Natalie

Met w/ the accountant last night and posed the lease or buy question to him. He basically gave the same answer as you did. His clients all lease for one of two reasons. The company leases the car, or as you said, they cannot afford it.

revstriker

I'm still not seeing this. You are still paying for the depreciation of the car for the time that you own it, and you are paying a finance charge, or a lease charge. The finance charge is normally better than the lease charge. I don't see how you are saving money.

Brav

thank you captain obvious. however, the numbers are not the same. The lease payments are typically lower and up front costs lower. Payoffs can differ. You have to pay sales tax up front on a purchase in most case. No one ever said leasing will always save you money, and for many they do buy it because they can not afford it. but the principle still applies to those who do it for the right reasons.

My example with my M3 - Sold it after 9 months or so, and only lost about 1500 bucks (payoff difference). I out the door I spent about 5K. Payments were 739 incl tax. MSRP was 60,355.

Had I financed it, It would have cost me another $4200 up front for sales tax which I would have lost. Plus the difference of about 400 a month in payment

FD3S

For me it actually would make sense to lease because all of my payments are 100% deductible. I'm in Commercial Investments and you can deduct the full amount paid on the lease from my income (per my tax attorney). That being said I'm not doing that because I will probably modify my car too much.

AMGfan

Natalie...NEVER lease more than 3 years and make sure the mileage limitations set forth on the lease (w/o penalty after said annual limit) fit your lifestyle. Other than that, all the other info put forth is kosher.

tiggerfink

You need a new accountant. Companies purchase and they also lease. It is easier to expense a lease for a company. When I purchase my SL last year, my financial advisor and I had a heated argument of paying cash, lease, or loan for the SL. He guaranteed me that I could make over 12% per year on a 100K investment. You could get 100K CD from the Bank of Switzerland for 9% last year. I was able to get a 5-year loan for 3.49% on my SL. It was a lot better than the LRF that was offer at that time. About 5 months later, I double my money and paid off the loan. My financial advisor was hot with me for paying off my loan, but he will get over it.

Basically if you are too rich and do not care about making more money, just pay cash. Another way of thinking about paying cash on a $50,000 car is that you save or make about $4,000 interest on a 36-month loan on a 50K car. If you cannot make more than $4,000 on a 50K investment in 3-years, you should pay cash for the car. But if you are growing a business, and want your money to grow and want to take risks get a loan or a lease. If you do not have enough to pay off a car, just get a lease or loan and save your money for your future. By purchasing a new car, you help the economy.

The lease is about $1,500 to $3,000 more than a 36-month loan. The difference between the lease and loan is the resale value of your car. What I mean is the Total lease payments (36 months) + other fees >= 36 months of loan payments + other fees – resale value of car. I would lease and get GAP, because the $1,500 ahead on a loan is not worth the risks.

SL BRABUS

why lease? cause can't afford to pay for the whole thing........ :p just joking......

Maestro

If you lease, you're paying approximately 3.9% - 6% per year in interest. Most wealthy individuals are capable of making 10% - 30% PA via reliable investment vehicles, such as Managed Forex and Futures accounts. It is a better investment to stick $50,000 in a Managed Forex account making 20% annually, and paying up to 6% to the lease company for a total profit of 14%, than to give all $50,000 to the dealership and make no profit whatsoever.

Oh, and you also save a good chunk of change in sales tax.

JBRhee

Let me give you guys a rundown of my situation. I recently leased a 2005 slk55 amg after putting down $30000, which includes cash + trade in. The cost of the car is $69015 - $30000 = $39015.

So, I'm leasing $39015 of my car for 48 months which equates to $397.87/mo x 48 = $19097.76. The residual value after the 48 months is $31,384.25, which means I'm paying $19097.76 + $31,384.25 = $50482.01 total after the downpayment because I'll be paying off the $31,384.25 in one payment in four years.

Now, compare this to financing it:

Cost of the car is the same at $39015 after the downpayment + trade-in. If I wanted to finance it for 60 months this would equate to about $800/mo x 60 = $48000, about $1000 for 48 months which is still around $48000.

In the end, the cost of financing vs leasing is about a $2000 difference for me. And, to my understanding, when you lease a car, it's a pretty decent tax deduction.

Enigma869

In my opinion, leasing a vehicle is financial suicide!!!! I believe the only real reason to ever lease a vehicle would be if you were using it as a business expense. For the record, I own my own financial services company and chose to purchase my vehicles and not lease them. I saw that someone on here mentioned that dealerships love leasing. Of course they do...why wouldn't they???? It guarantees them return business and people generally take a bath on leases when they turn their cars in for being over their miles. My father in law leases a BMW 3 series, and as I can tell it, the payments wouldn't have been much more than if he opted to purchase the vehicle. That said, he is one of those guys who likes a new car every 2-3 years. I think if the cost of leasing was significantly cheaper, perhaps one could justify it more. I haven't noticed any great deductions in payments over leasing versus buying. Most of these leases allow 12,000 miles per year (and yes, I am cognizant that one can assume a higher monthly payment for more miles), and very few people drive just 12,000 miles per year.

No disrespect to the moderator, but I would be VERY reluctant to take advice from someone whose business is leasing automobiles. To say they have a vested interest in consumers leasing vehicles would be a gross understatement! I certainly do give the auto dealerships a big A+ in the category of business acccumen. They have found a way to get everyone into a car now, no matter how dopey of a decision it is for a consumer. The average consumer walks into an auto dealership these days and tells the sales person what they would like for a monthly payment. With that information, the sales person proceeds to sell you a car with those payments...even if the payments are stretched out over 7 long years on a purchase. I would say unless your cashflow is VERY restricted, the only ones who truly benefit from leasing are leasing companies and dealerships. Just my two cents.

John from Boston

Maestro

Did you not read my post?

Maestro

Allow me to give you one extreme example. This example is geared towards someone with no investment experience/capability and a very small networth who would like a new car every few years.

You can currently lease the new Audi A6 3.2 optioned at $48,620 for $647 per month. Over three years, you would be paying $23,302. By investing the remaining $25,318 at 4% PA, you would have $3161 interest. In other words, you paid approximately $20K to drive this car for three years.

If you were to purchase the same car for the full $48,620, you would get approximately $25,000 trade-in value in three years. In other words: You paid $23,620 to drive this car for three years.

This isn't including the fact that you would pay approximately half the sales tax if you opt for the lease, which for this car would be a difference of nearly $2000! Including sales tax, that's $21,600 over three years for a lease, compared to the $27,500 if you buy. It seems as though buying is better over the long term, but leasing seems far superior if you like having a few car every three years or so, or if you have an investment manager who can give you great rates.

PS: For the sake of simplicity, the entire 36 months worth of lease payments is sitting in cash under your bed, earning no interest in this example. If you were to stick that in an ING Savings Account paying 3.0% PA and simply withdrew the $647/mo for lease payments, you would save even more money by opting for a lease over a straight purchase.

Enigma869

Maestro...

That's a very well thought out post, and your premise is a good one. That said, you know and I know that 99.9% of people will not invest the difference that they save! I happen to own a mortgage company and we can use the same argument about some of the very creative mortgages we have. We have a mortgage that allows people to pay only 1.25% on their mortgage. Even though they are still being charged in the 5% range, they're allowed to defer interest, which results in what we call "negative amoritization" (i.e. they end up owing more money than they borrowed). Now, if a person were to invest the difference they save, they would be millionaires, easily, at the end of their mortgage...even with very modest returns. It becomes a "no-brainer" of a mortgage that the whole country should have if they actually understood the premise of investing your savings! Again, this assumes that they are investing the difference, and I can tell you from many years of experiences, that none of them are!

John from Boston

Brav

You have much to learn, grasshopper.

ima55r2

JBRhee, I deleted the post because I thought an accident settlement might depend on your leasing agreement. Don't forget that you don't own the car ....the leasing company does and you pay rent. In the worst case, if the car gets totaled, your lease would be terminated and the leasing company would get the insurance money for replacing the car, not you. What's going to happen to your $30,000 down payment? Your down payment was divided by your number of months on the lease to reduce each payment equally. You were just paying in advance and not getting much of a benefit.

Leasing affords the opportunity to not have so much money tied up in a car. I could have paid $85,000 cash for my E55, but at the time, improving economic conditions provided a higher return than the loan interest rate. Instead of the initial cash outlay, I have since used the money to gain the first two years of payments and then some. I also have an expected fixed value of the car that I can use later to determine if it is worth more selling or just turning it in.

I could have financed the car at a lower interest rate than the money factor but the no money down monthly payment was $400 more a month since it was based on the entire value of the car and not just the value I was using.

Going for the highest residual will result in the smaller payment. Someone posted about going for the lowest residual value for the purpose of buying the car later, then it’s better to just buy the car and have the flexibility of not being tied down to the terms and cost of the lease.

If a vehicle can be used as a business expense, a lease is better. The tax rules allow the same percentage deduction every year for a leased car than the reducing dollar deduction over a longer period of time for a purchased car.

Dealers do like leases since the customer has to return to the dealership to turn it in, but they make the same money on a sale or lease...and even more if they arrange the financing or leasing because of the kick back from the bank or leasing company.

No one here can tell someone if a lease or purchase is better without knowing the individual. Attitudes towards ownership, risk aversion, vehicle care and maintenance, and work/life style stability, for mileage considerations, all play into the equation.

But if leasing is the way to go, in recapping the previous posts, it's best to put as little money down as possible, get the lowest money factor and the highest residual, and lease for a term less than the warranty.

JBRhee

Okay guys,

I just wanted to give everyone an update on my previous post. Apparently, the lease didn't go through with US Bank, which means the residual value is much higher. So, instead of leasing, I decided to finance the slk55 amg after a $30,000 downpayment. Payments are close to $800, but it'll be much better this way. I'll own the car in 5 years, and I could refinance after the first 3 months or pay it off any time after that.

Please only lease the car if you are not going to buy it, or if the residual value is low enough to be almost the same as financing in the long run if you choose to buy it afterwards.

ima55r2

Glad to see you are in a better situation. I checked with my insurance guy and the worst case of lease termination is the only case. The check for a totaled car will go to the bank for the payoff and not for a replacement. I don't think you would have ever gotten a refund and would have been out your $30k. You will be able to enjoy the car more now. Congrats!