Car leasing: yes or no?

[JPatrick]

If you carry a GM card in your pocket, and can tolerate GM vehicles, you can use the points toward your lease or purchase.
My older card allows a max of 3500 points (dollars) to be applied, while some of the newer issues give you less. I get about 4 bonus offers during the year where they will increase your stash nicely if you buy within a certain period, usually 6-8 weeks.

 

[wdberry62]

I leased one vehicle about 10 years ago and won't do it again. I didn't have a terrible experience, but also didn't really understand what I was getting into until it was over.

IMHO, leasing rarely, if ever, makes economic sense. Leasing companies count on customers' love of convenience and get you two ways:

1) Leasing companies do not have to disclose the APR on a lease, as is required by truth in lending laws if you buy a vehicle (the FTC does not consider a lease a debt). Because of that, you almost always have a higher interest rate on a lease vs. a purchase. Leasing companies reference something called a lease or money factor, but most people don't know or understand what this is.
2) When you lease a car, you are essentially renting it for a specific term. The basis amount you are financing is based on the estimated residual value of the car at the end of your lease term. The amount they use to calculate your lease payment is always more than what history has shown is their exposure at the end of the lease. Otherwise, they would be losing money on the lease and they never lose money. So - you are financing more than the fair market value of the vehicle over the lease term.

There may be some tax advantages to leasing if you own your own business that I don't fully appreciate or understand. But - for the average Joe who is considering options when looking for a new vehicle, I think it's a high price to pay for the perceived convenience of a lease.

Just my 2 cents.

 

[bobandsherry]

I leased one vehicle about 10 years ago and won't do it again. I didn't have a terrible experience, but also didn't really understand what I was getting into until it was over.

Like anything else, such as buying a house, choosing area to live, investment strategy, one needs to do their homework. Leasing is a strategy, once understood it CAN be an effective tool to lower your out of pocket costs.

 

[REWahoo]

...with the lease you are only paying for the depreciation you're using, not to mention avoiding the lump sum sales tax amount.

Avoiding sales tax on the full price of a leased vehicle isn't always possible. Some states charge sales tax on the entire price, making leasing in those states a very costly way to finance a ride.

 

[street]

no >>>>>>>>>
I buy and hold, leasing for me doesn't make senses financially to me. I do like a lot of the thinking why people do lease though.

 

[ShokWaveRider]

I agree, if your state charges tax on the whole amount, it is pointless leasing. In fact, if so, you should move from your Tax gauging state to some place else, as they will be getting you in other places also.... (Joke).

Leasing is ONLY good, if you like cars of ~$60k and up and Like to change every 3 years and can secure a good "Money Factor" (Interest rate, Remember IR is =sum(MFx24) ). (3 year leases are the leasing "Sweet Spot"). Currently I fall into that category, that may change.

I also pay my 3 year lease(s) in one go. "One Pay" as it saves quite a bot of interest.

 

[bobandsherry]

Leasing is ONLY good, if you like cars of ~$60k and up and Like to change every 3 years and can secure a good "Money Factor" (Interest rate, Remember IR is =sum(MFx24) ). (3 year leases are the leasing "Sweet Spot"). Currently I fall into that category, that may change.

This is not always true. You can find some sweet deals on lower cost vehicles. Look at Leasehackr site and you'll find lots of really good deals on lower priced cars. There is currently a deal to be found on

• GM Terrain ($29K MSRP) for $180 plus $1,152 cash due at drive off).
• Acura ($36K MSRP) for $342 plus $1,103 cash due at drive off).
• Camry ($25K MSRP) for $207 plus $1,365 due at drive off).

As a real life example ---- My daughter was looking for a new car, negotiated a deal on Chevy Equinox for her, MSRP of $29.975. Total of lease with ZERO out of pocket for 24 months was $197/mo (tax included). It was all about the available incentives and MF rate that made this all work. And this entire deal was negotiated via email, dealer also offered to deliver vehicle to my house (they were 3 hours away from me).

Also just negotiated lease on Escape ($33K) for $280/mo, 39 month (36 would have cost $20+ more per month), with $0 out of pocket.

I also pay my 3 year lease(s) in one go. "One Pay" as it saves quite a bot of interest.

That really depends on the MF. If you have a really good MF then one pay doesn't make sense. Using my example above, my total lease payments would have been $4,728. A "one pay" would have been $4,650, a savings of only $78 which is under 1%.

Each lease deal needs to look at it's own merits. Finding available incentives from manufacturer is usually key. Finding additional incentives just really makes the deal work. In my case GM was having "bonus tag" vehicles they were trying to move, had significant discounts. There was promotion through Costco which gave $1,000 additional discount. And then there was $500 "conquest" rebate. GM also has a very low MF (.00070). And then surprisingly had a pretty good residual. And then there's incentives to the dealer, find the right dealer who needs to move a few vehicles at the end of month for their additional incentive and it all just comes together nicely.

 

[Qs Laptop]

Avoiding sales tax on the full price of a leased vehicle isn't always possible. Some states charge sales tax on the entire price, making leasing in those states a very costly way to finance a ride.

This is mostly true, with clarification. "The entire price" is the sum total of the lease payments over the life of the lease, not the sticker price of the vehicle. So, if you are paying $300 a month for 36 months the total of your lease payments would be $10,800. This is the amount your state sales tax is based upon. So if your state sales tax is 6%, you would pay $648 in sales tax.

Most states also the lease company to calculate that number into 36 monthly payments and add it onto the lease payment ($18 a month) but a handful of states make you pay it up front. This is where the "true zero down lease" is your friend.

 

[Qs Laptop]

I agree, if your state charges tax on the whole amount, it is pointless leasing. In fact, if so, you should move from your Tax gauging state to some place else, as they will be getting you in other places also.... (Joke).

The difference is the sales tax is assessed in one lump sum up front, or it is spread out into the lease monthly payments. Either way, you pay the state sales tax.

 

[Qs Laptop]

1) Leasing companies do not have to disclose the APR on a lease, as is required by truth in lending laws if you buy a vehicle (the FTC does not consider a lease a debt). Because of that, you almost always have a higher interest rate on a lease vs. a purchase. Leasing companies reference something called a lease or money factor, but most people don't know or understand what this is.

And they really don't need to know what it is. So the lease company charges you 6.29% on the money in your lease and the bank charges you 5.9% on the vehicle you purchase with financing.

2) When you lease a car, you are essentially renting it for a specific term. The basis amount you are financing is based on the estimated residual value of the car at the end of your lease term. The amount they use to calculate your lease payment is always more than what history has shown is their exposure at the end of the lease. Otherwise, they would be losing money on the lease and they never lose money. So - you are financing more than the fair market value of the vehicle over the lease term.

For years, decades even, Ford would lease F150 pickups with high residual values that would be result in lower monthly lease payments for the customer but a higher buyout number at lease end. This is how Ford built up their claim that the F150 is the best selling pickup for 29 years in a row (or whatever they're up to now.) I know, I leased seven F150's over the year. Honda does much the same thing with Accords.

 

[REWahoo]

This is mostly true, with clarification. "The entire price" is the sum total of the lease payments over the life of the lease, not the sticker price of the vehicle. So, if you are paying $300 a month for 36 months the total of your lease payments would be $10,800. This is the amount your state sales tax is based upon. So if your state sales tax is 6%, you would pay $648 in sales tax.

I'm not sure how the other 5 or 6 states taxing leases upfront administer the tax, but this is not correct here in Texas:

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).

Texas Sales Tax On Car Lease

The lessee may pay the tax up front or roll the sales tax amount into their lease payments. Either way, this WTF (World Trade Federation ) tax treatment makes the financial premium one pays for leasing even more painful. Here leases are generally limited in popularity to the wealthy or arithmetically challenged.

 

[Plantman]

I must say as the OP, I am pleasantly surprised to find such a split amongst us. Getting some good info on the ins and outs of leasing and what to look for. I really thought there would be a lot more buy and holders than leasers.

 

[Bamaman]

If you get down to it, leasing is nothing but financing a car with a balloon payment, and you are not liable for the balloon note.

You shouldn't worry about the cost of the vehicle, and you don't worry about the balloon payment of you are going to walk away at the end. All you are negotiating is a monthly payment--and that is fully negotiable.

Those with a high FICO score can also request a waiver of the security deposit which is usually the base monthly payment rounded off to the nearest $25.

The biggest plus to leasing is low monthly payments. Second plus is low capital outlay. Third is you don't worry about selling the car or trading at Lease End. You just turn it in and get another vehicle. And if you happen to use the car in your work, your payments are partially tax deductible--simplified bookkeeping.

I would never lease from a dealer charging termination or inspection fees on the back end. I will pay for any damages and excessive mileage, but that is it. Otherwise, I will take my business elsewhere.

 

[omni550]

. I really thought there would be a lot more buy and holders than leasers.

If you really want to know the "split" between car owners and leasers, perhaps a poll might be a better means of determining that.

I feel a lot of lifelong owners simply haven't gotten into this discussion, fwiw.

omni

 

[bobandsherry]

If you really want to know the "split" between car owners and leasers, perhaps a poll might be a better means of determining that.

I feel a lot of lifelong owners simply haven't gotten into this discussion, fwiw.

omni

At a macro level, leasing accounts for about 1/3 of all new car sales, so any poll would be tilted towards buying.

Also, a poll would need to also account for new/used and even those who have car vs. no car. And then there is the whole business vs. non-business use.

 

[Qs Laptop]

I'm not sure how the other 5 or 6 states taxing leases upfront administer the tax, but this is not correct here in Texas:



Texas Sales Tax On Car Lease

The lessee may pay the tax up front or roll the sales tax amount into their lease payments. Either way, this WTF (World Trade Federation ) tax treatment makes the financial premium one pays for leasing even more painful. Here leases are generally limited in popularity to the wealthy or arithmetically challenged.

Wow, that would make leasing a very bad deal in Texas. Thanks for the info.

 

[REWahoo]

Wow, that would make leasing a very bad deal in Texas. Thanks for the info.

Not only does it make it a bad deal to lease here, it also makes it a bad deal to move here with leased vehicles.

After my BIL retired he moved here from Ohio with two leased cars. When he registered them he was charged $1,500+ in additional sales taxes - the difference of what he paid on the leases vs. the full value of the vehicles.

He almost had a heart attack...

 

[bobandsherry]

I'm not sure how the other 5 or 6 states taxing leases upfront administer the tax, but this is not correct here in Texas:



Texas Sales Tax On Car Lease

The lessee may pay the tax up front or roll the sales tax amount into their lease payments. Either way, this WTF (World Trade Federation ) tax treatment makes the financial premium one pays for leasing even more painful. Here leases are generally limited in popularity to the wealthy or arithmetically challenged.

Good point, the taxation method for leases in some states may make a lease a good choice.

Illinois used to tax on the full vehicle price, then several years ago with pressure from new car dealers finally conceded to taxing on the down payment and the monthly lease payments. That saved about $40-50/mo on lease payment based on $30K car.

 

[REWahoo]

If you really want to know the "split" between car owners and leasers, perhaps a poll might be a better means of determining that.

Just remembered - I did a poll a few years ago

http://www.early-retirement.org/forums/f28/poll-lease-vs-buy-auto-20802.html

 

[COcheesehead]

Yes, they all came with the lease.



That is my term. No additional actual insurance, just peace of mind. These days you cannot sell a used car with a Carfax Scar, you should not buy one that has any either. If you have an accident of any kind it ruins the resale value on any car. With a lease it does not matter.

Not true. They can ding you for lost value at the end of the lease.

 

[omni550]

Just remembered - I did a poll a few years ago

http://www.early-retirement.org/forums/f28/poll-lease-vs-buy-auto-20802.html

A few years ago indeed...2006!

We were young then....

omni

 

[bobandsherry]

Just remembered - I did a poll a few years ago

http://www.early-retirement.org/forums/f28/poll-lease-vs-buy-auto-20802.html

Holy cow... that's 12 years ago. Many things have changed since then which have made leases more attractive today. Might be interesting to see if there's much change today.

 

[REWahoo]

Holy cow... that's 12 years ago. Many things have changed since then which have made leases more attractive today. Might be interesting to see if there's much change today.

Poll away...

 

[omni550]

If you care to weigh in, there's a 2018 lease vs buy poll here:

http://www.early-retirement.org/forums/f28/poll-lease-vs-buy-2018-version-91255.html

omni

 

[RunningBum]

I guess what I don't like about leasing is that after 3 years I may not want to trade in my car. I know I can buy it, but maybe I have reasons to want to delay it for 3-6 months.

I also don't want to be fretting about mileage. Sometimes I'll take long road trips, and some times I'll fly. There are a number of factors, and I don't need whether or not I have room for more miles on my lease as an additional factor.

Or are leases really not that confining?