[Huey Driver]

Sorry for the top level post, but a little over 3 years ago, someone here (I think) posted some great, detailed info about leasing. It broke down the different elements (residual value, money factor, down payment, etc). In it, I remember they explained why you should never put down any money on a lease.
I am trying to decide between another lease or returning to buying. I have looked all over and just cant find that thread. Maybe its not hear that I read it, or maybe I'm just not using the right search terms....
Help?

 

[llninja]

Well, I can answer your specific question on why people want $0 down, because any money that you put towards the vehicle as a down payment means that if the car gets totaled, that money is gone. So minimizing the down payment equates to paying very little if the car gets totaled in the first few months of leasing.

Now with the lease vs. buy question, I love the 100% down, $0 month, unlimited term, unlimited mileage deal.

Where it might be OK to lease:

1) you are a multimillionaire and can afford to flush money down the toilet and like getting new cars every 2-3 years
2) you are a Ferengi who can negotiate the deal down to half MSRP and get a deal of the century at $0 down, $149/month, 36k miles, 36 months for a premier
3) you have a business where you're making enough to use the tax writeoff on a leased car - so nomoney out of your pocket, but the business pays for the lease and the writeoff doesn't really offset the expense all that much. it's a great fringe benefit if the business has the cash flow and can afford to give you that benefit.

For most other situations the math points towards buying used or new over leasing. There might the other exceptions.

The real danger of leasing is that you might get yourself into a car that you can't afford. That's where the finance companies nail you. Repeat that a few more tims on a bass boat, sea doo, pool table, dining room set, atv, then all of the sudden you are in a real mess.

 

[DonC]

The reason you don't want to put anything down has to do with GAP insurance. If the car is a total write off, the insurance will pay off what you owe. If you've put a lot down then you are effectively eating the loss.

There isn't a lot to leasing. You pay:

1. Depreciation between your purchase price (not MSRP) and the residual (based on MSRP).
2. Interest on the part of the depreciation you haven't paid for yet.
3. Interest on the residual or the part of the car you will never pay off.
4. Miscellaneous charges like the acquisition fee and the disposal fee (the latter if you don't but the car at the end of the lease).

Any number of lease calculators will help you run the numbers. Just keep in mind that trade-ins and consumer cash or down payments are simply prepayments and don't change what you pay per month.

Contrary to what some on both sides of the question would have you think, financially it doesn't matter much because what you save by holding the car longer you lose in discounts. As an example take a three year lease on a Volt. Let's assume the Volt costs $40K, you can negotiate the price down to $36K, and the residual is $26K, which represents the actual residual of $20K plus $6K of the $7.5K tax credit. Over three years your depreciation is $40K - $4K - $26K or $10K. That's $3,333 per year.

Let's compare that to what would happen if you bought the car and held it for six years. You'd get the same discount off MSRP so the Volt would cost you $36K. And of course you'd get the full tax credit of $7.5K. After six years the Volt would have a residual of $10K (though you'd likely have to do a private sale to get that). This means that over six years you'd be losing $40K - $4K - $7.5K - $10K. That's $18.5K or $3083 a year. About the same. Add in tires and maybe a out of warranty repair or two and likely the difference is negligible or might even favor leasing.

The point is that the lease vs buy decision isn't really financial. More than anything it depends on whether you think you'll be happy with the car over a longer period of time and how much flexibility you want in the timing of when to go back to the car market. Another good reason not to lease would be if you drove more than 15K miles a year. A good reason to lease would be if you drove 10K miles a year and wanted the most up to date tech.

 

[Mister Dave]

$3,333 - $3083 = $250/year x 6 years = $1500 POOF!

Okay, now that I've done that how does having a car vs. having air at the end of the term compare?

 

[llninja]

$3,333 - $3083 = $250/year x 6 years = $1500 POOF!

Okay, now that I've done that how does having a car vs. having air at the end of the term compare?

Plus today's cars last much longer than they used to in the 80s. I've gotten 180-200k miles on a well maintained vehicle. End even then. I probably could have driven them farther, but I chose to upgrade. Yes, us drive-it-into-the-ground types have to pay for tires and maintenance for years 3+, but maintenance on a car is usually far less than $3333 per year. So at year 6, let's call it even for tires, rotations, oil changes. At year 7 it is $0 per month (depending on the terms of the financing). Plus if you pay for the car outright up front, then you have $0 per month, for the life of the car. Imagine how much money you can amass if you didn't have any monthly payments.

 

[Mister Dave]

Plus today's cars last much longer than they used to in the 80s. I've gotten 180-200k miles on a well maintained vehicle. End even then. I probably could have driven them farther, but I chose to upgrade. Yes, us drive-it-into-the-ground types have to pay for tires and maintenance for years 3+, but maintenance on a car is usually far less than $3333 per year. So at year 6, let's call it even for tires, rotations, oil changes. At year 7 it is $0 per month (depending on the terms of the financing). Plus if you pay for the car outright up front, then you have $0 per month, for the life of the car. Imagine how much money you can amass if you didn't have any monthly payments.

Leasing makes sense for some people. I don't think those folks fit into those equations, but I'll play along. Would it now be fair to say a 6-year-old Volt is worth $6-7,000? Pick a number - POOF!

Sorry Huey, we're not being very helpful on your question...... or are we?

How about mileage limits and door dings/paint scratches/any cosmetic damage at all?

Hmmm, I forgot something. I've had my Silverado for 9 years and it's like new though to be fair I've only put 10K miles on it. But it brings me to the point that I'll probably be keeping my Volt at least 8 years. So 2 years of lease payments vs. how much in car repairs in years 6-8? I'm betting on car repairs being less. I could be wrong, but my power train is warranteed during those years so that helps.

 

[llninja]

Leasing makes sense for some people. I don't think those folks fit into those equations, but I'll play along. Would it now be fair to say a 6-year-old Volt is worth $6-7,000? Pick a number - POOF!

Sorry Huey, we're not being very helpful on your question...... or are we?

How about mileage limits and door dings/paint scratches/any cosmetic damage at all?

Hmmm, I forgot something. I've had my Silverado for 9 years and it's like new though to be fair I've only put 10K miles on it. But it brings me to the point that I'll probably be keeping my Volt at least 8 years. So 2 years of lease payments vs. how much in car repairs in years 6-8? I'm betting on car repairs being less. I could be wrong, but my power train is warranteed during those years so that helps.

If my previous vehicles are any indication, I'll keep the volt until it's rusted through, totaled, or the drivetrain breaks down and the repair costs more than the value of the car. So after day 1 of a purchase my car is worth $0 since I'm not selling it. At 6 years old my volt is still worth $0 to me. If it is still running I'm probably giving it away to someone when I have 2 or 3 other brand new cars in the driveway and this one is in the way. I gave away a BMW 5 series earlier this year. The engine still purred like a kitten, though the body and interior wasn't the greatest. I'm not sure if the CTS or the Suburban is next.

Back to Huey, one reason to lease that hasn't been mentioned, you can always upgrade to the latest tech (battery, propulsion, efficiency, safety) and jettison the older EV. But as you can see Mister Dave and I haven't upgraded our gen1s. My reason is because the car is perfectly good, even approaching 80k miles and the end of year 4.

Another aspect against leasing is that it forces you to follow their timeline. I had a coworker who was an early Volt adopter, leased. 2012 heavily discounted at $199 per month. But after 3 years the resitiual was so bad it made no sense to buy the car, he gave them the keys. He really wanted a gen2, but the car had to be returned in April 2015 and gen2s only arrived in Cali and a few other states in summer 2015, but didn't ship to IL until early 2016. He was forced to borrow a relative's car, agonize for a good 6 months, then bite the bullet and buy a used 2014 gen1, then regret not buying another breater to hold out until a gen 2 could be purchased. Nearly daily conversations wondering when Gm would get off their butts and ship already. I'm glad I don't have to go through his stress. I can hold my car for as long as I want, or sell it when another better option presents itself. I can wait for the deal of the decade and not be forced to buy a car in this particular month when there may or may not be incentives and discounts.

 

[Mister Dave]

But as you can see Mister Dave and I haven't upgraded our gen1s. My reason is because the car is perfectly good, even approaching 80k miles and the end of year 4.

Mine's just shy of 29K miles and will be 4 years old in September. And it's not perfectly good, it's AWESOME!! I may buy another one if gen 3 isn't fugly, but not before late 2021.

You farm boys drive too much. The price you pay for being too far away from groceries.

 

[llninja]

Mine's just shy of 29K miles and will be 3 years old in September. And it's not perfectly good, it's AWESOME!! I may buy another one if gen 3 isn't fugly, but not before late 2021.

You farm boys drive too much. The price you pay for being too far away from groceries.

Gen2 isn't fugly. The Prius and murai are fugly. The C-HR is fugly. The i3 is fugly. The Volt gen2 just has a big grill easily fixed with black or gun metal gray plastidip. I definitely won't be buying another volt. It's a great commuter car, but my next car will be bigger for the family and longer trips.

As for being a farm boy, I'm only 3 miles from groceries. I'm 25 miles from my employer. So destroying the value in my cars is the price I pay to live in a dream house (architect designed modern home on 24 acres with horse pastures, forest, 2 lakes, a creek, and even a hill in the middle of flat Illinois) I must be crazy to stay here but the house is awesome, the state budget about to become junk status, not so great. Last 4 out of 7 governors imprisoned, and no state budget for 3 years, I may have to walk away from this paradise.

 

[JStrnad]

...[T]he state budget about to become junk status, not so great. Last 4 out of 7 governors imprisoned, and no state budget for 3 years, I may have to walk away from this paradise.

This is a horrible situation. I'm originally from Kansas where the Governor and Legislature have just conducted the most extreme experiment in trickle-down economics, plunging the state into near-bankruptcy until they weren't sure at one point if the schools would be able to open.

However, the way you described your state's woes made me laugh, so thanks for that.

Mister Dave was saying that he hoped the Gen 3 wasn't fugly, no criticism of the Gen 2. Seeing how so many cars are turning into what a 12-year-old would consider a cool design, his worry might be justified. I have absolutely NO idea what's going through Toyota's collective head these days. I actually considered a Prius Prime but couldn't imagine looking at it every day.

 

[llninja]

This is a horrible situation. I'm originally from Kansas where the Governor and Legislature have just conducted the most extreme experiment in trickle-down economics, plunging the state into near-bankruptcy until they weren't sure at one point if the schools would be able to open.

However, the way you described your state's woes made me laugh, so thanks for that.

Mister Dave was saying that he hoped the Gen 3 wasn't fugly, no criticism of the Gen 2. Seeing how so many cars are turning into what a 12-year-old would consider a cool design, his worry might be justified. I have absolutely NO idea what's going through Toyota's collective head these days. I actually considered a Prius Prime but couldn't imagine looking at it every day.

The Prius is known as a 2 bagger (common joke in college about attractiveness of a partner).

 

[obermd]

Many years ago I ran the numbers for leasing and computed an equivalent APR of somewhere around 30% for a lease. Before leasing consider that it would be cheaper to buy a car on a credit card than lease, even if you have to pay the credit card fee of 3 to 4%.

 

[Mister Dave]

Mister Dave was saying that he hoped the Gen 3 wasn't fugly, no criticism of the Gen 2. Seeing how so many cars are turning into what a 12-year-old would consider a cool design, his worry might be justified.

Right and right. I'm not fond of Chevrolet's design direction on most models and if it keeps going this way......

I'm not too hot on the crying eyes of the CT6 either. They can't keep making CTS knock-offs forever (ELR, ATS, etc.), but.....

The point was that I'm not buying again until 2021. I'm in the buy and keep for a while category. I usually get the latest tech, when I do buy. I did in late 2013. I also saved $5K by not rushing in to purchase the first car off the assembly line.

 

[Huey Driver]

Thanks for all the comments. Believe it or not, they all helped in one way or the other.

I truly understand Ninja's points and where his thinking comes from. To tell the truth, if I were to buy, I may just pay cash for a big enough part to get to the 0% financing (although I am not a millionaire who can flush money down the toilet, nor Ferengi) with a manageable payment.
Thanks for the explanation of gap insurance, that was the part I couldnt remember. Although to be honest, the car is insured with USAA and I presume (perhaps in error) that they would make a payout the same as any other claim.
What I DIDN'T know was the interest on the residual! Now that is interesting....
I think I did ok, but not great, on my ELR lease.... The best thing being the residual was $37,300.... Good luck with that! But I hate that I was paying interest on that too! I have good cash flow but I hate interest! I like it as a tool, but not if I can avoid it!

My problem is that at least for now, I don't intend to hold much past a warranty period. Too much risk and worry. Plus, I admit, I do like new stuff. I got the ELR for the tech, probably shouldn't have, but its been fun and I wanted to support the concept. I went with a lease because of the uncertainty of the model. I'm not the right personality for a lease, I obsess too much over mileage. I want to be free to drive my car wherever I want.
Thanks again for all the input....

 

[Mister Dave]

As for being a farm boy, I'm only 3 miles from groceries. I'm 25 miles from my employer..

Sorry, what do you buy food with? Part of the groceries equation.

The best thing being the residual was $37,300.... Good luck with that!

Not buying it now? ELR is retaining value more than I would have expected. I suppose it's the Pontiac Solstice factor - a GM flop becoming a rare car with a rabid fan base.

 

[Huey Driver]

Sorry. What I meant in the beginning was that I am at end of lease on the ELR. Wanted the leasing info for my NEXT car... I just couldnt remember the well explained details someone gave here 3 years ago when i was leasing the ELR... That amount (37K) is the residual on my contract from 2014 (10k mi/yr). At least on that one number, if I am figuring right, I'm about $10k on the plus side....

 

[jbakerjonathan]

This is a horrible situation. I'm originally from Kansas where the Governor and Legislature have just conducted the most extreme experiment in trickle-down economics, plunging the state into near-bankruptcy until they weren't sure at one point if the schools would be able to open.

However, the way you described your state's woes made me laugh, so thanks for that.

Mister Dave was saying that he hoped the Gen 3 wasn't fugly, no criticism of the Gen 2. Seeing how so many cars are turning into what a 12-year-old would consider a cool design, his worry might be justified. I have absolutely NO idea what's going through Toyota's collective head these days. I actually considered a Prius Prime but couldn't imagine looking at it every day.

I'm wondering if you had considered a Chevy Malibu Hybrid as an alternative to the (fugly) Prius Prime. A cost comparison using Edmund's reveals that the fully loaded Chevy is $1,696 less than a fully loaded Prius Prime for my zip code. That's an eye-opener for me. Of course, the Prime is a plug-in hybrid and might be capable of an all-electric ride whereas the Malibu will always be running the ICE. But, the Malibu's ride, interior and door closing sound gives the feeling of a substantial car as opposed to the Prime.

 

[DonC]

$3,333 - $3083 = $250/year x 6 years = $1500 POOF!

Yes, us drive-it-into-the-ground types have to pay for tires and maintenance for years 3+, but maintenance on a car is usually far less than $3333 per year. So at year 6, let's call it even for tires, rotations, oil changes. At year 7 it is $0 per month (depending on the terms of the financing). Plus if you pay for the car outright up front, then you have $0 per month, for the life of the car. Imagine how much money you can amass if you didn't have any monthly payments.

You're overlooking the fact that, doing an apples to apples comparison, which means no maintenance, a good extended service plan at a fair price would wipe out these savings. IOW a $0 plan for 3 more years and 36K miles from Ally or GM would likely cost $1500. The other big issue in my mind is safety features. We seem to be in a period of fast introduction of significant safety features, and even a car a few years old lacks the most up to date ones. As for tires, I can go three years and not need to replace the tires. I can't go five. So over six years this would be one new set of tires versus zero. Again, chips away at the supposed cost savings.

Keep in mind the Volt and other electrics are a good case for leasing because of the tax credit.

My problem is that at least for now, I don't intend to hold much past a warranty period. Too much risk and worry. Plus, I admit, I do like new stuff. I got the ELR for the tech, probably shouldn't have, but its been fun and I wanted to support the concept. I went with a lease because of the uncertainty of the model. I'm not the right personality for a lease, I obsess too much over mileage. I want to be free to drive my car wherever I want.

You're right on the mark in thinking about how leasing versus buying fits into your life rather than trying to calculate the differences in dollars and cents. That's important of course but, done correctly, it can go either way. Just depends on the assumptions. Note that you can buy more miles upfront, which is much cheaper than buying them for $.25 at the end of the lease. That said, most people obsess too much over the miles. Even if you're 3K miles over, that's only $750, or $20/month over a 36 month lease.

 

[Jubilee]

Thanks for all the comments. Believe it or not, they all helped in one way or the other.

I truly understand Ninja's points and where his thinking comes from. To tell the truth, if I were to buy, I may just pay cash for a big enough part to get to the 0% financing (although I am not a millionaire who can flush money down the toilet, nor Ferengi) with a manageable payment.
Thanks for the explanation of gap insurance, that was the part I couldnt remember. Although to be honest, the car is insured with USAA and I presume (perhaps in error) that they would make a payout the same as any other claim.
What I DIDN'T know was the interest on the residual! Now that is interesting....
I think I did ok, but not great, on my ELR lease.... The best thing being the residual was $37,300.... Good luck with that! But I hate that I was paying interest on that too! I have good cash flow but I hate interest! I like it as a tool, but not if I can avoid it!

My problem is that at least for now, I don't intend to hold much past a warranty period. Too much risk and worry. Plus, I admit, I do like new stuff. I got the ELR for the tech, probably shouldn't have, but its been fun and I wanted to support the concept. I went with a lease because of the uncertainty of the model. I'm not the right personality for a lease, I obsess too much over mileage. I want to be free to drive my car wherever I want.
Thanks again for all the input....

You should check with your salesperson and your insurance agent what happens if you put a downpayment and you total the car on Day 2. Lots of old wives tales about this.


Sent from my iPhone using Tapatalk

 

[Mister Dave]

You're overlooking the fact that, doing an apples to apples comparison, which.....

Which a six year span isn't. I played along anyway. If you lease cars you'll most likely go through 2 of them in 6 years (3 year lease is pretty common).

.....a good extended service plan at a fair price would wipe out these savings. IOW a $0 plan for 3 more years and 36K miles from Ally or GM would likely cost $1500.

IIRC it was roughly $1800 for 8 years (extra 5 years on the B2B). The wife wanted it so.....

The other big issue in my mind is safety features. We seem to be in a period of fast introduction of significant safety features, and even a car a few years old lacks the most up to date ones.

Latest tech argument. My 9-year old truck is pretty darn safe. Too many nanny features can lead to road ignorance.

As for tires, I can go three years and not need to replace the tires. I can't go five. So over six years this would be one new set of tires versus zero. Again, chips away at the supposed cost savings.

Zero because you're on your second lease after 3 years? I'm looking forward to my next set of tires. I think I can do better than Chevrolet did.

If you lease for your business that's a write-off. Good idea.
If you think of cars like you think of napkins (use it up and throw it away) leasing is a good plan.
if you just can't deal with someone having a newer car than you leasing is a good plan.

There a a number of ifs. I'm sure I can't think of them all. I like to have ownership of what I drive and at the end of the term (for me there is no term - I pay cash) I still have a car. That usually means some trade-in value which wasn't discussed.

Want to do some mods to the car? Is it your car?