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Originally Posted by Sliver

Unless I'm missing something the guy financing the car is further ahead. He's put $4944 more in than the leasing guy, but as long as he has more than $4944 equity in the car - which I think he would - he's ahead of the guy leasing.

How could he have more equity? The cars are worth the same, and the lessee has the same ability to extract equity (value - buyout) as individual B.

Here's the trick, the value of the car is independent of how it is financed. What is important, to me at least(excuse the pun), is how each individual got to that position.

Why would someone want equity in a depreciating asset?

Client A has their equity in a bank account or other investment (or at least they could).

Originally Posted by blankall

Not everyone has an extra 30k in cash laying around.

If person A uses their vehicle for work, they can write off the lease payment. Person B and C can only write off interest and depreciation of the vehicle.

You also have to factor in the opportunity cost of paying 30k upfront. If I can invest that money in an investment that pays out more than 3.9 or 2.9% I can still come out ahead of the financed guys.

Person B and C can also run the risk of a major repair once the warranty expires.

Leasing is a better option if you can write off a decent sized portion of your payments.

I would propose that leasing is a better option for most people regardless of their tax position.

Those who claim 'equity' in their vehicle is valuable are really just fans of forced savings (into a lousy financial vehicle).

Originally Posted by Dan02

Did guy A decide he was going to forgoe having a car and walk for year 5?

Nope, but 'A' get's an option that the other two do not.

In my example the cars were worth more than the lessee's buyout. What if, 40 months into their ownership the market for their vehicle became tainted (recalls, poor reliability, tastes shifting, etc.) and at 48 months the vehicles were each worth $10,000 instead.

In that circumstance clients B & C take a depreciation loss of $1,500 that A avoids. This is why the American manufacturers quit offering leases. Each person that leased often saved 1,500 - 2,500 in depreciation values that had to get eaten by the leasing companies.

Originally Posted by ken0042

No, he has paid $4944 more that "A", and has a few hundred in equity. Keep in mind he still owes around $12K for the car; and it is only worth $500.

Leasing really makes sense if you plan on getting rid of the car in 3,4, or 5 years. Because you are only financing the difference between the price of the car and the trade in value, you end up paying a lot less in interest.

One major downside of leasing; if your circumstances change it is a lot harder to get out from under your payments. I have a 2 month old vehicle which we bought; and if something happened where we couldn't afford it; I could sell it a lot easier than trying to get out of a lease.

First off, due to my error, only 6 grand or so is still owed on the financed vehicle.

Second, a 2 month old vehicle is going to be tough to get rid of without a major financial loss no matter what