Car Shopping Time!

[saevel25]

So, a bit of a backstory here. My Hyundai is getting a new engine, under full warranty, because it was burning (consuming) too much oil. Basically, they have you do an oil change, then have you drive it for 1000+ miles and then measure how much oil is left. If the oil per miles driven is over a certain amount, they clean the engine, and do a 2nd consumption test. If it fails again, and if under warranty, you get a new engine. Which, since I bought the 10y/100K mile warranty extension and my engine was at 95,000 miles, Hyundai is shipping over a new engine for my 2017 Sante Fe Sport. So, I figure it might be time to look into a new car. I can try to finagle a bit more value out of the car since the engine will have less than 1,000 miles on it. 😉

A thought did cross my mind, what if I just lease a 2nd car and keep my current car. So, I decided to Excel this out. Leasing does not fare well against financing a new car. 

I think I am going to go back to a sedan for my next car. Here is my current short list. I kind of want something with a bit more power. 

1. Subaru WRX
2. Hyundai Senate (N Line)
3. Ioniq 5 (N Line, coming in 2024). I am a bit curious to see this car, but I would need to modify the house for an electric car. My panel is full, so I would need to wire in a new sub panel or something. 
4. Kia K5 GT
5. Maybe a used care if I find one, I like. 

 

[StuM]

Leasing only makes sense if you would buy a new car every 2-3 years anyway,  also you can get “trapped” in that lease cycle until you bite the bullet to shift from lease to buy.  If you hold cars long term buying makes a lot of sense.

i have no experience with the cars you mentioned so can’t help there.

[ChetlovesMer]

3 minutes ago, StuM said:

Leasing only makes sense if you would buy a new car every 2-3 years anyway,  also you can get “trapped” in that lease cycle until you bite the bullet to shift from lease to buy.  If you hold cars long term buying makes a lot of sense.

i have no experience with the cars you mentioned so can’t help there.

Hey Stu, I might suggest the opposite could also be true. Sometimes leasing makes sense if you are going to keep a car for 10 years. 
Sometimes loan rates are 6 or 7% and lease rates are 0.9%. 

If you plan to keep the car for a long time you can lease it for 3 years. Pay 0.9% on that portion of the car's cost and then buy it out right after 3 years when perhaps the rates have gone back down to 1 or 2%, or perhaps you've saved up the cash to buy it out right and then you've paid 0% on that money or possibly even made a bit on interest or some other way have put that cash to work for you. 

It doesn't work that way in every case, but it can depending on timing and interest rates. 

[saevel25]

15 minutes ago, StuM said:

Leasing only makes sense if you would buy a new car every 2-3 years anyway,  also you can get “trapped” in that lease cycle until you bite the bullet to shift from lease to buy.  If you hold cars long term buying makes a lot of sense.

i have no experience with the cars you mentioned so can’t help there.

With my math, on a 30K car, financing a car breaks even with a lease at 9 months. This is due to a cars equity. Which you get non of leasing. 
 

7 minutes ago, ChetlovesMer said:

Hey Stu, I might suggest the opposite could also be true. Sometimes leasing makes sense if you are going to keep a car for 10 years. 
Sometimes loan rates are 6 or 7% and lease rates are 0.9%. 

I did this math. I think I took it out 9 years. You are down 22K if you please. This doesn’t assume near zero interest for the lease, so you have to shop around, but you can find near zero interest on financing. Leasing is not good because you have no trade in or resell value of the car.

9 minutes ago, ChetlovesMer said:

Pay 0.9% on that portion of the car's cost and then buy it out right after 3 years when perhaps

That’s not how it works. A lease has a few components. The payment of the depreciation value lost over the years you lease it. The interest rate payments. The sales tax and other fees. That depreciating value is going to be conservative for the dealership to sell the care used. 

If the car is worth 30K, you may have to pay 40% of the cars depreciation value. When they turn around and sell it, they might sell it at 35% off its original MSRP. I just don’t see the math working out for ever leasing a car as a sound financial solution unless you get some crazy lease terms. 

[StuM]

41 minutes ago, saevel25 said:

With my math, on a 30K car, financing a car breaks even with a lease at 9 months. This is due to a cars equity. Which you get non of leasing. 

I did not do actual math but after your post I pulled the below from a local Ford Dealer and was shocked!

same vehicle, lease w/ $2000 down was $669 per months for 2 years. To finance for 5 years with same $2000 down was only $679 per month.  Only $10 diff and you build equity!

[saevel25]

20 minutes ago, StuM said:

I did not do actual math but after your post I pulled the below from a local Ford Dealer and was shocked!

same vehicle, lease w/ $2000 down was $669 per months for 2 years. To finance for 5 years with same $2000 down was only $679 per month.  Only $10 diff and you build equity!

You are comparing a 24 month lease to a 60 month loan. I would look at something with similar duration.  

[ChetlovesMer]

1 hour ago, saevel25 said:

With my math, on a 30K car, financing a car breaks even with a lease at 9 months. This is due to a cars equity. Which you get non of leasing. 
 

I did this math. I think I took it out 9 years. You are down 22K if you please. This doesn’t assume near zero interest for the lease, so you have to shop around, but you can find near zero interest on financing. Leasing is not good because you have no trade in or resell value of the car.

That’s not how it works. A lease has a few components. The payment of the depreciation value lost over the years you lease it. The interest rate payments. The sales tax and other fees. That depreciating value is going to be conservative for the dealership to sell the care used. 

If the car is worth 30K, you may have to pay 40% of the cars depreciation value. When they turn around and sell it, they might sell it at 35% off its original MSRP. I just don’t see the math working out for ever leasing a car as a sound financial solution unless you get some crazy lease terms. 

 

16 minutes ago, StuM said:

I did not do actual math but after your post I pulled the below from a local Ford Dealer and was shocked!

same vehicle, lease w/ $2000 down was $669 per months for 2 years. To finance for 5 years with same $2000 down was only $679 per month.  Only $10 diff and you build equity!

Hey guys, both of you are looking at the same thing. Which is current terms. Which is 1.9%. To which I agree. Go for the purchase. 

However, all I was saying is that there was a time not long ago... and also long ago when what you had to pay on the the money you were borrowing was very different between a lease and a purchase. Stu may remember the 1970's when buying a car meant you were going to pay around 12% on the money you borrow. I'm sure most of you remember covid when often had to pay 6-9% on the money you borrow to purchase a car. During both those times leases were often offered for 0.9%.

1 minute ago, saevel25 said:

You are comparing a 24 month lease to a 60 month loan. I would look at something with similar duration.  

You normally cannot lease any longer than 36 months. 

 

 

[StuM]

8 minutes ago, saevel25 said:

You are comparing a 24 month lease to a 60 month loan. I would look at something with similar duration.  

At the end if the lease you need to start shelling out again, or stop driving, so that cost theoretically keeps going while with the purchase it gets paid off and you should still have a lot of life left in the car.

[ChetlovesMer]

Funny, I just took a cursory glance and checked Toyota. They are currently offering 7.9% to 1.9% on their financing. It depends on which Toyota you want. 

They are offing 1.9 to 0.9 on their leases, again depending on which one you want. 

You'd also have to check to see if you are allowed to buy your car after the lease ends. Some leases don't allow that. You have to return the car to them and then buy it as a used car from the dealer. Setting up a whole new deal based on the value of that car at that moment. However, there are a lot of leases which allow you to simply finance what you have left to pay on the car. This would be a case where leasing could be to your financial advantage. 

Anyway, it's not always the case, but it's worth investigating if there's a car you really want and can't get low financing on it. 

[StuM]

4 minutes ago, ChetlovesMer said:

Funny, I just took a cursory glance and checked Toyota. They are currently offering 7.9% to 1.9% on their financing. It depends on which Toyota you want

I was surprised to see the 1.9%

[ChetlovesMer]

1 minute ago, StuM said:

At the end if the lease you need to start shelling out again, or stop driving, so that cost theoretically keeps going while with the purchase it gets paid off and you should still have a lot of life left in the car.

That varies depending on the type of lease. 

Some leases when finished you have to return the car to the dealer. They dealer then sets a new value on that used car and you can if you want buy it at that point, but you don't get any credit for what you paid on the car. The price of the car will generally be lower than a new car, but depending on the car it may not be much lower. Some cars lose their value so quickly it can actually be to your advantage, but that's rare now-a-days as most dealers have a good handle on depreciation. (Although, things like a pandemic can send them into a tailspin.) 

Other leases allow you to simply buy, pay or finance the remaining amount on your car when you come off the lease. This is where it can be a big advantage for you. If you can get a low interest lease, let's say 0.9% instead of a high interest loan, let's say 6.9% and you can be disciplined enough to stick extra cash into a savings or money market account. When you come off the lease you can hand the dealer a check, keep the car, and have paid very little interest. 

Once again, it doesn't work for every one in every case. But when it does work it's a great option. 

 

[StuM]

Also, it originally defaulted to 84 month financing!!! I would never do that.

i know some are now but I feel that is too long to finance a depreciating asset.  If I had to do that to afford a carbineoulf look gif s less expensive car.

[ChetlovesMer]

Sorry, about being so long winded tonight. 

Last thing. Most dealers will run the numbers all three ways for you. 

1 - Finance the car

2 - Lease the car for some number of months with the intent to return the car to the dealer at the end.

3 - Lease the car for some number of months with the intent to buy the car at the end of the lease. 

Finally, look at Trim levels. Sometimes dealers have a reason to promote certain trim levels. When my wife bought her car last spring, they had 0.9% purchase financing on one particular trim level. But much higher financing on the other trim levels. The financing difference made the extra cost of the higher trim level become cost neutral. So essentially she got more car for the same money. 

4 minutes ago, StuM said:

Also, it originally defaulted to 84 month financing!!! I would never do that.

i know some are now but I feel that is too long to finance a depreciating asset.  If I had to do that to afford a carbineoulf look gif s less expensive car.

I'm not a fan of that either. But you can always pay it off early? And now that I think about it, I've had most of my cars for 10 or more years. 

[StuM]

3 minutes ago, ChetlovesMer said:

Once again, it doesn't work for every one in every case. But when it does work it's a great option. 

I agree, never say never. That said I have reviewed various lease buyout decisions for clients and the only time it made sense to buy it out was if they were under the mileage allotment making the residual value below the blue book or trade in value.  Now with inflation & higher interest rates that may not always be the case.

i did have one that leased in May 2020 and due the pandemic and a lot of remote work they were significantly below the miles and after inflation it was an easy call to buy it out at the residual in the spring of 2023.

[iacas]

A few bullet points.

• Leasing usually stinks unless you LIKE a new car every 2-3 years or you don't ever want to worry about repairs.
• If you take care of cars they have decent trade-in values and you'll have that equity to trade in on your next car.
• Cars generally cost much less bought instead of leased.
• I've had some friends lease cars and then buy them. Depending on things, you can negotiate better or worse terms at the end of the lease (it helps to have a good relationship with the dealer).

I looked at leasing (any model of cars) when I got my CX-5. It was really not good.

Also, give good consideration to the K5. It's the Optima, but the GT model is pretty sporty. Little bit more turbo spool-up than I wanted, but the trunk is still big enough for plenty of golf stuff.

[saevel25]

23 minutes ago, iacas said:

Also, give good consideration to the K5. It's the Optima, but the GT model is pretty sporty. Little bit more turbo spool-up than I wanted, but the trunk is still big enough for plenty of golf stuff.

Yea, I’ve been looking at the GT options to see if I can sneak in a turbo engine on a car that usually doesn’t get one. Sometimes you can get a better deal because it’s not advertised as a sports performance car. 

[ChetlovesMer]

15 minutes ago, iacas said:

A few bullet points.

• Leasing usually stinks unless you LIKE a new car every 2-3 years or you don't ever want to worry about repairs.
• If you take care of cars they have decent trade-in values and you'll have that equity to trade in on your next car.
• Cars generally cost much less bought instead of leased.
• I've had some friends lease cars and then buy them. Depending on things, you can negotiate better or worse terms at the end of the lease (it helps to have a good relationship with the dealer).

I looked at leasing (any model of cars) when I got my CX-5. It was really not good.

Also, give good consideration to the K5. It's the Optima, but the GT model is pretty sporty. Little bit more turbo spool-up than I wanted, but the trunk is still big enough for plenty of golf stuff.

Dude, you are missing a big point. When you bought your car money was cheap. I'll bet your financing is 2.9% or lower. 

So, while what you say is usually true. Especially during times when you used to be able to finance at 0.9 or even 0%. But lately, there have been a lot of lease options an 0.9% or so. And a lot of loan options for the same car at or even well above 6.9%. (Just after the pandemic people were paying 11 or 12% for a loan for certain cars. Not all leases are created equal. Sometimes your payments on a lease are as good as your payments when financing, so really you are just paying lower interest on the first 30% or so of your car's value. BUT that's not always the case, sometimes you have to renegotiate your deal at the end of the lease. In which case it can be good or bad depending on inflation, and how well the car holds its value. 

So, it really depends on the lease, and what the interest rates are when you are purchasing. 

[saevel25]

3 minutes ago, ChetlovesMer said:

So, it really depends on the lease, and what the interest rates are when you are purchasing. 

Car loan

leasing (1% APR)

Loan amount = 35317 - 20,000 trade in = 15317. Which has great impact on the next vehicle you buy.

Lease, you may put down 14254, but the dealership can sell that car for 21,000. Why would they sell it for 15746, especially if you didn’t pay much of the lease interest. 

I feel like your scenario may be a rare situation that you better hope the dealership is doing you a solid.