Buy or Lease a car?

[rayinpenn]

I know there will those who will argue but it's hard to get rich with a perpetual lease payment. We buy and hold our cars for years and years. The best formula I was taught by a personal finance instructor in college - buy a three year old car and run it until it is uneconomical. I happen to buy new Toyotas now because I can I expect I'll be driving my RAV4 for many years.
It is 9.5 miles to work...

Regular oil changes
Keep it tidy
Fix what's broken
High end floor matts


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[Totoro]

There has been a hidden (opportunity) cost lately in keeping older cars around: vastly improved fuel efficiency in newer models.

Maybe not so much a factor in the US, but in Europe it's a big one.

 

[marko]

And I am talking about buying it like somebody who can afford it...That is in cash.

Why would one plunk down $25K in cash (earning 5-6%) when car loans and leases are running as low as 1.9%?

 

[eta2020]

Why would one plunk down $25K in cash (earning 5-6%) when car loans and leases are running as low as 1.9%?

Because number one 25k is hopefully peanuts in ones Net Worth.

Number two you can get better deal paying cash. When I buy car I decide what to pay add to it taxes, plates, inspection sticker and 200 bucks in fees and email dealers what I want to pay for car driving it out of their lot.

Number 3 I am not aware of any guaranteed investment that generates 5-6%.

It makes no sense to have "monthly payments". That is how one gets into comparing lease and buy etc etc and gets false feeling of having a deal. Just like it makes no sense to trade in old car It muddies up things.

 

[pb4uski]

I know there will those who will argue but it's hard to get rich with a perpetual lease payment. We buy and hold our cars for years and years. The best formula I was taught by a personal finance instructor in college - buy a three year old car and run it until it is uneconomical. I happen to buy new Toyotas now because I can I expect I'll be driving my RAV4 for many years.
It is 9.5 miles to work...

Regular oil changes
Keep it tidy
Fix what's broken
High end floor matts .....

Good advice. I did this for years and it worked out well for me. More recently I have found that 2-3 year slightly used car pricing is not real compelling compared to buying new, but the rest of the formula works.

....Number two you can get better deal paying cash. When I buy car I decide what to pay add to it taxes, plates, inspection sticker and 200 bucks in fees and email dealers what I want to pay for car driving it out of their lot.

Number 3 I am not aware of any guaranteed investment that generates 5-6%.

It makes no sense to have "monthly payments". That is how one gets into comparing lease and buy etc etc and gets false feeling of having a deal. Just like it makes no sense to trade in old car It muddies up things.

I'm with marko on this. You can still negotiate an out the door price... it is just whether you pay for it by writing a check or signing a loan. In fact, one time it was $500 better for me to sign a loan since the lender offered a $500 incentive and I just paid off the loan a couple months later. I always negotiate an out-the-door price including taxes, title, registration, etc. and I steadfastly refuse to pay their documentation fee which is just a fancy word for them doing their paperwork. I'm not going to pay them $250 or more for less than an hour's worth of paperwork at is highly automated anyway.

It is silly to compare a loan rate to a guaranteed investment.... if I pay cash for a car the ultimate impact is that it comes out of my 60/40 portfolio since I rebalance regularly so the opportunity cost is the expected rate of interest on a 60/40 portfolio and 5-6% is a conservative estimate.

I usually negotiate a cash deal and then get a price on the trade and decide whether to trade or sell it myself, though the last couple times my trades have been on their last legs and I would not have wanted to sell them to someone so I traded them.

 

[pb4uski]

^^^ This guy is right. How do you have $4k of of total cost not add up to the sales price? $3927 + $13735 = $17662.

In lease guide's calculator I put 0% for sales tax, 0% for rent charge and still am at $180 per month. Did you trade in a car?

Good point... I'm guessing the difference is a trade in of some sort.

 

[Andre1969]

I'm with marko on this. You can still negotiate an out the door price... it is just whether you pay for it by writing a check or signing a loan. In fact, one time it was $500 better for me to sign a loan since the lender offered a $500 incentive and I just paid off the loan a couple months later.

Yep, same thing happened to me. When I bought my 2012 Ram, there was a $500 incentive if I financed through the dealer. I did that, but then paid it off in a few months. The rate was 3.99%, which doesn't sound all that great, but I didn't care because I was paying it off in a few months, anyway. And oddly, last year, they went back and reduced the terms of my loan, even though it had been paid off. I forget what they dropped it to...maybe 3.49%? The check wasn't much, since I had paid it off so quickly, but I still thought it was kinda cool of them.

 

[travelover]

How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more?

I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

Did you learn your lesson yet?

How about a thread on why I'm hiring a 2% of assets yearly, financial adviser?

 

[eta2020]

pb4uski,

In general it will be impossible to find car that sells for cash lets say of 10 000 dollars and you can buy that with loan for 48 monthly payments that equal less then 10 000. That is 48 monthly payments under 208.33 dollars.

I don't want to get into discussion that you can get loan for 0.1 % and you will be making 50% profit on your investments of 10 000 dollars because then I can show you years when you will loose 50% and that car will become wicked expensive

 

[pb4uski]

Not sure at all where you are going with this or what your point is. My point is that a low interest loan (for example 2%) isn't necessarily a bad thing because the loan avoids liquidating investments that typically earn more than 2%. Its the same economics as the old pay off the mortgage argument and there is some risk that your investments might under perform the loan rate for the loan period but more often than not your investments will earn more than the loan rate. An "averages player" will take the loan.

That said, I rarely take a car loan unless there is some upfront incentive only because the potential spread isn't worth the hassle of making loan payments but with autopay now available I might reconsider it.

 

[eta2020]

Not sure at all where you are going with this or what your point is. My point is that a low interest loan (for example 2%) isn't necessarily a bad thing because the loan avoids liquidating investments that typically earn more than 2%. Its the same economics as the old pay off the mortgage argument and there is some risk that your investments might under perform the loan rate for the loan period but more often than not your investments will earn more than the loan rate. An "averages player" will take the loan.

That said, I rarely take a car loan unless there is some upfront incentive only because the potential spread isn't worth the hassle of making loan payments but with autopay now available I might reconsider it.

We disagree on mortgages as well

But car is even worst then mortgage. Because it looses value unlike house and you can not deduct car loan.

If it is smart investing to buy car on loan one should buy everything else on loans The average payer will take loan as you said....that is why average payer will hardly put together meager 1 million in investable assets.

I say so long, bye, bye to this topic of discussing cars....... because we are going round a round.

 

[H2ODude]

How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more?

I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

Right there with ya. We've done the drive it for 10 years most of our lives. Now it's splurge time. Never have done the lease thing, I don't think I'm smart enough to understand them but the restrictions would bug me. We negotiate a price and write a check, but did once do the finance for a discount but paid it off 3 months later (the dealer asked us to please wait the three months so we did).

We did the big splurge and no regrets. DW has wanted a convertible so it's a red BMW 435. It will take months to learn all the bells and whistles on the darn thing but it's a blast to drive. I gravitated to the BMW for one reason: 50k miles 4 years of absolutely no maintenance cost. Drove me nuts when annual on a Porsche Cayman S was $400-600. I know maintenance cost is minor compared to the cost of these vehicles, but I like the idea of one big payment and done. My plan is to trade it in at the end of the 4 years. I have no defense for this plan other than it seems like a fun way to get rid of some of the portfolio growth that is getting away from us! So go for it Utrecht, whatever feels best to you.

Oh, some of the features on the newer cars are amazing. Cameras, sensors, lane wander, it is a lot different. One thing I've noticed is the visibility on most cars has been really reduced making a lot of this quite useful. I've read the visibility is largely sacrificed for crash survivability. We opted for all these features because even a 64 I've noticed on occasional slight deterioration in reaction/attention.

 

[utrecht]

Then you are asking a wrong question. You should ask what is more enjoyable buying car or leasing it, not what is cheaper.

Buying it is more pleasure. Why?

Because you are free to own it for 7 months or 26 months or 7 years. It is all up to you when you get your next car.

Because you can take it around USA 20 times and put on it 200 000 plus miles and nobody will penalize you for it. You have no milage limits to worry about.

Because you don't need to worry about any dink or scratch on car. Nobody will tell you to pay for it at the end of the lease.

And I am talking about buying it like somebody who can afford it...That is in cash. Not like Marko's brother who is comparing monthly payments . If monthly payments is something you need to worry about then you may not be in a position to have car for a pleasure of it.

If I have to worry about somebody making dent on my car or about putting too many miles on it and I have to keep that car till specific date that is not splurging in my mind

Im not asking the wrong question. You're answering the wrong question. My original post states that I have always bought cars and ketp them for a long time and its obviously cheaper to do that...BUT...if a person has already decided that he will splurge and get a new car every 3 years, is it cheaper to buy and trade every 3 years or to lease for 3 years?

 

[eta2020]

Im not asking the wrong question. You're answering the wrong question. My original post states that I have always bought cars and ketp them for a long time and its obviously cheaper to do that...BUT...if a person has already decided that he will splurge and get a new car every 3 years, is it cheaper to buy and trade every 3 years or to lease for 3 years?

My apology Utrecht.

So in a nutshell if I wanted to enjoy cars I would do it the way H2ODude does.
Buy, enjoy and trade them in whenever I want.

I would not look at what is cheaper but what is more fun to do and more convenient for me.

It may be cheaper to lease, don't drive much around so you do not exceed allowed millage and garage it carefully so you
do not have to pay for any scratches. .... I do not know.....

 

[pb4uski]

....If it is smart investing to buy car on loan one should buy everything else on loans The average payer will take loan as you said....that is why average payer will hardly put together meager 1 million in investable assets.

I say so long, bye, bye to this topic of discussing cars....... because we are going round a round.

We'll agree to disagree. But it is averages player, not average payer. An averages player is someone plays the averages, in this case assumes that their investment return for the relevant period will be average for the purpose of decision making while at the same time cognizant that it could vary from the average.

 

[Bestwifeever]

Im not asking the wrong question. You're answering the wrong question. My original post states that I have always bought cars and ketp them for a long time and its obviously cheaper to do that...BUT...if a person has already decided that he will splurge and get a new car every 3 years, is it cheaper to buy and trade every 3 years or to lease for 3 years?

I think leasing a car is like renting a home. It is a good deal for the dealer/landlord or they wouldn't be in the business, but wouldn't some of the pro and cons for the lessee/renter hold true for both?

I see crazy cheap lease prices advertised in the paper, looks like <one-third the cost of a car payment for a fully financed new car, 1.9 percent, using msrp (I know, I know, but a random comparison trying to get near apples to apples--even if the lease payment iends up being half a car payment, still not bad). With 10 and 6 year old cars in our driveway, I can certainly see the appeal of a new car every three years and just turning it in. We too have never leased and paid cash for the two in the driveway, but hmm....

 

[Texas Proud]

Not sure at all where you are going with this or what your point is. My point is that a low interest loan (for example 2%) isn't necessarily a bad thing because the loan avoids liquidating investments that typically earn more than 2%. Its the same economics as the old pay off the mortgage argument and there is some risk that your investments might under perform the loan rate for the loan period but more often than not your investments will earn more than the loan rate. An "averages player" will take the loan.

That said, I rarely take a car loan unless there is some upfront incentive only because the potential spread isn't worth the hassle of making loan payments but with autopay now available I might reconsider it.

Yes, autopay makes a big difference.... I just bought a new car and financed it for 5 years.... put the payment into autopay and set it up for the 60 months... easy peasy.... now the money is sent and I do nothing....

At some point in time I might look at paying it off... but for now I am happy with the 1.9% interest...


Edit to add... I also set up my monthly mortgage payment on auto for 15 years.... been here 5 years and have not done a thing since I set it up...

 

[Texas Proud]

We disagree on mortgages as well

But car is even worst then mortgage. Because it looses value unlike house and you can not deduct car loan.

If it is smart investing to buy car on loan one should buy everything else on loans The average payer will take loan as you said....that is why average payer will hardly put together meager 1 million in investable assets.

I say so long, bye, bye to this topic of discussing cars....... because we are going round a round.

No, it is not smart to buy everything with a loan.... only big ticket items... and only if the interest rate is low....

The interest rate for most items are much higher than for a car or house....

 

[Texas Proud]

Im not asking the wrong question. You're answering the wrong question. My original post states that I have always bought cars and ketp them for a long time and its obviously cheaper to do that...BUT...if a person has already decided that he will splurge and get a new car every 3 years, is it cheaper to buy and trade every 3 years or to lease for 3 years?

OK... let me answer the question.... you will not know until the 3 years are up... period...

But, let me throw out a thought... do you think that leasing companies are going to price the lease where they lose money I do not think so... that would indicate to me that leasing will cost you more money in the long run.... but, look at my first sentence for the caveat....


What people are saying is there are some advantages to leasing... there are some advantages to owning (and not the run it till the wheels fall off)... cost is only one of the factors you have to look at... in the end I bet it will be close to a wash, so look at the other factors that really matter... IOW, if you buy the BMW and they do all service etc. for the 3 years.... that might mean a lot more than what you might save with a lease... (I bet they do service for a lease though....)....

 

[marko]

The one thing I've learned from this forum over the years is that there are no absolutes, no one-size-fits-all, and exceptions to even our most stringent personal rules.

I think we each try to find the balance in the calculation between getting the most out of life while being smart with our money.

My own personal rule of 'no debt--ever!' is violated every month as I do, in fact, lease myself a new Mercedes every 2 years--as I have been for over 20 years. I just like it, like the bells and whistles and like the idea of never having to pay for brakes and tires.

So there! (as an added bonus, at least here in Mass, your sales tax is 6.25% of your monthly lease payment, not 6.25% of the full price of the car, which -without doing the math, I think you come out ahead when you turn cars over relatively soon)

If your perspective is similar to what eta2020 says, that "$25K is peanuts" in the grand scheme of things, then it doesn't matter if you pay cash, loan or lease a car does it?

As is a stock answer on this forum, "it depends" on what works for you and what's important to you all within the envelope of being smart with your money overall.

Isn't it?

 

[pb4uski]

... I also set up my monthly mortgage payment on auto for 15 years.... been here 5 years and have not done a thing since I set it up...

Same here, except the servicing has changed hands twice since I took out the loan so I've had to change the payee twice and reestablish the monthly recurring (push) payment.

 

[tessaduncan]

Something doesn't seem right with your lease numbers in that usually the sum of the upfront, monthly lease payments and residual value are more than the sales price.

According to TrueCar one should be able to buy a Dart for about 90% of MSRP and your purchase price was right there.

pb4uski and others: That's exactly why I asked. It seems to me that even if we buy it at it's residual value, we're still about 3 grand ahead. Since I never leased before, I thought I was missing something. The numbers are correct (no trade-in) but DH did receive a CDI discount (works for mfr). So I guess it was a nice benefit and not typical?

 

[aja8888]

We bought two new cars in the last two years. DW got a 2013 Hyundai Santa Fe and I got a 2014 VW Passat TDI. Both mid to high $20K cars. It's been a sellers market since the economy picked up (especially in Houston).

Cash is not king here.

You get a better deal negotiated using the seller's financing (and they found a bank to match PenFed's 1.9% or I would have walked). The dealers want their cut on the financing and get paid immediately whether or not you are waving a stack of 25 Large in front of them. Plus, in TX, document fees are $99 and that is a set fee. So you pay that.

The rest of the add on bullcrap is not necessary and is big dollars for the dealership (extended maintenance insurance, undercoating, stain protection, VIN engraved in the window glass, floor mats, wheel locks, etc.).

So we fianaced both and paid one off within a few months. I still have the note on the Passat and it's auto paid out of my PenFed RMD monthly pulls (over 70 1/2).

Leasing is trickey and it comes down to negotiating the interest rate for the time period and the residual value at end of lease. I have never leased a car because I want the flexibility of use and we drive a lot. BTW, most leasing is not done by the car dealers, but third party leasing companies and the cars are not owned by the dealers.

Anyone look into a lease takeover arrangement?

 

[Music Lover]

How did I know that this thread would turn to "its cheaper to drive a car til the wheels fall off" even though I stated in the original post that we have decided to splurge and get new cars every 3 years even though we know it costs more in the long run than buying a car and driving it for 10 years or more?

I already know that and don't care anymore. We saved our butts off for decades so we could splurge and we want to splurge on always having new cars.

There's another option other than leasing a new (say $40k) vehicle every 3 years. Since you want to splurge, why not buy a 3-4 year old high end vehicle that listed new for $70k - $80k for around $40k and sell it 3 years later? After all, a new $40k car is nothing special these days, but there are some very nice high end used vehicles out there.

 

[aja8888]

There's another option other than leasing a new (say $40k) vehicle every 3 years. Since you want to splurge, why not buy a 3-4 year old high end vehicle that listed new for $70k - $80k for around $40k and sell it 3 years later? After all, a new $40k car is nothing special these days, but there are some very nice high end used vehicles out there.

Lots of just that come off 3 year leases around here since most people who drive $80K cars can't afford to buy them and lease.