Car Leasing/Buying Fund

[JOHNNIE36]

I came up with an idea yesterday that would fund the lease of a vehicle. Thought I would see what the forum thinks of my idea. Lets say I came up with a windfall of $30K. I'm thinking of investing it in a Vanguard fund like Wellesley that might provide $1800/year in gains based on a 6% return that fund is providing. Whether or not the fund performs like this every year is not important.

My plan is to draw $400/mo to make the lease payments. The fund would provide about 84 months of payments, plus/minus how the fund would perform over that time. That would be at least (2) thirty six month lease terms. At the end of those two lease terms the fund may be gone and I'll be 88 years old and at the end of my driving days. The main reason for leasing is to never drive a car out of warranty and not have the burden of selling/trading your used car. What are your thoughts on this idea?

 

[Ronstar]

Seems logical. Maybe compare to funding the purchase of a car and then trade in on a new car when the first car's warranty expires.

 

[ShokWaveRider]

I am a fan of leasing, but I pay the lease in one go "One Pay". I like you, like a new car every 3 years, usually with free maintenance. My budget is a little higher but in general the same principal. I find the single pay being the best way to go.

 

[ShokWaveRider]

Seems logical. Maybe compare to funding the purchase of a car and then trade in on a new car when the first car's warranty expires.

I do not like this idea as ALL your money is tied up in the purchased car, not so with leasing, and you are still subject to depreciation etc. Buying is for those who like to drive their cars till they die.

I have leased the last 7 cars and with the exception of 2, the car has been worth more than $5000 less than the buyout was.

If you like to buy American, they typically depreciate the worst, so the loss could be greater. I usually buy German cars and their 36 month depreciation for lease purposes is about 62-64%. The last time I looked at a comparable US car it was about 52 - 57% depending on the car. Jeeps are the best. Not the Cars but the Jeep itself. That was the only car I leased that I made money on other than an Audi S4 but that was 5 cars ago.

 

[Totoro]

The main reason for leasing is to never drive a car out of warranty and not have the burden of selling/trading your used car. What are your thoughts on this idea?

Perfectly valid reason to lease.

Make sure you find a decent company that doesn't nickle and dime you at the end of the lease period, and understand what you sign (especially in terms of more and less miles).

Note that you can achieve the same by just trading in your car yourself at a local dealer. One less contract to worry about, no nickle and diming and trade the car in at your own leisure. Probably cheaper too.

 

[bobandsherry]

I am a fan of leasing, but I pay the lease in one go "One Pay". I like you, like a new car every 3 years, usually with free maintenance. My budget is a little higher but in general the same principal. I find the single pay being the best way to go.

There's a big downside to the one payment, if your car is totalled you are out the "payment". If you are paying month to month the gap insurance will pay the remaining balance.

I looked at one pay vs month to month and it only amounted to about $100 difference over term of lease primarily as lease rates are so low. I can typically do better keeping the $ invested.

 

[ShokWaveRider]

There's a big downside to the one payment, if your car is totalled you are out the "payment". If you are paying month to month the gap insurance will pay the remaining balance.

I looked at one pay vs month to month and it only amounted to about $100 difference over term of lease primarily as lease rates are so low. I can typically do better keeping the $ invested.

Not so anymore GAP insurance is included with all leases I have had, (Maybe only a German Car Perk) one pay or monthly. My last 3 have been one pay and I ALWAYS Check.

This is off the BMW Web site:

GAP Protection
The benefits of having a lease with us extend far beyond just saving money; with the Ultimate Lease comes peace of mind at a time of total loss.

 

[pb4uski]

....What are your thoughts on this idea?

I think it is fine, but you could also do something similar with a buy option... buy a car with the same amount down as you would for a lease and have the monthly car payments autopaid from the account... then in 3 years trade it in if you want to using the equity in the old car and set up a new car loan.

Either way, if you like the car and don't want to change (perhaps you are not driving much by then) you can opt to buy it if a lease or just continue making payments if it is a car loan.

If you consider buying, another angle would be to consider makes that have a 5 year bumper to bumper warranty (Hyundai, Kia or Mitsubishi) or 4 year bumper-to-bumper waranty (Acura, Buick, Cadillac, Infinity, Lexus, Lincoln) rather than 3 years.

 

[DanP]

...
I have leased the last 7 cars and with the exception of 2, the car has been worth more than $5000 less than the buyout was.
...

I've been leasing almost exclusively for a long time, and agree with the above. But before turning in a lease lately I've been getting a Carmax appraisal, if its higher than the lease buy then I sell to Carmax and pocket the difference. I've only had 2 cars that were above, but the total was ~8k pocketed from selling to Carmax.

 

[bobandsherry]

Not so anymore GAP insurance is included with all leases I have had, (Maybe only a German Car Perk) one pay or monthly. My last 3 have been one pay and I ALWAYS Check.

This is off the BMW Web site:

GAP Protection
The benefits of having a lease with us extend far beyond just saving money; with the Ultimate Lease comes peace of mind at a time of total loss.

Perhaps BMW does something unique for gap insurance coverage (I'd be curious to see something that outlines their program relative to the single payment and total loss). For most leases that's definitely not the norm. Typically, if you paid $15,000 as the one time payment and your car was totaled or stolen a month later the gap insurance would pay off the car but you'd be out the $15,000.

A possible disadvantage of pre-paid car leasing

• If your car should be stolen or destroyed in an accident, your insurance would pay only the current market value of the vehicle, not the total amount you have invested in your lease. You would stand to lose a large chunk of your up front cash payment — the same loss you would incur if you had paid cash to purchase your car.

• Gap coverage, even if included in your pre-paid lease, provides no benefit to you. It does not cover your cash losses — exactly the same as if you purchased your car with cash. This risk is greatest in the early months of a pre-paid lease, and lessens as the lease nears its completion.

Source: Single Payment Car Lease Explained - by LeaseGuide.com

Those considering a single payment lease will want to get confirmation in writing in regards to single payment and gap coverage in event of total loss.

 

[DrRoy]

I believe that buying for 10 years + is better financially and that is what I do. The 30K would let you do that too. If you prefer to lease that is your choice.

 

[lemming]

That is just envelope accounting to me. I do that mentally sometimes but it doesn't change anything really.
If you are doing that-a dedicated sinking fund you should consider your portfolio to be less by the amount of that fund. And have a plan B for how you are going to make your car payment in year two when your fund is down by 12%

 

[Bamaman]

Perfectly valid reason to lease.

Make sure you find a decent company that doesn't nickle and dime you at the end of the lease period, and understand what you sign (especially in terms of more and less miles).

The leader in straight ahead leasing is Ford Motor Credit--through their franchised dealer base.

They were the first to rewrite their lease contracts to be completely transparent and understandable.

So many other dealers and manufacturers seem to try to confuse you into signing up for a lease with too much profit on front end--and then get you again when it's time to turn the car in with back end charges.

It's also unfortunate that virtually all new car advertising is advertising lease payments--not selling price. And they will bring in customers with low, low payments--requiring large capitalized cost reductions (down payments) that they're going to try to put into their pockets.

 

[JOHNNIE36]

Lots of good reading in the thoughts posted and I appreciate your comments. Some of MY thoughts and comments: 1. All my leases in the past have with been with zero down including zero security deposit. Never have any cash tied up in the lease. 2. Never heard of the single payment lease. I used to do that with mega corp in the purchase of company cars. Had just a single payoff amount on the purchase. Usually sold the cars for more that we paid for them. 3. I got an idea from this forum about gap insurance on my last vehicle. I thought the figure the dealer wanted was to high so I added gap insurance to my auto insurance policy for $20/6-mo policy. 4. Some comments are making me think about a 4-year lease if the car has a 4-year warranty. I'm sure I could talk them into a 4-year lease program. 5. Someone mentioned I could do just as well buying the car and I would come out ahead in 10 years. Note: I don't plan on being around in 10 years, at least not driving.

Thanks again for all the comments. Very helpful.

 

[Koolau]

I believe that buying for 10 years + is better financially and that is what I do.

<SNIP>

Heh, heh, that's what I believe as well - except I start with a 7 to 10 year old car! Clearly, repair costs are higher than with a new car, but cost per mile can be dramatically less than with the huge depreciation of a new car. I think the main justification for a new car (buy or lease) is the warranty - knowing that someone else will deal with it if something goes wrong. So far, I accept that I may have to put a bullet between the headlights of my 18 year old car, but if I do, the loss will be minimal. Recently had to put $800 into my 99 Honda. I figured that would be a couple of month's payments (lease or loan) on a new one and I hadn't put anything into the old one for several years. Naturally, YMMV.

 

[DawgMan]

I had leased a few cars 30 yrs ago or so, but then subscribed to the "buy a 2 - 3 yr old car and hold for min 3 - 5 yrs" philosophy as that would always be the better financial decision. Fast forward to today, while I have not re-explored leasing because I have it imbedded in me that is a less prudent financial decision, I have broken my own rule by buying some new cars, but holding them a min of 6 - 7 yrs. I also admit cars are some of my vices as I own a newer Lexus for the DW and mid life crisis BMW 650 Grand Coupe for me. I wonder if the "new math" today supports the argument for leasing in certain circumstances over say a 10 yr+ period of time, especially when you take into account warranties, maintenance cost, tax adantages (if you can write off), and some arbitrary value for driving a new car? Does it become more/less advantageous if you drive cars in excess value of say $50K vs. $20K? I know it's a little hard to compare apples to apples as you can't always compare the 2017 model to the 2014, but I am sure some of you smart people have run a Firecalc on this .

 

[REWahoo]

There are a number of "lease vs buy" calculators out there that can help you figure out the math. Don't forget to include the sales tax implications as some states tax lease holders on the full price of the car up front rather that pro-rate based on the lease term.

 

[Bamaman]

Transportation remains a major expense in any family's budget--especially in retirement. The old buy vs. lease is a hard decision and as vehicles continue to increase in price, many will have to lease in order to afford relatively new, durable cars/trucks.

After retiring from the auto industry, I no longer have cars provided. I now purchase only very popular, high demand vehicles with reputations for durability and long life.

Currently, I have an 8 year old Lexus IS that's still very stylish--and has never seen a shop. It may have another 8 years life. We're also driving a Honda Civic SI--another very durable vehicle with high residual value. My Ford diesel 3/4 ton crew cab pickup is 14 years old with low mileage, and it can possibly last me the rest of my lifetime. Our people hauler is a late model Ford Explorer.

After having over 125 new cars, what's difficult is getting the "new car bug" out of my system. I try to make transportation decisions more of a business decision rather than from the heart. Sure, I'd like to own a sexy Italian vehicle or a German vehicle, however I really need transportation that's much more trouble free and less of a hassle to own.

 

[Koolau]

Transportation remains a major expense in any family's budget--especially in retirement.

<SNIP>

After having over 125 new cars, what's difficult is getting the "new car bug" out of my system. I try to make transportation decisions more of a business decision rather than from the heart. Sure, I'd like to own a sexy Italian vehicle or a German vehicle, however I really need transportation that's much more trouble free and less of a hassle to own.

My BIL has had at least as many new cars in his 74 years - probably more. Since we now see him only in the summer, he never has the same car(s) one summer to the next. I would be curious what this hobby has cost him since his late teens. His DW still w*rks at age 66 and he has municipal pension as well as SS. Still, I don't see how he pays for his cars and his rent. I guess it's all a matter of priorities. In over 50 years of driving, I've had 7 new cars and 5 used (that's for DW and me.) Had BIL not stiffed us on a personal loan many years ago, I probably wouldn't dwell on it as much. Guess it's time to get over it. YMMV

 

[Totoro]

Does it become more/less advantageous if you drive cars in excess value of say $50K vs. $20K? I know it's a little hard to compare apples to apples as you can't always compare the 2017 model to the 2014, but I am sure some of you smart people have run a Firecalc on this &#55357;&#56858;.

One note: Depreciation is your main 'play' factor finance wise. The higher the MSRP value, the bigger that plays into your total cost.

And this is where things get interesting .. sometimes a higher end priced model wants to dump excess inventory while maintaining its premium image. One of the ways to do this is by getting rid of the car through a leasing or rental company where the consumer doesn't see at what price it was actually sold.

The other way around exists as well - discounts unavailable to leasing companies get given to consumers, usually through giving away overpriced options, favorable dealer financing or higher trade-in value.

There are cases where leasing is cheaper than owning as a consequence, but in my experience there is no general rule. Last year here in the Netherlands there was a price war in the small car segment pushed via private lease. Most lease companies were selling at a loss for that whole year, and you'd be stupid not to lease vs. buying in that segment. Today the party is over, and things are normalizing. Just as an example.

 

[Blue Collar Guy]

as per your post, you only want to drive for 6 more years.Get a Hyundai, buy it . they come with a 5 year bumper to bumper, you can tack on another year bumper to bumper for 1200 bucks. Your payment if you finance will be less than the 2 leases and you can sell the car for something in 6 years.

 

[Corporateburnout]

We've always bought cars and drove them for 6-8 years before trading them in but car maintenance costs and the urge to drive a new car led me to lease for only the second time ever. My first experience is leasing was good except for managing the mileage but with two cars in retirement we've averaged 18K miles of driving. So we just decided to lease our next vehicle and will be driving new cars every 3 years without ever worrying about maintenance and repairs other than oil change.

Leasing may not be the best financial decision but for us it will more enjoyable to drive a new car every few years.

 

[ShokWaveRider]

Perhaps BMW does something unique for gap insurance coverage (I'd be curious to see something that outlines their program relative to the single payment and total loss). For most leases that's definitely not the norm. Typically, if you paid $15,000 as the one time payment and your car was totaled or stolen a month later the gap insurance would pay off the car but you'd be out the $15,000.




Those considering a single payment lease will want to get confirmation in writing in regards to single payment and gap coverage in event of total loss.

I am going to call BMW today and see if I can get this straight. I have done one pay for the last 3 leases with no issues but never crashed. This could be a game changer for a one pay lease if it is the case. I must admit it is not very clear.

 

[ShokWaveRider]

I just got off the phone with BMW financial Services and providing the Lease is structured as a "One Pay" lease, if total loss occurs prior to the end of the lease, any remaining payments are refunded to the Lessee. BUT, if you get a regular Monthly Payment lease and then decide to pay it all off say after the first month, you do lose your payments in case of a total loss.

So make sure the lease contract has "Pre-Pay" in the title of the document as my current one does and all is good.