Real comparison: Lease vs Buy a car

[utrecht]

I thought leasing would cost more, even for the first 3 yrs and apparently a lot of people here still do even after a couple of examples were laid out.

I still think there would be plenty of leases even if it cost more than buying. The main thing most people see is that the monthly payments are smaller on a lease and they can drive a more expensive car. Most people cant balance a budget, let alone calculate total cost of owning or leasing a car. They just know their payments are significantly lower if they lease.

On my car the lease payments are about $300 per month lower they would be if I bought. If they were only $150 lower, the lease would cost much more than buying, but I still think a lot of people would still lease because all they see is themselves in a fancier car.

 

[nash031]

I still think there would be plenty of leases even if it cost more than buying. The main thing most people see is that the monthly payments are smaller on a lease and they can drive a more expensive car. Most people cant balance a budget, let alone calculate total cost of owning or leasing a car. They just know their payments are significantly lower if they lease.

On my car the lease payments are about $300 per month lower they would be if I bought. If they were only $150 lower, the lease would cost much more than buying, but I still think a lot of people would still lease because all they see is themselves in a fancier car.

Nail meet hammer. I'm a young looking guy, and am actually still pretty young anyway. Every time I've walked into a dealership in shorts, flip flops, etc., the first question is "what kind of monthly payment are you looking for?" I assume this is the case for most folks who walk into dealerships. I usually let them continue down that road and see what all they'll offer me knowing full well if I sign on for their ridiculous financing, I'm just going to pay it off in the first month, taking their big rebate or whatever for doing so.

As I once read in some book at some point, the difference between the wealthy (and most everyone on this forum is or will be, relatively speaking) and the average person is that the average person thinks in terms of monthly inflows and outflows - they live paycheck to paycheck and think about money in terms of salary vs. monthly bills; the wealthy think about money in terms of net worth.

One is a short-term perspective (and is often very necessary to make ends meet); one is not. Leasing - with its lower monthly outflow - will almost always appeal to the person of that mindset, regardless of the long term "net worth" implications.

 

[eta2020]

Smallish observations:
-- If I own cars, I don't much think about what the odometer reads. If I want to drive cross country to see someone, I have the freedom to do that without concern that I might cross some imaginary hard line and have to start paying somebody a special charge.
-- Flexibility at the endgame. If we have high unforeseen expenses (big medical bills, etc), I'm going to want to cut back somewhere else to make ends meet and avoid selling off too many assets and putting myself in a higher tax bracket. Similarly, if the market has crumped, I may want to reduce my withdrawals a bit for a few years to give assets a chance to recover. Or maybe there's a new model of some car I'd really like, but it won't be here for another year. In all these cases, if I own my vehicle I can just ask it to soldier on for another year or two without the hassle and expense of buying/leasing another car.
-- Again, another small thing, but a car I've owned for awhile has more value to me than another used car of similar stated value. If I've driven and maintained a car I know how it has been used and cared for, know its quirks and how I fixed them last time, etc. That's valuable information. If I buy a "replacement" used car (same model, same year), I'm starting with more uncertainty, and that makes it worth less to me. This argues in favor of owning rather than leasing, because I really can't obtain a similar replacement car at the end of the lease period for the stated retained value of the lease car.

+2

And if I park it at local grocery store and somebody bangs/scratches it a bit I don't give a &$#@ because nobody will charge me for that at the end of the lease.

So that kinda gives me lower "mental" cost if I own a car.

 

[GTFan]

I thought leasing would cost more, even for the first 3 yrs and apparently a lot of people here still do even after a couple of examples were laid out.

I still think there would be plenty of leases even if it cost more than buying. The main thing most people see is that the monthly payments are smaller on a lease and they can drive a more expensive car. Most people cant balance a budget, let alone calculate total cost of owning or leasing a car. They just know their payments are significantly lower if they lease.

On my car the lease payments are about $300 per month lower they would be if I bought. If they were only $150 lower, the lease would cost much more than buying, but I still think a lot of people would still lease because all they see is themselves in a fancier car.

I think anyone remotely savvy about car-buying knows that there are plenty of heavily subsidized leases out there that make it a better deal vs. buying if you want a new car every 2-3 years (and put up with the other hassles of leasing mentioned here). E.g. I've seen recent ads for Jettas and Passats around $100 a month with $2k or so down, no way you're going to touch that buying.

For normal leases I think it's pretty much a wash, which is what I consider your $1k diff to be for a $46k car.

I also find that there are way better deals to be had on 2-3 year old off-lease vehicles and that's my market, I'd rather someone else take the new car hit.

 

[eta2020]

I agree with your observations. In this case, I'm looking at the lease as just an alternative from of paying for the car (small up front and modest monthly payments over time with a bullet after 3 years for the lease vs all up front for the buy), so many of your observations would be not applicable (I'll know the history of the car, any residual buyout is a null since it was pay it now or pay it later and the amount isn't going to break the bank, etc.

If I take the lease cash outflows assuming I buy the car at the end of the lease term compared to the upfront cost I get an implicit interest rate of 5.3% and I think my investments will return more than that. What somewhat attracts me to the lease is the flexibility that if I don't like the vehicle after three years I can just walk away and find a vehicle more to my liking whereas if I own it and don't like the vehicle I either need to sell it and deal with the hassles of selling, trade it and take a hit or live with it.

Still thinking about it.

Having mortgage loans or car loans under assumption that I will earn more in my investments does not make much sense to me.

It is like investing on margin... because I will earn more than margin interest.

BTW you can sell car on craigslist pretty easily (If you have title to it)

 

[Texas Proud]

I thought leasing would cost more, even for the first 3 yrs and apparently a lot of people here still do even after a couple of examples were laid out.

I still think there would be plenty of leases even if it cost more than buying. The main thing most people see is that the monthly payments are smaller on a lease and they can drive a more expensive car. Most people cant balance a budget, let alone calculate total cost of owning or leasing a car. They just know their payments are significantly lower if they lease.

On my car the lease payments are about $300 per month lower they would be if I bought. If they were only $150 lower, the lease would cost much more than buying, but I still think a lot of people would still lease because all they see is themselves in a fancier car.

Well, you could have me on the monthly pmts.... I had a BIL who would say the same thing after buying a new car every 3 years... 'my monthly payments went DOWN'.... well, OK....


But, with a lease you are only paying for the decline in value over the lease... when you buy a car you are paying for the whole car in a shorter time frame than its life expectancy.... now, most people are underwater on car loans because their value is dropping so much more in the early years than the later...


The thing is.... I do think that most people who lease are paying up for the lease... they do not negotiate price... they see the monthly pmts and can hack it so they sign... so they might be paying a thousand or more than they needed to pay....

 

[utrecht]

I think anyone remotely savvy about car-buying knows that there are plenty of heavily subsidized leases out there that make it a better deal vs. buying if you want a new car every 2-3 years (and put up with the other hassles of leasing mentioned here). E.g. I've seen recent ads for Jettas and Passats around $100 a month with $2k or so down, no way you're going to touch that buying.

For normal leases I think it's pretty much a wash, which is what I consider your $1k diff to be for a $46k car.

I also find that there are way better deals to be had on 2-3 year old off-lease vehicles and that's my market, I'd rather someone else take the new car hit.

I would agree that if you don't mind a gently used car, buying one coming off lease is probably the best way to go.

 

[utrecht]

If I have GAP insurance, does it ensure that I pay nothing at the end of the lease (other than the surrender fee or excessive mileage)? In other words, if my car has any large dings, dents, scratches, gets wrecked, someone keys it, the seats are excessively worn or whatever else could cause the car to be worth less than expected when I return it, does the GAP insurance cover all of that?

 

[aja8888]

If I have GAP insurance, does it ensure that I pay nothing at the end of the lease (other than the surrender fee or excessive mileage)? In other words, if my car has any large dings, dents, scratches, gets wrecked, someone keys it, the seats are excessively worn or whatever else could cause the car to be worth less than expected when I return it, does the GAP insurance cover all of that?

I believe exclusions and coverages will all be spelled out in the GAP insurance policy.

 

[pb4uski]

Having mortgage loans or car loans under assumption that I will earn more in my investments does not make much sense to me.....

Let me see if I can make sense of it for you. I refinanced just before I stopped working. My loan rate is 3.375%. Since the day I refinanced, my portfolio has earned 10.22% per annum according to Quicken. I'm way ahead. Even if we had a 20% correction tomorrow I would be way ahead.

If I lease the car rather than buy it I'll have ~$22k still invested that I would not have if I buy. The interest rate implicit in the lease payments and residual is 5.3%. It is simple leverage. I'm confident that my portfolio will earn more than 5.3% a year over the next 3 years but i concede that there is a small chance that it might not, but I'm willing to take the risk given the likely reward.

It is a little different from buying on margin. If I buy on margin, I borrow to buy more. With the car lease, I "borrow" to keep from liquidating some of what I currently own. In both cases, these 'bets" are modest compared to my NW so if they go sideways or even south it is not the end of the world.

 

[ikonomore]

If I have GAP insurance, does it ensure that I pay nothing at the end of the lease (other than the surrender fee or excessive mileage)? In other words, if my car has any large dings, dents, scratches, gets wrecked, someone keys it, the seats are excessively worn or whatever else could cause the car to be worth less than expected when I return it, does the GAP insurance cover all of that?

I believe exclusions and coverages will all be spelled out in the GAP insurance policy.

You need separate body damage insurance. Usually not worth it.
Lease companies are way more forgiving than people give them credit for. My wife's jetta was hit from behind and repaired, gash along the bottom of the car below the driver's door, some dings also, tires really used up, all alloy rims scraped. No charge.

The only thing they care about are cracked windshields and big dents. They also do a pre lease inspection so they tell you what it will cost a couple months before hand so you can get it fixed on your own.

 

[petershk]

Cool thread. Makes sense that 3 year lease is cheaper than buying and less hassle.

The less hassle part is why I don't buy cars often. I actually probably would every 3-5 years but I hate the experience so much I just pay cash and drive as long as I can .

I ALMOST considered buying a Tesla just because the dealership experience was so much nicer... But I guess when you spend 80-100k maybe that's what happens ?

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