[pylon]

Here, this post should be stickied. At least once a month it seems, the same question is asked.

http://forum.calgarypuck.com/showpos...5&postcount=41

As a finance manager at a car dealership, with zero incentive to say otherwise as I am anonymous on this board, leasing is far smarter than financing. I lease my cars personally, and I know every little inside tidbit and lending perk available, and there is not a smarter way to buy a new car. Virtually every employee in the auto industry leases as well. If financing made more sense, the people that work in the industry would be doing it instead.

You are absolutely bang on, on why the Domestics have dropped leasing from their portfolios. They are sick of eating losses as most of their cars are coming back with values averaging 20% below the estimated residuals, and have been for close to a decade now. Also, many of the manufacturers make the dealer buy a certain percentage of their lease returns in their dealer agreements, and if they don't they lose certain incentives from the credit arm of the manufacturer. Why would dealers want to pay retail for used lease returns? Imports are typically on the other side of the fence, and for the domestics to be able to break even at lease end, they would need way lower residuals, resulting in much higher, uncompetitive payments on inferior cars. Their answer? Long term low interest loans with no return option, the WORST scenario for a buyer.

The only time leasing does not make sense, is if you can unequivically say, I will have this car in 10 years time. If you are the industry average consumer buying a new car, statistics say you will replace at approximately 4 years. Where leasing got a bad rap was in the 90's when open ended leases were the norm, with zero guarantees at the end. A lot of people got burned. However, a closed end lease, with full disclosure, and a guaranteed residual is always the way to go. You have an absolute guarantee you can walk away at the end of three years. What if the car was a lemon? What if that particular model suffers a major problem that kills its future resale? What if the economy tanks, and we hit a depression where used car values plummet?

The best way to compare the two is to use the example below, and pretty much any finance manager that knows his ass from a hole in the ground knows this:

This is a real world example using published rates and residuals right out of my finance rate guide for current 2010 models we sell, and an AMVIC approved finance calculation program. The car in question is a pretty normal $30,000 family sedan. There are no "dealer fees" included to keep the numbers simple, but in most cases they are lateral which means they will affect both deals similarily within a dollar or two a month.

A five year loan (which is the most common loan option) and a 3 year lease is what you want to compare.

Here is a 30,000 + gst car:

5 year loan @ 4.9% with 0 down:

$594 / month X 60 mos = Deferred price (including interest) of $35640

3 year lease on same car @ 4.9% with 0 down:

$534 / mth tax incl x 36 mths = 19224
+ residual $15750 tax incl

Deferred cost: $34974.

You are actually ahead by $666 dollars on the lease up to this point.

In reality as well, you are likely within $1000 +/- of the true resale of the vehicle at the 3 year point, so you can make the decision to buy it cash, refinance it, or walk away and get something new. Regardless of the method you used to finance it, the resale value is the same.

The only catch is if you decide to keep the car, and do not have the cash to pay it out, you will incur interest on refinancing the balance. If you were to refinance the full amount ($15750) over 36 months, at 5%, you would incur another $1200 in interest, and the original financing option would be ahead by about $600 dollars. This is a small price to pay over 6 years for the advantages of leasing:

Leasing has guaranteed gap protection in the event of a write off.
A loan? no

Leasing contracts are assumable. (I have seen this save numerous peoples credit when they have lost jobs very soon after signing a lease)
Financing? No, and you are on the hook for about 20% depreciation in the first year...minimum.

The cars value is guaranteed by the manufacturer in the event of a major accident that is repaired and you can give it back without depreciation.
Financing? Good luck once your potential buyer runs a carproof/carfax.

Every single one of these points, is why I, as a finance professional in the auto industry and most of my colleagues, lease a car. I know every 3 years I want something different, and unless you can say, "I am driving it into the ground" you are doing the auto manufacturer a favour by not leasing.

Obviously there are exceptions to the rule. For example if you have a zero percent loan option vs. a 4.9 lease, then it gets a little muddier, but then you are usually talking about factoring in rebates etc, and again a lease could still come ahead, if you are ultimately giving up a $3000 rebate to get zero percent, the you are pretty much back at square one.

Feel free to copy and paste this into any car buying threads in the future, as it is kinda the industry standard logic on the topic. And I do not wish to type it out again, lol.

PM me if you have any questions about leasing or financing.