I know there's another forum elsewhere regarding this or I recall reading a small blurb about this, but I wanted some fresh opinions/education on the matter.
What are the pros and cons to each of the 3? I've always been a finance guy, but I also love my cars, and want to be getting into a new vehicle every 3-4 years.
I've heard a few avenues I could work with.
a) Go back into financing, get a car with a larger payment per month (vs leasing it), but own it in the end and be able to sell it back.
b) Lease a car for a 3-4 year term, return it after it's done
c) Lease a car for a 3-4 year term, buy it out at the end if the residual is lower than the value of the car at that time, and go and sell it then for a 'profit' (note I put that in quotations... )
d) Find a car that I love that's maybe a couple years old, with almost everything I want, and buy it outright or finance it. Thus saving on the off the lot loss of value.
I'm looking to find the most economically feasible solution. Yes, I am aware I'm paying perpetually for a car with my attitude. However, as stated before and I'm sure many of you can relate, I am willing to pay because I love cars and I love the experience of a new one (or almost new). I'm having a hard time wrapping my brain around what's best for my situation.
Some examples I'm looking at include leasing a brand new 335xi or an S4. Or do I go the route of looking for one a couple years old and buying it / financing it? If I lease, how long should I lease for? I've heard the idea of sign on for a 4 year lease, break it at 3 and it would still be okay?
I've both financed as well as leased cars and here are my two cents:
Leases are great for a "toy" car, where you will be switching every few years anyways (or if you tend to switch cars often anyways). Drive it to the ground and walk away (barring no measurable damages). But in this case you're essentially financing forever - but some people are ok with that.
Financing new is always the way to go if you plan to keep a vehicle for a long time (i.e. past the 3 year mark where depreciation is at its highest). Financing 2-3 year used is generally a smarter buy so the initial buyer can bear the brunt of the depreciation. There are some exceptions, such as some cars, typically Hondas and Toyotas hold their value so well that it may actually make sense to buy new - you may end up paying more but you get a new car, the longer warranty and usually, lower financing rate through the dealer. Of course, you may not find a used car that have the features/colors that you want - if it is that important to you.
In terms of reliability of new vs. used, I've seen, in my limited population sample of cars I bought and the people I know that have bought, no appreciable difference between either. If you do the due diligence (i.e. take the used car to a mechanic for a full inspection), you're just as safe, if not safer in some cases than buying new. I've known people that ended up with lemons buying both new and used.
If you want to save the most money, buy a car a year or two old and drive it into the ground.
If you own your own business you'd probably save the most money on a lease as you can write off 85% of that payment versus only being able to write off the interest amount on a loan each year.
If you do lease, 3 years is a good amount since that's usually how long the warranty lasts.
Thing is most people aren't solely concerned with saving money, a car is a toy let's be honest so in that case it comes down to your habits. Want a new car every few years? Lease. If you love the car and don't plan on changing your mind financing it would make more sense. Just don't trade it in for something else as soon as your term is over, as it's your post-payment years which will save you the most money when it costs you zero per month.
0% finance is great but sometimes the cash discount that accompanies may end up being better in the long run depending on what return you could get investing your cash instead of using it to buy the car. If you don't have the cash on hand to buy the car outright then this point is moot.
If you don't plan on driving the same car for a long time you may want to lease as a lots of rich people these days have the mindset that it's best to own things that appreciate and rent things that depreciate. There's merit to that, provided you're ok with always having a car payment to make.
One last note. You mentioned a couple German cars. Many feel leasing those is the way to go as they can have reliability problems down the road at which point they won't be your problem, you'll always have a car 3 years old or less and under warranty.
__________________
Tyger! Tyger! burning bright
In the forests of the night,
What immortal hand or eye
Could frame thy fearful symmetry?
Good idea to calculate what your finance buyout will be after 3 or 4 years. Compare that to the residual value at the end of a 3 or 4 year lease on the exact same car. If those 2 numbers are close or the residual lease value is lower, which would depend on the finance term you are looking at, then I would suggest a lease. Certain things can happen during the first few years that will depreciate the vehicle further, such as a car accident or constant problems, but with a lease you can just give the keys back at the end of the term if the cars worth less than the buyout. In a finance contract the full depreciation is your responsibility.
You can't break a lease once you enter into it. It is best if you lease to have the term the same or shorter than the warranty. Because your goal is not to fix the car and you do not want to fix the car up just to return it at the end of lease.
Last edited by darklord700; 09-10-2014 at 04:03 PM.
I know you said new, but if you look at CPO (certified pre-owned) programs for bmw and audi for each month, you may be able to find a car in great shape at 60% cost, with exceptional warranty + special financing rates (I have 1.9% APR, and the next month switched down to 0.9%).
You can also set up a lease with a high monthly payment and low residual, if you intend on buying at the end of the term.
This works well at our company, as we write off the lease payment, then have the option to purchase (personally) at the end of the lease for a low amount. It also drives down the buyout fairly quickly throughout the lease, so if you HAVE to get rid of it you can usually sell the vehicle for more than the current buyout amount.
I should point out that this works well with vehicles that don't depreciate quickly (ie: we only lease Toyotas).
Location: A simple man leading a complicated life....
Exp:
I always buy vehicles that are 2-3 years old and drive them into the ground. If you follow the maintanence schedule you can often get over 300,000 kms before you have to buy another.
There is lots of good financial information and advice in that thread.
Like these:
Spoiler!
Quote:
Originally Posted by jammies
I have a crazy plan for getting good credit... don't buy a new car in a year, pay off the car you just bought, and then save the money you would have spent on new car payments.
I can see how you got poor credit in the first place. You have learned nothing from not getting credit approval to buy a new car, all it has done has made you even more determined to spend money that you apparently don't have. If you owe any money whatsoever on anything other than a mortgage, why would you spend money on a new car that you DON'T NEED instead of clearing up those bills?
Yah yah, I know you don't want any advice. That's too bad, because unlike a new car, you need plenty of it. Wake up out of your dreamworld and stop buying shiny toys to make believe you're not broke.
Quote:
Originally Posted by jammies
Is that the same wife that bought a car less than a month ago that is now yet another financial millstone? You'll pardon me if I frankly don't believe your "plans" are going to come to anything, especially if they include buying a new car a year from now.
Actually I do have some idea who you are and what you're doing, because you've told us. You're the guy with crappy credit who thinks that the shortcut to having money is the outward appearance of having money.
The only threads I remember of yours are the ones where you ask for advice on buying stuff, which appears to be your way of getting implicit approval for purchases you can't afford. "Oh, CP thinks I should buy this!" is what you are trying to get out of these threads. Well, too bad - I'm willing to call you out and tell you - "CP" thinks you shouldn't buy anything on credit, because you apparently can't handle your finances.
This isn't condescending, this is reality. Running away with your hands over your ears isn't going to make it go away forever. And to be clear, I'm not thinking I'm being your friend and doing you a favour, I'm hoping other people with a bit more self-judgment will see themselves in you and realize that you are the bad financial example they don't want to follow.
__________________
Captain James P. DeCOSTE, CD, 18 Sep 1993
Is there an issue with leasing a car and getting into an accident where the car is written off? Is it possible that you could end up owing more than you get from insurance?
__________________
"OOOOOOHHHHHHH those Russians" - Boney M
Is there an issue with leasing a car and getting into an accident where the car is written off? Is it possible that you could end up owing more than you get from insurance?
If your mileage is too high at the time of the accident, you will owe. Happened to my Dad shortly before he died.
Other than that, I dont know.
__________________
"Wake up, Luigi! The only time plumbers sleep on the job is when we're working by the hour."
perhaps this is a simplification, but i think no matter what you do - you wind up constantly paying for a car no matter what method you choose.
You buy it and make monthly payments and during that time you are covered by a warranty....the warranty expires about the smae time you pay it off, and you are then paying for ongoing repairs.
you lease it, you pay for it, and then turn it in just as the warranty expires, and then start the process all over.
__________________
If I do not come back avenge my death
Is there an issue with leasing a car and getting into an accident where the car is written off? Is it possible that you could end up owing more than you get from insurance?
Quote:
Originally Posted by Rathji
If your mileage is too high at the time of the accident, you will owe. Happened to my Dad shortly before he died.
Other than that, I dont know.
Most policies have 43R on them which waives the depreciation over the first 24-30 months.
__________________
Captain James P. DeCOSTE, CD, 18 Sep 1993
Leasing v Financing v Buying Vehicles
