Car Lease v. Buying

[cozmohoot]

Am I missing something? Why isn't anyone figuring the trade-in value for a 3 year old car?

Agreed that the first time around leasing is cheaper per month. But every time after that wouldn't the trade-in value lower the monthly payments significantly?

I know it's a hassle to sell a used car every 2-3 years, but trade-ins are painless. Less money, I'm sure, but no hassle and no worries about excess mileage, wear etc.

This gets discussed every so often.
Leasing is good for some but in no way is it cheaper. Cars don't fall apart after 3 years

[skyguy918]

This gets discussed every so often.
Leasing is good for some but in no way is it cheaper. Cars don't fall apart after 3 years

Well to be honest, it's just a question of what the comparison is. If you compare leasing to actually buying/financing and selling/trading in every 3 years, leasing is probably a fair amount cheaper, because it's a more efficient way of doing the same thing. But if you can hold on to that bought/financed car, maintain it well, and drive it till it dies (or at least a significant number of years, say 7-8) it's basically impossible to lease instead and come out on top after those 7-8+ years.

[sruli1234]

You realize that this is exactly what a lease is, right? You buy the car and the financing company is lending you the full amount, with an agreement to buy it back from you for the stated residual value at lease end.

Incorrect. The car never becomes yours, and the amount they lend you is amount of the payments.

[ExGingi]

The comparison is to financing, where you're also paying interest on the full value.

And when you lease you pay interest on BOTH the full value and the residual value.

See http://www.wikihow.com/Calculate-a-Lease-Payment and pay attention to item #3 in part 3 ("Add the net capitalized cost to the residual value. Multiply that total by the money factor. The result is the financing portion of your lease payment")

You can also see:

pay attention starting at 1:48

[skyguy918]

And when you lease you pay interest on BOTH the full value and the residual value.

See http://www.wikihow.com/Calculate-a-Lease-Payment and pay attention to item #3 in part 3 ("Add the net capitalized cost to the residual value. Multiply that total by the money factor. The result is the financing portion of your lease payment")

You can also see:

pay attention starting at 1:48

Cap cost plus residual is (more or less) purchase price. You're not paying double interest. There's no disadvantage in that regard when compared to the buy/finance every 3 years scenario.

ETA: To make that explicit, you're obviously not paying interest on 100% of the vehicle price and then paying additional interest on some portion of it again. The fact that you're paying interest on the full value during the term of the lease is because you're essentially borrowing the purchase price, paying back a portion over 3 years, and then settling the balance by returning the car.

[skyguy918]

Incorrect. The car never becomes yours, and the amount they lend you is amount of the payments.

Yes, but that's semantics. The arrangement is set up to mimic buying and selling every 3 years in a more efficient manner. My point is that if you think you'll want to drive a new car every 3 years, you're almost always better off leasing then trying to structure a similar scenario by buying and selling. Therefore the discussion should be about leasing vs buying for long(er) term ownership.

[ExGingi]

Cap cost plus residual is (more or less) purchase price.

How do you get to that?

As far as I understand Cap cost = the purchase price + anything additional which you decide to finance - any down payment or trade-in. So if I'm starting from scratch, with no extras or credits for trade in or down payment, Cap cost is exactly the purchase price.  In the leasing formula you then ADD to that the residual value, and multiply the SUM by the money factor.

[skyguy918]

How do you get to that?

As far as I understand Cap cost = the purchase price + anything additional which you decide to finance - any down payment or trade-in. So if I'm starting from scratch, with no extras or credits for trade in or down payment, Cap cost is exactly the purchase price.  In the leasing formula you then ADD to that the residual value, and multiply the SUM by the money factor.

My bad. Mixed up the terms. I'll look at my latest lease when I get a chance to get the terms right, but the point is they're not charging you double interest. In fact, a lot of these deals are structured in a way that your basically posting no interest.

[Iz]

I've had my Altima 2.5SL since May 2011.
$28K sticker, paid $21K.
Leasing would have been about $350/month. After 3 years I'd have paid $12,500 and been left with nothing.

I've only put 16K miles on it and it's worth about $13.5K today.  So I've used it for 57 months and "paid" $7.5K in that time period, or about $131/month.

Of course not, still the numbers for buying will always be better.

What it boils down to is: Is leasing fun because you get a brand new car every 2-3 years?  Yes. Very
Is it cheaper (or at least break even) compared to buying? No. It costs more. If you are willing to pay that premium to always have a new car go ahead. But don't fool yourself into thinking that it is cheaper.

I tried looking through this thread, and this seems to be the bottom line. Am I missing anything? Is there a financial reason to lease instead of buying? Anyone want to try to convince us to lease? Thanks.

ETA: And then there's this too:

Plus I don't have to worry about getting dinged for any scratches/alleged damages to the car, any disposition fees, and any fees for going over 12K miles per year.And my insurance is cheaper (currently paying $290/6 months for 2 drivers with full coverage) than had I leased it.

[thaber]

I tried looking through this thread, and this seems to be the bottom line. Am I missing anything? Is there a financial reason to lease instead of buying? Anyone want to try to convince us to lease? Thanks.

ETA: And then there's this too:

If you'll buy a new car every three years anyway in most cases it'll be cheaper to lease

[jackofall]

If you'll buy a new car every three years anyway in most cases it'll be cheaper to lease

Bingo. Especially in a state where you don't pay full taxes in a lease.

[Iz]

If you'll buy a new car every three years anyway in most cases it'll be cheaper to lease

Bingo. Especially in a state where you don't pay full taxes in a lease.

Granted. But for someone who would be glad to keep a car for many happy years, it would make no sense?

[thaber]

Granted. But for someone who would be glad to keep a car for many happy years, it would make no sense?

No fiscal sense

[Iz]

No fiscal sense

Thanks.

[EJB]

No fiscal sense

Not always. Car manufactures ocasdionally provide amazing lease promotions through inflated residuals and allowing stacking of promotions and rebates on leases. I know people that have leased decent 20k cars for under $100 a month  inclusive of fees. I'm paying 20% of msrp for a 3/36 lease on a sports sedan, when kbb on his car is around 55-60% after 3 years.

[Iz]

Not always. Car manufactures ocasdionally provide amazing lease promotions through inflated residuals and allowing stacking of promotions and rebates on leases. I know people that have leased decent 20k cars for under $100 a month  inclusive of fees. I'm paying 20% of msrp for a 3/36 lease on a sports sedan, when kbb on his car is around 55-60% after 3 years.

Ahhh, now you're talking like a DDFer. Ok, so how does one find these deals? The typical lease deals advertised on DDMS are not like this, correct?

[Yammer]

I've had my Altima 2.5SL since May 2011.
$28K sticker, paid $21K.
Leasing would have been about $350/month. After 3 years I'd have paid $12,500 and been left with nothing.

I've only put 16K miles on it and it's worth about $13.5K today.  So I've used it for 57 months and "paid" $7.5K in that time period, or about $131/month.

How much would it be worth if you put 36k miles on it like the avg lease provides?

It still might pay to lease if insurance and scratches are calculated, but the question is by how much

[Iz]

Not always. Car manufactures ocasdionally provide amazing lease promotions through inflated residuals and allowing stacking of promotions and rebates on leases. I know people that have leased decent 20k cars for under $100 a month  inclusive of fees. I'm paying 20% of msrp for a 3/36 lease on a sports sedan, when kbb on his car is around 55-60% after 3 years.

By the same token, aren't there occasional purchase promotions as well?

[skyguy918]

Not always.

Or for business use (generally leasing provides favorable tax benefits), cash flow reasons, etc.

[EJB]

By the same token, aren't there occasional purchase promotions as well?

Yes, each equation is different. But if the rebate is the same on a $ basis it usually has more of an impact on a lease.