Lease a car/truck or own it - Which is better?

[Serviss]

I am looking for your opinion as to which is better and some specific situations where you felt, lease or buy, better suited you. Or if you are a financial advisor or accountant how do you advise on the topic. I have included my analogy below, but I am more interested in hearing other thoughts though...

LEASE - If you enjoy driving a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don't like trading and selling used cars, don't care about building ownership equity, have a stable predictable lifestyle, drive an average number of miles, properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should lease.

BUY - If you don't mind higher monthly payments, prefer to build up trade-in or resale value (equity), like the idea of having ownership, like paying off your loan to be payment-free for a while, don't mind the unexpected cost of repairs after warranty has expired, drive more than average miles, prefer to drive your cars for years to spread out the cost, like to customize your cars, expect lifestyle changes in the near future, and don't like the risk of possible lease-end charges — then you should buy.

Take care

[MoneyGal]

I buy used cars, paying cash. I am 41 and am on my SECOND car ever in life. My current car is now 10 years old and I have no plan to get another car. I bike to work most of the year. :)

I like your analogies, but felt compelled to note that buying cars doesn't necessarily mean dealing with high car payments.

[moneygardener]

I can certainly see both sides and I am always surprised at how many people write leasing off as a poor financial decision. I think if you are simply looking at it from a financial perspective buying a new car is exactly equal to leasing a new car.

As the OP stated there are unique personal preferances that come into play and at the end of a period where one has owned a car they can probably look back and calculate whether it would have been better to lease. Personally we own one care and lease another. Leasing made a lot of sense when we began our lease and it looks like the lease ending will be a convenient way to go down to one car.

[canadianbanks]

Although I have leased cars before, now I prefer to pay cash for a good value used car (3-4 years old).

[Canadian Finance]

I agree with MoneyGal and canadianbanks. While the numbers are close when looking at leasing over buying a new car (http://canadianfinanceblog.com/2009/06/04/should-you-lease-or-buy-your-next-car.htm) constantly, nothing beats buying a car that's a couple years old and driving it for at least 5 years, if not 10. With a new car, whether leased or bought, you're taking too big of a hit on the depreciation.

[onomatopoeia]

The advantage to leasing is if you are self-employed and can deduct part of the payment for business use.

Personally, we have 1 car now which was purchased used.

My wife and I are debating a second car right now. We'll probably get a new car as she puts lots of mileage on a year (35-40k) and the deals out there are pretty good right now for cash purchases - and lots of 0% financing as well.

The problem with buying a used car and driving it for "5-10" years is that if you put a lot of mileage on it you can't drive them that long. I bought my current car assuming I would but 10k a year on it, then my wife came around and now its 4x that.

[brad]

The problem with buying a used car and driving it for "5-10" years is that if you put a lot of mileage on it you can't drive them that long. I bought my current car assuming I would but 10k a year on it, then my wife came around and now its 4x that.

When I lived in New England, 40,000 km is about how much I put on my car every year; I drove it for 402,000 kilometers over 10 years and then sold it to a family who drove it another 160,000 kilometers before selling it on to someone else. That was a Honda Civic, but you could probably do the same with any good-quality Japanese car these days, and even some of the European and American models last a lot longer than they used to.

[MGL]

I agree with MoneyGal and canadianbanks. While the numbers are close when looking at leasing over buying a new car (http://canadianfinanceblog.com/2009/06/04/should-you-lease-or-buy-your-next-car.htm) constantly, nothing beats buying a car that's a couple years old and driving it for at least 5 years, if not 10. With a new car, whether leased or bought, you're taking too big of a hit on the depreciation.

If you're looking for a new car, I tend to think that a good lease can be an excellent option- I wrote a piece in defence of car leasing (http://moneygrubbinglawyer.com/2008/08/26/in-defence-of-the-much-maligned-lease/) last summer.

However, I'm not much of a fan of buying a car that's just a couple of years old- at that point, you're still going to see double digit year-over-year depreciation, but you lose the benefit of a full warranty, choice over features, and full control over how the car is treated from day one. In some ways, it's the worst of both worlds.

If you're really looking to keep car costs and depreciation to a minimum, buy an older used car (at least 8-10 years old) and run it until it runs no more, rinse and repeat. Even with expected maintenance and repairs, you'll come out ahead.

[MoneyGal]

Yes to MGL with one proviso: because my husband is fully self-employed (and I have some self-employment income as well), double-digit depreciation on a 5 year old car (the age of the last car we bought) is OK with us, because those depreciation costs are partially offset by a tax deduction.

We primarily use our car for business purposes -- most of our personal activities take place by foot, transit or bike -- so the bulk of our car expenses are deductible.

[investnoob]

I thought this Q and A by Dave Ramsey was enlightening:

http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=10367

[specialk]

I thought this Q and A by Dave Ramsey was enlightening:

http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=10367

Dave is the King!

[MGL]

I thought this Q and A by Dave Ramsey was enlightening:

http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=10367

It's an interesting Q&A, but it doesn't present any compelling arguments against leasing. Let's look at what Ramsey says:

A car fleece is basically renting a car. You pay $400 a month and at the end of the new car lease, you turn it back in. If you want to buy it, you are buying it for what they estimate at the beginning of the fleece to be the market value. At the end of the lease, it’s called the residual value. If you pay $400 a month for 60 months, you pay $24,000 before turning it in. [QUOTE]

This is correct. It should also be noted that, assuming you've properly negotiated the lease, (total payments) + (residual) = (negotiated price) + (finance / interest charges).

[QUOTE=Dave Ramsey]The car will not have gone down in value more than that, because the car companies would lose money if it did. When they get the car back, you will have paid them more than the car has depreciated during that time.

And a car company could never lose money, could it? :) In some cases this will be true, in others it won't. A few years back, it was common to see lease promos with inflated residuals as loss leaders. It's also market dependent- if you leased a large SUV in 2005, your residual at lease end in 2008 was likely significantly higher than the actual value. In other words, you paid less than the actual depreciation cost over that period.

Ramsey seems to be under the impression that all lease residuals are extremely pessimistic. Some are, some aren't. The reality is that predicting the future value of a car requires is far from an accurate science and depends on any number of external factors. You can take a look at the residual and determine, based on market trends, whether it looks reasonable or not.

During that time, you’re maintaining the car as if you owned it. You’ll get charged for excessive wear and tear, or if you put too many miles on it. If you rent it for $24,000 and it went down $15,000 in value, then it cost me $9,000 to rent this car for this period of time. That is their profit during that time.

If your total payments over the lease period are $9,000 more than the actual depreciation, your residual should also be $9,000 lower than the market value at lease end. If that's the case, you'd be a fool to walk away- buy out the lease and sell it privately. That $9,000 is now back in your pocket.

In this way, a lease gives you much more certainty than a purchase- you know from day 1 what the walk away price is at a set point in the future. If your option to buy is notably less than the market value, buy the car. If it's notably more, turn it in- you've come out ahead.

With respect to mileage, this is something that you negotiate and agree upon upfront. No surprises should be found here. With wear and tear, it is no different than if you own the car- if you don't take care of your car, it will be worth less than if you had taken care. You'll incur a loss either way, the only difference is that with leasing you've actually got to cut a cheque.

Another thing is that the interest rates on a vehicle lease are not disclosed because the Federal Trade Commission has determined that this is not a debt, so there is no federal disclosure involved. Therefore, you have no truth in lending disclosure sheet. The interest rates you get charged are unbelievably high. That’s where you’ll realize you got screwed over.

This might apply in the US (I have no idea if it's accurate), but it doesn't in Canada. Anyone with a calculator and basic math skills can figure out the true cost of leasing to see if you're actually being screwed over and what your actual cost of borrowing is. The problem here is not with leasing, it's with people not properly negotiating their lease.

People get sold automobile leases because they are told that it’s what sophisticated people do. But as it turns out, the car companies make more money on leasing you the car than if you bought the car with cash, according to the National Auto Dealers Association. Broke people think ‘how much down and how much a month’. Rich people think ‘how much’. If you can’t pay cash for a car, then ride a bicycle. But don’t lease a car.

It's not always a question of whether you can pay cash for a car, but whether you actually want to. Not everybody wants to tie up cash in a car.

Leasing is not always the best option, but it's far from the abomination that folks like Dave Ramsey like to make it out to be. Crunch the numbers and make an informed decision on whether it works for you.

[brad]

One other option to consider if you're not a frequent car user is a car-sharing program. In the States, Zipcar is ubiquitous; here in Montreal we have Communauto and I imagine other cities in Canada have their own car-sharing services.

When you crunch those numbers you start to wonder why anyone would ever buy or lease a car, although car-sharing doesn't work for everyone. You pay an up-front membership fee and a modest annual subscription, and then you pay per use. When you consider that there are no maintenance costs, insurance is wrapped into your per-use costs (so if you drive infrequently you pay a whole lot less insurance than if you have your own car and pay an insurance premium every year), and the cost of interest on a loan if you don't buy your car with cash, car-sharing wins hands down.

Car-sharing would work almost perfectly for someone like me who needs to use a car maybe four or five times a month. It takes me a month or more to go through a tank of gas. But I can't bring myself to do it because I like the convenience of being able to just hop in my car whenever I want to and not have to worry about bringing it back by a certain time. I'm paying very heavily for that convenience, though. My car's paid for (I bought it with cash) but my expenses for insurance, fuel, maintenance, and repairs ran $3,400 last year and will only increase as my car grows older.

[investnoob]

Nice post MGL. I agree with all your points.

While I don't have a car, I do know that if I do ever get one it will probably be a used civic or corolla paid for in cash. Its just a personal preference to stay debt free. I easily fall into the financing trap of "oh, well I can afford the payments!"

One thing that always troubled me is that my friends never put anywhere near the amount of thought you described in your post. Instead they ask themselves "is the monthly payment manageable?" And that is usually the extent of it.

[MoneyGal]

Another way to think about the lease vs. buy question is like a call option, with the residual price for the vehicle at the end of the lease as the strike price.

So, if you think about the right embedded in the car lease (the right, not obligation, to purchase the vehicle at the end of the lease) like a call option with a strike price, how you conduct yourself in lease negotiations will depend entirely on whether you want to own the car at the end of the lease.

That is: if you have no interest in ever owning the car, push the strike price as high as you possibly can -- this will lower your monthly payments.

Then, if you compare costs to own versus costs to buy over a specified period (say, 36 months), you can compare the two costs on a side-by-side basis. You can work this out on your own given the initial price of the car, monthly costs to buy and monthly costs to lease for an identical period of months, and different buyback (or "strike") prices.

Make sense? I don't know that the general public ever thinks about derivative markets but this is, I think, a good example of the basic concept of a call option.

[Jon Chevreau]

Till recently, we owned two 10-year old vehicles and neither was new when we acquired them. Still own them but also just bought a new Prius. I've never leased nor been tempted to. Yes, massive repairs occassionally arise for the Volvo (which I joke is Swedish for "money pit") but then there are months on end with no payments at all. Somewhat of a gamble either way.

[Rickson9]

My wife and I work for companies give us $1000 per month (each) to purchase a car (in addition they pay for gas, car washes, oil changes, etc.) Since the car is basically 'free' we just need to decide if we want to lease or finance.

Some of our colleagues lease the cars b/c they can write off the entire lease amount in their taxes (and get a new car every 3-4 years). We financed it b/c we want the company to buy us a car at the end of 'x' years.

For example, my car has been entirely paid for by the company so I have no finance payments left, but I still recieve the $1000 per month taxable benefit for a car.

[refutor]

<My wife and I work for companies give us $1000 per month (each) to purchase a car (in addition they pay for gas, car washes, oil changes, etc.) >

that's a good gig if you can get it :)

[specialk]

Ramsey seems to be under the impression that all lease residuals are extremely pessimistic. Some are, some aren't. The reality is that predicting the future value of a car requires is far from an accurate science and depends on any number of external factors. You can take a look at the residual and determine, based on market trends, whether it looks reasonable or not.

Precisely why you shouldn't do it at all.........unless you have a crystal ball.


It's not always a question of whether you can pay cash for a car, but whether you actually want to. Not everybody wants to tie up cash in a car.

Exactly why you should not tie up cash in a 15,000 + vehicle, when a 5-10000 used cash car that has already lost most of it's value (very predictable because it has already happened) If you are rich, I say go for it either way.

Leasing is not always the best option, but it's far from the abomination that folks like Dave Ramsey like to make it out to be. Crunch the numbers and make an informed decision on whether it works for you.[/QUOTE]

Anything that ties up your monthly cashflow that you could be saving/investing, and leaves you with a risk of not being able to make payments should something happen in your life...is an abomination.

[RLMT]

i signed up just to reply to this thread ... so i look forward to everyones comments and feedback. maybe i am out to lunch?

i prefer leasing and think in most cases its a far better use of your money.

let me use an example excersize that i went through last year as i had to replace my used car. i landed up with an 2007 Jetta and that will be car in this case study and use the #'s that were provided to me, so this is realistic.

3 people choose the same care, Mary, John and Paul.

1. Mary pays cash - $23,500
2. John finances - $550.00 / month x 48
3. Paul leases - $300 / month x 48 + 15,000 residual

Case 1 - Mary
Mary uses her cash and immediatly turns 23,500 in 20,000 an by the time 4 years rolls around she has an asset that is worth about 15,000 and has now warrenty and continues to decline in worth. not too mention if she doesnt fix the repairs that are coming, her asset becomes worth even less. she also lost out on about $4000 in opportunity cost of not investing that money in that period.

I see no reason to tie up your own cash in a depreciating asset. terrible use of money.

Case 2 - John
John has spent $26,400 for an asset worth $15,000 and all the other issues in case 1 apply. no warrenty and a depreciating and deterioating asset.

Case 3 - Paul
Paul spent about $14,400 for the same car. granted he doesnt have the asset worth $15,000 (and going down) but if he was smart he has invested the $250.00 per month that he saved by leasing vs financing and now has a nest egg worth $12,000 and growing. as well, he has earned another $4000 or so in interest by keeping his cash invested.

Conclusion?
Why wouldnt you want to be the person who doesnt have their cash tied up in metal and rubber? Paul has full access to all his $$, saves $12,000 and does not own a depreciating and deteriorating assett.

and frankly if he loves the car, he can buy it if he so chooses. but unlike Mary and JOhn, what if the car is an absolute lemon (that happens even to HOnda), they dont have that option. sure they can sell it privatly, but thats not like taking pop bottles back for a deposit, it is certainly not a turn key solution.

I once learned a rule:
own things which appreciate, rent those that depreciate.

am i out to lunch? those are real #'s, not just made up. they match excatly the choices i had to make.

[RLMT]

just to continue, but with a different thought ...

people think about their car in a counter intutive sense i think.

dont you WANT to be uside down in your car? why do people want their hard earned CASH tied up in one of the worst places you can put your money.

being upside down means that whoever financed that car is subsidizing it for me. it means not only do i have none of my own money, but whoever financed it actually has more money in the car I have exclusive use of then its actually worth.

i guess it comes down to, whether it be a new car or the perfect 3 year old car, when i look at it in the driveway, i want it to represent as little of my own equity as possible. even if i had all the cash i ever needed, i still wouldnt want to look in my driveway and see $20,000 of it deterorating every day and tied up in bolts, metal and rubber.

but thats me.

[moneygardener]

I agree 100%

[WarrenC]

Great perspective RLMT!

We went through the same exercise a few years ago. Essentially comparing a 5 yr loan to a 5 yr lease, same interest rates applied. We had no cash saved (it's all invested of course) :D

We chose the lease path, and we are putting aside the payment difference into a savings account every month. The $250 in your example.

The car is a Yaris, and Toyota has applied what may be a slightly excessive depreciation rate (they aren't stupid like other manufacturers that will remain unnamed) so we could easily have an asset worth more than the residual value in 2012, but that's fine, we'll sell privately, or even make a deal with the dealer for a down payment on our next lease.

We'll have the $15000 or whatever as cash in hand, instead of tied up in a vehicle in 5 years.

[Rickson9]

just to continue, but with a different thought ...

people think about their car in a counter intutive sense i think.

dont you WANT to be uside down in your car? why do people want their hard earned CASH tied up in one of the worst places you can put your money.

being upside down means that whoever financed that car is subsidizing it for me. it means not only do i have none of my own money, but whoever financed it actually has more money in the car I have exclusive use of then its actually worth.

i guess it comes down to, whether it be a new car or the perfect 3 year old car, when i look at it in the driveway, i want it to represent as little of my own equity as possible. even if i had all the cash i ever needed, i still wouldnt want to look in my driveway and see $20,000 of it deterorating every day and tied up in bolts, metal and rubber.

but thats me.

/agree

nail on the head. don't put your hard earned money into a depreciating asset.

which is why it is great that my wife and I work for companies that are paying for the car :D

[RLMT]

thanks for the feedback ... i have posted this analysis in other places and was basically told leasing was wasting money and that smart people buy 3 year old used cars.

[ChrisR]

RLMT: The problem I have with your example is the high rate of return that you seem to be expecting from Paul’s investments. If Paul were to invest $250 per month, for 4 years he would need a whopping 14.45% return to earn $4000 dollars in interest! I ran through your examples using your numbers, but a more modest investment return, and here is what I found.

Mary pays the full cash price of $23,500, and after 4 years she is left with an asset of $15,000. The total cost of Mary’s car over 4 years was $8,500.

John finances his car paying $550 per month. After 4 years he has paid $26400 and is left with an asset of $15,000. The cost of John’s car over 4 years was $11,400.

Paul leases for $300 per month. After 4 years he has paid $14400. In addition, he has invested $250 every month earning a return of 3%, compounded annually. Paul does not own the car at the end of the lease, but he has saved $12,000, and earned $754 in investment returns, for an asset value of $12,754. The cost of Paul’s car over 4 years was $13,646.

So we can see that Mary, who saved her money before buying her car comes out with the lowest cost over the first 4 years of car ownership. John, who borrowed the money to buy his car, paid a premium of $2,900 in order to own the car before he had the money to buy it outright. Paul, who leased his car came out on the bottom, having paid a heavy premium of $5,146 for the luxury of keeping his monthly payments low.

Let’s say Paul was a more aggressive investor and earned a return of 8% over the course of the lease (he also bore the risk of losing some of his invested money!). In this case, Paul would have an investment return of $2097, lowering the cost of his car to $12,303, meaning he still paid more than either John or Mary for the same car. In fact, for Paul to come out ahead of John, he would need to earn an average return of 8.53% (after tax). For Paul to come out ahead of Mary he would need a return of more than 20% on his investment!

As for the question of whether it is better to finance, or to pay cash and tie up your money in a depreciating asset… I look at it like this: Once the contract is signed You will pay the entire balance owing. It doesn’t matter whether this occurs in one lump sum at the beginning, or in payments through the term of a finance agreement. You will pay the entire depreciation of the car over the 4 years yourself. Pay it now, or pay it later, the depreciation doesn’t change. What does matter is the rate at which the money is borrowed. Can you safely achieve a return that is greater than the interest rate you pay to finance the car? If the answer is yes, then go ahead and finance. In most cases the answer will be no, in which case you'll want to consider paying cash.

[RLMT]

thanks for the great feedback and analysis ... let me digest it and will reply with my thoughts.

[Steve19]

Chris, you provided a very good explanation.

One inquiry I had, and assumed would alter the end result, is if one owned a business and would write off depreciation and interest rate when leasing a car. Wouldn't the end result be more beneficial for someone who receives the tax write-off's than for someone who pays cash for a vehicle?

I'm too lazy, but it would neat to have someone illustrate this comparison.

[moneygardener]

An auto financing rate of 2% or lower seems like the ideal opportunity to purchase a car and pay nothing down. This is where you want to use their money to finance the car and pay it back monthy at low or no interest. In the meantime take the thousands of dollars you would have used to purchase the vehicle and invest it. As usual with most decisions like this TIME is crucial.

[Steve19]

How much more money can one save by writing off the lease interest and depreciation of a vehicle? I'm confused to the potential savings which owning a business and leasing a car would provide.

For example, if your lease rate is 2% and your depreciation is 10%/year, do you annually write off those rates in full and essentially pay only the car payment out of pocket?

[Sampson]

Great post Chris.

I think there is an additional consideration. To level the playing field, one should really assume that in all three scenarios, Mary, John, and Paul all have the available cash upfront - there certainly is an additional 'cost' to having all your money tied up from day 1. If John and Paul have the additional money Mary had, an invested this, it should swing the calculation back in their favor.

One more consideration is that if you lease a car, there can be extra costs at the end of the term for repairs. Body damage is a major consideration. If you own the car, you don't need to fix that small dent in your door.

[Serviss]

Step 1
Track the amount of time you spend in the car for business purposes in a log. This can include running business errands, traveling to business appointments and other business related duties. Express that amount of time as a percentage of your total car use time.

Step 2
Calculate the total amount you have paid for your car lease over a year. This is the sum total of your monthly lease payments.

Step 3
Deduct the business use percentage of your lease payments from your income taxes. For example, if you use your car 50 percent of the time for business, half of your total lease payments can be taken as a tax deduction.

Step 4
Add up additional car related expenses including gas, insurance, maintenance and repairs. The same percentage of these expenses can also be deducted for business purposes.

Step 5
Factor in the "lease inclusion amount." Cars that cost over a certain amount are subject to a fee that reduces the amount of deductible lease expense. How to calculate this amount and more information about tax deductions for the business use of a car can be found in the IRS publication #463 (see Resources below).

http://www.ehow.com/how_2175726_use-car-lease-payments-as.html

[specialk]

I think what everyone is forgetting in this example is that if I were Mary, I would have only paid 5000-10000 cash for a car about 4-6 years old and it would still be just as reliable. Not 23000. I would save 13000 to 18000 up front plus x amount in monthly payments...plus interest and fees, plus the risk of not being able to make the payments. I do not care what my neighbors think about the type of car I drive. I think we should all go back and read "The Millionaire Next Door" one more time.

[ChrisR]

Sampson: I totally agree that the comparison between Mary's cash purchase (having all the money up front) and John's lease (accumulating the money as he goes) is not really fair. Unfortunately trying to calculate John's expected return if he had all the money up front, but decided to lease, gets really complicated. (For example, what kind of returns could John expect when some of his money needs to be available to make payments each month?). I think that in most cases, Mary would still come out ahead of John, because John will not be able to achieve safe, after tax returns that are greater than the interest rate on the lease.

Moneygardener: It certainly appears that now is a great time to finance that new vehicle, considering most brands are advertising 0% rates on at least some models. On the other hand, Jon Chevreau brought up an interesting point in his blog this weekend: Instead of taking the low financing you may be better off asking for a discount on the cash purchase price. This certainly makes sense as it cannot be cheap for the manufacturers to offer 0% financing!

I spent quite a bit of time shopping for a new car this spring, after being enticed by articles in the Globe and Post about the great deals available. I did not find that dealers were willing to offer discounts in lieu of financing, but then, I have lousy negotiation skills! I'd like to know what other people's experiences have been. Are dealers willing to drop the price if you pay the full purchase price? How much should the price drop on a $20000 car? (in lieu of 0% financing.)

[Rickson9]

I spent quite a bit of time shopping for a new car this spring, after being enticed by articles in the Globe and Post about the great deals available. I did not find that dealers were willing to offer discounts in lieu of financing, but then, I have lousy negotiation skills! I'd like to know what other people's experiences have been. Are dealers willing to drop the price if you pay the full purchase price? How much should the price drop on a $20000 car? (in lieu of 0% financing.)

Here's away to minimize the haggling:
http://www.thestar.com/article/675451

[thewoz13]

Leasing has always served me best!! I have never had a truck at the end of a term be worth less that the residual quote!! Probably a little luck involved as well, this makes turning them in alot easier as the dealers usually buy them as to return them GM/Ford/Dodge etc. That being said you need to take care of you vehicle just as you would if you bought it. I also have he option to buy it out at the end and I basicly paid less for the vehicle that it is worth, so in a messed up way, for a short period I may actually have equity in the truck

I also prefer leasing for the simple fact that after 2 or 3 years my trucks are KM out and I cannot afford to loose work days for major repairs. I also pre buy KM before hand to save on lease end costs.

[RLMT]

Leasing has always served me best!! I have never had a truck at the end of a term be worth less that the residual quote!!


hang on ... thats not the point of a lease. you WANT the car to be worth less then the residual. otherwise, you have money tied up in rubber and now you have to be a used car salesman to rescue those dollars.



this makes turning them in alot easier as the dealers usually buy them as to return them GM/Ford/Dodge etc. !!

well no kidding ... by your admission, you are giving them your equity. they just bought the car from you for the residual and sell it for more than that. of course thats easy for them to do, they have the infrastructure to sell cars, most people dont. thats why you dont want your car to be worth more than the residual at the end.

I also have he option to buy it out at the end and I basicly paid less for the vehicle that it is worth, so in a messed up way, for a short period I may actually have equity in the truck


of course, but thats counter to the idea of leasing and not really consisten with your other comments. either you are turning it in as per comment 1, or you are buying it out. either way, you dont want equity if you are truly leasing.

by my logic, the whole point is to get as upside down as you can and then turn the car in without paying the residual.

[Lephturn]

by my logic, the whole point is to get as upside down as you can and then turn the car in without paying the residual.

I'm with you on this one RLMT generally speaking, but there are lots of other variables that can tilt things either way.

Honesty we're just not going to drive 5 year old cars. We'll pay more because we like new ones, but we're cool with that - it's worth it to us. Well that's not totally true, I have the 05 Lancer we leased - the thing is in great shape, I love it, and I suspect I'll end up keeping it for many years. Given that, lease or borrow? A car is an expense - so thinking of it as an investment is silly - so which one is the minimal drain on cash flow? Also, if you've got any RSP deduction room you can catch up on, it's crazy to put out more money up front or on a higher payment than I need to - I'll just take that cash flow difference and pile it into my RSP. Sometimes the answer to the question will depend on available financing and loan rates. I've leased one in the past 10 years and bought one with a loan... in both cases I think the option I chose made the most sense given the available options at the time. Sometimes things like having one car with more mileage you put on it means you go one way vs. the other.

The main thing is, don't get married to either option, just lay out the specifics available at the time and pick what ever options is best for the situation.

[RLMT]

i think another piece of evidence that leasing is in the favour of the consumer is the fact that most the american car companies dont even offer leasing as an option anymore.

isnt that a clear indicator that leasing wasnt good for the car companies financially? doesnt thatmean that it WAS good for the consumer?

[WealthyBarber]

A lot of you wrote very insightful comments. It seems there are a lot of factors when deciding which is best. I recently got a quote on an entry level Toyota Yaris. There was only about $65 difference between buying/leasing. The buyout at the end was about $6400, so even if you invested the difference each month, you would never reach $6400. Kind of makes leasing a non-starter in this case. Though I'm sure you could negotiate heavily if you really wanted to lease.

[The Financial Blogger]

Why I don't like leasing:
- you get stuck with a monthly payment until you die.
- if your situation changes and you need to change car, it is harder to get rid of your older one without losing money.
- once your lease is up, chances are that you will have to pay a premium if you have scratches or exceed your mileage.

Why I like buying:
- you can get better financing conditions (I currently pay 0% interest)
- I keep my car for at least 6 years, which means that I will benefit from a few years without car payment (but with small maintenance fees)
- you build equity... well a few thousands ;-)

[lb71]

Why I don't like leasing:
- you get stuck with a monthly payment until you die.This assumes you roll over your lease, or lease different cars for life. However, the benefit is you always drive a (relatively) new car. Some will pay a premium for that.

- if your situation changes and you need to change car, it is harder to get rid of your older one without losing money.You would generally plan ahead with these things. However, how easy is it to get rid of a car you own? Sure you can quickly sell it at a discount, but are you willing to take a haircut?

- once your lease is up, chances are that you will have to pay a premium if you have scratches or exceed your mileage.Same would apply to a vehicle you own. If it is scratched you have to pay to fix it. If there are a lot of kms on it, it is worth less.

Why I like buying:
- you can get better financing conditions (I currently pay 0% interest)Agreed. You're payments will be larger, but you end up owning it at the end.

[RLMT]

- you build equity... well a few thousands ;-)

that equity comes at a cost ...



Agreed. You're payments will be larger, but you end up owning it at the end.

why would you want to own something that depreciates?

here is a pile of 20k and now i own something worth 15k and each year it is worth even less?

me? i would rather pay 55% of the MSRP and then only pay it in 1/48 increments.

i have no desire to own a car, one of the worst financial decisons ever.

and ok, after 4 years you may not have any payments, BUT thats precisely the time the car will start requiring major repairs. say you need a new $4000 thingamajig? your car, that is maybe worth 10k is worth 2k if you dont put in the 4k. guess what? my VW costs me $300 per month to lease and i never worry about it costing me a penny more.

i prefer to know my car will cost me no more than $300 per month and let the bank subsidize the rest of it for me.

frankly, if leasing was BAD for the consumer, why do the AMerican car companies no long offer leasing? clearly because they were getting killed on the deal.

makes too much sense to me.

[Berubeland]

The reason car companies no longer offer leasing is because of what happens when your car lease is up and you return it.

The vehicles go to the auction and get sold. Dealers were not paying enough for these used vehicles. That was the problem. Obviously it is much worse lately here so many car dealerships have gone out of business because they couldn't get loans to finance their inventory.

I pay as little as possible for my vehicles. My current van I got for free from my parents the dealer was going to give them $400 if they traded it in so they gave it to me. I have found a very good reasonably priced mechanic. So far this year I have spent $660 on repairs this year. The most I have ever paid for a car is $1000. Usually I have more than one at a time if they don't behave..... see you later.

Also if you have a paid off car you can save on the amount you pay on your insurance, I do not have collision coverage on my car, just liability. That is a big difference as well. I pay $150 per month for Commercial hi km insurance.

So rather than Mary spending 20 k on a car how about she spend 2K and invest the rest.

Certain events in my life have really made me despise and avoid high monthly payments. Failure of my business, coming home to find that my hubby left me and took all the furniture, severe illness these are all life events that can happen to anyone. Nothing will make these situations more pleasant like collection calls or getting your car towed and your credit ruined.

Rickson has the best plan though get the new car for FREE

[RLMT]

The reason car companies no longer offer leasing is because of what happens when your car lease is up and you return it.

The vehicles go to the auction and get sold. Dealers were not paying enough for these used vehicles. That was the problem. Obviously it is much worse lately here so many car dealerships have gone out of business because they couldn't get loans to finance their inventory.

well that supports my point ...

in this case, the buyer has paid far more than the car is worth and the leaser has not.

the evidence is in your example.

[Berubeland]

Actually it does not support your point at all.

The fact that these vehicles go to be sold wholesale when they are turned in to be repurchased by the dealers who turn around and sell them to other people for double the money does not mean that leasing is better than buying. It means that there are certain contractual arrangements between the car financing companies and the dealers that are leading to the demise of leasing.

It is in fact against your argument that leasing is better than buying for the consumer I am saying that the reason why leasing is disappearing has nothing to do with your argument but rather industry factors.

In fact both leasing and financing a vehicle are RAW deals for consumers. I propose a third option for this thread. Buy a cheaper car you can pay cash for and save money on insurance too.

In fact too many things are marketed to us for the low low monthly or weekly payment. It is not necessary to saddle ourselves with thousands of $ of monthly payments.

What is your monthly fixed expense cost? How much money do you have to produce to break even on all those monthly payments? How much money do you have to make daily ?

My family cost of existing is $692 per month. This does not include gas or food but includes property taxes, car insurance, hydro, heat, internet, yeah that's right no cable. My house is also paid off.

If I add a car it almost doubles for me.

[RLMT]

My family cost of existing is $692 per month. This does not include gas or food but includes property taxes, car insurance, hydro, heat, internet, yeah that's right no cable. My house is also paid off.

If I add a car it almost doubles for me.

great, and then you die.

so what do you do with all the rest of your income?

[Berubeland]

great, and then you die.

so what do you do with all the rest of your income?

uhmmm there is not much rest of my income actually. I am in my second year of business in the midst of a recession. I support a 2 year old and my hubby on my income and I struggle very hard to save and grow my net worth.

Had I not worked night and day to pay off my house there is no way I could afford to build and grow my business on the money I make now. This is a choice I make with the support of my hubby

I had a horrible event in my life a few years ago that ended with my having more bills than income by a considerable margin and that event changed me into someone who hates monthly payments and is very careful about overhead.

Before I used to concentrate on growing my income without being careful about expenses. I save more now than when my income was more monthly then I currently make annually.

In any case I am not a "car" person. I do not care about what vehicle I use as long as it works and is practical. For me it is an option to buy a cheap car and run the wheels off it. A car is simply a way to get from one place to another much faster than walking. I do get upset when the car does not function.

Once again I am only pointing out the obvious that is not so obvious. There are three/four options.

1-Lease the car
2-Finance the car
3-Buy the car outright
4-If you can't afford option 3 buy a cheaper car and buy it outright

[specialk]

uhmmm there is not much rest of my income actually. I am in my second year of business in the midst of a recession. I support a 2 year old and my hubby on my income and I struggle very hard to save and grow my net worth.

Had I not worked night and day to pay off my house there is no way I could afford to build and grow my business on the money I make now. This is a choice I make with the support of my hubby

I had a horrible event in my life a few years ago that ended with my having more bills than income by a considerable margin and that event changed me into someone who hates monthly payments and is very careful about overhead.

Before I used to concentrate on growing my income without being careful about expenses. I save more now than when my income was more monthly then I currently make annually.

In any case I am not a "car" person. I do not care about what vehicle I use as long as it works and is practical. For me it is an option to buy a cheap car and run the wheels off it. A car is simply a way to get from one place to another much faster than walking. I do get upset when the car does not function.

Once again I am only pointing out the obvious that is not so obvious. There are three/four options.

1-Lease the car
2-Finance the car
3-Buy the car outright
4-If you can't afford option 3 buy a cheaper car and buy it outright


Here here! But don't sweat it. Some people do not understand. Many people in this world grew up with high standards of living that tends to cloud their judgment. You and I, and many others here can handle driving a beater in order to feed the family and invest for the future, but for others is a mathematical argument to see who can get ripped off the least for a hunk of metal and rubber, because they are defined by what they drive. Most millionaires drive used cars that they paid cash for....this is not a coincidence.

[sprocket1200]

shhhh, don't tell him that we are buying the cars from the dealer auctions so cheap. even if you had to replace the engine AND the transmission, we would still save money over buying a new car. please people go buy many new cars and support the economy!!!!

of course, I do have to give up things that a new car has like GPS (you are kidding me), factory 10 speaker stereo, 24 cup holders, 6 power outlets, cooling space for drinks, seats that fold into nowhere like magic, and that new car smell (though I can buy that too)...

[Bullseye]

I do both. We own a family vehicle that we bought three years old, which we plan to keep for 7-10 years. We also lease a small car that we both use to commute to work. We tailored the lease so we pay for very close to the actual km's we'll use, and we now have a vehicle that is covered under full warranty the whole lease.

We've also done this in past. Why do both? Because I can't decide which is better! When we've owned, and been lucky with repairs, I'm very happy with owning, as it was cheaper than leasing. When I've owned, and my actual cost of ownership per month, including some large repairs, was higher than a lease payment, I'm pretty unhappy with owning!

So it's a gamble, in the end. Either could end up being better, depending on your luck.

I do sometimes tend to lean towards leasing, though, when I see the effects that our brutal Ontario climate can have on a vehicle. Massive and frequent potholes, early and persistent rust, swirl marks from snow brushes, paint chips from rock salt, etc. Some of these problems will not show up during a lease period (suspension wear from pothole damage, rust), and others will be within the acceptable wear and tear limits (swirls, chips), so leasing gets around these problems.

Leasing can also get you around brake and tire replacement costs, if you stick with short leases, as I do.

[Canadian CC]

I would rent if:
- I like to have a new car every 2-3 years.
- I don't mind spending a regular amount of money indefinitely per month for a car.
- I don't want to have any car trouble and be forced to go at the garage for repairs.
- I don't do much mileage.

I would buy if:
- I intend to keep my car about 10 years.
- I would like to be "free" of monthly car expenses.
- I drive my car a lot.
- I don't mind going to the garage once in a while.