Poll: Lease vs Buy - 2018 version

[brucethebroker]

^ So leasing is growing in popularity by 0.67% per year. If this trend continues it will be the preferred method by 2070.

Well done....

 

[DEC-1982]

I think it's more difficult to understand a lease, at least for me.

 

[Tallman4123]

Both DW and I leased while w*rking so that we always had reliable and new vehicles; we both drove 20k+ miles per year.

Now DW and I have ER'ed and just bought two new vehicles for cash and plan to keep them for 10+ years; I expect we will each drive <10k miles per year.

 

[ShokWaveRider]

I think it's more difficult to understand a lease, at least for me.

Leasing 101, not everything but a general overview.

Negotiate price of car as normal. For Our example we will use $50k MSRP and $42.5k Actual Sales Price if you paid cash. Does Not include Title Fees.

MSRP = $50k
Sales Price = $42,500 (-15% what I got on my last car)
Lease Fee = +$900 (Acquisition fee, not negotiable)
Total CAP Cost = $43,400

Manufacturer Rebates = -$3,500 ($3,500 on my last car, End of year buy)

Total Sales Price So Far: $39,900

Residual Value of Car at end of Lease = $31,000 (62% of MSRP)

NOTE: USA Made Cars have VERY POOR Residual values, Most European, Japanese & Korean are the Best, US Cars lose the most when driven off the lot)

Car Depreciation over the 3 Years = $43,400 - $31,000 = $12,400

Lease Cost (Finance Charge) = Total CAP + Residual x Money Factor (.0012 (2.9% Interest rate) x Lease Term (36 Months) = $3,214

Sales Tax ($6.5% Example for FLA) = Depreciation + Finance Charge x 6.5% = $1,014

Total Cost of Lease for 3 Year Period = $12,901

Total Monthly Payment = $12,901 / 36 = $358.37

If you pay a one Pay Lease like I do, then the Finance charge the Money (Interest Rate) is usually reduced.

Hope this helps. As you can see, to drive a $50K car for 3 years only cost $12,901. So the rest of the price of the car is in your favorite investment vehicle making money.

 

[Aiming_4_55]

I think there is value to buy and to lease, as it will depend on your personal preference. The preference can be a new car every 2 - 3 years vs new every 8 - 10 years, different color every few years or the same for many years, paying for maintenance upfront in a warranty vs DIY or local mechanic, newer features vs standard features of 8 - 10 years, improved mpg, etc.

I've bought and held all my cars in the past on average 8 - 10 years. I'll be in the market for a new or newer car later this year to replace a 10 year family minivan. When I look at the cost of total ownership (about $325 per month, cash purchase plus maintenance & repairs factored in which could of been higher as I shopped for various deals) vs. potential leasing ($300 - 400 per month). So, in my case, buying and leasing is about the same cost range. The increase on monthly cost for a newer car sooner could be worth it.

Note: It's really not fair to say keeping a car 8+ years is the same as driving a new car every 2-3 years, so the cost savings is not real. The person the elects to drive an older car is getting what they want, just like the person with the new car. Same as buying Walmart jeans $15 vs Levi's jeans $40 vs those fancy ripped jeans $100, one is making a personal choice. While it covers your a$ $, it's not the same. ;-)

My family needs will be changing in a few years, i.e. kid's activity changing, less road trips, etc. so another mini-van might not be ideal long term, we will see, so leasing may give us some wanted flexibility.

In my case, even tho I am considering ER or semi-ER in the next few years, I'm thinking leasing a car for the first time may be a good option.

 

[braumeister]

I like the idea of leasing, but my annual mileage is high enough that the extra charges would make it much too expensive.

 

[donheff]

For those who have leased I am curious about the hassle factor when you return the car. Do they nickle and dime you for scratches, dings and tire wear or are they reasonable?

 

[ShokWaveRider]

For those who have leased I am curious about the hassle factor when you return the car. Do they nickle and dime you for scratches, dings and tire wear or are they reasonable?

Last 4 cars never had an issue. The return rules are very clear and explained on the lease document.

 

[Out of Steam]

Both DW and I leased while w*rking so that we always had reliable and new vehicles; we both drove 20k+ miles per year.

I've driven that much or more for 25 years, and have always assumed that that much driving made leasing uneconomical.

 

[ShokWaveRider]

I've driven that much or more for 25 years, and have always assumed that that much driving made leasing uneconomical.

It is true, if you do more than 15k a year it is not economical. We average about 10k and lease accordingly.

We do want to do some driving in a few years and will probably buy a 3 year old car that is off lease. Especially as Diesels are getting out of favor now thanks to VW. My last BMW diesel did 45mpg. Comparable gas cars could not touch it.

I think I will look for a used Mercedes E250 BlueTec to buy in a couple of years. Should be well out of favor by then.

 

[harley]

^ So leasing is growing in popularity by 0.67% per year. If this trend continues it will be the preferred method by 2070.

I thought numbers was hard.

 

[Qs Laptop]

For those who have leased I am curious about the hassle factor when you return the car. Do they nickle and dime you for scratches, dings and tire wear or are they reasonable?

No, never had a problem. They send you a plastic card with a hole in it the size of a half-dollar with instructions saying any dents or scratches that exceed the size of the hole may be assessed a cost to repair. Also a tire wear gauge.

They either send someone out to your vehicle to inspect it or you take it to the dealer. In my experience these inspectors are not the most thorough people.

I always get the security deposit waived.

 

[Aiming_4_55]

Disclaimer - I am not in the auto industry, just a consumer. More miles driven regardless of purchase (depreciation) vs lease (fee for extra miles), cost is based on the car and residual value.

https://www.edmunds.com/car-leasing/is-a-high-mileage-lease-right-for-you.html
Probably the biggest misconception in the lease conversation concerns mileage limits.

Many car shoppers think that 12,000 miles per year is the maximum allowable mileage that can be had on a lease, but that's not always the case. Most leases can be tailored to allow for many more annual miles than the standard 12,000. In some cases, banks are willing to let a potential car lessee sign up for as many as 100,000 miles to be driven over the life of the typical three-year lease.

These miles don't come for free, of course. However, when you agree on these extra miles at the beginning of a lease, the mileage costs are cheaper than end-of-lease excess mileage charges. The driver of a high-mileage lease is essentially buying extra miles up front and adding the cost of the extra miles to the standard lease payment.

 

[REWahoo]

I thought numbers was hard.

They is. Took me a while to do that ciphering.

 

[marko]

^ So leasing is growing in popularity by 0.67% per year. If this trend continues it will be the preferred method by 2070.

Unless there's some exponential growth driven by outside factors.

A hundred + years ago someone might make the same claim on a poll of "Horse or Horseless Carriage?"

 

[marko]

The driver of a high-mileage lease is essentially buying extra miles up front and adding the cost of the extra miles to the standard lease payment.

Right. At one point my lease miles was 60000 miles over 3 years.
I aim for a lower mileage lease and when I find myself creeping up on my max I call the dealer who gets me out of the lease and restarts the clock with a new car.

 

[pb4uski]

Leasing 101, not everything but a general overview.

Negotiate price of car as normal. For Our example we will use $50k MSRP and $42.5k Actual Sales Price if you paid cash. Does Not include Title Fees.

MSRP = $50k
Sales Price = $42,500 (-15% what I got on my last car)
Lease Fee = +$900 (Acquisition fee, not negotiable)
Total CAP Cost = $43,400

Manufacturer Rebates = -$3,500 ($3,500 on my last car, End of year buy)

Total Sales Price So Far: $39,900

Residual Value of Car at end of Lease = $31,000 (62% of MSRP)

NOTE: USA Made Cars have VERY POOR Residual values, Most European, Japanese & Korean are the Best, US Cars lose the most when driven off the lot)

Car Depreciation over the 3 Years = $43,400 - $31,000 = $12,400

Lease Cost (Finance Charge) = Total CAP + Residual x Money Factor (.0012 (2.9% Interest rate) x Lease Term (36 Months) = $3,214

Sales Tax ($6.5% Example for FLA) = Depreciation + Finance Charge x 6.5% = $1,014

Total Cost of Lease for 3 Year Period = $12,901

Total Monthly Payment = $12,901 / 36 = $358.37

If you pay a one Pay Lease like I do, then the Finance charge the Money (Interest Rate) is usually reduced.

Hope this helps. As you can see, to drive a $50K car for 3 years only cost $12,901. So the rest of the price of the car is in your favorite investment vehicle making money.

How do you get the $12,901 total cost of lease?

 

[CaliKid]

I'm currently in the leasing side of the votes, but can sway back to purchase, all depends on the deal.

My current lease payment covers the full value of the vehicle if purchased new in 10.8 years. So it's a break even with those who hold a car for 10.8 years just on the price of the car. I also don't have to shell out $$$ upfront to buy and can keep my money invested. In addition:

1. I pay nothing for maintenance (the dealer will even come and pick up my car when it's time for oil changes/maintenance) and give me a free loaner.
2. I also don't have to pay to replace worn tires, brakes and muffler.
3. I don't pay for repairs, vehicle is under warranty for the term of my lease.
4. I also get a new vehicle every 3 years, which let's me change my car based on my "need" or "want".
5. I also get all the newest technology and safety features.

Leasing will not always work out as a good deal for everyone. Some cars just don't have good deals on leases. But it's another strategy for owning a car.
is just a strategy to owning a car which can be a good tool to keeping overall car ownership costs low.

For those who have never leased, you'll need to get educated on leasing, if not you'll end up getting a bad deal. A rule of thumb is that a good lease is when payment is 1% or less than the MSRP of the car. So if you have a $30K vehicle, lease payment should then be $300 or less (any taxes included) to be consider a good deal, and that is with NO MONEY DOWN (never put money down on a lease).

That sounds good to me. What type of car?

 

[ShokWaveRider]

How do you get the $12,901 total cost of lease?

I was summarizing for the purposes of the 101 tutorial. It was not supposed to be spot on accurate. But here is my spreadsheet that I used for the last 4 cars and all come within a few dollars of the dealers.

In this case I wrote the check for the Title Fees Etc. And I did a One Pay Lease.

Also some totals are NOT necessarily the results of the immediate preceding columns. Again, it is just supposed to be a rough example without sharing my actual numbers.

 

[Idnar7]

We leased while we had two children in college. Payment was only $250. Down payment was first & last months. We leased a total of three vehicles at two years each. With no repairs or maintenance, costs were consistent. We have bought since. I might consider leasing when we are almost done driving.

 

[ShokWaveRider]

Here is a sample Lease Calculation Spreadsheet.

 

[aja8888]

Are leasing people using dealerships or private auto leasing companies to lease their vehicles? Is there an advantage to either?

 

[Qs Laptop]

Are leasing people using dealerships or private auto leasing companies to lease their vehicles? Is there an advantage to either?

I've always gone to dealerships as they have the inventory. I would presume they would be able to make a better deal than a private leasing company, but not certain.

Not sure of everything that goes on behind the scenes but essentially the dealership negotiates a lease within guidelines set down by the bank that is financing the deal. The dealership sells the vehicle to the bank who then leases the vehicle to the consumer. Basically, the dealer is a middle man. They are motivated by their internal sales goals and any incentives the auto manufacturer offers them.

 

[Zathras]

For new technologies, I would 100% lease.
First, the new tech can quickly be replaced with rapid improvements.
Second, new tech may not work well, leading to rather major issues.
For example, if you are in AZ and bought a ‘11 Leaf, it may well not have met your needs two years later.
For EVs, the lease deals for many, early on were phenomenal. In some cases, less than gas alone.

All that said, as a general rule we buy.

 

[misanman]

We've done both and I prefer to purchase for the following reasons -

- Leasing is easy to get into (use equity in an existing vehicle to pay down lease) and harder to get out of (no equity to apply toward a new vehicle).
- I think it's easier for the lease originator to slip extra charges in. It happened once to me even though I thought I understood it all.
- Leasing seems to be more about the lease and less about me. For example, we are missing our mileage target so either should drive more or should drive less. Let's take car B instead of car A because we need to put miles on it. Lease terminates and we need to change vehicles even if we don't particularly want to at that particular time.

With the last lease, we felt like we left $$$ on the table because we ended up driving fewer miles than the lease covered.

Anyway, that's why we're back to purchasing.