Higher end car - buy or lease?

[stephenson]

Hi All,

We are thinking about buying a new car - don't this very often, and have tried to be frugal in the past.

This story started out with us looking at a Subaru Ascent - really liked it, comfortable, suitably quick, conservative, but a bit on the boring side - as it should be - that is its market.

We're half way between Vax 1 and 2, and thinking about traveling.

Had a couple of good investments the past two years (ROKU, in particular), and in a broad sense, we can afford the car we think we want (2021 BMW X5 45E).

Local dealer is a bit overpriced - and we are flexible for driving for a better deal - in particular, we have kids in Atlanta so can stay as needed to close and even to bring back for standard service. BUT - some have said this is the sort of car to consider leasing, instead - have never leased a car.

Our profile - 66, income from military, corporate, rent real estate, portfolio - no social security yet.

Thoughts, please?

 

[Aerides]

It's less about the overall price than the depreciation. And often, higher end cars lose less of their value in the 3-4 year range, than lower price ones.

So, a $50k car that drops in value to 40k in 3 years might be a better lease deal than a $30k car that is only worth $15k in 3 years. The lease pricing is based on how much value they'll have left in the car after the lease, give or take. Not so much tied to the initial car value, but how much of a loss the lease needs to absorb.

Another big factor is mileage restrictions. Many of the lease prices are advertised at 10k miles per year, or 12k. If you go over, the penalties can be quite high, so leases generally aren't a good deal for someone who drives more than the average.

 

[travelover]

BMW? Lease it.

 

[marko]

We've been leasing Mercedes and BMW's for decades. More money in a way but you get more car vs buying.

Our 'justification' is that 1) we love a newer, high-end car and 2) as they age, such cars cost a ton to fix--$2000 just for brakes for example. Latest and greatest safety items are also a plus.

OP: FWIW, DW is on her third X5 and loves it.

 

[NoiseBoy]

I purchase off-lease BMW's that have been certified. There are usually lots to choose from as something like 50% of all new BMWs are leased. Not sure when the 45e was introduced, but it can't hurt to look for low mileage used options. I currently own a 2012 X5 35d and love it. Also own a 2006 330i 6-speed.

 

[nap470]

I am currently 17 months into a 36 month/36K mile lease of a Lexus 450H SUV. It is the first lease I have ever done. I decided on a lease mostly because of the initial purchase price of the vehicle...mid $50s. At the end of the lease, the residual value or purchase price of the vehicle would be approximately $32,500, or I can simply turn it in. To date, I have had no issues with the lease and due to the pandemic, mileage is no concern. Any regrets that I have toward a lease are purely emotional. Since I have always purchased vehicles and drove them 8-9 years, I routinely question why I leased vs purchasing the vehicle. I love the vehicle and leased it with intent to keep it for longer than the lease. I could have paid cash for it at the time but thought keeping the money in the market made more sense....even though it's not that much money. If not for the pandemic, I probably would be more concerned about watching my mileage more on a lease vs purchase.
A positive is that I do have the option of walking away from it at the end of the lease. That's not my current plan, but my best friend (my dog) is getting older and it is already difficult for her to get in and out of the higher SUV. I'm considering switching it out for a car at lease end. Before I leased the vehicle, I did sell my previous SUV thru CarMax for cash, and put that money into a 3 year CD to have at the end of the lease to either buy the 450H, or use toward another vehicle. I'm very happy with that decision.

Overall, I really do not have anything negative toward a lease. It has just been a mindset change for me. The first time in years that I have had a monthly car payment. I did look at the BMW X5 also before leasing my Lexus. At the time, a big selling point that BMW had was free maintenance for the 3 year lease period. Many retirees like that idea of not worry about unplanned vehicle repair costs or even the price of new tires. A lease every 3 years allows them to budget a fixed vehicle cost per month and not worry about the repairs.

 

[Qs Laptop]

I am currently 17 months into a 36 month/36K mile lease of a Lexus 450H SUV. It is the first lease I have ever done. I decided on a lease mostly because of the initial purchase price of the vehicle...mid $50s. At the end of the lease, the residual value or purchase price of the vehicle would be approximately $32,500, or I can simply turn it in. To date, I have had no issues with the lease and due to the pandemic, mileage is no concern.

Mileage is no concern? It can be if you are planning on turning in the vehicle and you haven't used all (or most) of your allotted miles. Let me explain.

When you lease you are essentially buying depreciation in the form of mileage. Basically you are buying miles. If you have a 3 year, 36,000 mile lease and you only use 28,000 miles, you are paying for miles you never used. If you lease and don't use all the miles, it might be advantageous to purchase the vehicle at lease end. The lease contract spells out the purchase price at the end of the lease. If you don't use all your miles you might find that buying the vehicle outright is quite a bargain.

I'm in that position right now. For business purposes I've leased eight pickup trucks since 1995. Mainly because of COVID I have a 3 year, 30,000 mile lease on a Ram Big Horn that I have put on only 14,000 miles in 32 months. I'm getting ripped off.

My buyout is $24,000. Similarly equipped trucks like mine (with more miles) are advertised locally for $32,000-$33,000. If I wanted to keep the truck I'd be getting a good deal on it. One downside is having to pay the state sales tax.

I also found out that Carvana buys leased vehicles outright. They will do this but your lease must be outside of 60 days lease end. I contacted them and after uploading some information they shot me an offer of $27,924. I could get out of my lease early, pocket almost $4,000, and start shopping for another vehicle. Now I'm going to see if any local dealers want to make me an offer.

To the OP, it might make more sense to lease a luxury car than to buy it. It all depends on the terms and the residual value at the end of the lease.

 

[nap470]

Qs Laptop...I totally agree with you regarding mileage. My meaning was that I was not concerned about exceeding the lease agreed upon max mileage.

I fully intend on having my vehicle appraised prior to lease end and based on the value, decide whether to purchase and keep or resell, or turn it in if for some reason it is below the residual value. I'm looking forward to a lot of windshield time and more mileage once it is easier to travel.

 

[Koolau]

I've never leased. Of course, I haven't bought new since '91. My biggest problem with leasing is trying to understand how it works - biggest issue: What am I actually "paying" for the car. Bought new, I got good at haggling with the dealer over price. (I found that walking out worked very well at establishing the very lowest price the dealer would take, but that's another story.)

I think the less I "trusted" the car (longevity, cost of up keep, country of origin, etc.) the more I would tend toward lease. A quick for instance, I would not lease a Toyota as I would expect it to out live me. Now, a BMW or MB, I would at least consider leasing. BIG YMMV here.

 

[DrRoy]

We have always been buy and hold. Due to travel we are doing about 15,000 miles per year and I do not think a lease would be better financially.

 

[finnski1]

It's less about the overall price than the depreciation. And often, higher end cars lose less of their value in the 3-4 year range, than lower price ones.

So, a $50k car that drops in value to 40k in 3 years might be a better lease deal than a $30k car that is only worth $15k in 3 years. The lease pricing is based on how much value they'll have left in the car after the lease, give or take. Not so much tied to the initial car value, but how much of a loss the lease needs to absorb.

This would be nice if it were true. However most of the cars with the highest residual value on the enclosed list were under (and sometimes well under ) $50,000. Residual % is just that a % and usually has nothing to do with the initial price as you mentioned. Most vehicles are lucky to achieve 60% residual value after 3 years. The Toyota Tacoma does an incredible 82%.
The highest residual value ones tend to be the most reliable ones hence many Japanese cars on this long list. In fact 37 of the top 38 highest residual values are Japanese and you finally get a few BMW's at 39th and 40th place. I have never seen a "higher end" (nor just about any vehicle)car with 80% residual value as in your example.
These Cars Better to Lease Than Buy

 

[ShokWaveRider]

We always lease, trouble free driving, new car every ~3 years, No AAA costs, No Maintenance Costs, No worries. PLUS Gap insurance included and if it gets hit, no CarFAX woes, just give it back. Residual Value Cash in MY pocket, not the dealers.

 

[GreenEggs]

This would be nice if it were true. However most of the cars with the highest residual value on the enclosed list were under (and sometimes well under ) $50,000. Residual % is just that a % and usually has nothing to do with the initial price as you mentioned. Most vehicles are lucky to achieve 60% residual value after 3 years. The Toyota Tacoma does an incredible 82%.
The highest residual value ones tend to be the most reliable ones hence many Japanese cars on this long list. In fact 37 of the top 38 highest residual values are Japanese and you finally get a few BMW's at 39th and 40th place. I have never seen a "higher end" (nor just about any vehicle)car with 80% residual value as in your example.
These Cars Better to Lease Than Buy

I have a buddy that drove a 4 door 4x4 Tacoma for 300K miles and sold it for $10,000!!

He went straight to the Toyota dealer and bought another!

 

[SonofCohoes]

Lease a BMW. DD bought a CPO X3, many regrets. Mostly mine with the amount of money she paid for it and the maintenance costs but lastly the trade in value. Excruciating........

Also beware of the wiring on the Subaru, the sheathing is a soy based product that mice enjoy. Stay green my friends.

http://www.subarucomplaints.com/soy-wiring/

 

[donheff]

I leased for the first time three years ago, a Lexus NX300H. I wanted luxury but small enough to fit in my dwarf garage, and hybrid. I went with the lease because I like the idea of new cars with new tech, consistent with the "blow that dough" mantra running in other threads. The problem is that I don't like the infotainment/navigation system in the Lexus and the new model is pretty much the same as the old. I am interested in the Toyota RAV4 Prime (plugin hybrid) but they are virtually unobtainable.

I thought of extending the lease but the monthly payments are not worth it. I only have 15,000 miles on this and the payoff is consistent with blue book trade in prices and blue book prices on year older models show only a very small decrease in value. So I am probably going to just buy it and take my time getting a replacement. Maybe a future model year of the same car, maybe a future Prime. Maybe something else entirely.

I like the idea of a lease but I am not happy with the lock in elements (i.e. the need to stay on brand to seamlessly transition to a new lease). It just seems like a PITA to close out the lease without a replacement in hand.

 

[finnski1]

I have a buddy that drove a 4 door 4x4 Tacoma for 300K miles and sold it for $10,000!!

He went straight to the Toyota dealer and bought another!

When I bought my Tacoma in 2009 I was looking for used ones. The prices were ridiculous. $25000 for a 3 year old used one. I bought it new for$27500. almost 12 years later looks great and only has 117,000 miles on it. Still worth about $15000.which is almost 60% after 12 years. No complaints.

 

[Freedom56]

We always buy (all cash deals) and hold our cars. Leasing does not make financial sense for us.

 

[teetee]

If you can afford driving your paid-for new car off the dealer lot, and straight off the cliff, and then go right back and get another identical model with cash without having to think about your debt, retirement, income and any stuff. I think you will be fine.

IMO leasing is not much different from renting. That is why it only make sense if you are planning to throw some money away because you are not planning to keep the car for more than three years.

Either method, you take the depreciation hit with new cars. It may sound harsh but I would not do either one if money factor is still on top of your priority list.

 

[38Chevy454]

There is an expression "Don't drive a German car that is out of warranty". Repairs on German cars can be quite expensive, so for OP, leasing and driving the new car can avoid potential expensive repair costs. Turning the car in before or at end of factory warranty, get something new, rinse and repeat. Drawback of course is that lease is essentially just paying a planned depreciation costs. Once lease is up and turned back in you will have no equity and no vehicle. It's a lower monthly cost to drive new vehicles.
I have never leased, but that doesn't make it a bad choice for many. I am able to do my own maintenance on vehicles, so owning for longer time and higher mileage is my method. Later in life, I may consider leasing for vehicles? Have to see how circumstances are at that time.

 

[Ready]

Leasing is convenient for people who know they want a new car every three years. If that fits your profile a lease may be a good choice.

I don’t like leasing because I don’t want to be forced to swap cars every three years. I would prefer to just swap cars when I decide it’s time rather than when my lease is up.

BMWs do cost a lot to maintain out of warranty. They are fun to drive though.

 

[REWahoo]

Anyone considering a lease who isn't familiar with how their state treats auto lease sales taxes needs to do a bit of research. Some states (TX) require sales taxes to be paid up front rather than rolled into the monthly lease payment. Adding insult to injury, you are also taxed for the full value of the vehicle.

Should be no surprise that leasing isn't very popular in these parts...

 

[ShokWaveRider]

Anyone considering a lease who isn't familiar with how their state treats auto lease sales taxes needs to do a bit of research. Some states (TX) require sales taxes to be paid up front rather than rolled into the monthly lease payment. Adding insult to injury, you are also taxed for the full value of the vehicle.

Should be no surprise that leasing isn't very popular in these parts...

That would be real downer, no worries here in Fla. I would lease a new car every year if it was a viable option. But 36 - 39 months is usually the "Sweet Spot", that combined with a 0% Money factor makes it a no brainer. Leasing is good when money is cheap, and money is very cheap now.

I have no trouble switching companies at the end of a lease as someone mentioned previously that it may be a hassle. Not in these parts with auto-malls. The last time I picked up my new car lease and dropped my old one off 2 dealerships down the road. It does cost a return fee, which is waved if you re-lease from the same manufacturer, but that is minimal on most cars except Mercedes.

The last 2 leases I paid the whole 3 years off in one payment, saved about 2 months lease payments, even more. This time with a 0% Money factor it was a wash, so I just set up regular monthly payments from my Credit Union and do not look at it again.

 

[Music Lover]

You never said how much the down payment is, how much lease payments are, how long you plan on keeping it, how many miles a year you expect to drive, or what the residual value is.

And yet people still had an answer with all that information missing

 

[OldShooter]

I don't think there is any question that leasing is more expensive than the alternatives. The lessor has borrowed money to buy the car, he is exposing himself to a number of risks, and he has priced the lease to make a profit.

The question, then, is simply whether the convenience of the lease is worth the extra cost to the leasee. One problem being that it is very difficult to tell exactly what that extra cost is.

 

[ShokWaveRider]

You never said how much the down payment is, how much lease payments are, how long you plan on keeping it, how many miles a year you expect to drive, or what the residual value is.

And yet people still had an answer with all that information missing

Hmmmmm. Perhaps because it is a moving target. All Cars are different, interest rates are different from company to company, so are fees etc., so how can one provide the data? I can answer 2 of them, that is in 30 years of leasing I have NEVER paid a down payment. $0 down, $0 due at signing is the only way to go, and 95% of the time, Registration, Title, and first months payment were all included. I usually get 10,000 miles a year as all I really do is drive locally or to the Airport. Anything else is just moving the payment from one pot to the other and IMHO should not be considered.