To lease or to buy

[bubbsy]

The wife and I are planning on getting rid of our current car and getting a new one. I'm not a car fanatic by any means, and hence looking for some advice.

I was curious on whether people recommend leasing or buying their vehicle? Way i look at it, over a span of 10 years, you will likely spend quite a bit on each down payment, and not own anything, but then any major maintenance costs 10 years after buying a vehicle, could make up for some of that.

Looking for experiences, and what you would suggest would be the best way to go?

[Dion]

Pylon could give you some good advice on leasing and buying. Send him a PM.

[blankall]

If you are writing your car off for work (IE actually using your car at work as opposed to just using it to get there), I would recommend leasing.

[DementedReality]

i have had this debate many times, if you are going to get a new car LEASE IT!

first off, why buy something for say 25k and the minute the ink is dry it is worth 22k.

secondly, a lease you pay roughly 55% of the MSRP in 1/48 increments. which means you put less $$ into the car while its depreciating. if you love the car, consider it a 4 year test drive, you can buy it out.

if its a lemon, you return it.

some people believe in the saying:
own things that appreciate
rent things that depreciate

for me it comes down to I dont want to see my 25,000 sitting in my driveway, i would rather see my $$ in my bank and i will give it up 1/48th a time.

i have done the math and yes if you plan on owning the car for 10 years, buying it today instead of leasing will save you money. buying a good 3 year old car will also save you even more money.

im a lease fan for new cars. one the best examples i can offer is that Dodge stopped offering consumer leases a few years ago (they might be back now?) if leaseing was so BAD for consumers because we were getting ripped off, why would a car company stop offering it?

[blankall]

Originally Posted by DementedReality

im a lease fan for new cars. one the best examples i can offer is that Dodge stopped offering consumer leases a few years ago (they might be back now?) if leaseing was so BAD for consumers because we were getting ripped off, why would a car company stop offering it?

I think that had a lot to do with peolpe defaulting on loans and payments. In the States it got so bad, it was probably better for the companies to have people pay them upfront than to have to go through the collections repossession process.

[DementedReality]

Originally Posted by blankall

I think that had a lot to do with peolpe defaulting on loans and payments. In the States it got so bad, it was probably better for the companies to have people pay them upfront than to have to go through the collections repossession process.

no it was because they didnt want their cars back, due to them not being worth what the residual payment would be.

they didnt want the risk, which is what you are paying for with a lease. you are leaving the risk with the car company that they are getting a car back that has retained its value and they knew their cars wouldnt so they didnt offer a lease.

[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.

[Slava]

Originally Posted by DementedReality

i have done the math and yes if you plan on owning the car for 10 years, buying it today instead of leasing will save you money. buying a good 3 year old car will also save you even more money.

/thread

[bubbsy]

Originally Posted by 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

hey man, out of thanks, but much appreciated.

I will likely PM you as i get closer to making a decision to get your thoughts. I'm in TO, otherwise wouldn't have minding coming in to speak to you at your place of business

[8sPOT]

Valid points, but how can someone justify making a monthly payment essentially for as long as they drive?

I bought a 1 year old Honda Ridgeline (the very vehicle Backlund drives, we are Ridgeline pals) in 2007 and paid cash for it. Now I plan on having that thing until like 2025 or something, and I have zero monthly payments. Obviously I have to make sure it is maintained properly but it just seems to be the way to go.

Also, you can go to return a leased vehicle, and if you're over the km allowance it's gonna cost you.

[REDVAN]

I am currently in the process of purchasing a vehicle for my business, and the last time I bought a vehicle I brought my dad along as a hired gun for negotiating. It's actually quite a stressful thing, wow!

I have had my last car for 7 years and paid for it in full right away... not sure if that's been a good plan or not.

[pylon]

Originally Posted by 8sPOT

Valid points, but how can someone justify making a monthly payment essentially for as long as they drive?

I bought a 1 year old Honda Ridgeline (the very vehicle Backlund drives, we are Ridgeline pals) in 2007 and paid cash for it. Now I plan on having that thing until like 2025 or something, and I have zero monthly payments. Obviously I have to make sure it is maintained properly but it just seems to be the way to go.

Also, you can go to return a leased vehicle, and if you're over the km allowance it's gonna cost you.

If you read it, you would realize I made a direct comparison of using leasing as the method of finance to outright purchase the car as well. But it gives you the option to hand the keys back sooner if you do not want it going forward. Most people do not have 30K to drop on my desk, and if they did, they are stupid when I can finance a car at around 3% right now. Use your cash to make some money for you, not to pay off a depreciating commodity in one fell swoop. I have had guys in front of me that make half a million bucks a year, and could pay for the thing with one paycheck, yet they still lease. In fact, almost all of the people I would classify as rich, lease their personal vehicles. They usually only buy the ones that are gifts to their kids.

Also your logic is cool if you want to drive a 20 year old vehicle in 2025...off of warrant for 15 of them to boot. Most people don't and neither will you.

Almost everyone goes into new car ownership with the intent of owning it forever, yet the industry average in Alberta is 3.86 years last time I checked. Which coincidentally is just before the average time most warranties expire on new vehicles.

[pylon]

Originally Posted by blankall

I think that had a lot to do with peolpe defaulting on loans and payments. In the States it got so bad, it was probably better for the companies to have people pay them upfront than to have to go through the collections repossession process.

Nope, it was directly because of losses the manufacturers were taking on resale values. They were predicting residuals that were way out to lunch (too high), and were being forced to take the depreciation hit when customers were giving the cars back at the end of term. Customers were mopping the floor with the Manufacturers. They would have lead you to believe otherwise, because admitting this problem existed, meant admitting their cars had terrible resale value, which is the ultimate mark of shame for a brand.

[bomba]

I've leased all my cars as I can write them off due to work so there are some advantages for me.

My take on it is that if you want something brand new then lease because you don't want to take the hit on the depreciating asset value (particularly in the first year or two in which the value drops drastically). Also, the lease rates on new cars is pretty low right now. My recent lease rate from Acura was 0.01%.

Or if you want to buy, buy a car that is 2-3 years old where the price has already gone through a significant drop.

[bomba]

Originally Posted by 8sPOT

Also, you can go to return a leased vehicle, and if you're over the km allowance it's gonna cost you.

The manufacturers are terrible when it comes to returning your leased vehicle and they will definitely try to nickle and dime you on repairs including dings and chips before you can hand them the keys. However, as with the KMs, if you do your research ahead of time and pick a car that will hold its value you can be in a position to sell the vehicle privately and avoid all the manufacturer nonsense.

I sold my 2006 Acura TSX due to the above reasons when it came close to the end of lease and end up pocketing $2k in the transaction. Northwest Acura was actually great in helping me to facilitate the whole transaction so the buyer I found felt safe that the lein would be removed from the vehicle. He cut NW Acura a cheque for the full amount and they in tern paid out Honda Finance and wrote me cheque for the difference.

[8sPOT]

Originally Posted by pylon

If you read it, you would realize I made a direct comparison of using leasing as the method of finance to outright purchase the car as well. But it gives you the option to hand the keys back sooner if you do not want it going forward. Most people do not have 30K to drop on my desk, and if they did, they are stupid when I can finance a car at around 3% right now. Use your cash to make some money for you, not to pay off a depreciating commodity in one fell swoop. I have had guys in front of me that make half a million bucks a year, and could pay for the thing with one paycheck, yet they still lease. In fact, almost all of the people I would classify as rich, lease their personal vehicles. They usually only buy the ones that are gifts to their kids.

Also your logic is cool if you want to drive a 20 year old vehicle in 2025...off of warrant for 15 of them to boot. Most people don't and neither will you.

Almost everyone goes into new car ownership with the intent of owning it forever, yet the industry average in Alberta is 3.86 years last time I checked. Which coincidentally is just before the average time most warranties expire on new vehicles.

I understand all that, and I know it isn't usually an option to pay cash for a newer vehicle. I just don't like the idea of always have a monthly payment on something that will eventually be worth nothing. I have no problem driving a 20 year old vehicle down the road, I've done it before. If I made half a million bucks a year I would lease a brand new car every 3 years too, but most of us don't have that kinda dough coming in. My point is, a car is mostly a need, but people tend to put it in the want category and then they can justify getting a new one way more often than needed. I guess I am not the norm because I think a new car every 3.86 years is ridiculous. What kind of asset costs $35,000 and only to be replaced every 4 years?

[Rathji]

I will echo some of the posts here.

If you want to drive a new car more often than every 7-8 years, then lease.

If you want to buy, buy something between 2-3 years older.

Anything else is financial unsound. I guess the other option would be buy cars older than 2-3 years, but I won't get into that.

[Top Shelf]

So some of the domestic car manufacturers aren't offering leasing any longer? Does anyone know which ones are?

[psicodude]

Originally Posted by 8sPOT

I understand all that, and I know it isn't usually an option to pay cash for a newer vehicle. I just don't like the idea of always have a monthly payment on something that will eventually be worth nothing. I have no problem driving a 20 year old vehicle down the road, I've done it before. If I made half a million bucks a year I would lease a brand new car every 3 years too, but most of us don't have that kinda dough coming in. My point is, a car is mostly a need, but people tend to put it in the want category and then they can justify getting a new one way more often than needed. I guess I am not the norm because I think a new car every 3.86 years is ridiculous. What kind of asset costs $35,000 and only to be replaced every 4 years?

I am not sure you realize this, but you pretty much made Pylon's argument for him. A LOT of people like driving new cars every few years, and for them, Leasing is the best option.

And you don't have to make a million bucks a year to lease a new car. You can get a seriously nice ride for $400 a month, which many people spend more on smokes and beer per month.

[8sPOT]

Originally Posted by psicodude

I am not sure you realize this, but you pretty much made Pylon's argument for him. A LOT of people like driving new cars every few years, and for them, Leasing is the best option.

And you don't have to make a million bucks a year to lease a new car. You can get a seriously nice ride for $400 a month, which many people spend more on smokes and beer per month.

To each their own I guess.