petrocelli (not the real Rico, but just a fan)
Re: Any situations car leasing makes sense?
I am also in a situation where, I need to return wife's 328i in the next couple of months and I have be mulling over whether to buy or lease her next car. I joined boglehead a couple of months ago and my attitude towards spending has changed and I want to save money. However, I think since of our cars is paid off, we can just have one car payment(lease) and not go crazy and keep our lease payments low.
Re: Any situations car leasing makes sense?
I have to use my own vehicle for work and the mileage shoots up quickly. Leasing mileage limits preclude me from ever going that route.
Mike
Mike
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Re: Any situations car leasing makes sense?
Me too. I drive about 17,000 to 19,000 a year. However, I am compensated by my employer for mileage. (Hopefully, you are too.) I put that money in a (locked) drawer in my desk.kjvmike wrote:I have to use my own vehicle for work and the mileage shoots up quickly. Leasing mileage limits preclude me from ever going that route.
As I discussed above, I lease my cars for 45,000 miles, and return them when they hit 44,000. If I take another car from the dealer, they waive the extra months under the lease. For example, if I return it in month 30 of a 36 month lease, they let me out of the lease if I will take a new lease.
I then take the money that I saved on mileage out of the drawer and spend it on frivolous stuff, like new golf clubs.
Petrocelli (not the real Rico, but just a fan)