Did you Lease or finance? Why?

 

Leasing is still a form of financing.

I bought the car because I intend to keep the car for more than 4 years (if I can) and will probably hand it off to family members after I'm done!

 

I undestand. I was just wondering why people would lease. I've never done it but it seems to fit me since I buy a new car every few years. The only thing is I feel like I'm thowing money away...

 

Didn't you just answer your own question?

 

Not really I'm trying to express the fact that I'm torn. So I was looking for people who could tell me why they financed or leased and what led them to that decision...

 

The one bad thing some people get into with leasing is signing up for more than 36 months.......a big mistake....if you're going to keep a car for 3+ years, buy it!

 

Why? Also, can't you still negotiate the price if you lease?

 

Leasing is simply another form of financing. If you do not understand the nuts and bolts of leasing, you should obtain a standard auto financing loan or you may (will) be burned.

 

v6akord02, yes you did answer your own question to some degree. You stated that since you buy a NEW CAR every few years that leasing would seem like the option for you. Well, I'm sure anyone in this forum that understands the pros/cons regarding leasing, and has decided to lease has done it because of that reason as well as a few others. Some of which are less of a down payment needed and lower monthly payment. Typical leases allow 12,000 - 15,000 miles per year on the car. More money for the 15,000 mile option. If you drive more than that then you would probably want to take that into consideration before you opt to lease. The reason is because you'll pay more money when returning the car at the end of the lease for each additional mile that was put on the car. People who tend to finance usually keep their cars for a considerable longer period of time, may customize their cars (which leases don't allow), and put more miles on the cars than leases allow.

 

Leasing is viable if:
1)You turn over cars every few years
2) You keep the car in good condition
3) You roughly drive 15k/miles annually or less
4) You are not interested in extensive mods

Disadvantages - no equity buildup, but NOT important if you sell in 3 or so years. Also, you have to give up the car a predetermined point, whether you like it or not, though most leases allow for a buyout at lease end if desired (depending on terms). Early outs come with high financial penalty.

I have done both - about 6 vehicles, 3 each way. To answer your question in more detail, you need to look at how much money you will pay out for a given estimated time of ownership.

For a 6MT non navi TL, I am looking at this dilemma:
Assumptions - negotiated price 30,850 - just call it 31000. And yes, ALWAYS negotiate the price whether leasing or not. Remember, in a lease you are paying for the vehicle's depreciation over a set time. You have a starting cost, and a end of lease value called the residual. Currently, through end of June, AHFC is putting a non-navi TL at 55% residual (note - navis are 2% lower, so your lease payments will be disproportionately higher than just the 2k higher cost of the vehicle, all other variable equal) - this is based off MSRP.

Let's do the math on my desired car:
Lease
The cap cost = 31000 (what I negotiated), MSRP is 33195, residual = 18257 (55% of MSRP). I thus pay for the car's depreciation, which = 12743 (31000-18257, but would be almost 15000 if I did NOT negotiate. Tip - don't tell the dealer your financing plans in advance to avoid bullshit dialog).
Now, the lessor wants to make money from me, the lessee,so there is a 'rent charge', similar to an APR. They are stated as a 'money factor', and currently run .0019-.0023. Multiply this by 2400 to get a rough APR equivalent. I have heard AHFC is running .0020, about 4.8% APR. Then, they will usually have another profit making fee called the acquisition fee, which can average $500. It typically is rolled in to the payment. We'll ignore the security deposit, as it is refundable at lease's end and doesn't apply to many of AHFC's leases.
So, factoring in 15000 miles/annually, the numbers above (based on a money factor of .0020) give me a payment of:
$452
Breakdown - 452X36mo=16272 total you will pay over 3 years. Remember, 12743 was depreciation, the balance of 3529 is from the 'rent charge'. I did not add the acquisition fee in this, but count on $500.

Now, a loan:
Assumption - let's look at this weekend's 2.9% APR by AHFC. Using the same 31000 negotiated price, a loan calculator will give you monthly payments of:
$554
Over three years, that is $19944. That leaves 11056 to pay off. Some recent bank figures I have seen estimate the car to be worth less than 50% then, or 15000 (AFHC is using 55% currently, but more than not, there has been a trend of overestimating these). Then you need to figure on whether you will be lucky to sell at full retail then, or a dealer's wholesale or low ball closer to 12000. Let's shoot for the middle - you sell for 13500. You pay off the loan balance of 11056, giving you 2444 'profit'. BUT, recall, you paid $102 more per month than the lease, so X36 months = 3672. Thus, it would have been more economical to lease.

Overall, with the loan and what you can sell the car for 3 years later is all speculation. Who knows what the market will be for this car in three years. But, they do hold their value compared to a Ford Focus, which may be worth 25% of original value in three years.

The bottom line is that the longer you keep your car, the better a loan looks. But at the 3 year mark, you may come out ahead leasing. It is not an easy decision.

PS - let me add that the manual transmission with most banks/lessors has a 2% lower residual on average. Leasecompare.com, other sources, etc. all show this - there are exceptions. The published numbers I have for AHFC, though, do not discriminate between MT and AT. If purchasing a MT, add to the milieu that you will be trying to sell to a much smaller market.

And that's where I'm at - I seek the 6MT non-navi, and will likely lease as I am not too excited about my two top colors (anthracite and SSM, both tainted with Honda's obsession for subtle bluish tinting, as seen also on NBP close up), also the difficulty selling it to a small market, and for what loss, am waiting for AWD platform, don't want this car beyond warranty, and historically like newer cars.

Damn, that was long... . sorry

 

I do have one 'curve ball' to throw you, which is NOT the norm.

My company re-imburses me the monthly payment for the car, and so I have decided to pay for it over 3 years, so that the car is then mine at the end of it, and I have acquired some residual value.

If anyone has their company re-imburse any/all of their monthly payment, then buying (as long as it is in the individuals name) has some advantages.

Otherwise, use cnp's comparison, it will point you in the right direction.

BritBoy

Hmmmm ... a 2nd thought, this arguement also works for lease, as you could pocket the money the company re-imburses and save it up with interest ..... duh .... looks like I just shot down my own post .....

 

We bought my TL so that I have it all throughout college. I'll probably sell it after college and get another car depending on what is good at the time. Perhaps even during college if the thing starts to get kinda old. Doubt it though.

 

If you have a good down payment then a loan is the way to go IMO. I put down $21,000, $19,500 of which I got from the sale of my 323i. So in the end I put $1,500 true out of pocket and walked away with a 48 month payment of $297. With that kind of payment I can pay the TL off early and when it hits a value that I can sell it for of about $19,500 then I will sell it and do it all over again.

If I leased the car the payment would probably have been over $500 a month with a few thousand down and in the end I would walk away with nothing. If I didn't have the nice down payment cash then I would either lease or buy a cheaper car. I leased me wifes car as when we got married she had no equity in her then car so I leased a CR-V with $2,500 down for $293 a month for 48 months. That is a pretty good deal to me as I got her out from under her then truck and into something nice for a much lower payment. It works out for her as she stays at home so I don't have to worry about going over the mileage etc.

I know a couple of people who lease that swear buy it but every three years they lay out $3,500 for the cap reduction and pay $500+ on a nice car. Then when they turn it in they always owe on the mileage limit. I just don't get that financial decision but they seem to think they are the smart ones. They think I should cash out my equity and put it into an account to earn interest and lease. I won't do that as I always try to have a payment under $300 by selling my cars and looking for a nice car in the right price range that will get me under $300.

 

Most arguments towards a lease do NOT recommend a cap reduction beyond what you negotiate, in case of a totaled vehicle scenario where there may be a mismatch in gap insurance coverage, current value of the car, and what you have paid.
Your scenario is different, but leaves the same result - no net gain. You are bringing in equity from another sale (the bimmer) and applying it, then walking away with comparable equity after selling the TL. Your net sum is zero - You had to bring in 19500 (plus an extra 1500), and you leave with 19500. In fact, you may not be able to reach the same amount of time (3 years) that I get from my lease to be able to sell the vehicle for 19500.
In fact, the best residual prediction is by AHFC at 55% non-navi. That gives a value of 18000+ in three years - most banks are putting it at 50-53% - max value in three years would be under 16500. In my scenario, I come in with nothing, I leave with nothing. We are the same. Net gain of ZERO.
You paid 14500 for your car's use (your 297 payment X 48 months, despite early payoff, you still will pay the whole thing except quicker payoff will have the extra money applied to principle, which could lower the interest/profit to the financier - so you would have to provide a timeline and more numbers for better anaysis). At 19500, you will likely need to offload the vehicle in 2.5 years. You could get lucky on a vehicle that holds its value well, sell at a premium price used, and have a small net gain.
My method is to compare what you pay in each scenario for the estimated time you would keep the vehicle, whether cash is brought in or not. I don't have enough numbers in your scenario to compare (how much principle you pay off with the extra payments over what timeframe), and it more complicated to calculate. I am not convinced that your money did anything better than mine for the same vehicle.
I'm getting ready to rid myself of an '01 Maxima, approaching lease end - I will check its current value vs the lease term's residual, and compare against a typical loan 3 years ago, with and without bringing in cash as you do. Also,I will look into the scenario if I paid cash for it outright, and tried to sell it now, and compare the extra money that went into the rent charge/APR and contrast that same amount if I put it into my investments.
I feel I likely did the right thing (again, assuming I don't want to keep the car for longer than these three years), but there is a gamble and speculation. It worked beautifully with a Grand Cherokee - at lease end, its value was so much lower than the lease residual, that I came out better than a loan with 0% APR - eg if I just paid for it outright and tried to sell it in three years. It is also perhaps the reason why many of my colleagues (physicians) do leases when they don't like keeping cars long term. Many of them are tightwad type A personalities and have financial advisors, etc. that help them on these matters. Either way, you and I will both come out ahead - we will both drive a damn nice car we like.
cnp
PS - I know I have rambled enough - one caveat against lease is modification - most lessors would not care if you added an OEM aero kit, as it would increase the end value when they offload the car. You can do some of these mods, case by case basis, but may be paying your own money for the whole thing, not a depreciated chunk. Sometimes, you can get it bundled in at the dealer, but the lessor sometimes may NOT change the MSRP to reflect this - thus it will be added to the cap reduction that you worked so hard getting.
Another point - the navi. Typically at 2% lower residual - on a lease, you will end up paying most of the cost/depreciation of this, yet less than 1/2 of the car's depreciation. I have seen the math on this - too much for posting here, but you can run both a navi (53% residual with AHFC) and non-navi (55%) side by side with a breakdown in cost of ownership and see how much you really pay for the luxury of the navi (divorced from the cost of the 'it's bitchin' value).

 

I think the residual numbers that are given are if you turn the car back into Honda at the end of lease or trade the car in. I paid $34,000 on my BMW and sold it for $19,500 where the dealer offered me $16,000. No doubt that if I traded in my car each time that the numbers would not work out in my favor and I would have to put much more down on a new car in order to be under $300 a month. According to Edmunds the 4 year depreciation on the TL non navi is $14,750. That would leave the end of 4 year value at $18,445 on average. If you have low mileage like I usually do then I would probably get over $19,000 on a sale. If those numbers work out then I'm good on another low payment on my next car.

 

WOW! Thanks for the input guys. But what happens if you ding it up or want to mod it?

 

Ding it - needs to be repaired or you will have to pay at lease end. They allow certain wear and tear, and typically mail out a guide 3 months or so in advance of lease end. They usually aren't nazis from I have seen, allowing for a few fisheyes, door dings, scrapes, tires down to 3/32 or so, etc. I have a three inch bumper rash courtesy of the spouse - it may not be acceptable to Nissan, in which case I will have it touched up.

Mods - see my reply above a couple posts ago. Case by case, depending on the lessor. General rule is no mods except minor and OEM stuff (splash guards, spoiler, etc - I added a hitch, compass/temp mirror to another car). All depends on and needs to be cleared by the lessor.

 

One more factor to consider . . .

The taxing structure may be different for a lease than a purchase.
Here in PA (Allegheny County) sales tax on purchase is 7% but is
10% on lease.

 

You are DEAD WRONG ON THAT HOMIE!

 

yes can , Is what I mean't sorry!

 

For me I had to finance. One big thing I hate about leasing is the fact that even though you don't own the vehicle you still have to pay property taxes for it in VA. So why the hell would I pay taxes on something I don't even own? I understand the logic, you are using the roads but hell I pay personal property tax and sales tax so some of that money should cover my share of use.

If I didn't have to pay taxes I probably would lease and then depending on the kind of leasing agreement may purchase at the end.

 

Leasing vs financing depends upon everybody’s own unique circumstances. Leases make a lot sense for some people. I finance for multiple reasons:

1) I'm old fashioned when it comes to this,

2) plan on owning the car for awhile (usually own cars 5+ years---last one was 9.5 years old, but mostly due to buying a large house and having no money to buy cars ),

3) put too many miles on to justify a lease (40+ mile round-trip to work every day w/o any other driving considered=200/week * 52 weeks = 10,400 miles/year commuting alone). BTW, I have owned my car since 10/14 and already have almost 3400 miles on it... I'm on pace for 23 - 24K this year...

4) you don't really own the car on a lease. You can argue that the bank owns part of any debt when there is a lien on something, but with a lease you have less freedom (see next reason)

5) I like to have freedom to do what I want when I want to. I don't want to worry about how many miles I'm driving or having to do an early trade-in so that I get forced into another car from the same manufacturer even if it's not the one I want on the next round

There are probably other reasonss that don't come to mind right now. One technicality, I actually out-right bought mine using my home equity account so it isn't financed in the traditional car loan fashion---meaning there is no direct lien on the car and the title is fully in my name.

I definitely need to pay interest on it via home equity but this is tax deductible and when tax savings are factored in, I am getting about the same effective interest rate as if I had a good low interest car loan that is not tax deductible. One thing that is nice about the home equity is that it is a HELOC which is revolving (like credit cards), so you are not locked into having to pay a large amount over a short period of time (such as 60 month amortization) and have more flexibility with your finances. Had Acura been running the current low interest rate promotion at that time, I might have considered doing that. Does anyone know if you can retroactively get deals such as these...

I did think of one reason that leasing might be a fit for me some day. I was thinking that if I had the cash to be able to afford a “fun car” such as a 2-seat sports car that is used just for good weather commuting/summers and is not a primary transporter, then a low 10,500 mile lease might work out well. Benefits-->Less miles on primary car (prolonged life) and being able to drive a sports-car without having to be burdened with the large expenses of traditional financing. Oh yeah, and in 2 years when you are bored with your Miata or Corvette, you can get the latest and greatest one to replace it. Now I just need to make twice my current salary and I’ll be all set