Financing vs leasing

Discussion in 'Motorized Vehicles' started by Mastershroom, Mar 17, 2012.

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  1. Thaenatos

    Thaenatos Zero Cool

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    Well that is above average mileage to the tune of an extra 5k miles a year so extra maintenance is expected. As for luck well I wont get into that much other then a wheel bearing at ~100k is borderline bad luck :p.

    Like I said the best way is BY FAR buying outright. You pay the price of the vehicle and not price + interest and you dont have to worry about fees for driving too much or incidental stuff like a ding in the parking lot and the possibility of the car being taken away from you mid lease.

    All I can say is I have been car payment free since january for the first time in 4 years and I must say it feels nice. Granted I too have a 103k mile jeep (inherited at 99k) and the 60k jeep I paid off is gone, but I have a solid vehicle and money going straight in the bank. Does that mean Id recommend buying an older rig like mine to rid themselves of a payment? No. I got the vehicle for free and I knew if came from a good home, despite being drivien hard, it was meticulously maintained. The problem is finding a decent used vehicle for a good price thats worth the investment, but I think in shroom's case its either payment or beater (currently the case Id be in if I needed a new car).
     
  2. masterchef341

    masterchef341 The guy from The Notebook

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    A few things.

    1. at the end of a 5 year lease on a new car, you are more likely to have 60-75k miles on your car than 100k.

    2. whether you sell the car at the point or continue to drive it is only somewhat relevant. the fact is, either of those options are a very good value compared to nothing. the *more* economical of those options is to continue driving the car, but as long as you have it paid off, you *can* sell the car and still end up financially ahead of leasing.

    3. Of course, this means that with a 5 year loan, you'll be driving the same car for at least 5 years. If you choose to lease a car, you're basically driving a new car all the time.

    ---

    Here's a longish explanation of WHY leasing cars is more expensive than buying cars. Short version below

    When you buy a car, the transaction is relatively straightforward. The car has a certain value. You need to pay the dealership that value to own the car. Most dealerships are more than happy to provide a loan if you don't have cash. As you own the car over time, and drive the car, the value of the car goes down. This rate of depreciation slows down over time. Early in the life of the car, the car drops in value quickly. Late in life, the value goes down slowly.

    What happens when you lease a car? What exactly do you need to pay the dealership? You basically need to pay the dealership enough to cover the opportunity cost they incur due to the fact that they could have sold the car rather than let you rent it from them, plus they can demand a little more because it's a high-end lifestyle option.

    Car A: $20,000 - sold at $500 over MSRP ($19500) with a 5%, 5 year loan.

    5 year profit is approximately $3,150 all together on a $19500 initial investment.

    Car B: (same car) leased for 3 years.

    When the dealership gets the car back, they can try to sell it. Let's say they can sell it for $11,000 (that number may be surprisingly accurate).

    They still spent 19,500 on the car, so when they sell it for 11,000, they'll be 8,500 short of breaking even and on their initial investment (which happened 3 years ago). They need another $2000 or so on top of that to break even with where they would have been had they sold the car. So they need to charge you $10,500. There are other costs they have to bear as well. One of those is risk. They estimate the depreciation of the car, but the actual depreciation may be different and that burden is on them. They have to tilt the balance in their favor to account for that risk. There's also the fact that they can command a higher price simply because of the market. People who are looking to lease cars are prepared to pay some type of premium because they want to constantly be able to drive a new car.

    ---

    The short version is, that when you buy a car, in a way, you can ignore the cost of the car. The real cost (if you're going to sell when your loan / lease is over) is the depreciation. You also have gas, registration, insurance, etc - but that's all largely equivalent. Since new cars depreciate faster than old cars, you're constantly paying "new car depreciation" when you lease. When you buy a new car, you pay "new car depreciation" for a while, until the car becomes an older car, and then you pay "old car depreciation". If you buy a used car, you pay "old car depreciation" the entire time. It's a simple way of looking at it, and it's actually why it works the way it does.
     
  3. johnw91498

    johnw91498 Notebook Consultant

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    Good point, but, on average, the depreciation on a new car balances out at the 3rd year. After that, you're "making" money on the new car. I've always bought my cars and keep them between 7-10 years.
     
  4. booboo12

    booboo12 Notebook Prophet

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    Hmm...any updates Mastershroom? :)
     
  5. Mastershroom

    Mastershroom wat

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    Not just yet...I got set back a little by getting a citation for my expired plates. :p
     
  6. booboo12

    booboo12 Notebook Prophet

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    Ouch :p if it helps I feel your pain, I made a late night run for Oreo's and ended up getting pulled over because my registration just happened to be out of date and a cop was behind me at a stop light. Ended up getting pulled over at a bank of all things....:p

    Walking back to the dorms in the dead of winter...not fun.
     
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