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iacas

Buying vs. Leasing a Car

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I've always just bought new cars (ever since my first, a Pontiac Sunfire).

I'm considering leasing my next vehicle.

I played around with the configuration and built a VW Tiguan Cross Sport, for example, and with $11,000 in combo of trade-in and down-payment I got $264 (15k miles, 36 month lease, $6k down, $5k in trade), while financing it I got $495 ($5k down, $6k trade-in, 60 months, 0%). At 1.9% it goes up to $520.

$495*60/96 (eight years of use) is $309/month. That seems odd — the lease is less expensive. But… the lease only works ONCE with the trade-in, because your next lease, you don't have anything to trade in. So a lease on this particular car with a $1k down payment is $551… which is quite a bit more than $309/month.

Now, here's the thing… I was prepared to pay a bit more (and this isn't consider lease termination fees, etc.), but about 75% more ($309 vs. $551) for the second car? Sure, I'll save a little (maybe) or break even for three years… but then I've lost my rolling equity on everything after that.

Again, I'm willing to pay a little bit more to get a new car every three years, but how does anyone lease at a 75% surcharge? Am I doing some bad math here somewhere, or something? Should we just keep buying new every eight years or so?

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Your math is correct.   People are swayed by the new car smell and the salesmanship.   Many people believe that they have to buy a new car because it is reliable.   They don't want to be stuck on the side of the road.    They will looks at the "now" payment and don't realize the long term costs involved.   

We have leased cars before but as you noted, there is no equity when it is time to return it to the dealer.   When we were shuttling kids to soccer, dance, school and friends, it was a challenge to keep the miles in check.   That for us is no longer an issue.   

I'll not lease a car again.   We either buy new or buy "certified".

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There is a tremendous difference in cost to get a new car every 3 years instead of every 8 years, regardless of whether you are leasing or buying. Consider the other option of buying a new car with 5 years of financing and then trading it in after 3 years, you will still owe two more years of payments and may even be underwater on the trade-in value. If you truly want a new car every 3 years, best to bite the bullet up front and only finance it for 3 years. That way, you won't take the big hit on each subsequent purchase.

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I've always viewed a car as a luxury for the way I live.  I've rarely needed it for work because when I lived in NYC I used public transportation most times and now living in Albany, NY I live two blocks from my office so I really only have my car for going to the gym, golf, or some other form of entertainment purpose.  So, I don't like to idea of spending a lot on it which is why i have something small that didn't cost me much and that isn't flashy.  I'll probably never lease a car because I've always viewed it as a bad investment. 

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I suggest looking up "lease hacking". Basically it comes down to the fact that if you are less picky, and a dealer has a car that has been sitting for too long, you can get some screaming hot deals. It may not be the color you like, or may have odd options, but you can get stuff closer to that original number you were talking about.

I bought my current car new (first new car purchase), and it is probably a worse investment than leasing. If you really care about your finances, a used car can't be beat. It will still depreciate, but not nearly at the rate of a new car, and you still have equity when it comes time to change vehicles. New cars don't really have the "rolling equity" that you think they do. Used cars come much closer than that.

I can also understand the perspective of not wanting to buy used, because you want it to be your own, know all the history, pick exact options, etc., but if you want that piece of mind you are always going to pay a premium whether it is through a lease or financing a new car.

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7 minutes ago, Bonvivant said:

New cars don't really have the "rolling equity" that you think they do. Used cars come much closer than that.

My current 7yo car is worth about $11k in trade, and I paid well under $40k for it, and my previous car was likewise the same: well under $40k, traded it in to the dealer at about $10k after eight years.

I think > 25% of the car's value after eight years is pretty good.

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8 minutes ago, iacas said:

My current 7yo car is worth about $11k in trade, and I paid well under $40k for it, and my previous car was likewise the same: well under $40k, traded it in to the dealer at about $10k after eight years.

I think > 25% of the car's value after eight years is pretty good.

I thought you said you bought new every 3 years, but that was a comment from someone else. Losing 3.5k per year on a car doesn't seem like a good deal to me though. If you buy a 2-3 year old car you are likely to lose at the same percentage, but the 40k cars only cost 20-25k so you lose 15k or so instead of 30k over 8 years. 

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1 minute ago, Bonvivant said:

I thought you said you bought new every 3 years, but that was a comment from someone else. Losing 3.5k per year on a car doesn't seem like a good deal to me though. If you buy a 2-3 year old car you are likely to lose at the same percentage, but the 40k cars only cost 20-25k so you lose 15k or so instead of 30k over 8 years. 

My comment was about your rolling equity comment.

I'm not buying a used car. Just not my style. I don't want a car past about eight years, so I'd be buying a 3yo car every five years.

Paying $27k every eight years is better than paying $18k every five years. Plus, I'll know what the owner did those first three years.

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I don't look at it like I am losing 3k (or whatever number) per year, I see it as the cost of doing business when owning a car and that seems pretty reasonable for reliable transportation. Its just got to be a number you can live with. Whether you are buying or leasing its not an investment its a loser but with shrewd negotiation and purchasing strategy you can lose less. 

I have never leased, but if I do know people who do and they consider it a convenience especially if they are in the luxury car market. I know others that will only lease a "deal" and don't care what it looks like and they do ok especially if they negotiate the terms. 

 

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17 hours ago, iacas said:

Should we just keep buying new every eight years or so?

We’ve had this conversation before. I’m not a lease guy. I like to buy my cars and keep them past even the eight year window that you’re proposing. I bought my CX-9 new six years ago and I’m just about done with the payments. I plan on keeping it at least another six years. And of course there are other factors of a lease to consider, as @dennyjones mentioned.

I think a lease works for people who like to have a new car every three years or for those who want to buy but might not be able to afford the monthly payment to buy the car the first time around. Yeah they’re paying extra with the lease to buy option in the long run, but it is what it is. Being poor sucks.

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40 minutes ago, billchao said:

We’ve had this conversation before. I’m not a lease guy. I like to buy my cars and keep them past even the eight year window that you’re proposing. I bought my CX-9 new six years ago and I’m just about done with the payments. I plan on keeping it at least another six years. And of course there are other factors of a lease to consider, as @dennyjones mentioned.

I think a lease works for people who like to have a new car every three years or for those who want to buy but might not be able to afford the monthly payment to buy the car the first time around. Yeah they’re paying extra with the lease to buy option in the long run, but it is what it is. Being poor sucks.

Those reasons and luxury cars seem to be the biggest thing.

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I always saw leasing for people who want to avoid troublesome maintenance. If you trade back in before 30K you can avoid the higher routing maintenance cost. Also, I think leasing was more viable option years ago when cars were more troublesome. Now, cars last a really long time with routing maintenance. You can skip new tires, new brakes, and higher required maintenance. 

Then you have the people who like brand new cars or trying different cars. 

For me, I research out cars with good history of not having issues and time it with good dealership deals. 

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29 minutes ago, saevel25 said:

I always saw leasing for people who want to avoid troublesome maintenance.

Definitely agree.

 

29 minutes ago, saevel25 said:

Now, cars last a really long time with routing maintenance. You can skip new tires, new brakes, and higher required maintenance. 

I disagree with this part though. New cars offer longer maintenance intervals, but we aren't sure about how that will work long term. I think that this makes leases even more appealing, because if you hit the 5th oil change (sometimes close to 50-60k miles on new vehicles), we don't know if things are going to be fried. They say it's correct, but I suspect a bit of planned obsolescence here. As far as skipping tires/brakes/etc., you are putting your life on the line if you push it back to when you are going to sell the car, or leaving it for the new owner. Unforeseen circumstances can turn the tire/brake ordeal into a life threatening event. You could kill yourself, or others (motorcycle rider here), by waiting to change brakes and tires until after they stop working (or not at all). Makes real good financial sense, until it doesn't, basically.

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34 minutes ago, Bonvivant said:

Definitely agree.

 

I disagree with this part though. New cars offer longer maintenance intervals, but we aren't sure about how that will work long term. I think that this makes leases even more appealing, because if you hit the 5th oil change (sometimes close to 50-60k miles on new vehicles), we don't know if things are going to be fried. They say it's correct, but I suspect a bit of planned obsolescence here. As far as skipping tires/brakes/etc., you are putting your life on the line if you push it back to when you are going to sell the car, or leaving it for the new owner. Unforeseen circumstances can turn the tire/brake ordeal into a life threatening event. You could kill yourself, or others (motorcycle rider here), by waiting to change brakes and tires until after they stop working (or not at all). Makes real good financial sense, until it doesn't, basically.

I've never bought a used car that had any significant gas in the tank.  Including dealerships.  Do they drain out any extra fuel?  And I usually have to buy new tires right away.

I buy newish used cars... never bought one new... the numbers pencil out better.  My dad only bought new cars.  But he did get a discount... he worked for GM.

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For whats its worth, Suze Orman had it has one of her top 15 money mistakes. It's been a few years so I don't remember any details of why.

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Clark Howard on leading,

Quote

Clark’s take: Leasing is OK only under these 2 circumstances

Despite Clark’s strong feelings on the subject, he does, however, see benefits to leasing a vehicle — but only under two conditions.

  • You are a person who feels like you must drive the latest & greatest vehicle
  • Your lease is heavily subsidized

 

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Just now, Double Mocha Man said:

I buy newish used cars... never bought one new... the numbers pencil out better.  My dad only bought new cars.  But he did get a discount... he worked for GM.

This

 

Just now, saevel25 said:

Clark Howard on leasing*,

and this. Clark is a wizard.

Just now, Double Mocha Man said:

I've never bought a used car that had any significant gas in the tank.  Including dealerships.  Do they drain out any extra fuel?  And I usually have to buy new tires right away.

As long as you know what you need to be safe, you are golden. Tires can some time command many extra dollars on a used vehicle (particularly motorcycles), because everyone knows how pricey they can be.

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9 hours ago, Bonvivant said:

Tires can some time command many extra dollars on a used vehicle (particularly motorcycles), because everyone knows how pricey they can be.

I can relate to that!!! For cars, go to discount tire. Great prices, and no, I am not on their payroll.

As far as leasing, you can certainly get a higher end car for less per month, but you always have to be cautious of the miles you put on it. I am almost done with the 39 mo. lease that I did when I was in FL. I am paying more since I bought it there, so that didn't work out. I have been pretty happy with it, but there is a scratch down the side that might bite me in the backside. I'm guessing it was a wayward shopping cart. At this point KBB says I should be able to sell it for $14K + and my lease buyout is $12K. I think I might buy it and do a quick sale to avoid the $300+ return fee. I will have to pay sales tax, but should be able to make that up easily. I don't think I will lease again though. I bought a 2010 Fusion that was a lease return back in 2013. My daughter is still driving it. It's needed maintenance over the years of course, but it's cheaper than a car payment.

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