Real comparison: Lease vs Buy a car

[utrecht]

We all know that buying a car and keeping it well past the time that its paid off is one of the most cost effective ways to own a car. For my whole life Ive bought new cars and kept them for about 10 years. Buying a used car is also a cheap way to go.

For the purposes of this thread, I'm comparing only leasing vs buying for someone who wants to drive a brand new car every 3 years. This is a real world example based on the car I just leased. It is an Audi A5 convertible.

MSRP is $48920. Edmunds.com true market price which is a very good price to shoot for when buying new, is $46218.

I got a 36 month lease. I put $4500 down including the first months payment. My payments are $467 plus tax or $499 for 35 months. On a lease you pay tax monthly only on your payment amount, not on the entire sales price of the car (in most states anyway). The total cost of my lease over 36 months is $21965. This includes everything. Tax, title, license and all dealer fees.

I could probably buy the car for $46218. Florida sales tax is $2773. Registration and title are $600. They also charge some acquisition fee of $695 for a total of $50286. If I put down the same $4500 and financed for 5 years at 1.9% (Pen Fed rate) my payments would be $800 / month. 36 payments of $800 plus my original $4500 down payment come to total payments of $33,300. After 36 months I would still owe $18066. Assuming I could sell the car for the residual value of $28373, I would have $10307 after payoff.

This brings my total cost of buying after 36 months to $22993, which is $1028 more than the lease cost. With the lease there is no hassle of selling the car at the end. Also, its unlikely that I could sell the car for the full residual value of $28373. If that's what the dealership wants if I choose to buy the car at the end of the lease, there's no way they would pay that much if I traded it in if I had bought it, which makes the lease deal even better.

My conclusion is that if you want a brand new car every 3 years, leasing is the better deal. Cheaper in total, less money outlay every month, and more convenient. Of course, if you have excess wear and tear or go over the mileage limit you will be charged extra at the end of the lease, but those things would also lower the price you could sell the car for so that's a wash.

 

[Bamaman]

As you've figured out, there are many angles to leasing a car. Not all leases are created equal. But your $4500 capitalized cost reduction is contrary to one of the biggest leasing advantages--less initial cash outlay. I'm not into putting extra money into a vehicle I'll never own--equal to $126 per month. FYI: Most customers with really good credit and good income can request and get a waiver on security deposits.

My question is did you jump on the first payment the dealer threw at you? Or, did you negotiate with the salesman on the payment? Most retail leases are being done at MSRP, and the A5 Convertible has a pretty big markup. The dealer can lease the car at $100 less per month than an MSRP and still make a fair profit.

And did they throw an unreasonable $699 documentation fee on the lease that's straight profit? That's a pet peeve of mine, and why I prefer to stay away from national chain dealerships that won't negotiate on the doc fees.

I spent many years teaching common every day car salesmen how to sell leasing to their everyday customers--not just to fleets. I used to get their attention when I told them that moving 20% of their retail customers to leasing would increase their paychecks 50%.

You've got an absolutely beautiful automobile, however the retail market for a used German convertible in 3 years is pretty limited. It's sometimes worth going a lease not to have the financial responsibility to liquidate such a vehicle down the line.

 

[jerome len]

Good data from both comments so far. Generally, leasing is usually cheaper because of the difference in sales tax. Also, most car companies advertise their lease payments based on a price far under MSRP. So, most dealers are sort of forced to quote costs far under list price. And, there is the hassle of selling a used car.....everybody wants to buy them wholesale....selling a used car yourself is a hassle....try going to the State and wait in line only to find out your missing an inspection sticker or something stupid like that. I'm lucky and I can afford to lease....I love it....have very few problems....and I save a little more money since I generally do a "one pay" lease. Once I was going to pay cash for a car and the salesperson asked, "do you want to buy the whole car or just the part you are going to use?" And.....I saved an extra bunch of interest cost since the total cost of the lease excluded much of the interest expense.

 

[stepford]

How many miles per year does the lease allow you to drive? I drive a lot and the answer to that question has always pushed me away from leasing - even when the lease deal appears good on first look.

 

[pb4uski]

.....And did they throw an unreasonable $699 documentation fee on the lease that's straight profit? That's a pet peeve of mine, and why I prefer to stay away from national chain dealerships that won't negotiate on the doc fees....

My pet peeve too.

When I bought my last car the initial docs included a $197 doc fee... I told the salesman that there was no way I was paying them $197 to do 1/2 hour of paperwork and that doing their paperwork was a cost of them doing business... I got the old song and dance about how it was a mandatory fee (they try to make it sound like it is legally required without really saying so) and I told him that was BS and I wasn't buying it.... then he tried the old "it is preprinted on the form and I can't do anything about it" and I responded that it was the dealership's form that it was preprinted on so that BS too.

I finally told him that if they wanted to keep it on the contract that they could either reduce the agreed price by $197 to make me whole or I was walking out the door. They made the reduction.

 

[Big_Hitter]

If MSRP is $49K I'm sure you could get it for closer to $40K.


Get internet quotes, bring them to the dealer and watch the sales guy cringe.

 

[kgtest]

If MSRP is $49K I'm sure you could get it for closer to $40K.


Get internet quotes, bring them to the dealer and watch the sales guy cringe.

That's what I was thinking. I bought a 2014 Silverado brand new, MSRP was 42,000 and I paid 32,000 + taxes. This was not a lease negotiation though it was for purchase. I keep my vehicles 15years and do all my maintenance.


I always try to calculate total cost of ownership when comparing myself. I look at what I have spent on Oil Changes, Tire Rotation, Fluid checks/fills other maintenance and repair costs...then I calculate the cost I bought it for with sales tax, and subtract the cost I sold it for, I divide that my the total months I owned the vehicle and voila. You can also add in fuel charges, then divide it by the total miles driven since ownership to get a per mile cost. Usually when I am done calculating it makes me want to go on a walk lol

 

[marko]

As you've figured out, there are many angles to leasing a car. Not all leases are created equal. But your $4500 capitalized cost reduction is contrary to one of the biggest leasing advantages--less initial cash outlay. I'm not into putting extra money into a vehicle I'll never own--equal to $126 per month. FYI: Most customers with really good credit and good income can request and get a waiver on security deposits.

My most recent lease allowed me to include the $4K cost reduction. In essence I put down zero out of pocket by financing the whole thing. (there were some minor tax and registration issues that required a few hundred bucks oop)

Yes, I know I'm paying for it monthly but at a lower rate than taking the money out of a higher earning location.

 

[travelover]

My pet peeve too.......................

I finally told him that if they wanted to keep it on the contract that they could either reduce the agreed price by $197 to make me whole or I was walking out the door. They made the reduction.

I agree it is a deceptive rip off. When I negotiate a car I just look at the out the door price. Whether the doc fee is $500 or zero doesn't really matter as long as the total price is negotiated in advance.

 

[utrecht]

If MSRP is $49K I'm sure you could get it for closer to $40K.


Get internet quotes, bring them to the dealer and watch the sales guy cringe.

You can't get an Audi A5 convertible for $40K. If you look at Edmunds.com true market price which is the avg price of all of those vehicles sold, then try to get the car a bit cheaper you have a great deal. The "true market price" on this car is $46218. No way you're getting this car under $45,000 or so. Especially when it was the only one left in the state of Florida.

 

[Big_Hitter]

2015 or 2016?

 

[utrecht]

As you've figured out, there are many angles to leasing a car. Not all leases are created equal. But your $4500 capitalized cost reduction is contrary to one of the biggest leasing advantages--less initial cash outlay. I'm not into putting extra money into a vehicle I'll never own--equal to $126 per month. FYI: Most customers with really good credit and good income can request and get a waiver on security deposits.

My question is did you jump on the first payment the dealer threw at you? Or, did you negotiate with the salesman on the payment? Most retail leases are being done at MSRP, and the A5 Convertible has a pretty big markup. The dealer can lease the car at $100 less per month than an MSRP and still make a fair profit.

And did they throw an unreasonable $699 documentation fee on the lease that's straight profit? That's a pet peeve of mine, and why I prefer to stay away from national chain dealerships that won't negotiate on the doc fees.

I spent many years teaching common every day car salesmen how to sell leasing to their everyday customers--not just to fleets. I used to get their attention when I told them that moving 20% of their retail customers to leasing would increase their paychecks 50%.

You've got an absolutely beautiful automobile, however the retail market for a used German convertible in 3 years is pretty limited. It's sometimes worth going a lease not to have the financial responsibility to liquidate such a vehicle down the line.

Of course I could've put less than $4500 down, but my payments would've been higher. Putting the money down up front or having higher payments makes no difference to the amount of money you are putting into a car that you will never own. The total cost of the lease is what matters, unless of course you don't have $4500 to put down.

Of course I didn't jump on the first payment he threw at me (which was $550 per month). Ive run my numbers thru lease calculators and they all said I got an excellent deal. My interest rate, which isnt stated but can be figured using an online lease calculator, works out to be 0.3%. Another lease calculator gave me a 87 out of 100 when I put all my details in.

But none of that matters for the purposes of this thread. I'm just comparing leasing for 3 yrs to buying and trading for a new car in 3 yrs which is apples to apples. People always say that they wont lease because they are throwing money away into a car they will never own, but if just showed that if you are comparing apples to apples and will get rid of the car either way after 3 years, leasing is cheaper. Obviously its cheaper to buy it, pay it off and then keep driving it for free.

The market for this car 3 yrs from now makes no difference to me because it will be theirs in 3 yrs.

 

[utrecht]

How many miles per year does the lease allow you to drive? I drive a lot and the answer to that question has always pushed me away from leasing - even when the lease deal appears good on first look.

10,000 miles. That was the biggest hurdle to leasing for me before I retired, but I avg about 8500 miles per yr now.

 

[sengsational]

I'm not a car flipper, so never looked at the analysis. I'll take others' word for the validity of the OP, which I think is that it's valid.

My first question was "How can they do that and still make money?"

One answer was that the state somehow doesn't get paid sales tax. If that's true, then I wonder if that's enough profit for them to make it worth it, or if there's some other juice in there for them. Oh, another is the "gotchas" at the end of lease. That's probably where they make it back. You just need to be one of the people that dont' get caught there, and you'll be alright.

 

[utrecht]

I'm not a car flipper, so never looked at the analysis. I'll take others' word for the validity of the OP, which I think is that it's valid.

My first question was "How can they do that and still make money?"

One answer was that the state somehow doesn't get paid sales tax. If that's true, then I wonder if that's enough profit for them to make it worth it, or if there's some other juice in there for them. Oh, another is the "gotchas" at the end of lease. That's probably where they make it back. You just need to be one of the people that dont' get caught there, and you'll be alright.

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.

If they charge me extra for every little door ding or tiny mark, then this will be the last car I ever lease. I suspect that most people feel the same way, so it must not happen very often or nobody would continue leasing. I expect to pay extra if there's actual damage on the car and I would also expect to not be able to sell a car with actual damage on it for the same price of one with no damage so that's a wash I would say.

 

[REWahoo]

How do they make money selling it at invoice or a few bucs over invoice?

Invoice has become a meaningless number and has no relation to what a vehicle actually costs a dealer.

 

[Big_Hitter]

Invoice has become a meaningless number and has no relation to what a vehicle actually costs a dealer.

this plus Edmunds is pretty meaningless - every new vehicle I've bought in the last few years was thousands less than their "true" price

 

[pb4uski]

I agree it is a deceptive rip off. When I negotiate a car I just look at the out the door price. Whether the doc fee is $500 or zero doesn't really matter as long as the total price is negotiated in advance.

Agreed.... I focus on an out-the-door price as well. My favorite "ploy" is to write the dealer out a check for what I am willing to pay out-the-door and watch them cringe.

One time, we were at an impasse on price so I wrote a check for my last offer plus 1/3 of the difference between us and dropped it off at the dealership on my way to work with instructions to either call me and let me know when to pick up the car or to rip up the check and mail it back to me. I got a call about 1/2 hour after I arrived at work asking when I wanted to pick up the car.

Another time, with a different dealer, I got a ripped up check back in the mail a couple days later.

The last time, I was at the dealership, wrote out a check for what I thought was a reasonable out-the-door price and handed it to the salesman and told him i would sign it if we had a deal, otherwise I was going home. That's the car I currently drive.

 

[marko]

One answer was that the state somehow doesn't get paid sales tax. If that's true, then I wonder if that's enough profit for them to make it worth it, or if there's some other juice in there for them. Oh, another is the "gotchas" at the end of lease. That's probably where they make it back. You just need to be one of the people that dont' get caught there, and you'll be alright.

The state gets its sales tax each month based on the amount of that month's payment. Instead of paying $1600 sales tax as you would in a straight sale, ($25K X 6.5%) you pay $7.8 ($120/mo X 6.5%) each month.

In that way, there is a savings on tax for the consumer as you pay $280 over a three year lease vs $1600.

I've never run into any 'gotchas'; in fact, my last leased car was turned in with a pretty nice whack on the bumper...I fully expected to get hit for it. They noted it but never mentioned it.

 

[REWahoo]

The state gets its sales tax each month based on the amount of that month's payment. Instead of paying $1600 sales tax as you would in a straight sale, ($25K X 6.5%) you pay $7.8 ($120/mo X 6.5%) each month.

In that way, there is a savings on tax for the consumer as you pay $280 over a three year lease vs $1600.

Not always. Once again, the devil is in the details - or in this case, the state:

Although most states only charge sales tax on individual monthly payments (and down payment, if any), some states, such as Texas, New York, Minnesota, Ohio, Georgia, and Illinois, require the entire sales tax to be paid up front, based either on the sum of all lease payments or on the full sale price of the vehicle, depending on the state.

Lease Fees and Taxes Explained - LeaseGuide.com

 

[Big_Hitter]

The last time, I was at the dealership, wrote out a check for what I thought was a reasonable out-the-door price and handed it to the salesman and told him i would sign it if we had a deal, otherwise I was going home. That's the car I currently drive.

man I can't wait to do that next time I buy a new car - may be a while tho

 

[Big_Hitter]

Internet quote:


"The MSRP price is $49,555. I could offer an agressive price
of $46,500 if you were interested in doing business today."


I bet I could squeeze a few more grand out of him - that's his beginning offer

 

[Texas Proud]

Agreed.... I focus on an out-the-door price as well. My favorite "ploy" is to write the dealer out a check for what I am willing to pay out-the-door and watch them cringe.

One time, we were at an impasse on price so I wrote a check for my last offer plus 1/3 of the difference between us and dropped it off at the dealership on my way to work with instructions to either call me and let me know when to pick up the car or to rip up the check and mail it back to me. I got a call about 1/2 hour after I arrived at work asking when I wanted to pick up the car.

Another time, with a different dealer, I got a ripped up check back in the mail a couple days later.

The last time, I was at the dealership, wrote out a check for what I thought was a reasonable out-the-door price and handed it to the salesman and told him i would sign it if we had a deal, otherwise I was going home. That's the car I currently drive.

As you mentioned, it sometimes works and sometimes does not...


I had a coworker who did this with cash (back in the early 80s).... he said he laid out $100 bills across the salesman's desk.... said the salesman looked at the money... then piled it up and handed it back to him... he said he bought a different car somewhere else....

 

[utrecht]

Internet quote:


"The MSRP price is $49,555. I could offer an agressive price
of $46,500 if you were interested in doing business today."


I bet I could squeeze a few more grand out of him - that's his beginning offer

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.

 

[Big_Hitter]

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.

I just handed him a check for $42K and walked away. I'll keep you posted...