Buy or Lease a car?

[utrecht]

Everyone knows that buying a car is cheaper if you are going to keep it for a while. We've always bought a car and kept it for 8-10 years. After the car was paid off we always continued making the payments, but into savings for a down payment on the next car.

However, now that we are retired, we have extra money in our budget for some splurges. We saved as much as possible for a very long time to get to this point and want to spurge here and there. One of our splurges is that we want to get a new car every 3 years or so. So the question is if you have already decided to get a new car every 3 years is it better to buy or lease?

We've been retired a few months and are putting only about 700 miles per month on our cars so the mileage limitation wont be a problem.

I don't know that much about leases but from what I understand you are only paying for the depreciation from new to 3 years old (or the length of the lease) plus some factor for having the dealerships money tied up (similar to paying interest on a loan).

Can anyone who has leased give me some pros and cons and tell me what to look out for?

 

[Totoro]

The biggest pro is that you don't own the car. So once the lease contract ends you just hand the car back and settle the last bill (including damages). You don't have to sell the car afterwards or negotiate a trade-in value.

The total cost of your car is composed as follows:

• Depreciation
• Fuel
• Maintenance, repairs, tires
• Insurance, taxes
• Finance costs (this is marginal overall)

Most (corporate) leasing agreements cover all costs excluding the fuel. Retail sometimes only does depreciation & finance as you said



In terms of what the best option is: the residual value of a vehicle at the end of the 3 years is quite high (>30% of the purchase price).



So, things you should think about off the top of my head

• How good you think you are in selling the car (to another individual or as a trade-in)
• How your skill relates to the typical profit of >5% a leasing company makes, on top of their handling costs
• Whether you want the hassle of selling and/or trading the car afterwards
• How brand-loyal you plan to be
• How well you plan to treat your vehicle. A leasing company can screw you over with an artifically inflated invoice for repairing damages at the end of the period. So prepare to deal with that.
• Cashflow: since you are financing you'll have more cash on hand, what will you do with that

Another thing to look out for is where you lease from. If you lease through the dealership (they typically don't finance themselves, but through banks or manufacturer), check whether you can decide where to do the maintenance. If not, it should be included in the lease price.



If you got this far in my post: if you don't need the cashflow, there is no strong compelling reason to lease. Unless you go really short term (<6 months), but then just rent a car.


As they say: your mileage may vary

 

[Texas Proud]

Do you mean 700 miles per month per car.... or do you only own one car...

If it is per car, then ask for a lease with lower mileage limits.... it will save you on your monthly pmts.... but then be ready to pay if you exceed that mileage...


I would say it makes a difference on which vehicles you plan use... if they are desirable and you can make a good deal, they will keep their value... one of the things I have seen is that cars keep their value pretty well compared to way back when... and having a low mileage car should get you some value... the big thing is that you would have to sell it yourself to get the best results... they will want to take $3K or more out of your profits if you trade it in....

 

[JOHNNIE36]

Just happened to see your post and decided to respond as I just finished reading an article on this subject. It is in the latest issue of Consumer Reports (May 15), and titled "Happiness is a 3-Year ease". We have leased our last four vehicles and will probably continue to do so. Granted, half the people will disagree with leasing. My take on leasing is pretty basic. I will never again drive a vehicle past the warranty. I do the three year, low mileage lease as we never drive over 10k miles a year. Also, I hate trying to sell a car at the end of the loan or when it needs fixing and it's paid for.

I think it a common lease item, but at least in Florida you pay sales tax for the amount of months in the lease. Kind of prorated. Also, I have been able to negotiate "no money out of pocket" leases. Love our Toyota Prius V and will probably get another one. I know, it doesn't make economic sense. I might try "shopping" this one around towards the end of the lease next March. Very desirable vehicle and I might be able to get more for it than the payoff amount.

The magazine also lists percent of leasing by car brand, customer satisfaction by manufacturer and general satisfaction of leasing (would you lease again). I was surprised that only 9% of Toyota's are leased. Highest percentage of leases are for Jaguar, Infiniti, BMW, Mercedes.

 

[aja8888]

I was surprised that only 9% of Toyota's are leased. Highest percentage of leases are for Jaguar, Infiniti, BMW, Mercedes.

Toyotas have a good reputation for low cost maintenance, low purchase cost and good longevity, thus people tend to buy them and keep them.

Jag, BMW, Infiniti, Mercedes are expensive cars with frequent and expensive maintenance costs, thus, they get leased by people who can't afford to buy one and want to be seen in one.

 

[utrecht]

700 miles per month per car. We have 2 cars.

Isn't the residual value decided up front? I believe with a lease you have the option of buying the car at the end of the lease for that residual value price so if the lease company tried to rip you off over a tiny ding, you could just buy the car and keep it or sell it for the actual value (as opposed to their artificially low value as they try to rip you off), correct?

If you bought the car at the end of the lease, would you come out more or less the same as if you had just bought it in the first place?

 

[utrecht]

What happens if the car gets wrecked but not totaled? The insurance company pays to fix the car but will the lease company still buy the car back at the same residual value? Or does the value take a hit even though the car is completely fixed?

 

[Theseus]

We had leased about 8 or 9 vehicles while still w@rking, as it worked out well for us mileage wise. Don't recall ever having any issues with excess nitpicking when turning them in. It was nice not needing to deal with maintenance issues outside of very routine stuff, which for all practical purposes amounted to not much than oil changes and checking air in the tires. Going at it absent brand loyalty, leasing did occasionally turn up some surprising deals. While the monthly costs do certainly reflect the initial vehicle cost, the residual value, which is the financing party's best guess as to what the vehicle will be worth in x months with y miles on it can make for surprisingly low monthly lease payments on vehicles that are expected to command high resale value. But it is of course all rent money, and in the end you have no equity.

We are also potentially looking at a new vehicle later this year as I have about $1k in rebate available on a Driver's Edge card that will eventually become 'use it or lose it' but right now I don't think we would lease as our driving mileage is less predictable without the daily commutes. For us at this point, a newer grocery-getter with good gas mileage and smidgen of creature comforts would be a viable long-term vehicle.

 

[harley]

My take on leasing is pretty basic. I will never again drive a vehicle past the warranty. I do the three year, low mileage lease as we never drive over 10k miles a year. Also, I hate trying to sell a car at the end of the loan or when it needs fixing and it's paid for.

I'm curious why you won't drive a car past the warranty? Did you have a bad experience? I personally would never consider leasing, but I drive cars for a long time. Our new car is a 2004 Highlander. The older one is a 2002 Beetle TDI. We've had very few issues other than normal upkeep. We're trying to keep the Beetle until our 9 y.o. DGD is able to drive. She'll look pretty cool in a lime green diesel Beetle. Especially with all those flower magnetic decals on it. I like to drive it because of the incredible mileage, plus it's fun to drive, and shows that I'm very comfortable in my masculinity.

 

[braumeister]

I've long thought that leasing would be a good idea, because I thoroughly enjoy having a car with all the latest bells and whistles and no worries about something breaking on me.

However, it's out of the question for me, because I have never driven less than 20K miles in a year, usually around 24-25K. The extra mileage charges would kill me.

I saw that article in the recent Consumer Reports where they seem to endorse leasing as a good thing. The top 10 brands among those who said they would definitely lease again were Lincoln, Dodge, Chrysler, BMW, Infiniti, Mercedes-Benz, Jeep, Buick, Audi, and Honda. Bottom five were Hyundai, Kia, Toyota, Volvo, and Mazda.

The top 10 among those who thought they got a good leasing deal were Acura, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Fiat, and Ford. Bottom five were Scion, Subaru, Toyota, Volkswagen, and Volvo.

Another interesting statistic was the number leased instead of sold. Top five were Jaguar (38% leased), Infiniti, BMW, Mercedes-Benz, and Lincoln.

 

[REWahoo]

Like harley, we buy and drive our cars for a long time. Leasing has never been a reasonable choice from an economic standpoint, especially for those of us living in Texas who have to pay the entire sales taxes up front on the full value of the car. NOT a good deal.

Texas Auto Lease - LeaseGuide.com

 

[REWahoo]

Can anyone who has leased give me some pros and cons and tell me what to look out for?

I haven't leased, but as a Texas resident you'll take it in the shorts on sales taxes.

Texas laws require that the lessor (the lease company) pay sales tax on the full value of any vehicle they buy from a dealer and lease back to a lessee (you and me). This is different from most other states in which no such tax is charged to the lessor, or the tax is administered in a different way.

See link in previous post.

EDIT: My BIL moved from Ohio to TX and when he registered his leased car in state, had to pay sales taxes on the full value even though Ohio taxes were included in each of his payments. He was pi$$ed!

 

[ikonomore]

700 miles per month per car. We have 2 cars.

Isn't the residual value decided up front? I believe with a lease you have the option of buying the car at the end of the lease for that residual value price so if the lease company tried to rip you off over a tiny ding, you could just buy the car and keep it or sell it for the actual value (as opposed to their artificially low value as they try to rip you off), correct?

If you bought the car at the end of the lease, would you come out more or less the same as if you had just bought it in the first place?

The residual is decided up front and is not negotiable. It only varies due to how many miles you choose and style.

At the end of the lease the car will get inspected by a lease appraiser. He'll tell you the damage and give you a choice on to fix it or not. This happens about 3 months before the end of the lease so you have time to figure it out.

My wife will only lease due to the phenomenal beating she took selling one of her cars. Anyways she had a jetta that was rear ended which caused damage to the front and back. We got it fixed. I wasn't thrilled with the repair job but it was a lease so I let it go. Appraiser saw car, asked about accident, I told him the truth. He said it looks good and away we went.

We haven't replaced any thing on any of our leased cars. Not tires, brakes, or batteries. We also haven't been charged for anything. We did replace the windshield on one of the cars due to a 10" crack but that was covered by insurance.

My rule is buy strong resale cars, lease everything else. This is an area where we could definitely save money but choose not to.

 

[utrecht]

I haven't leased, but as a Texas resident you'll take it in the shorts on sales taxes.

We are moving to Florida in June

 

[REWahoo]

We are moving to Florida in June

Thank you!

 

[nash031]

The top 10 among those who thought they got a good leasing deal were Acura, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Fiat, and Ford. Bottom five were Scion, Subaru, Toyota, Volkswagen, and Volvo.

I am 99% certain this particular list is just a list of makes sorted alphabetically and would summarily discount it...

 

[RunningBum]

Interesting topic. I always seem to take a beating on a trade in or selling it myself so sometimes I think leasing would be better for me. But the up front math is so unclear to me that I don't really know what kind of deal I'll get. Usually I just figure since I won't get a good deal on the exchange I should just exchange less often. 10 years on my last one (and I managed to avoid the issue by totaling it with no collision insurance, was planning on passing it down to my son & his fiance anyway), 7 years before that. I even tried used before that one and still took a beating. Just one year on my current car so hopefully no decision for awhile again.

I also have 16 years on a Miata I bought used and will drive it into the ground. Probably won't replace it. It's been a fun car but a second car is such a splurge and I've had my fun. Maybe that's when I'll start leasing a new one every 3 years, so that the one car I have is current and very reliable.

 

[braumeister]

I am 99% certain this particular list is just a list of makes sorted alphabetically and would summarily discount it...

You're absolutely right. Thanks for noticing that.

The real top ten (by percentages):
Dodge, Fiat, Chrysler, Lincoln, Porsche, Mercedes-Benz, Lexus, Jaguar, Audi, and Jeep. But the percentages are very close.

 

[imoldernu]

I don't belong on this thread, but a word from a geezer... @ 5,000 miles per year (now) total for 2 cars, the combined age 36, the cost per year since purchase, including depreciation is $1300...
No LED lights or rear view video.
96 Cadilac SLS 75K miles
98 Lincoln Signature Town Car. 119K miles

Buy...

 

[gerntz]

We recently leased our first car after being a buy & hold for a long time customer. The ideas of not tying the full price in the car upfront, always having a fresh car, and not having to deal with the repairs of older cars collectively won out this time. It may be the way we go going forward. No regrets yet. Do like the rearview, the blind spot, the jerk back to lane if cross yellow w/o blinker, steering wheel thump if drift from lane, beep if car in front slows rapidly, & auto-slow cruise when approaching another car. Having these things convinces me we're quickly closing in on auto-drive cars.

 

[aja8888]

.
No LED lights or rear view video.
96 Cadilac SLS 75K miles
98 Lincoln Signature Town Car. 119K miles

Buy...

Those two boats would make nice low riders up this way...

 

[Texas Proud]

Toyotas have a good reputation for low cost maintenance, low purchase cost and good longevity, thus people tend to buy them and keep them.

Jag, BMW, Infiniti, Mercedes are expensive cars with frequent and expensive maintenance costs, thus, they get leased by people who can't afford to buy one and want to be seen in one.

Low purchase costs Nope... compared with the other brands then yes.... but Honda and Hyundai are cheaper than Toyota around here....

 

[aja8888]

Low purchase costs Nope... compared with the other brands then yes.... but Honda and Hyundai are cheaper than Toyota around here....

Down here in The Great Swamp, Toyota dealers are still selling new 2015 Camry's for a couple of grand under $25,000. Corolla's are a hair less. Both are advertised as cheap lease deals also. Seems to be a big overstock of all new brands here though.

http://www.communitytoyota.com/new/...lor=null&pageNum=1&carsPerPage=50&output=json

 

[ERhoosier]

I've both owned cars for up to 9 yrs and leased others. Best answer is that it really depends on the deal. Ownership can be very expensive if you get hit with big out-of-warranty repairs or very return of low trade-in/resale value. Some lease deals are literally the cheapest way to drive a decent vehicle (recent safety technologies, etc.). At times car makers build up a big inventory of a particular make/model/equipment level and offer some sweeeet lease deals to move them And depending on lease discounts, money factor (interest rate) and residual value, some leases can be logical a path to ownership IF the total lease cost (down payment plus sum of monthlies) plus the residual value add up to a fair purchase price. Then again, many leases are just horribly expensive- like for those driving 20-30+K miles/yr.
IMHO- No substitute for running the numbers for lease-vs-buy for each situation.

 

[JOHNNIE36]

I'm curious why you won't drive a car past the warranty? Did you have a bad experience? I personally would never consider leasing, but I drive cars for a long time. Our new car is a 2004 Highlander. The older one is a 2002 Beetle TDI. We've had very few issues other than normal upkeep. We're trying to keep the Beetle until our 9 y.o. DGD is able to drive. She'll look pretty cool in a lime green diesel Beetle. Especially with all those flower magnetic decals on it. I like to drive it because of the incredible mileage, plus it's fun to drive, and shows that I'm very comfortable in my masculinity.

harley, I've had a number of experiences where A/C units, power steering and brakes failed sooner than expected. As you get older, you don't need those hassles. As others mentioned, leasing takes the worry out of car buying. No brakes to repair, no tires or batteries to replace, maintenance is covered, etc.

One of the things to look for in leasing is a car that holds it's value. That determines the residual value. So my Toyota Prius will reflect a higher residual price than some other car that has the same sticker price. Hence, a lower lease payment.

The next lease I tackle will have to do with lease interest rates. I'm going to shop early to see if I can do better this way rather than use the dealer financing arm. And, what will the dealer think about this as they won't be making money off interest. Maybe that won't work out.