I bought a new TLS 2 months ago, and I decided to lease it. Well, the last few weeks I have been worrying if I made a big mistake. I really like the car, and could see myself keeping it indefinitely. So, I called Honda Finance today and asked them what it would cost to buy the car outright. The number was in line with what I expected - the price of the car minus the depreciation part of the 3 lease payments I've made.

So, I compared the cost of purchasing the car now vs. purchasing it at the end of the lease, to see how much I would save by purchasing it now. I figured if I bought it now, I would finance it for 5 years at 7.25% (and that's optimistic - the bank might consider it a used car, then the rate would be more like 8%). Anyway, I was shocked to discover, that if I purchase the car now, when the interest is factored in, I would save a whopping $100 over buying the car at the end of the lease. So, this made it clear that it was better to NOT purchase the car now, because I could change my mind later and still turn it in, and it won't cost me much.

Well, I decided to go one step farther - how much extra are either of these scenarios costing me compared to if I had just bought the car in the first place. So, I took the original purchase price, figured a 5 year loan at 7% and voila - it was about $2000 less than either of the lease scenarios.

I feel much better now. For $2000 extra over the course of 4 years, I have the option of buying the car if I like it, or turning it in and getting something else. Plus I have the other benefits of leasing, such as gap insurance and not having to worry about resale value if the car is wrecked.

<FONT COLOR="#800080" SIZE="1" FACE="Verdana, Arial">[This message has been edited by mikester on June 05, 2001 @ ]</font>

 

One of the reasons I leased my car is because I get a substantial tax writeoff for my onsite consulting work. I think its also a great way to try out a car to see if you like it for the long term

 

GoldTypeS - This is the first time I have leased, and I really have mixed feelings about it. I know that the most sensible and economical thing to do is to buy the car and keep it for a long time. I have bought a couple of cars with the intention of keeping them for a long time, and I got bored and traded them in after a couple years. When I got the TLS, I was trying to be a little realistic - I know that I like to get new cars every few years, and if you do that, you are better off leasing.

I look at it like this - that extra $2k is a little over 5% of the total price of the car. So, for that extra 5%, I get the option to turn in the car in a few years if I get bored with it. If you were buying a DVD player, or a TV, or a computer, how many of us wouldn't pay an extra 5% now to get the option to easily upgrade to the latest and greatest in a few years? Of course, a car is a lot more expensive than a computer, so it's more of a bite.

Anyway, I'm still not sure how I feel about leasing. I am just glad I have the next 4 years to figure it out. And I definitely feel better about my situation now that I've crunched the numbers and seen that leasing isn't quite as expensive as I thought (which was about $8000 extra, which is why I was going nuts thinking I had made a mistake).

 

Gold, if you look at it in out of pocket sence. Those 2000 dollars are absorbed when you consider that to get the same payment in a lease as you do financed you need to put down a ton more money. And those $2000 are easily absorbed either in your taxes if you can deduct the car or consider you have an extra 8 to 10 grand in the bank that you saved for leasing. I easily turn that around to make money for me. In 3 or 4 years you may acctually have made your loss ++ if you play your cards right!!! IMHO

 

I am researching my lease options; it might make sense since I am an independent contractor.

Bottom line: 36 month, 15,000 miles/year lease will cost me about $570 per month.

Here are the gory details for a TL-S with Nav

MSRP 33,710
negotiated price 31,500
36 months
15,000 mile/year
Orange County, CA
55% residual
Money factor .00299 = 7.176%

Payment before sales tax $527.91
w/ Calif. sales tax 7.75% $568.82 + DMV fees

18,540 residual value = price I will have to pay if I buy car at end of lease

End of term fees: between $250 to $300

 

O'sTL - Very true. I calculated that if I take the $200/month I am saving in payments and invest it at a 10% return, I will have that $2000 back at the end of the four years.

 

To lease or not to lease..........that is the question. If you don't have any money to put down and only drive a few miles then leasing is good. You do have do carry higher limits as far as insurance goes but that's not always a bad thing. I've leased several cars in the past and just wanted to buy this time. I put 20% down and financed it for 60 months keeping my payment well under 500 bucks a month. Isn't it nice to have a choice with such a fine vehicle?

 

I guess I should mention that probably the biggest reason why I've never leased is because I've always had enough equity in the cars I trade in so that my finance payments are at least as low if not lower than a lease payment. I only pay $429/mo for my CL-S and I got it right when they came out. You might be able to get one for that now on a lease with a couple grand down, but you sure couldn't back then. I've been REALLY bad about keeping my last two cars. I kept a '98 Civic for 8 months and a '99 Accord for 17 months. (Both purchased brand new). The Civic was the best investment ever. I only lost $1000 on the thing which was like leasing it for $125/mo. Obviously much less than you could ever lease a fully loaded Civic EX coupe with accessories for. One big question I have is... what if you lease a car for, say, 3 years and then want out of it after just a year?? Do you have to get someone to buy it, or, if you put only a little down, do you get screwed trading it in because the residual is more than trade-in value?? I know people can get out of leases early, but it seems to me that your options may be limited. With financing you can do whatever you want. Convince me people!!!

 

Plus if you own your own business and you use the car for it, then the lease is even more attractive since it's easier to write it off and you can write more of it off.... That's one of the biggest reasons why I went with the lease option, it saves me headaches at tax time.

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2001 Acura 3.2TL Non-Navi
Satin Silver
FormulaOne Premier 35
(Metalized 35% Tint)

 

My TL/S is my fourth leased vehicle. For me it was simple - I travel a lot for business in state, and it was tiring to have to shell out $1,000+ for a major repair at least once a year on the used cars I owned. Started leasing, and I could write off most of the lease as a business expense, never worry about repairs, and get to try the vehicle out before deciding to buy from the best used car seller out there - me.

I leased my Grand Cherokee with the intent of buying it at the end of lease. Considering the price of gas, that it got 15mph on the highway, had its rear axle replaced under warranty, and had all sorts of other annoying problems over three years, back it went. I paid for what I used and didn't get stuck with a vehicle I no longer wanted.

Leased my Saab 9-3 with the same intent. Its been an outstanding car, and I'm buying it later this year. As with the example given here, Saab's lease rate was a ridiculous 1.9% - so I actually saved almost $1,900 by leasing then buying then by financing!

Leases can be great given your situation - just do your homework and make sure the dealer isn't playing games with your money.

 

GoldTypeS - As for your question about leasing and trading in early - short story is, you get screwed. You have to pay all of the depreciation that hasn't been paid yet on the vehicle, plus there are usually some early termination fees. However, this is no different than financing a car.

For example, when I traded in my '00 TL after only a year, I would have been several thousand dollars upside down if I hadn't put down a large down payment. It's the same thing with a lease - since you typically don't put a large down payment on a lease, you are going to be upside down for most of the lease.

As an example, let's say you have a lease payment of $600/month on a 3 year lease(probably a little high, but nice round number). Ballpark, about 2/3 of your payment will go to depreciation, while the rest is lease fees (the exact ratio will depend on your money factor, lease term, etc., but again, round numbers).

Now, let's say you decide to get out of the lease after a year. The car has dropped in value by $7000 in the first year (you're lucky this is an Acura - if it were a Chevy you would be royally screwed, since most American cars depreciate much faster). In your lease payments, you have paid $4800 toward depreciation of the vehicle. So, if you break the lease you would have to pay the other $2200, plus any early termination fees, plus standard lease-end stuff (excess mileage, etc.)

Keep in mind, these numbers are totally made up. Your actual lease terms would probably be drastically different.

 

The complete tightass in me says that $2000 is an absolutely exorbitant amount of money to pay extra for having the options that a lease gives you. But then... I'm poor so it stands to reason that I think like this!!

I really really really want to lease considering I buy new cars every couple years, but every time I work the numbers it's a HUGE advantage to finance. Even trading it, I don't spend as much financing as leasing. I think I need some tips on negotiating a lease....

 

"Only" $2000 more you say?!?

Let's take it a step further and see what that $2000 would be worth invested at 10% for 30 years for retirement... Hmm, looks like your lease just cost you a small boat to enjoy during retirement!

Geez, I feel bad enough paying 7% on a new car as oposed to buying a used car that will depreciate less. Either way, I couldn't really lease due to the miles I put on my car (17K so far in 9 months ownership).

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'01 White Diamond Pearl 3.2TL
-Wing, tint, wood and Whistler

 

Guys you know from the get go that either way, unfortunatly, cars are a loss from the moment you leave the dealership. The trick is to really try and get the car you want enjoy it and cut your losses. There are pros and cons to both buying and leasing. You just need to do what is best for you. Being self employed, leasing is way better for me. And honestly have had great experiance with Acura leasing.
Gold, going back to your question. Had a nasty time trying to get out of a BMW lease, will never lease a bimmer again. Was not happy with the car and was willing to stay at bimmer just pick another model and was just horrible. Ended up dishing the early termination fee and writing a few letters that got me nowhere. On the other hand. leased the CL-s had it a while, got a little on the small side for me, went back to the dealer. Absolutly exceptional. Took the cl-s back, got me the TL I wanted, and still managed to get me a great deal. $1000 out of pocket $399 a month. And best of all no sec. dep. and no hassle. Trick is good credit and always good to stay with the same company. What I do not do is lease all the cars in the household. I always own a car, lately it has been my wifes. you never know what can happen. Just gives me a little peace of mind. IMHO

------------------
2000 Acura TL
Silver
fog lights, tints, burlwood shift knob,
sunroof visor, 17in Mille Miglia sports
H&R springs, ingals camber kit, Soundstream 405 amp powering 2
JL Audio 10's and Infinity tweets.

 

I know where you are coming from. I'm not trying to be a leasing advocate here. As I mentioned, I am still trying to decide if leasing is right for me regarding future cars. I can see advantages and disadvantages to both leasing and buying.

Here's what prompted all this. I was looking over my lease papers the other day, and what jumped out at me was the total cost of the vehicle if I purchased it after the lease - $26000 in lease payments plus a $18000 residual, totalling $44,000 for a car where the drive out price was $36,000. I started thinking that leasing was costing me $8000 extra, which set off a serious case of buyers remorse.

That's when I started looking at how much it would cost to just buy out the lease now. When I started comparing numbers, I realized that what I forgot to do was figure in interest on the loan if I had bought the car, so instead of costing me $36,000, the car would have really cost me about $43,000 including interest (7.25% for 5 years).

 

Unless you pay cash for a car, you will pay more for the car if you lease or buy. That goes for anything you buy on credit. I did read that dealers will start reducing the residual cost at the end of the lease and start raising the monthly cost over the term of the lease. Dealers are starting to get a glut of vehicles at the end of 3 and 4 years with high residuals and they are having a hard time unloading them. So unless you put down a substantial down payment to keep the lease payment low or lease for a longer period of time, purchasing the vehicle will make more sense. Again, right now it's a pretty even playing field. Financing versus leasing is just as good as the other...no matter which one you try to justify.

 

To build on others thoughts and comments - you also have to consider that at the end of the lease, you have some serious bargaining power given the glut of cars out there.

Say your buyout is $18,000 - you may find that the car is still a hot item and sell it yourself for $20K, and pocket $2K in the deal.

Or vice versa, if there is a glut of off leased vehicles, you can bargain with the manufacturer and offer $16,000 for the car at the end of lease, and end up paying somewhere in between, saving money again.

 

Mikester,

When you did your calculations, did you consider the sales tax and all the interest for the subsequent loan at the end of the lease? That is usually the issue. You pay almost twice as much interest buy leasing, then financing for 5 years at the end.

-Scott

 

In some cases that may be true, but not with Acura. We had been leasing a '98 Acura TL with a buyout at the end of 36 months for $19,500. We asked if the price was negotiable and they said "NO" and if we wanted to buy it that we would have to get our own financing. They did not make it easy or convenient for us to purchase the car. After looking at our choices to purchase a 3 year old car with over 40k miles on it and not much warranty left for almost $20k or buying a brand new 2002 Acura TL Types "S" with 5 miles on it and a full warranty for a little over $10k more, it was a no brainer. I drove by the car lot the other day and it is still sitting on their lot for sale.

 

[quote]Originally posted by Gabriele:

Quote:

Originally posted by Xorg:
Or vice versa, if there is a glut of off leased vehicles, you can bargain with the manufacturer and offer $16,000 for the car

American Honda Finance is notorious for refusing to negotiate any residuals. They also have bad terms and all sorts of hidden and overinflated fees like high acquisition & disposition charges, they also go through your vehicle with 100x power magnifiers to see if there is any microscopic damage to the car that they can charge you for...they suck! By comparison Lexus Financial Services will accept the car and not even charge you for minor dents and dings !!

 

This places even more emphasis on getting the best lease deal you can before you sign anything. My residual is around $18,000, which is more than fair for a three year old TLS :-)

In my experiences, Chrysler has by far the easiest and best lease agreements, Nissan's are by far the worst. The Honda lease I just signed was actually quite good - no ridiculous fees, I even had them drop the security deposit.

 

My residual is around $18,000 on a 4 year lease.

 

The lease market has definitely gotten a lot worse in the past three years and manufacturers are most eager to get people to buy off-lease cars.

 

I agree. Even though AHFC gave me a good residual, they had a pretty crappy money factor. I think a few years ago, I would have been able to get a good residual AND money factor.

 

I did consider the sales tax, but not the interest. Personally, I know that if I buy the car in 4 years, I will have enough to pay cash for it. But you're right, for fairness sake we should probably add in interest, which would make the difference more like $1100 instead of $100.

 

The interest on a 5 year loan would be about $3800. $2275 on a 3 year loan.

I agree that if you'll have the cash to buy it out at the end, there is no reason for you to buy it now.

 

It all depends on what the interest rate is. Right now, if you buy, you can lock in a rate of 7.25 - 7.35 on a new car loan. Used car loans are much higher. So unless you intend to buy the car outright at lease end with cash, the rate will be higher. And who knows where the economy will be in three years. I remember back in 1993 the interest rates were almost 10% on a new car loan. To be continued.............

 

Not really true...

My lease rate interest is 6.72%, the best finance deal I could get was 6.9%. So in effect, I'm leasing $12,000 of the car at a lower interest rate than if I bought it outright!

The case of my Saab is even better - the lease rate was a silly 1.9%! Sure beats financing at 7% by buying!

 

On the residuals thoughts, I do not know if people have noticed but the lease deals are getting somewhat worse lately. Apparently dealers are getting tons of lease cars back and there being no demand for them. As you see your car sitting on the lot for months. Do not be suprised that leasing companies begin to negotiate the pay offs to keep the car from sitting on the lot.

------------------
2000 Acura TL
Silver
fog lights, tints, burlwood shift knob,
sunroof visor, 17in Mille Miglia sports
H&R springs, ingals camber kit, Soundstream 405 amp powering 2
JL Audio 10's and Infinity tweets.