Real comparison: Lease vs Buy a car

[tryan]

... the mileage restriction is the killer. A leased vehicle would be sitting in my driveway by Nov. I would need a junker to drive at the end of the year.

 

[utrecht]

... the mileage restriction is the killer. A leased vehicle would be sitting in my driveway by Nov. I would need a junker to drive at the end of the year.

A lot of people would go WAY over 10,000 miles. If you would not go over 10,000 until Nov, you could get a 12,000 mile lease. It would cost a bit more, but when comparing it to buying, it still might be about the same since the car would be worth less with more miles on it if you had bought it.

 

[JOHNNIE36]

I've leased my last five vehicles and will continue to do so. There are no big dollar calculations that go on in my decision making process. I figure the sales tax savings as I am in Florida also. My current car is a 2013 Prius V that gets 41 MPG. Even at 12000 miles/yr that fuel economy saves me $20/month at $2.50/gal. I figure that as part of my monthly payment. This was about a $32000 car. I told the dealer up front that I wanted no money out of pocket. So I'm driving this car for 36 months for $340/ month (including the $20 is in the mpg savings).

I will never drive a vehicle out of the bumper-to-bumper warranty period. Right now that's 36 months/36K miles. That's all we drive so I can do a lease, stay within the warranty period, no tires, no batteries, all oil changes, tire rotations covered, no repairs, no out of pocket costs. I keep the car spotless, do all the service on time, keep the records together and the dealer knows I'll be back with a great vehicle to turn in. I've already received an email from him telling me they are willing to do the switch early if I want to (still a year to go on this lease). Everything considered, I'm a leaser for life.

 

[eytonxav]

One other thing to be careful about when leasing, in some jurisdictions you might end up owing annual personal property tax. This can catch many people off guard and the amount may not be trivial.

 

[dallas27]

Don't overthink this. Salesman get higher compensation for the lease, which means the margins are way higher, Which means it inefficient for the consumer, all things equal.




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[utrecht]

Don't overthink this. Salesman get higher compensation for the lease, which means the margins are way higher, Which means it inefficient for the consumer, all things equal.




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Or...they know they will make money twice. Once when the car is leased and again when they get the car back and sell it as a lease return. If they sell the new car outright, the odds are much lower they will get a well kept low mileage vehicle back to sell again.

 

[clobber]

I dont know all the answers, not being in the car business, but I could ask the same question about buying a car. How do they make money selling it at invoice or a few bucs over invoice? I'm sure there's rebates from the manufacturer for volume selling or whatever.

There is a great episode of This American Life where they follow a car dealership for a month. One of the main points was that if the dealership can hit the manufacturer's (somewhat arbitrary) quota for the month, they will make a profit. If not, they don't. I highly recommend giving it a listen here. My conclusion is to always by a car near the end of the month. Those guys are doing crazy things to hit the quota.

 

[Music Lover]

Everything considered, I'm a leaser for life.

That's exactly why leases exist...they hook some people for life and have them convinced that it's a good deal to repeatedly pay 40% for the first 3 years of a product with a 12 - 15 year life span.

 

[ikonomore]

NEVER put more than the minimum down on a lease. Ever.

If you wreck that car driving it out of the dealership, the $4500 is gone.

Roll as much as possible into the payment. Put the $4500 into a bank account and draw down from it to make the payment lower.

 

[Closet_Gamer]

I took a different route. Bought a 1 year old Acura AWD TL that had about 6500 miles on it. Got a 7 yr bumper-to-bumper including door dings and wind shield chips. Paid about $33500 out the door for a car that was originally about $43000 with a shorter warranty.

From now until 2021 I just pay for gas, oil, etc.

The ability to use manufacturers own web sites to search lightly used inventory coming off leases is incredibly powerful. Gives a good sense of regional inventory and price ranges all in one place.

 

[utrecht]

NEVER put more than the minimum down on a lease. Ever.

If you wreck that car driving it out of the dealership, the $4500 is gone.

Roll as much as possible into the payment. Put the $4500 into a bank account and draw down from it to make the payment lower.

If you wreck the car driving out of the dealership you're going to be upside down no matter if you bought or leased or how much you put down.

You're statement is the same as saying never pay cash for a car.

 

[Texas Proud]

There is a great episode of This American Life where they follow a car dealership for a month. One of the main points was that if the dealership can hit the manufacturer's (somewhat arbitrary) quota for the month, they will make a profit. If not, they don't. I highly recommend giving it a listen here. My conclusion is to always by a car near the end of the month. Those guys are doing crazy things to hit the quota.

LOL.... this was back in 85, but I knew a guy who got a significant discount to buy a car just because of this....

He had 'purchased' the car... and was going to come back the next day to sign the paperwork... something happened and he had to miss that and went the next day, which was another month.... well, his financing fell through... they tried to get him to put more money down, but he refused and was just going to not buy.... well, they dropped the price by almost $2,000.... and this was on a $15K car that he already had a good deal on...

When we asked the salesman at another time when we went in for service, he said that it was the car that made the quota.... and the date of his sale was a few days earlier and there was no other car they could get into the prior month... so they just discounted the car until his credit went through and he could buy the car.... dated 3 days earlier....

 

[nash031]

That's exactly why leases exist...they hook some people for life and have them convinced that it's a good deal to repeatedly pay 40% for the first 3 years of a product with a 12 - 15 year life span.

Some people want to drive a new car every 3 years and can afford to and will still retire plenty early. There are a lot of people with a lot of different means out there, and sometimes carrying a $750/mo lease payment for eternity along with everything else is still LBYM.

It's LB***Y***M not LBSomeoneElse'sM.

 

[clobber]

When we asked the salesman at another time when we went in for service, he said that it was the car that made the quota.... and the date of his sale was a few days earlier and there was no other car they could get into the prior month... so they just discounted the car until his credit went through and he could buy the car.... dated 3 days earlier....

Spoiler Alert: In that episode the dealer is trying to hit 129 cars for the month. With a couple days left they are 10+ cars short and start calling relatives etc. Finally they get the 129 and are so relieved. There is a small celebration and you can practically hear the salesmen grinning. Right after 129 is sold, someone walks in and buys #130 very quickly. No big deal, they just can't believe someone walked in and bought #130 so fast.

They turn in all the paperwork to the manufacturer. It turns out, the dealer had miscounted and had really only sold 129. It was that last guy who walked in and bought what they thought was #130 which was really #129. That got the dealership the multi-thousand dollar bonus.

From their website, "When you look at the numbers, the average car they sell in the last two days actually loses money"

 

[pb4uski]

I've never leased a vehicle before.... always bought used or new.

However, today's lease deals look pretty attractive. As an example, I'm looking at a 36 month lease on a AWD Toyota Venza LE (I realize that Toyota is phasing out the Venza but there are similar examples out there and I just want to see if I am thinking about this right).

Lease a new 2015 Toyota Venza for just $214 a month. 36 Months -month closed end lease on Venza 2015 Models 2820. $2,999 due at signing which includes first month’s payment of $214, acquisition fee of $650, customer capitalized cost reduction of $4025, security deposit of $0, and assumes $1890 lease bonus cash direct from Toyota is applied to due at signing. Lease vehicle includes the following optional equipment: 50 State Emissions, Carpet Floor Mats. $25345.84 adjusted capitalized cost assumes dealer participation, which may vary. MSRP $31540 includes destination charge. Your payment may vary depending on final price. Base monthly payment of $214 does not include tax. Taxes, license, title, insurance, regionally required equipment, and other dealer’s charges are extra, and are not included in the amounts shown. Excludes $350 disposition fee due at lease end. Lessee pays maintenance, excess wear and tear and $0.15 per mile charge for all mileage over 12000 miles per year. Lease end purchase option $17662.40.

TrueCar suggests an estimated price to buy a similarly equipped Venza with a MSRP of $31,810 is $26,166 and the adjusted capitalized cost is at the low end of their graph, so the $25,346 capitalized cost seems reasonable to me. Make sense?

Also, the estimated depreciation on a 2015 Venza LE AWD for the first 3 years per Edmunds True Cost to Own is $9,827 but their cash price is $30,337 for that vehicle. So the undepreciated cost after 3 years of $20,510 is 68% of the $30,337. Applied to the $25,346 initial capitalized cost, the undepreciated cost after 3 years would be $17,135, which suggests to me that the $17,662 residual value is in the ballpark. Make sense?

So if I bought this car for cash, let's say that my opportunity cost of funds is 4% so I am losing $3,164 of investment earnings if I buy rather than lease. (actually probably more since I would not change my AA and I expect to earn more than 4%, but that is a whole different thread so let's assume 4% for now). If I buy rather than lease, then I'll also have $7,684 of depreciation (roughly the capitalized cost of $25,346 less the residual value of $17,662). So combined, those costs would be $10,848.

If I lease, I'll pay $2,999 up front and $214/month for 35 months (the first month is in the $2,999, I think) and a $350 lease disposition fee, or $10,839 ... about the same as the cost of owning......and I'll still have the "option" to buy the car for its residual value of $17,662 three years from now.

We only drive about 10,000 miles a year and the lease allows me 12,000. All in, then lease sounds like a sensible deal to me. What am I missing?

2015 Toyota Venza LE: True Cost to Own | Edmunds

 

[ExFlyBoy5]

You said you could get it for $40,000. I said Edmunds true market price is $46,218. Looks like my price is a lot more realistic. No way you're getting a few grand lower. A few hundred sure. You might even get him down to $45,500. I'd be shocked if he would sell it lower than that.

I also got 3 years of free maintenance thrown in.

Yeah, your maintenance isn't 'free', but included in the deal. Minor point perhaps, but still...

Sent from my mobile device so please excuse grammatical errors.

 

[ikonomore]

If you wreck the car driving out of the dealership you're going to be upside down no matter if you bought or leased or how much you put down.

You're statement is the same as saying never pay cash for a car.

The difference is GAP insurance is included (or you should definitely get from your insurance company) with 95% of the leases. Your $4500 is gone if it's totaled. If you only put minimum down (about $1200 down) and total it, your out $1200 and you don't owe anybody anymore money.

link on why not to

BTW I'm all for leasing and lease one of my cars.

 

[utrecht]

Yeah, your maintenance isn't 'free', but included in the deal. Minor point perhaps, but still...

Sent from my mobile device so please excuse grammatical errors.

If I was 10 seconds from agreeing to the deal, but then pushed further and got him to throw in the maintenance package at the same price, then its free. Or of you want to work backwards, I paid for it but got the car $829 cheaper than I stated in my OP making the car an even better deal.

 

[samclem]

We only drive about 10,000 miles a year and the lease allows me 12,000. All in, then lease sounds like a sensible deal to me. What am I missing?

Smallish observations:
-- If I own cars, I don't much think about what the odometer reads. If I want to drive cross country to see someone, I have the freedom to do that without concern that I might cross some imaginary hard line and have to start paying somebody a special charge.
-- Flexibility at the endgame. If we have high unforeseen expenses (big medical bills, etc), I'm going to want to cut back somewhere else to make ends meet and avoid selling off too many assets and putting myself in a higher tax bracket. Similarly, if the market has crumped, I may want to reduce my withdrawals a bit for a few years to give assets a chance to recover. Or maybe there's a new model of some car I'd really like, but it won't be here for another year. In all these cases, if I own my vehicle I can just ask it to soldier on for another year or two without the hassle and expense of buying/leasing another car.
-- Again, another small thing, but a car I've owned for awhile has more value to me than another used car of similar stated value. If I've driven and maintained a car I know how it has been used and cared for, know its quirks and how I fixed them last time, etc. That's valuable information. If I buy a "replacement" used car (same model, same year), I'm starting with more uncertainty, and that makes it worth less to me. This argues in favor of owning rather than leasing, because I really can't obtain a similar replacement car at the end of the lease period for the stated retained value of the lease car.

 

[misanman]

Smallish observations:
-- If I own cars, I don't much think about what the odometer reads. If I want to drive cross country to see someone, I have the freedom to do that without concern that I might cross some imaginary hard line and have to start paying somebody a special charge.
-- Flexibility at the endgame. If we have high unforeseen expenses (big medical bills, etc), I'm going to want to cut back somewhere else to make ends meet and avoid selling off too many assets and putting myself in a higher tax bracket. Similarly, if the market has crumped, I may want to reduce my withdrawals a bit for a few years to give assets a chance to recover. Or maybe there's a new model of some car I'd really like, but it won't be here for another year. In all these cases, if I own my vehicle I can just ask it to soldier on for another year or two without the hassle and expense of buying/leasing another car.
-- Again, another small thing, but a car I've owned for awhile has more value to me than another used car of similar stated value. If I've driven and maintained a car I know how it has been used and cared for, know its quirks and how I fixed them last time, etc. That's valuable information. If I buy a "replacement" used car (same model, same year), I'm starting with more uncertainty, and that makes it worth less to me. This argues in favor of owning rather than leasing, because I really can't obtain a similar replacement car at the end of the lease period for the stated retained value of the lease car.

+1

I have leased on two occasions and didn't like it because I came to the conclusion that leasing limits my "freedom" to do what I want. We were always watching the mileage (don't drive to much or incur penalties, don't drive to little or you're leaving money on the table). Then the lease terminated and we had to consider getting a different vehicle even though we really didn't want to make at that particular time. I know there are some "work arounds" for some of these issues but it seemed like the lease took the focus off of me and what I wanted to do and moved it to the seller. Also, I think it's very easy to get into a lease arrangement and more difficult to get out of the lease cycle because you have no equity in the vehicle.

 

[utrecht]

I knew this would turn into "I dont like leases because...xyz". This is my first lease and I wont know for a while if I will do it again or not, but the purpose of the thread was to show that leasing and buying (with the full intention of selling or trading in 3 years) cost about the same. In fact leasing tends to be cheaper. If you don't like to lease for any number of reasons, I can see that, but it shouldn't be because it costs more. Ive heard for years that leasing costs too much because you are paying for a car you will never own but Ive shown that's false.

Again, this only applies if you know you want a brand new car every 3 yrs or so.

 

[papadad111]

Great discussion as usual. Nothing to add ..

 

[ivinsfan]

I knew this would turn into "I dont like leases because...xyz". This is my first lease and I wont know for a while if I will do it again or not, but the purpose of the thread was to show that leasing and buying (with the full intention of selling or trading in 3 years) cost about the same. In fact leasing tends to be cheaper. If you don't like to lease for any number of reasons, I can see that, but it shouldn't be because it costs more. Ive heard for years that leasing costs too much because you are paying for a car you will never own but Ive shown that's false.

Again, this only applies if you know you want a brand new car every 3 yrs or so.

Yes, I think the key is the 3 year remark, we bought a new Nissan Altima almost 3 years ago, mileage now about 34K. It has all the added options, a great car that is getting terrific mileage. Bought it at the end of the month from a quota type dealership. Package included free oil and maintenance for the first 36K miles.

We got an email saying they would love to have our car and sell us a new one and they were giving top dollar for trades and offering free DQ gift cards if you got a quote. When we got the free oil change, we got a quote since the grandkids love DQ...we had no intention of getting a new car. The trade value of our car seemed a little low so just for the heck of it we had the sales guy calculate what a lease on that car would cost. The number he gave us for the lease was within a couple bucks a month of the depreciation charge they were taking against our 33 month old car. This was for the total amount of the lease with all payments, taxes, and cash payments included.

We intend to keep this car for probably at least 5 more years, but at the 3 year mark not much difference at all in the monthly cost to own.

 

[pb4uski]

Smallish observations:....

+1....

I agree with your observations. In this case, I'm looking at the lease as just an alternative from of paying for the car (small up front and modest monthly payments over time with a bullet after 3 years for the lease vs all up front for the buy), so many of your observations would be not applicable (I'll know the history of the car, any residual buyout is a null since it was pay it now or pay it later and the amount isn't going to break the bank, etc.

If I take the lease cash outflows assuming I buy the car at the end of the lease term compared to the upfront cost I get an implicit interest rate of 5.3% and I think my investments will return more than that. What somewhat attracts me to the lease is the flexibility that if I don't like the vehicle after three years I can just walk away and find a vehicle more to my liking whereas if I own it and don't like the vehicle I either need to sell it and deal with the hassles of selling, trade it and take a hit or live with it.

Still thinking about it.

 

[Texas Proud]

I knew this would turn into "I dont like leases because...xyz". This is my first lease and I wont know for a while if I will do it again or not, but the purpose of the thread was to show that leasing and buying (with the full intention of selling or trading in 3 years) cost about the same. In fact leasing tends to be cheaper. If you don't like to lease for any number of reasons, I can see that, but it shouldn't be because it costs more. Ive heard for years that leasing costs too much because you are paying for a car you will never own but Ive shown that's false.

Again, this only applies if you know you want a brand new car every 3 yrs or so.

I have been reading this and will say 'of course'....

Of course leasing and buying is about the same cost for the first 3 years... what else would you expect? When you are leasing, you are paying for the defined use of the car for a 3 year period... they are pretty good at knowing what the cost of that will be and charging you...

Now, if the lease was much higher than owning, they would be no leases.... if the cost of leasing was a lot lower, then why give you that savings when they can make more profit?


The benefit of buying is that you can own the vehicle for many years and save money over the long haul...

Others have pointed out the other problems with leasing that are there, but you might not care... if you get a dink or a scratch you might not care, but with a lease you do... if you drive too much or too little you might not care.... with a lease you might... when it comes to the end of a lease you might not be ready to get a new vehicle, but you must...

The benefit that I see the most is that it takes hassle out of the game...