Lease versus Buy a Car - Automobile Financing

[John14789]

Well what's the benefit of leasing vs buying a car?

[Modee]

If you get a good lease (a wholesale lease - you can get one if you have connections with anyone in the car business), versus a good purchase (finance), and you make the payments all the way to the end, there is really no difference.
The total amount you pay on a good lease versus a comparably good finance ends up being the same if you pay all the way to the very end to where you get title to the car (the pink slip).

Leasing versus buying is a cash flow analysis. If you are cash poor or can use your cash for something else, a lease is best. If you have the cash now and want to keep your payments a bit lower, a finance is best.

Again, we are assuming that you will lease or finance to own.

One over all rule of leases is to ALWAYS make it a minimum down payment lease, ESPECIALLY if you do NOT plan to keep the car all the way through to the end - because if you plan on returning the car at the end of the lease (usually three years) the less money you have laid out, the better, obviously.

Some things to keep in mind with a lease are:
1. They are harder to qualify for (than purchases).
2. If you want to do it in the name of your corporation, it is almost impossible to get a corporate lease versus a finance
(But what you can do is get the lease in an individual's name and deduct the payments off the corporate tax return if the company makes all the payments. You can also give some compensation to that individual for lending his or her name, and write that off too.)
3. You will be limited on the number of miles you can drive per year - and will be tagged with penalties if you turn in the car at the end of the lease if you have driven the car too much. (Obviously, if you want to keep the car all the way to the end, the mileage makes no difference.)
4. If you trash the car you will be held to answer on a lease as well - so keep it in good shape.

The car companies and finance companies are no dummies, and they pretty much make it so that unless you make some large down payment (whether you lease or buy) the car will never be worth more than you owe on it! That is the American way - give you nothing in return for your money, other than the enjoyment of the car.

Now if you do make a substantial down payment, and you get some kind of car that holds its value pretty well (such as a hybrid Honda or some such), at some point the car may actually be worth more than what you owe on it (the amount you owe at the end of the lease term is called the "residual"). And in such cases, if you don't want to keep the car you can actually sell it and pocket the difference between what you sell it for and the residual.
(Of course - you may also do this anytime on a finance, sell the car and pay off the bank and keep any difference. But on a lease, you have the option to do this only at the end of the lease period when the "balloon payment" or "residual" is due.)

Another thing to think about on a lease is that if you get into financial trouble other than at that period when the lease is over and the residual is due, you have to find someone to take over the lease payments - which can be problematic. At least on a finance, you can always sell the car and walk away - the lease company will not let you sell the car except during that redemption period when you have a little while to decide whether you want to keep paying and eventually own the car, or give it back.

TO SUMMARiZE:

1. If you want to eventually own the car, lease if you can qualify and get a good wholesale lease, if cash flow is a problem, or just buy if you have the cash now.

2. The more you put down, the lower your payments on a finance, but nonetheless I advise never putting any more down on a lease than is absolutely necessary. Use the words "minimum down payment lease" - words the dealers hate to hear.

3. If you plan on getting rid of the car in three years, go ahead and lease, but be careful about how many miles you drive, and how you keep up the car.

[John14789]

Well a lease seems good because if you end up buying the car then after five years or so it starts having problems. Then you have to take the overall repair costs into consideration. With leasing you'll never have to worry about repairing the car.

Also with leasing you get to drive new models every three years.

Which one do you do personally?

[Modee]

I just pay cash these days, even the cars I financed not long ago I paid off early.

I leased a car for my company once, and paid that off too. The write off wasn't worth all the financing costs I decided.

[John14789]

Something to think about. I'll have to see which one would be better. If the model of the car will be current for atleast 5-7 years than I'll just buy the car instead of lease it.

[Modee]

Bottom line, as I said, if you have something you can do with the money, or if you do not have it all in one pot, lease or finance. Otherwise, pay cash.

[sanandreasfire]

From my experience, the base models of cars quickly depreciate in value. If you're looking at a luxury brand, I'd steer clear of the entry level coupes and sedans. Do a bit of homework and you can find an 2008 IS250 for 20k roughly. The purchase price on that same car, 18 months ago was 32k, not to mention all the money you end up paying in interest.

But, for a higher end car, say a BMW 7 series, the price drops from year to year, expectedly. But the percentage decrease is not as bad.

Lastly, Modee is right to just buy cars outright. If that means you drive a Prius instead of a Range Rover, then so be it. If you do the math, your jaw would drop at the total amount of interest you pay over the note's term.

[John14789]

That's some good advice sanandreasfire. You're right the value of top of the line luxury cars tend to drop less than the entry level cars.

If your going to buy then buy the top of the line luxury car if not then lease.

[sanandreasfire]

Yes. I forgot to get to that summary, but yeah. With good credit, a lease should be very reasonable, plus you can essentially drive something new every 2-3 years (or 4 with some leases).

The milage is a huge issue with a lease, though. So bear that in mind.

[John14789]

Yes, I do know the milage issue. Only 10k miles a year. Well that's not that much when your not using the car everyday. If you have more than one car than it's not so hard to not drive 10k miles a year on one car.