Leasing vs. Buying

[random3434]

What are the benefits of leasing a car vs. buying a car? I would love some opinions from those who have done either, and which way I should go with my next car. Thanks!

 

[Jon]

It all depends on how long you drive a car. If you only keep it for 2-3 years, lease. If you drive them longer, buy.

Also, remember that leases limit the number of miles you drive. If you don't drive a lot, leasing might work. If you travel a lot or have a long commute (distance-wise, not timewise), you could go over your limit and have to pay a penalty on the lease.

Best place to read about it: Lease vs Buy? Car Leasing versus Buying Explained

 

[Missourian]

I responded: "NEVER, NEVER lease."

Well, the mail hasn't stop coming on that one -- typically from people who lease cars for a living and people who pay for leased cars.

"Your answer was not a good one," one reader wrote. "To say 'NEVER, NEVER lease' is wrong. Leasing is not for everyone. I will grant you that. But, I will ask you this. If someone trades every 4 years -- which seems to be about average -- why write out a check for some $25,000 to $40,000 to BUY a car that is a depreciating, wasting asset?"

I've heard this argument before. It sounds educated and sensible to talk about not investing in an asset that loses value. But that is simply nonsense.

Come on, people. If you believe that you shouldn't buy a depreciating asset, then we all should rent our clothes, shoes, silverware, sheets, towels, television sets ... See where I'm going?

The same people who praise leasing would probably chastise low-income people who patronize rent-to-own stores.

Renting a car long-term -- as in leasing -- is a bad financial move for 99.9 percent of the people who do it. The only exception may be if you can write the lease off on your taxes.

Yes, you can get into a lease for a monthly payment that may be less than the monthly loan payment for the same car. And yes, if you are going to trade in your car every three or four years, leasing may seem like a better deal.

But I challenge the financial common sense of trading a car in every three or four years. Leasing is basically renting a car you can't afford to buy. Doesn't that tell you something?

I Repeat: NEVER Lease (washingtonpost.com)

 

[Jon]

If you want, just calculate the NPV of the lease versus buy based on your set of circumstances. That will tell you the better economic decision.

 

[jillian]

I never want to have a car longer than the warranty and if you lease they do all your service for free, fix everything throughout the lease term right down to windshield washer fluid...

If you use the car for business a lease almost always makes more sense because of the tax benefits. The one thing that would mitigate against a lease is if you drive more than the maximum number of miles per year. At about 25 cents (I think) per mile after your max, that can run into thousands of dollars at the end of the lease term and is simply wasted money.

 

[Missourian]

Here's what Dave Ramsey says about car leases:

Explain How A Car Lease Works
Hear Dave break down, in detail, what a car lease is and why you don't want it.
QUESTION: Listener asks Dave to break down the mathematical flaws in a car lease.

ANSWER: A car fleece is basically renting a car. You pay $400 a month and at the end of the new car lease, you turn it back in. If you want to buy it, you are buying it for what they estimate at the beginning of the fleece to be the market value. At the end of the lease, it’s called the residual value. If you pay $400 a month for 60 months, you pay $24,000 before turning it in. The car will not have gone down in value more than that, because the car companies would lose money if it did. When they get the car back, you will have paid them more than the car has depreciated during that time.


During that time, you’re maintaining the car as if you owned it. You’ll get charged for excessive wear and tear, or if you put too many miles on it. If you rent it for $24,000 and it went down $15,000 in value, then it cost me $9,000 to rent this car for this period of time. That is their profit during that time.


Another thing is that the interest rates on a vehicle lease are not disclosed because the Federal Trade Commission has determined that this is not a debt, so there is no federal disclosure involved. Therefore, you have no truth in lending disclosure sheet. The interest rates you get charged are unbelievably high. That’s where you’ll realize you got screwed over.


People get sold automobile leases because they are told that it’s what sophisticated people do. But as it turns out, the car companies make more money on leasing you the car than if you bought the car with cash, according to the National Auto Dealers Association. Broke people think ‘how much down and how much a month’. Rich people think ‘how much’. If you can’t pay cash for a car, then ride a bicycle. But don’t lease a car.

Explain How A Car Lease Works

 

[Truthmatters]

Leasing is fine if someone else is paying for it, otherwise leasing is not very fiscally smart.

 

[Missourian]

Leasing is fine if someone else is paying for it, otherwise leasing is not very fiscally smart.

I was correct on my prediction of when we would agree on something.

Temperatures and Weather Conditions in Hell

​

 

[tigerbob]

What are the benefits of leasing a car vs. buying a car? I would love some opinions from those who have done either, and which way I should go with my next car. Thanks!

Buy it, run it into the ground for 10 years, and save yourself a fortune. Make sure you don't buy new - utterly pointless, unless (potentially) there is some kind of lifetime warranty based on a new purchase and it is non transferable. Otherwise, you're looking at a 50% loss over the first 24 months (depending on the brand).

Get something between 1 and 2 years old with the remainder of the factory warranty.

The only benefit to leasing is that if it turns out you hate the reality of driving a particular vehicle you can turn it in after 24 months.

 

[DavidS]

What are the benefits of leasing a car vs. buying a car? I would love some opinions from those who have done either, and which way I should go with my next car. Thanks!

There are three ways to finance your next car.

LEASE LEASE LEASE!

Do NOT, I repeat NOT EVER buy a car unless it has low depreciation, and you pay for it, 100% in cash.

Let's take the number $25,000, which is a good number for a mid-size car with a number of options on it to have.

You can decide to buy a car, pay 5% interest and pay $2000 ($27,000) more for a car that's really worth about $17,500 on the market today out of the lot. No car, unless it's a Mercedes or a Rolls, will not depreciate at least 25% the first 100 miles you drive it. Why? Because if the dealer tried to sell that exact same car at an auction (which is where all the used car dealers get their cars) that's would they pay for it. Do NOT, I repeat do NOT ever use Kelly Blue Book when working with a car dealer. Most dealers think it's a joke. They use a red book or a black book, which is a very, very tiny book that gives an average of what your car sold for in x, y z conditions at auctions within the past 90 days in your area. Your $25,000 car will sell for $17,000 at an auction and the used car dealer will try to sell it for the exact same price you try to buy it new for. AND don't hold onto a car for more than 3 years - there are too many technological breakthroughs on the horizon with car safety and fuel economy. A car is much like a computer - within 6 months it will be completely obselete. If you want to run your car into the ground and put on 100,000 or 200,000 miles - fine buy it - but realize that unless you're buying a Hyndai, your warranty will expire within 3 years.

Now - if all you care about is a car to get you from point a to point b with a few extra ammenities, LEASE. Out of the $25,000, you're paying for 60% of the car plus the rate factor. A $25,000 car will go for $375, maybe $425 a month with no money down in a lease. The credit company decides the residual (the amount of money you would need to put down at the end to buy the car for) so the dealer can't change that. They can indeed though change the cap cost by giving you a discount off of the actual selling price of the car. So instead of leasing a $25,000 MSRP car, you could actually lease a $19,000 car with rebates (which are sometimes a bit less) and an additional discount. Always ask what the residual is on the car you want before leasing - they know this because Detroit always sends them this at the beginning of the month. If your residual is below 45%, don't lease the car. If the residual is around 60%, that's a great deal.

Don't put any money down when leasing a car unless you have shaky credit. There is absolutely no reason to spend more money than the percentage of the car you're leasing in monthly payments. The only thing money down will do is lower your monthly payments - but that's money you would have spent anyway! So instead of putting the money down, you can invest that money in a money market or CD, make interest off of it and use it towards your monthly payments.

Remember: The bigger and nicer the car, the better the residual. Small cars are terrible leasers. Big giant cars are terrible leasers. A mid size car or SUV is always a good lease. Pick up trucks, are terrible leasers. Ford Fusion, Ford 500, Ford Explorer and all the vechicles like them should be good leasers. A lease residual will not change for dealer to dealer unless one dealer is in a completely different region of the country.

Come in with a plan. For every $5000, a car will cost $100 for a finance and $75 a month for a lease. Know what you can afford per month. This will it make it very easy to deal with a salesperson. You cannot lease a used car, you can only lease a new car. Very few new cars have more of a mark up in the MSRP of $2500 or more. Very few used cars will have a mark up for $5000 or more.

If your credit score is 700 or above, you can get a good interest rate. You can always negotiate everything with your salesperson, his/her manager and the finance guy. The time to stop negotiating is when you sign the dotted line. From the time you get in the door until that time is when you should be haggling.

And that's CAR BUSINESS 101.

 

[Zoom-boing]

Personally, I think leasing is a waste of money. You pay xx per month for xx years then turn it in and start all over again. You never get out of that car-payment cycle and you don't own your car.

I think buying a car (with as much money down as possible), maintaining and taking care of the car, and getting it paid off as soon as reasonably possible is the best way to go. Once it's paid off, you can then put that car-payment money towards savings or something else. Cars today, for the most part, are well made and if taken care of properly can last a long time. I'm aiming for 200,000+ miles for my Pilot. It was purchased new in 2004, has about 33,000 miles on it now and we are done paying it off. It's lovely to not have car payments.

 

[Zoom-boing]

Buy it, run it into the ground for 10 years, and save yourself a fortune. Make sure you don't buy new - utterly pointless, unless (potentially) there is some kind of lifetime warranty based on a new purchase and it is non transferable. Otherwise, you're looking at a 50% loss over the first 24 months (depending on the brand).

Get something between 1 and 2 years old with the remainder of the factory warranty.

The only benefit to leasing is that if it turns out you hate the reality of driving a particular vehicle you can turn it in after 24 months.

You sound just like my dad!

 

[strollingbones]

you got kids and pets..and drive a lot..buy...not new but nearly new....let someone else each the deprication....

you are single without kids/pets..and dont drive a lot..lease...

read the contract very carefully

 

[Andrew2382]

it all depends on the type of car you buy. If you buy something that has great residual, say like a BMW, then buying is always nice.

Even though BMW has a plan called "Select" which 99% of the people usually choose. You buy the car and you get it at almost lease payments. At the end of 4 or 5 years there is usually a baloon payment. However, the car is always worth alot more then the baloon because its residual is so high and you trade it in and get another car. Sort of like a lease but you don't need to worry about miles and still get a low payment.

If you buy something that has shit for residual then leasing may be an option...the car won't be worth anything in the very near future and you won't get much at the trade in.

I myself enjoy leasing, I also get employee pricing so I lease $50,000 cars for less then a Honda Accord

Also remember when you lease your insurance will be a little higher because you are required to carry bodily injury limits of $100/300 compared to anything you want if you own the car.

Then again....EVERYONE SHOULD HAVE $100/300 BI LIMITS...stupid not too

 

[Sunni Man]

There are three ways to finance your next car.

LEASE LEASE LEASE!

Do NOT, I repeat NOT EVER buy a car unless it has low depreciation, and you pay for it, 100% in cash.

Let's take the number $25,000, which is a good number for a mid-size car with a number of options on it to have.

You can decide to buy a car, pay 5% interest and pay $2000 ($27,000) more for a car that's really worth about $17,500 on the market today out of the lot. No car, unless it's a Mercedes or a Rolls, will not depreciate at least 25% the first 100 miles you drive it. Why? Because if the dealer tried to sell that exact same car at an auction (which is where all the used car dealers get their cars) that's would they pay for it. Do NOT, I repeat do NOT ever use Kelly Blue Book when working with a car dealer. Most dealers think it's a joke. They use a red book or a black book, which is a very, very tiny book that gives an average of what your car sold for in x, y z conditions at auctions within the past 90 days in your area. Your $25,000 car will sell for $17,000 at an auction and the used car dealer will try to sell it for the exact same price you try to buy it new for. AND don't hold onto a car for more than 3 years - there are too many technological breakthroughs on the horizon with car safety and fuel economy. A car is much like a computer - within 6 months it will be completely obselete. If you want to run your car into the ground and put on 100,000 or 200,000 miles - fine buy it - but realize that unless you're buying a Hyndai, your warranty will expire within 3 years.

Now - if all you care about is a car to get you from point a to point b with a few extra ammenities, LEASE. Out of the $25,000, you're paying for 60% of the car plus the rate factor. A $25,000 car will go for $375, maybe $425 a month with no money down in a lease. The credit company decides the residual (the amount of money you would need to put down at the end to buy the car for) so the dealer can't change that. They can indeed though change the cap cost by giving you a discount off of the actual selling price of the car. So instead of leasing a $25,000 MSRP car, you could actually lease a $19,000 car with rebates (which are sometimes a bit less) and an additional discount. Always ask what the residual is on the car you want before leasing - they know this because Detroit always sends them this at the beginning of the month. If your residual is below 45%, don't lease the car. If the residual is around 60%, that's a great deal.

Don't put any money down when leasing a car unless you have shaky credit. There is absolutely no reason to spend more money than the percentage of the car you're leasing in monthly payments. The only thing money down will do is lower your monthly payments - but that's money you would have spent anyway! So instead of putting the money down, you can invest that money in a money market or CD, make interest off of it and use it towards your monthly payments.

Remember: The bigger and nicer the car, the better the residual. Small cars are terrible leasers. Big giant cars are terrible leasers. A mid size car or SUV is always a good lease. Pick up trucks, are terrible leasers. Ford Fusion, Ford 500, Ford Explorer and all the vechicles like them should be good leasers. A lease residual will not change for dealer to dealer unless one dealer is in a completely different region of the country.

Come in with a plan. For every $5000, a car will cost $100 for a finance and $75 a month for a lease. Know what you can afford per month. This will it make it very easy to deal with a salesperson. You cannot lease a used car, you can only lease a new car. Very few new cars have more of a mark up in the MSRP of $2500 or more. Very few used cars will have a mark up for $5000 or more.

If your credit score is 700 or above, you can get a good interest rate. You can always negotiate everything with your salesperson, his/her manager and the finance guy. The time to stop negotiating is when you sign the dotted line. From the time you get in the door until that time is when you should be haggling.

And that's CAR BUSINESS 101.

Why should anyone listen to you DavidS?

You have stated several times on this forum that you Do Not even own a car!!!

 

[Andrew2382]

Also, David is pretty much spot on as much as I hate to admit it.

When it comes to negogiating also there is a limit, because at some point the manager will tell your salesmen to relay the message to you in a subtle way to piss the fuck off. Whatever you do never go in with the attitude of I want to pay 320 bucks a month...because you will get raped. Always look at the final price and then work with Finance

 

[Valerie]

Why should anyone listen to you DavidS?

You have stated several times on this forum that you Do Not even own a car!!!

So what? He got it right.

And I agree with Jillian, it depends on your particular circumstances - tax ramifications - depreciation value - business deductions - as to whether it is worth it or not.

I own a small business and could use the deduction, but I always end up just buying my cars pre-owned, one year old, with ten thousand miles on it. The first buyer takes the big depreciation loss and I am still under warranty. Once the warranty is approaching expiration, I move on to the next one.

Only once have I ever taken a car loan. I did because the salesman really wanted me to in order for him to accept the price I was trying to get. So I took the loan upfront as a concession for the price I had negotiated, then I just paid it all in the first payment. The salesman got his commission and I got my price. Again, pre-owned. Never brand new. You throw money down the drain as you drive off the lot.

 

[Care4all]

Echo, DO NOT LEASE a car, unless you can write it off for business, or as others have stated, used it only for 3 years then rent a new one, and even then, I do not believe it is a financially sound move.

they usually give you 10-15k miles a year to drive, without penalty....so mileage is limited..

Also, your CAR INSURANCE will SKYROCKET....they FORCE YOU to take extremely high coverage because they own the car and can be sued if you are in a car accident and it is your fault....

When i was young, i leased a car....and it was the biggest waste of money that ever existed....paid $325 a month for 3 years, (plus nearly a couple of hundred a month on the very high coverage insurance they made me carry in order to lease it)

And unlike Jillian's deal, they did NOT pay for any maintenance on the car, they limited the mileage i could use, they raised my insurance coverage to nearly DOUBLE of what i was paying, i had to pay for all maintenance, and also had to sweat it when i turned the car in, that they would not charge me for any hidden damage to the car...or to replace overly worn tires....

When you are done with the lease, you turn the car in and have absolutely nothing to show, for the $325 a month that you are spending...

The way matthew and I actually began having a GOOD LIFE, with more free money in our budget than we could ever imagine to have, was when we both made the committment to keep our cars for at least 3 years longer than our car payments, so three years each, we had no car payments and still when trading in the car, had a downpayment with the trade on the next new car....$700 a month we had to spend and or save, fo 3 years at a time....

we now keep our cars for 10 years each, alternating with eachother, so that we always have one of the cars under 5 years old....but we are older, (and live in maine where NO ONE CARES what you drive) and don't have to one up our coworkers or neighbors, on the cars we drive, we just decided that we did not care what others thought....Plus, neither hold jobs now of any kind of stature....where a nice car would be important, in jillians case, as a lawyer, is an example where it might make sense to lease....or as a traveling salesman it makes sense because it is a tax write off, but for the average young person, i would say NO NO AND NO, DO NOT LEASE....

This is also what Suzi Ormon says....DO NOT LEASE and i trust her financial advice.

care

 

[Care4all]

Valerie has a very good point on buying your cars when they are 1 year old, having the first owner losing the greatest depreciation....we do this as well.

 

[Andrew2382]

Echo, DO NOT LEASE a car, unless you can write it off for business, or as others have stated, used it only for 3 years then rent a new one, and even then, I do not believe it is a financially sound move.

they usually give you 10-15k miles a year to drive, without penalty....so mileage is limited..

Also, your CAR INSURANCE will SKYROCKET....they FORCE YOU to take extremely high coverage because they own the car and can be sued if you are in a car accident and it is your fault....

RELAX.

Your insurance premiums don't skyrocket

You are required to carry Bodily Injury limits of 100/300...however, regardless if you lease or buy. YOU SHOULD ALL HAVE THOSE LIMITS. The difference between 25/50 and 100/300 might be 40-50 bucks a month as long as your record and credit is good.

However, for the responsible majority it isn't a problem because regardless of buy or lease they all carry those limits