cibs

I agree with many of the statements above... it's about wants not about needs... none of us needs a new car... let's be honest... if we were going about needs we could all buy a 89 civic hatchback which is GREAT on gas mileage, relatively cheap to maintain, and hella cheap to insure and you could probably buy what... 10 of them for the price of one of our tsx's?

buying a depreciating asset is never a financially sound decision... maybe we should all invest in bikes and put our money under our mattresses?

gigabyte137

It is not worth buying it at the end of the lease? $14,750 for a 4 year old car?

jpt

Aha, this is true. I knew I had to be missing something. Do you have to pay tax on the entire value of the car, or only sales tax on each payment? Assuming the latter, that makes the effective monthly payment assuming a sales tax of 5% (don't know which state he's in) only $408, and the total financed amount goes up by title and license fees (about $500 maybe?) working out to an APR of 23% -- I still can't see how you worked out a 5% APR unless you think he's paying for more depreciation than I counted for.

This is generally not a very useful number, because the dollars at the beginning of the period were worth more than the dollars at the end; in today's dollars (based on the current federal prime interest rate of 8.25%) he effectively paid about $16,600 (i.e. about 4k more than he should have, I think).

That is my conclusion as well; either that or he bought a demonstrator or used 2006, which I assume he would have mentioned.

CGTSX2004

iTrader: (1)

You're not calculating the APR correctly. APR is compounded daily over the course of the lease period. It seems to me what you're calculating is the fraction of the total amount of the lease payments that is interest.

And also, the total amount financed would be the sales price minus the residual, minus $2000, plus the $600 he owed on the last car, plus the title and license fees, plus dealer fees (if applicable), plus the first month's payment. By my estimate, his entire cap cost reduction comes to around $200 to $300 dollars.

jpt

Aha. Well that explains one thing at least that I was missing. At the end of the deal you will be able to buy the car for $14,786. I was counting less depreciation (effectively, I was thinking you would have to pay about 14k TODAY to keep the car at the end). If the new car price is about $29k + the $600 old loan payoff - $1500 down payment = $28100, and at the end you have a choice between the car and $14786, and monthly payments are $408 (again I'm assuming 5% sales tax added on to each payment b/c I don't know what state you live in), that's equivalent to an interest rate of 7%, which actually about normal for loans today.

jpt

No, I was just dropping the numbers in my (well it's actually not mine, but I have checked its math and it is correct) handy-dandy amortization calculator which works out any parameter of a compound interest equation given the others. My mistake was in counting the residual as $15k of today's dollars, rather than $15k 2010 dollars, which is substantially less. The right way to do it is to consider the sales price of the car (plus loan payoff plus fees minus initial payment) as the principal, and the residual as a balloon payment (thus counting it correctly in end-of-term dollars), rather than subtracting the residual directly from the sales price in the principal.

OK, that was my other mistake. I forgot the first month's payment and apparently you have a higher estimate of dealer and license fees than I do, because I was figuring on a $1500 cap cost reduction ($2k - $500 in fees). With $300, the APR works out to 5.45%, same result as you got, and quite a good financing deal.

CGTSX2004

iTrader: (1)

Sounds like we finally got all the numbers worked out, jpt.

gigabyte137

Florida Sales Tax 6.5 percent... Added note the car that they gave me came to 32,500 as they added spoiler, mud flaps, cargo net, pin striping and trunk tray and protection plan... What is a protection plan?

CGTSX2004

iTrader: (1)

You probably mean protection package which is the trunk tray and mud guards.

What was the actual sale price of the car (not MSRP)?

gigabyte137

28199.83 agreed value of vehicle...
gross cap cost - 30240.62
adjusted cap cost 29423.14

bradykp

you're still paying the depreciation, leasing does technically offer "lower" monthly payments, but the common mistake people make is get more than they could otherwise afford anyways. there's potential for loads of charges on the back end, not to mention the often front load charges. if people accept it then that's great, and if they like having a new car every few years, good for them, but as far as a financial decision is concerned, leasing is bad for almost everyone.

bradykp

^^
i'm with him

bradykp

i don't remember the actual numbers, but a large percentage of the depreciation is in the first year, with a majority of the rest in the 2nd and third, therefore, leases don't avoid the depreciation either.

gamblers have itches to scratch too, doesn't mean that it's the right thing to do. lol. cars in general are bad financial decisions, leasing a car is the worse of two evils.

bradykp

but you're still putting the money into a depriciating asset, except this one, you don't own. so you save $50/month, and reasonably speaking, can possibly make 8% return on it. you'll have made approximately $150 over the course of the lease in return on that $50/mo. except, most likely, you have to pay 30 cents per mile or something like that if you go over your mileage. that's 5,000 miles, or approximately 1500/yr overage. maybe it's not gonna happen, maybe it will. maybe you'll have damage to the car (most likely something they'll charge you for). sorry, i just have had too many friends who have had bad lease experiences to ever think it's a good idea. finance a car at a low interest rate. right now, the interest we're paying on our loan is lower than the interest i'm earning in my money market account. the car holds it's value well, so if i did want to sell it, i get a lot of the initial outlay back. buying is the right choice with cars that hold their value well.

bradykp

thats all nice in theory, but how many car companies actually let you get away with that? they are in this to make money, and the interest would be virtually their ownly profit, that's pretty harsh.

CGTSX2004

iTrader: (1)

Again, leasing isn't for everyone. One must fit a particular profile in order for leasing to work. Leasing is a good decision for those that fit the profile. For others, it doesn't. This doesn't mean that leasing is fundamentally bad. It's just different.

bradykp

lol. 2006 tsx with navi, 60 month financed $25,000 at 4.74%. i make the payments biweekly instead of monthly, which effectively lowers my interest rate slightly. i believe my exact payment is $474/month.

bradykp

my citibank credit card offers 3.9% for the life of the balance on a personal check writting to the credit card. i've gotten offers for 2.9% also. i might consider doing this (even though credit card debt is not favorable, it's still better off financially speaking)

bradykp

ok, lets just state something clearly. wanting a car every 2-3 years (or 18-24 months as you stated) does not make sense. period. if it's what you want, and you can do it, then by all means, do it. but that doesn't mean it financially makes sense. just because leasing is a better option then buying a new car every 2-3 years and trying to resell it, doesn't mean that overall leasing makes sense.

that just shows how bad it is. buying a new car doesn't even really make sense. like i said, lesser of two evils.

bradykp

ok, i agree with a lot of what you say on this board, but this argument above makes no sense at all to me, unless i misunderstoon.

if you buy a car and keep it for 8-12 years, how can you say make a compelling argument that this is not a financially better situation than buying a new car every 2 years?

this quote has no relevance to the argument:
"I have been driving newish cars for 8 years where you have been driving the same aging car for that period."

you may be "better off" overall in your opinion, because you were in a nice new car every 2 years, but you will have, without a doubt, spent more money than the person who kept his car for 8-12 years. even with the maintenence of a car, it's not as expensive as buying a new car again.

did i miss something in your argument?

and money markets...well, i'm not 100% positive, but i think even though there is some risk....i'm pretty sure they've never lost money. doesn't mean it's a sure thing, but cmon. my citibank money market that pays 5.25% is no more risky than ING at 4.35%. they are just competing for business because they're gonna turn around and lend that money for 7-13%.

bradykp

but the bottom line is, he's going to lease another car after 48 months, and be spending it again, he has a perpetual car payment. so my term is irrelevant. but it's 60 months if you care. i plan on loading part of my loan off onto either 0% credit cards, or other deals to effectively reduce the interest rate i pay over the life of the loan. the bottom line is, i paid 28,500, plus some interest (yet to be determine total), and i'll own the car. i'll recoup some of that, if and when i sell it. so, all i need to do, is sell my car for around $10,000 to come out better off than he did over 48 months.

bradykp

ok, again, it may be important to have a new car every few years to you, but that doesn't make leasing a financially sound decision. it just means that you enjoy a new car, and you're willing to waste money on it.

just because a woman likes gucci purses does not mean it's a better deal than a purse at target, it just means she doesn't car that she's getting ripped off.

CGTSX2004

iTrader: (1)

Again, those are your priorities. People are different, priorities are different, there are all kinds of things that people put different valuations for. Stop trying to impose your value system on other people. Just because something doesn't hold value for you, doesn't mean it's the same for someone else.

wndrlst

Yeah, I put as much as the dealer would allow on my credit card, but I did it for miles, not the interest rate. Honestly, I never even shopped around for financing. I just didn't want the additional monthly payment. I've payed off the card already, though, b/c it's not a low interest rate.

wndrlst

I Never claimed it was a brilliant financial decision. Nor is it something I chose to do. See my post about the boat.

jpt

No, it just means you pay more often. The loan interest you save directly translates into savings interest you lose. It's the same argument as paying for a car in cash not being necessarily cheaper than financing it. BTW, that was an absolutely incredible price on the TSX, even with $2000 down!

Well, this is actually not necessarily true. He has the option to buy the car at the end of 48 months for $18k which is exactly what he would have still owed on the car if he had a 5.4% APR deal with a $420 monthly payment (which would have had to be an 84-month loan). You are getting a better deal than he was, financially speaking, but this is for two reasons (you paid almost 3k less for the car, and you had a somewhat better loan rate) -- not whether you lease or buy. Lease vs. buy is a completely independent decision from how long you keep the car.

OK, there's a miscommunication between us I think.

It is "better financially" to buy cars less often in the sense that you will have more dollars if you don't buy as many things. By the same token, it is "better financially" to only eat plain white rice that you purchase in bulk and cook at home. Don't forget that you should always eat it out of the pot so you save money on dishes. You can clean the pot in a convenient stream, since you live in a tent instead of a house (much cheaper -- you actually bought a house as an investment property, but you rent it out). You will have more dollars at the end of your life if you do all that than if you, well, live like a normal person. But why will you care about money at all if all you do is save it?

Money is useless except as a way to buy things. It won't, by itself, fill your belly, shelter you, or make you happy. Saving money is only good if it allows you to buy things. Spending money is only "wasteful" if you could have bought the same thing for less money. Otherwise, it's just a tradeoff. You can save $5000 by keeping your car six years longer, and that $5000 will buy you some things. Let's say you choose to remodel your kitchen with that money. The question is, what will make you happier? A new car every two years for 8 years, or a new kitchen? Neither answer is unreasonable!

bradykp

you're arguing a completely different point. you're talking about what someone considers priorities, and value of intangible items (like the feeling of having a new car). if you talk about things you can place dollar value on, then leasing does not make sense. neither does buying new, but it makes more sense then leasing.

leases were thought up by the car companies to get people to spend more money on vehicles more frequently. anything that's good for the car company is not good for the consumer.

do you prefer to lease? yes you do. why? because you value having a new car every 2-3 years.

does that mean it makes sense financially speaking? no, because it's a lot of money out the window, with no asset in your name.

if you like leasing, go for it. but don't argue that it's a good financial decision.

if you like investing in enron, go for it.

CGTSX2004

iTrader: (1)

You just like beating a dead horse, don't you? If you don't understand, then that's fine. Moving on...

bradykp

the price of my car was 28,300, we financed 25k. you are right, about the interest, if we choose to pay more in payments, but if i transfer it to 0% credit cards, we do lower the interest rate.

we also got a lower interest rate because we opted for biweekly payments.

your arguments about food and shelter are a bit different than a car. it's nice to have nice things. and a car is one area where we enjoy some time. but if you have a nice car (which the tsx is and will remain nice for quite a period of time), why do you need to buy a new nice car?

you dont buy a new house every 5 years just because there is new insulation available. and thats not even a good example because a house appreciates in value.

buying a house gives you equity. eading good quality food is healthier, etc etc.

buying a nice new car every couple years is nice, and may make some people happy, but financially, it's not a very good choice.

the difference here is that a remodel job on a kitchen you will recoup about 90% of what you spent on average when/if you sell. what are you recouping on the car? 10%?

i understand that people choose leases because they place personal value on having new car smell every few years, and that's great for them. but try and find me one financial advisor who would say that's a good idea. i'd love to meet him/her to ask them where they studied.

bradykp

i completely understand. you place value on having a new car every 2-3 years. that's wonderful, so leasing makes sense for you.

you are talking about intangible value though, and i'm talking about tangible value. financially speaking:

leasing < buying < buying used

keeping a car for short period of time < keeping for long period of time

jpt

An honest financial advisor will not tell you that it is a good OR a bad idea to buy a good. He will tell you that it costs money; if he's good, he will tell you exactly what you will have to give up to get it. Then it is your decision whether it's worth it or not. New cars have value -- more value than old cars (they must, or they wouldn't sell for more). "Tangible" vs "intangible" value doesn't come into it. Something is either worth what you have to give up to get it, or it's not.

If your rule is that you should spend the minimum possible amount of money on cars, why did you buy a TSX and not a Civic or Hyundai Sonata? Either would last just as long (the Sonata would still be under warranty coverage when you decide to sell it, even), hold you and your family just as well, and costs a lot less. But you didn't because of the ("intangible?") benefits of driving a nicer car -- obviously it was worth the money to you.

Let's put it another way: someone could own a new Civic every year for the price of keeping a TSX for 8 years. Is one or the other wrong? No, it's a matter of taste.

bradykp

how do you figure a new civic at at least $16,000 per year for 8 years cost the same as a TSX @ $29,000 once every 8 years?

anyways, you are right, a civic or a sonata would have been a better financial decision for me. and for anyone, but since i wanted some luxury, i conceded wasting some money on those intangibles that i want. but i do realize that i wasted money on a car (not that much since the TSX has very good options for the money comparatively speaking). the sonata, might be a better choice, but it also won't hold it's value as well, so maybe it's not a much better choice, but definitely better, purely financial speaking.

the civic is hands down the better choice. that's why when people come onto this board and they ask questions like "should i buy a tsx" or "can i afford a tsx" almost everyone recommends they consider a civic if the TSX is out of reach.

corolla is also a good decision.

i never said i made the absolute best decision buying a TSX, i admit that buying a new car is a waste of money. no one seems to want to admit that leasing a car is a waste of money either.

if i wanted to put up a similar argument, i could use renting vs buying. is renting wasting money? in almost every case, yes, because you're losing a tax benefit and you're building equity for someone else and not yourself. i know leasing vs buying isn't quite the same, but it has some similarities.

anyways, enough of this. back to useful conversation on other boards.

wndrlst

I think the bolded sentence is exactly the point many people have been trying to make.

SUMMARY:
Leasing a new car every couple of years is more expensive than buying one and owning it for 8+ years.

Leasing a new car every couple of years is less expensive than buying a new car every couple of years.

:lookingforbulldogorterriersmiley:

cibs

the difference between leasing and financing is not $50 a month... it is usually much much more... once you consider downpayments etc...

how do they make MORE money when you finance a car? they make their money on the interest they're already making money just by selling you the car in the first place...


either way, clearly you can't agree to disagree, not everyone is going to agree with you, but that doesn't mean you have to keep trying to convince everyone that your way is the right way. like others have said it's a tradeoff... money is only good if you use it. and lots of people survive on eating rice and living in a tent... think of how much money you'd have then!