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What’s the Pro’s and Con’s of buying or leasing a Vehicle?

 
 
jcboy
 
Reply Tue 7 Jan, 2014 08:11 pm
The lease on my car us up in July, that’s when we move to CA. I’ve always leased because after three years your ready for a new one. People tell me you lose money on a lease. I haven’t looked at it that way, I just figure your always going to have a car payment and if you did buy one and paid it off usually after five years the warranty is up and you have to pay to maintain the vehicle anyway, therefore putting money in an older car which is losing value each year.

What do you think?
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Type: Question • Score: 20 • Views: 5,419 • Replies: 33

 
View best answer, chosen by jcboy
Ragman
 
  2  
Reply Tue 7 Jan, 2014 11:24 pm
@jcboy,
In my past, I've owned a few new cars and only once have I leased a car (2000 Toyota Camry from '99- '02).

For example (Scenario 1 - Lease), I paid about $310 per month for 36 months, including initial deposits, fees taxes, etc. At the end of the lease, I turned the car in and then had nothing to show (no equity) and no car to drive unless I wanted to buy it from the leasing co, but at an overinflated premium that was higher than the same 3-yr old used car with 36K miles. I won't go into the details of how the leasing company inspected the car and wanted to deduct for scratches and tiny dents...etc to the finish.

I laid out in lease fees and related expenses of about $11,500. The proper maintenance work was done and I'll ignore listing here any of those expenses that were out-of pocket as being not significant for comparison.

No tax write-off was available to us or possible as it was our personal car so no tax advantage or implication.

I can't list the differences of the sales tax on buying vs leasing so dismiss this as sundry and insignificant.

However I calculated (Scenario #2) buying that same car valued at $21,000, paying a $1200 sales tax. It would have then cost me approx. $350 per month using a 4-yr loan (using whatever the going new-car-loan-rate was (very little outlay of needed liquid cash), using a 20% ($4400) down as an initial deposit.

So financing of 80% of the loan note for about $17500 total. At the 3-yr-point of ownership (for comparison sake to lease term) I owned approx. 66% of the car in equity, give or take. Value of the car at that 3-yr point was about $16, 500 (very high resale of Camry). Monthly layout was about $350 for 36 month or approx. $12600..maint about $750 over 3 yrs. Approx totl of outlay is $13400. Value of car about $16.5k, Remaining loan amount at the 3-yr-point about $3.7k to pay over 12 more months.

As for your warranty running out on a financed or purchased car, you can always buy an extended warrantees from reputable places (from decent dealers of even a 3rd party). I don't always recommend that as good option or value... there's a lot of variability - especially important on drive-train and other key coverage areas, etc. ) but they may offer some folks some needed pillow comfort.

Smarter people than I can correct my math and my logic but as I figured it, on paper at the end of 3 yrs, I calculate I gained/retained some equity...not sure the exact number) of this owned car that still had one year left on the loan. I recall that I paid off approx 66% of the loan of $17.5k or laid out about $13,000 but had owned a car still worth $17k .

At end of lease I may have laid out less cash per month but then I still had to rebuy next vehicle.

FWIW, Consumer Reports does an excellent comparison model (better than I did) on buying vs leasing. I recall an ownership scenario which returns you better investment if you keep and maintain a vehicle for 8-10 years vs leasing it. However, if you an earlier trader of a purchased new vehicle...say every 3 yrs....the figures would be drastically upside down.

Sorry for my convoluted example. Using a Toyota Camry 'cause in 2000 that car had a very good example of a car with very low cost of maintenance.
Ragman
 
  1  
Reply Tue 7 Jan, 2014 11:46 pm
@Ragman,
Ragman wrote:

At end of lease I may have laid out less cash per month but then I still had to buy my next new? vehicle.

And in the scenario of rebuying a new vehicle (#2), the cost of money/borrowing a loan may have increased. The current scenarios indicate a rise in rates.

However, back to the previous ownership scenario where your car would've been purchased initially 5-8 years ago...had no loan payments any more as it was paid off and costs you next-to-nothing in monthlies and/or interest charges.

Yes, maintenance charges are higher in yr numbers 5 - 8 but not that awful if you invested in the a car that is reliable...such as was the 2000 Toyota Camry.

I left myself in the dust. Is anyone following or agreeing here?

{edit: OK...feel free to ignore what I said. Here's Edmund valuation of scenarios of new car purchase vs lease with a used car purchase comparison thrown in.}
Ragman
 
  3  
Reply Wed 8 Jan, 2014 12:04 am
@Ragman,
http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html

Here's an excerpt:
Quote:
But remember that at the end of two leasing cycles, the person who leased doesn't own the car. He or she has to start a new lease-or-buy cycle. Meanwhile, the person who bought a new car would own a depreciated vehicle worth about $11,000, according to the depreciation listed in Edmunds' True Cost to Own (TCO®) calculator. The person who bought the used car now owns a 9-year-old car worth about $5,000.

When we factor equity into the equation, the cost picture changes:

...................................Leasing....Buying New....Buying Used
Total out-of-pocket costs $24,768 $17,830 $15,976

In this basic comparison, it appears the person who leased the Accord paid $6,938 more to drive it for six years than did the new-car buyer. Buying a used Accord saved only an additional $1,854 during this six-year cycle.

Related Expenses
We should point out that the person who leased has escaped the repair and maintenance costs that car owners typically encounter with aging cars. On top of routine maintenance, which is usually just oil changes and tire rotation, the new-car buyer will at least have to pay for new tires and brakes, which would cost at least $1,000. The used-car buyer will have to pay for these items and probably some additional repairs, too.

However, the higher cost of insurance for a leased car offsets the maintenance and repair costs for the person who bought the car. Insurance for a leased car, such as the Accord EX, would be at least $150 extra each year, adding up to $900 for a six-year cycle.

So the person who leases and saves money on extra maintenance costs pays almost as much in extra insurance premiums. It's close to being a wash.

Leasing's Other Advantages
While it is true that the people who lease have no car at the end of the lease, they do have the opportunity to purchase the car at a preset price. The finance company sets the purchase price for the leased car at the beginning of the lease. This offers several advantages.

First of all, leasing protects the consumer from excessive depreciation. So if the market value of the car drops due to unforeseen circumstances, such as rising gas prices, this drop in value doesn't hit the consumer. Conversely, if the lease car holds its value especially well, the consumer can buy the car at a bargain price, and either keep or resell it. In some cases, consumers can leverage equity that they've built up in a leased car.

One other big advantage to leasing is that it offers an attractive tax deduction for someone using the car for business. An accountant is the best resource for more information on this subject.

The Appeal of Ownership
It's hard to put a price tag on the value of ownership. The person who buys a car owns it and can experience the pride that goes with it. Beyond just the abstract enjoyment of possessing a nice car, ownership does offer several other advantages.

You can modify the car exactly as you want without fears that you will break the terms of your lease. Excess wear and tear is not a concern for the car buyer. Also, owning the car gives you more flexibility to sell the car when you want, not when the lease is up.

Finally, there are some other important elements to consider as you decide. These are harder to monetize:

•Leasing provides the enjoyment and prestige of driving a newer car more often.
•Leasing puts you in a new car that has the latest safety, technology and comfort features.
•Leasing in three-year cycles means you are always under the manufacturer's bumper-to-bumper warranty.
•Owning a car allows unlimited driving with no mileage penalty. Leasing limits a person to only 10,000-12,000 miles per year. After that, each mile typically costs 15 cents.

While there are many factors to consider when making the lease-or-buy decision, the best place to start is with the numbers. Do your own calculations, factor in the intangibles and the best decision will emerge.
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Ragman
  Selected Answer
 
  4  
Reply Wed 8 Jan, 2014 12:22 am
@Ragman,
Here's some public consumer opinion on relative cost and value/ROI to a scenario that is own vs lease.These commenters are valid and points have merit.

Ragman wrote:

The only time it is better to lease is if someone else is paying. That means, occasionally for a corporation or business that can deduct the lease cost it *might* be a good idea, but even then not always. For an individual, it is never a good idea. I can imagine some really rare circumstance might make it better, but so rare that we might as well just say never

Joseph_E_MeehanJoseph_E_Meehan
January 2008 edited January 2008

Leasing has many down sides. Usually it cost more in the long run, even if it sounds like it will cost less. It traps you into what you originally agreed on. Any changes are going to cost you. You never have any equity. You can end up owning money on the lease even after you turn it back in. Now that is no fun


Further Expert Opinion on Buying Vs Leasing a Car:


http://www.cars.com/go/advice/Story.jsp?section=lease&subject=quizzes&story=qBuyLease&referer=advice&aff=national

Final Word
Final Tip: Be certain you understand your obligations in a lease before you sign anything.
0 Replies
 
Butrflynet
 
  3  
Reply Wed 8 Jan, 2014 12:46 am
@jcboy,
Quote:
, I just figure your always going to have a car payment and if you did buy one and paid it off usually after five years the warranty is up and you have to pay to maintain the vehicle anyway, therefore putting money in an older car which is losing value each year.


I've had my car for 21 years, haven't had a car payment since the fifth year of ownership and have probably spent around 5k in maintenance for oil changes, tune ups, new brakes, tires and a/c conversion to the new free on type. It still runs well, only has 60k miles on it, needs a paint job since moving to the Albuquerque desert and could use a new seat cover.

I think I got more than my money's worth from it considering I could have paid $400 a month for the last 20 years, adding up to $96,000.
0 Replies
 
nacredambition
 
  2  
Reply Wed 8 Jan, 2014 07:11 am
@jcboy,
Quote:
What do you think?


I think you like a new car every so often.

However in Ragmans doctoral exegesis following his masters treatise on the topic he mentioned that it's cheaper to buy second hand. And goodness knows you've been around the block a few times and would appreciate something that's pre-loved.
farmerman
 
  2  
Reply Wed 8 Jan, 2014 03:17 pm
@nacredambition,
Ive leased my business vehicles because they take a beating and Im ready for a new truck every so often. The only problem was that every leaseholder is different with all the up front costs. As a long time customer some of them would actually drop the up fronts an wed negotiate a higher mileage/year limit. When I had a new leaseholder who wasn't so friendly (Id even cut em in if we found anything of value) , those guys were kinda pricky with every ding .

My personal cars are usually SUVs and we buy em. I recently got an old farts LINCOLN SUV and had a custom two tone blended paint job from the factory (They never herd of the metallic green to dark bronze that we wanted). SO now I think Lincoln has their color palette opened up to them. So far ok, the car is fine and mileage is semi good. I still am waiting for a really good SUV hybrid like my Ford Escape Hybrid. (I didn't get rid of that one)
We traded my wifes "Soprano's" SUV for the new one and paid" cash" through our bank.
0 Replies
 
ehBeth
 
  4  
Reply Wed 8 Jan, 2014 03:39 pm
@jcboy,
jcboy wrote:
I just figure your always going to have a car payment and if you did buy one and paid it off usually after five years the warranty is up and you have to pay to maintain the vehicle anyway, therefore putting money in an older car which is losing value each year.


1. if you pay off the car quickly, there is no ongoing car payment.

2. not all cars lose significant value over time. Some increase in value.

3. I think leases are a great way to give banks money that they don't need.


I actually can't think of any upside to leasing.

I keep my cars for 14 years on average. I don't change them out til they start to cost money to be maintained. A mechanic at the Honda dealership I go to bought my first Honda for his son. It's still out on the road - it's 29 years old !
chai2
 
  2  
Reply Wed 8 Jan, 2014 04:04 pm
Yeah, I've never kept a car just 3 years.

Let me think about it, how many cars I've had, and how long I've been driving....

driving 37 or 38 years....

2 used cars (my first car, and a temporary clunker when my then car was wrecked. that car I kept just a few months) and 4 new ones.

So that's an average of a little more than 6 years each. If I leave out the clunker, it's more than 7.5 years each.

I've had my current one since 2008, and I'm going to keep it a few more years.

The only reason I'd lease if it were a business write off.
0 Replies
 
ossobuco
 
  2  
Reply Wed 8 Jan, 2014 04:37 pm
@ehBeth,
<agreeing with ehBeth>
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jespah
 
  3  
Reply Wed 8 Jan, 2014 05:14 pm
When we moved here and finally got rid of the Spectrum (a car that always felt like a bad, cheap compromise to me), we leased the first 2 Saturns. The costs were ... okay. It was lovely having newer cars, and Saturn took care of the maintenance but of course that's just factored into the cost per month.

The current car has been with us since 2003. It's got I think 26,000 miles on it. RP takes the bus to work, and I usually have, too. Otherwise, we drive to the market and, once/year, to Cape Cod.

At this point, when this Saturn finally gives up the ghost, I'm wondering if we need to own a car at all. Unless I get a job where I have to drive for the commute, we could easily go with a Zipcar for grocery shopping and a regular rental for the annual Cape Cod excursion.
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jcboy
 
  4  
Reply Sat 11 Jan, 2014 01:03 pm
I do get bored with cars. When we arrive in CA we will be carless. My lease will be up and the car will be returned, Marco’s car is paid for but we’re not shipping it, just going to sell it along with that truck I still have. Marco has a motorcycle and that’s the only thing being shipped.

A guy I work with just leased a new Mercedes, the less expensive one but for only 308.00 a month, not a bad deal.
0 Replies
 
ossobuco
 
  2  
Reply Sat 11 Jan, 2014 03:37 pm
On some of my trips up and down and up again through the length of California, my used but then lovely Volvo acted up, causing me stalls in major intersections in two cities, SF and LA. Gaah. It turned out to be something with the computer and the volvo dealer in LA took me for a money ride, finally diagnosed back up in the north. Meantime, on further trips, I rented, as those often were at least part business trips. I did drive the White Detritis from there to New Mexico. Still a good car, no longer stalls, etc. So, Jes, I can easily see the rental thing for a once or twice a year trip.
0 Replies
 
Finn dAbuzz
 
  2  
Reply Sun 12 Jan, 2014 12:47 am
Leasing is good for people who like to turn over their vehicles after two or three years and want a make and model they couldn't afford to buy.

The long term economics are not better, but if you're never going to keep a car for a long term you won't care.
0 Replies
 
bmstudios
 
  0  
Reply Fri 18 Apr, 2014 02:04 am
i personally put money on old car because in the longer run it helps me to save...
0 Replies
 
jcboy
 
  4  
Reply Tue 29 Apr, 2014 07:38 pm
I couldn’t drive that Hyundai Sonata any longer, or as I called her “Sometimes” I called her that because sometimes everything worked and sometimes they didn’t.

So on Saturday I went to the Mazda dealer to look at the new Mazda 3’s, well they were nice but not compared to the Mazda 6 so this time I bought one. I still had three lease payments left on the Sonata but the Mazda dealer took care of them for me. The sold me on the pretty red and light tan and black interior. Plus just because you buy it instead of leasing doesn’t mean you can’t trade it in three or four years from now.

Now I just have to figure out how to get it to Ca. Maybe I’ll have the Puerto Rican drive it for me.

 http://i1159.photobucket.com/albums/p622/richone4/mazda6_zps4ccd3559.jpg

 http://i1159.photobucket.com/albums/p622/richone4/mazda6-1_zpsb3014b35.jpg
EqualityFLSTPete
 
  3  
Reply Tue 29 Apr, 2014 07:54 pm
@jcboy,
jcboy wrote:

The sold me on the pretty red and light tan and black interior. Plus just because you buy it instead of leasing doesn’t mean you can’t trade it in three or four years from now.

Now I just have to figure out how to get it to Ca. Maybe I’ll have the Puerto Rican drive it for me.


Nut!
ossobuco
 
  3  
Reply Tue 29 Apr, 2014 07:58 pm
@jcboy,
Nice, I like it.
Await cops..
jcboy
 
  1  
Reply Tue 29 Apr, 2014 08:11 pm
@ossobuco,
My Mazda salesman sent me a text today telling me I have to stop by the Hyundai dealer tomorrow to sign an odometer statement, the car had ten thousand miles less on it then it should have so I should be okay there.

A few months back I had the back bumper repaired because someone hit it in a parking lot and the guy that fixed it did a lousy job so they may try to ding me for that.
0 Replies
 
 

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