Automobiles - Lease or Buy?

[Moyer]

I always thought that leasing a car was for suckers. But with the very low payments I see advertised, I'm wondering if it is all that bad. If you're going to keep trading your new car in every couple years, you're probably better off leasing. You'll save yourself the depreciation. Am I wrong?

[MMMMMM]

I don't know, but I have found the most cost-effective method overall to be to simply buy a solid old car real cheap and then drive it into the ground.

[Kurn, son of Mogh]

If you're going to keep trading your new car in every couple years, you're probably better off leasing.

You are correct, provided the payments are lower, and you would have purchased the same level of insurance coverage mandated by the lease agreement.

[B-Man]

A car drops in value most rapidly the first year. If you wait until a car is a year or two old, but still has relatively low mileage, you'll get the best value with a minimum number of headaches.

Unfortunately, I don't take my own advice and I leased a new car last year. And I project to be way over the mileage cap, thanks to so many trips to Foxwoods!

[Oski]

To lease or buy is really a case by case basis, and its not for everyone.

As a general rule, if you drive a lot of miles (more than 15,000 per year) leasing is not for you. Furthermore, as pointed out earlier, 1-2 year leases are expensive because you essentially PAY for what you use. On a new car, you USE the thrill of driving the car off the lot which depreciates the vehicle by about 20%.

A four-year lease is a good option: The first year will cost you about 22% of the car's value; the second, about 15%; the third, 8%, the fourth, 5%. (Of course, this is a generality, and depends on the car).

Right now, I believe it is better to BUY because the interest rates are rock bottom. You can finance over five-years for a minimum price; also:

Leases are notorious "traps" as most buyers (even the sellers, who are NOT the finance manager) are not sophisticated in what, exactly comprises the lease.

For example, the sales person ALWAYS askes righ away: "How much do you want to pay per month?" My answer: "One dollar."

The point is: you cannot even begin to negotiate the lease until you determine the capitalized cost of the car - otherwise you are going to get f'd. (This is the initial "purchase" price of the car FROM which, you pay the depreciation based on a yearly index.)

Also, the residual value can be negotiated, which is represented by a percentage number, (say %50) meaning at the end of the lease, the vehicle will be worth 50% of the capitalized cost. Therefore, you are purchasing the USE of 50% of the car's purchase price. If the number is too low, this means you pay more for the lease, but if you have a good car, you have a chance of fetching a price OVER the residual value on the open market (Yeah, right...who bothers, there is an assumed lazy factor built in, meaning the lessor will not squeeze this value out of the deal).

If the number is high, the consumer will pay less for the lease, but will be inclined to return the car (and if it is a car that retains value, the dealer will cash in on a used car sale).

You can also negotiate your financing.

Bottom line is that if you know your stuff, you can run circles around the salesperson. HOWEVER, the manager will not let the car go for under their bottom line (even though the manager does not understand what, exactly makes up the lease) - and that bottom line is USUALLY not a good deal for the consumer.

[Jimbo]

Good post Oski except for two things:

1) I doubt you can find more than one salesmanager in the United States that does not completely understand a lease. That position (even in a small store) generally pays 6 figures and a dealer will not pay someone that much who can't even understand a simple lease. Perhaps you have been watching too much 60 Minutes. /images/graemlins/smile.gif


2) The residual may be adjusted to a lower percentage but you cannot ever negotiate it to a higher percentage (without paying for it in another manner). There is no free lunch.

Since sometime around 1995 all leases have included the capatilized cost in the lease agreement. Before that you could get screwed pretty badly. In fact nearly all manufacturers settled a class action suit involving this very disclosure in leases around 95 or 96.

Two more points, when interest rates are low for a purchase the "money factors" for a lease are low as well. Also also always sign a closed end lease, never an open ended lease.

Jimbo

[Oski]

[ QUOTE ]
Good post Oski except for two things:

1) I doubt you can find more than one salesmanager in the United States that does not completely understand a lease. That position (even in a small store) generally pays 6 figures and a dealer will not pay someone that much who can't even understand a simple lease. Perhaps you have been watching too much 60 Minutes. /images/graemlins/smile.gif



[/ QUOTE ]

That certainly may be the case, however all the ones I've run into at least "play dumb."

[Ray Zee]

leaseing always has to be a bad deal by its very nature. it is always better to buy.
and the car to buy is the one you want and can afford to replace if you crack it up without having to insure it. otherwise you cant afford that car and you need to think about where to put your money.

the exception may be if you need something special because of business or if you are very ugly and cannot find a mate and a nice car will help.

[Sooga]

Yea, but then you have to factor in the cost of keeping all those women around...

[Oski]

[ QUOTE ]
leaseing always has to be a bad deal by its very nature. it is always better to buy.
and the car to buy is the one you want and can afford to replace if you crack it up without having to insure it. otherwise you cant afford that car and you need to think about where to put your money.

the exception may be if you need something special because of business or if you are very ugly and cannot find a mate and a nice car will help.

[/ QUOTE ]

The nature of a lease is neutral to your analysis; you actually pay for what you use (in theory - but we are talking about the "nature of the lease"). Unfortunately, the consumer is usually unsophisticated and gets jacked by the dealer's "formula."

[adios]

Back many moons ago I had a friend who would buy the worst pieces of rusted out junk for a car one could find. Of course he paid next to nothing for them and they'd last anywhere from a month to three months without needing some sort of repair. At that point he'd abandon the car and go get another one. He claimed it was cheaper than making auto payments /images/graemlins/smile.gif.

[MMMMMM]

I don't quite go that low anymore;-) I'm looking to get a couple almost trouble-free years out of a car. Then it's another $1500-2K down the tubes when I have to buy another one. That price includes taxes and registration and any intial service or minor repairs that may be needed.

Say the trans or head gasket starts showing signs of initial problems after you've had it for a while. It should still go another 6-12 months if you baby it a little (change oil extra frequently or whatever). When the time comes that it gives up the ghost, well, it was a disposable item to begin with.

You can certainly get nice-looking reasonably solid cars for under 2K if you shop around and bargain well. I don't much care for the rusty look though /images/graemlins/tongue.gif I've had cars for which I paid under 1K go over 50K miles with no major problems. There were a few $100-$300 problems though. I drove two of them across the country and back. Of course you are gambling a little when you do this /images/graemlins/smile.gif but if you have to buy another it's no big deal. Plus you save a lot by not carrying collision or comprehensive.

Back in the mid-80s I did buy a car for $40. I drove the heck out of it for a few weeks then my friend took it to the smash-up derby/images/graemlins/grin.gif Also about that time I got a Civic for $200 that was perfect for an extended hiking/canoeing/camping trip up in Maine. That one actually was rusty. I put the canoe on the roof and took off ten hours to Baxter State Park region in Maine. Had no worries about leaving it parked down some dirt road near a lake where I set out in the canoe. Car was untouched when I got back a week later;-) That car lasted about 6 months. Now when I get a car I expect it to last at least a year and probably two, hopefully three.

Aren't cars (for driving, that is) the worst investment there is? What the heck, might as well have fun with them a little bit, however you approach it.