Buy or Lease a car?

[marko]

Quote:

Originally Posted by eta2020 If he really always pays smaller and smaller payment in 50 years he will lease BMW for 1 dollar a year He has some new undiscovered way of building wealth. Please share details of it with rest of us.

You missed the point. It doesn't mean he's paying a smaller and smaller payment.

If he bought a new Camry with $2800 down, he'd have a 5 year loan for (I'm guessing) $250-$300 a month [edit: $425 a month]. After 5 years, his car would be a junk and he'd need another just as his payments would end.

Same car with a 3 year lease with $2800 down is $155 a month. His previous 3 year lease was $160 a month.

He's paying a smaller payment for the same car versus a car loan.

[marko]

Quote:

Originally Posted by eta2020 But what a blast I had today riding my 200 dollar bike through Historic Lexington, Lincoln, Concord Massachusetts today on lovely Spring day and that ride does not get old from year to year.

Must've been a 'wicked blast' in February.

[Andre1969]

Quote:

Originally Posted by eta2020 If he really always pays smaller and smaller payment in 50 years he will lease BMW for 1 dollar a year He has some new undiscovered way of building wealth. Please share details of it with rest of us.

The Toyota Camry has really held the line on price over the years, and more recently, they've been cranking up the volume and dumping them into rental fleets and such, and using a lot of incentives to keep them moving. So that might be one reason that the brother's current Camry has a lower monthly payment than the previous one.

But that's not something you can count on, consistently.

[marko]

Quote:

Originally Posted by Andre1969 The Toyota Camry has really held the line on price over the years, and more recently, they've been cranking up the volume and dumping them into rental fleets and such, and using a lot of incentives to keep them moving. So that might be one reason that the brother's current Camry has a lower monthly payment than the previous one. But that's not something you can count on, consistently.

Well, the real point is that he gets the same car for half the payment price had he taken a loan. His lease is based on ~$25K model.

[pb4uski]

Quote:

Originally Posted by tessaduncan I know zip about leasing and even less about cars. Could someone please tell me if this a good/decent deal on a lease? One year ago I leased a Dodge Dart (sales price $19043; MSRP = $21130) $1000 down and $122/mo for 24mo (thus total cost of lease = $3927). Residual value = $13735, 15000 miles/yr. DH should get a comparable discount when this lease is up next year.

Something doesn't seem right with your lease numbers in that usually the sum of the upfront, monthly lease payments and residual value are more than the sales price.

According to TrueCar one should be able to buy a Dart for about 90% of MSRP and your purchase price was right there.

[utrecht]

How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more?

I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

[Animorph]

That just puts us back to the implied interest rate on the lease versus what you could make with the money in the market or some safer investment. Is it easier to buy and trade-in at the dealer or lease? I've got to think there are enough moving parts and risk shifting in a lease that the effective interest rate might be a little high. But there are always special deals, either way.

[ikonomore]

Quote:

Originally Posted by pb4uski Something doesn't seem right with your lease numbers in that usually the sum of the upfront, monthly lease payments and residual value are more than the sales price. According to TrueCar one should be able to buy a Dart for about 90% of MSRP and your purchase price was right there.

^^^ This guy is right. How do you have $4k of of total cost not add up to the sales price? $3927 + $13735 = $17662.

In lease guide's calculator I put 0% for sales tax, 0% for rent charge and still am at $180 per month. Did you trade in a car?

[jazz4cash]

Rethinking my long held opposition to leasing, it occurs to me that the ultra long car loans (6-7 yrs) are more like open ended leases. Many lease to acquire more car than they could otherwise afford, but we're now talking about being in a position to pay more for the convenience of not worrying about keeping the tires rotated (!). That said, we are in the market for a new ride soon and want to splurge after keeping the last one 15 yrs so I will look at leasing seriously but expect to buy due to super low loan rates.

[eta2020]

Quote:

Originally Posted by utrecht How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more? I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

Then you are asking a wrong question. You should ask what is more enjoyable buying car or leasing it, not what is cheaper.

Buying it is more pleasure. Why?

Because you are free to own it for 7 months or 26 months or 7 years. It is all up to you when you get your next car.

Because you can take it around USA 20 times and put on it 200 000 plus miles and nobody will penalize you for it. You have no milage limits to worry about.

Because you don't need to worry about any dink or scratch on car. Nobody will tell you to pay for it at the end of the lease.

And I am talking about buying it like somebody who can afford it...That is in cash. Not like Marko's brother who is comparing monthly payments . If monthly payments is something you need to worry about then you may not be in a position to have car for a pleasure of it.

If I have to worry about somebody making dent on my car or about putting too many miles on it and I have to keep that car till specific date that is not splurging in my mind

[rayinpenn]

I know there will those who will argue but it's hard to get rich with a perpetual lease payment. We buy and hold our cars for years and years. The best formula I was taught by a personal finance instructor in college - buy a three year old car and run it until it is uneconomical. I happen to buy new Toyotas now because I can I expect I'll be driving my RAV4 for many years.
It is 9.5 miles to work...

Regular oil changes
Keep it tidy
Fix what's broken
High end floor matts


Sent from my iPad using Early Retirement Forum

[Totoro]

There has been a hidden (opportunity) cost lately in keeping older cars around: vastly improved fuel efficiency in newer models.

Maybe not so much a factor in the US, but in Europe it's a big one.

[marko]

Quote:

Originally Posted by eta2020 And I am talking about buying it like somebody who can afford it...That is in cash.

Why would one plunk down $25K in cash (earning 5-6%) when car loans and leases are running as low as 1.9%?

[eta2020]

Quote:

Originally Posted by marko Why would one plunk down $25K in cash (earning 5-6%) when car loans and leases are running as low as 1.9%?

Because number one 25k is hopefully peanuts in ones Net Worth.

Number two you can get better deal paying cash. When I buy car I decide what to pay add to it taxes, plates, inspection sticker and 200 bucks in fees and email dealers what I want to pay for car driving it out of their lot.

Number 3 I am not aware of any guaranteed investment that generates 5-6%.

It makes no sense to have "monthly payments". That is how one gets into comparing lease and buy etc etc and gets false feeling of having a deal. Just like it makes no sense to trade in old car It muddies up things.

[pb4uski]

Quote:

Originally Posted by rayinpenn I know there will those who will argue but it's hard to get rich with a perpetual lease payment. We buy and hold our cars for years and years. The best formula I was taught by a personal finance instructor in college - buy a three year old car and run it until it is uneconomical. I happen to buy new Toyotas now because I can I expect I'll be driving my RAV4 for many years. It is 9.5 miles to work... Regular oil changes Keep it tidy Fix what's broken High end floor matts .....

Good advice. I did this for years and it worked out well for me. More recently I have found that 2-3 year slightly used car pricing is not real compelling compared to buying new, but the rest of the formula works.

Quote:

Originally Posted by eta2020 ....Number two you can get better deal paying cash. When I buy car I decide what to pay add to it taxes, plates, inspection sticker and 200 bucks in fees and email dealers what I want to pay for car driving it out of their lot. Number 3 I am not aware of any guaranteed investment that generates 5-6%. It makes no sense to have "monthly payments". That is how one gets into comparing lease and buy etc etc and gets false feeling of having a deal. Just like it makes no sense to trade in old car It muddies up things.

I'm with marko on this. You can still negotiate an out the door price... it is just whether you pay for it by writing a check or signing a loan. In fact, one time it was $500 better for me to sign a loan since the lender offered a $500 incentive and I just paid off the loan a couple months later. I always negotiate an out-the-door price including taxes, title, registration, etc. and I steadfastly refuse to pay their documentation fee which is just a fancy word for them doing their paperwork. I'm not going to pay them $250 or more for less than an hour's worth of paperwork at is highly automated anyway.

It is silly to compare a loan rate to a guaranteed investment.... if I pay cash for a car the ultimate impact is that it comes out of my 60/40 portfolio since I rebalance regularly so the opportunity cost is the expected rate of interest on a 60/40 portfolio and 5-6% is a conservative estimate.

I usually negotiate a cash deal and then get a price on the trade and decide whether to trade or sell it myself, though the last couple times my trades have been on their last legs and I would not have wanted to sell them to someone so I traded them.

[pb4uski]

Quote:

Originally Posted by ikonomore ^^^ This guy is right. How do you have $4k of of total cost not add up to the sales price? $3927 + $13735 = $17662. In lease guide's calculator I put 0% for sales tax, 0% for rent charge and still am at $180 per month. Did you trade in a car?

Good point... I'm guessing the difference is a trade in of some sort.

[Andre1969]

Quote:

Originally Posted by pb4uski I'm with marko on this. You can still negotiate an out the door price... it is just whether you pay for it by writing a check or signing a loan. In fact, one time it was $500 better for me to sign a loan since the lender offered a $500 incentive and I just paid off the loan a couple months later.

Yep, same thing happened to me. When I bought my 2012 Ram, there was a $500 incentive if I financed through the dealer. I did that, but then paid it off in a few months. The rate was 3.99%, which doesn't sound all that great, but I didn't care because I was paying it off in a few months, anyway. And oddly, last year, they went back and reduced the terms of my loan, even though it had been paid off. I forget what they dropped it to...maybe 3.49%? The check wasn't much, since I had paid it off so quickly, but I still thought it was kinda cool of them.

[travelover]

Quote:

Originally Posted by utrecht How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more? I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

Did you learn your lesson yet?

How about a thread on why I'm hiring a 2% of assets yearly, financial adviser?

[eta2020]

pb4uski,

In general it will be impossible to find car that sells for cash lets say of 10 000 dollars and you can buy that with loan for 48 monthly payments that equal less then 10 000. That is 48 monthly payments under 208.33 dollars.

I don't want to get into discussion that you can get loan for 0.1 % and you will be making 50% profit on your investments of 10 000 dollars because then I can show you years when you will loose 50% and that car will become wicked expensive

[pb4uski]

Not sure at all where you are going with this or what your point is. My point is that a low interest loan (for example 2%) isn't necessarily a bad thing because the loan avoids liquidating investments that typically earn more than 2%. Its the same economics as the old pay off the mortgage argument and there is some risk that your investments might under perform the loan rate for the loan period but more often than not your investments will earn more than the loan rate. An "averages player" will take the loan.

That said, I rarely take a car loan unless there is some upfront incentive only because the potential spread isn't worth the hassle of making loan payments but with autopay now available I might reconsider it.