Natalie

Can anyone tell me the advantage of a lease if the following is true?
-You can pay cash for the car.
-It is not deductable as a business expense.
Thank You.....

respdoc

Only advantage I can see is if you like to change cars every couple of years and don't want to get hosed by low trade-in values....

FYI... the correct spelling is convertible

LeaseCompare

Natalie-

The first question is how long do you plan to keep the vehicle? If you plan to keep it for more than five years then go ahead and pay cash.

If you trade it in before that time then a lease will be more attractive as you will only be paying for the "use" of the vehicle, unlike buying where you pay for the whole vehicle.

Take the $$$ you would tie up buying the vehicle and invest that in an instrument that pays a higher rate of return than the lease money factor.

Also, in most states you will pay less sales tax by leasing.

Let me know if this helps.

wingless

If the time and mileage periods are acceptable, then the vehicle cost is completely specified. There are no surprises when trading, because the vehilce is turned in, with normal wear and tear.

The dealerships like leasing, because they know you'll be back in their showroom in three years, when the ride is returned. They know that you'll be back in three, not four, five or later.

GGM

Unless you have a four or five year lease.

GGM

Natalie

Thanks Doc.....

Natalie

If I lease a CLS, $69544, the MBUSA rate is $824/mo. That means I would need an investment that pays about 15% right???

LeaseCompare

It depends on the money factor (interest rate) they are charging you. Did they give you that number? It will be something like .00230

billycwhatup

C'mon. If it's not specifically a tax issue, we all know that the unspoken reality is that leasing for people who can't afford to buy. For most people, it makes no more sense to lease a car than to enter into a long-term deal with Avis. It's the same thing, but no one wants to admit that they lease because they can't afford the car they want if they don't.

King///AMG

He's got a point. If you have the money, I would finance the car for a period of 60 months or so with a low interest rate. The car is yours after 5 years, then do whatever you want with it. Trade it, sell it, whatever. Top 2 reasons why ppl lease is either they cannot pick up a hefty purchase payment or unless they want a new car after every 3 or so years. The other reason is tax-credit...

LeaseCompare

You are right, if you keep the car for more than 5 years then buy it. Most people don;t keep their cars that long and end up with negative equity by trading it in before they pay off the finance contract.

Setting up a lease for the term you actually keep the car should provide lower monthly payments and no negative equity.

revstriker

I always see this line in ads from lease companies and I think it's a bit deceiving. You don't end up with negative equity by trading in a car before the contract is paid off. You only end up with negative equity if you have not paid enough principal to at least equal the cars depreciation. The same is true for leasing.

An advantage in leasing is when you get a high residual value on the car (that is: higher than what you could actually sell the car for at the end of the lease). If this value is equal to the car's value, then you are really only paying the depreciation on the car, plus the leasing fees. Most finance deals I see are significantly better in terms of interest.

So assuming an accurate residual value, if I go out and lease a car for $500 per month for 3 years, and then compare a finance deal of $500 per month for 4 or 5 years, I be better off after 3 years with the finance deal because more of my $500 is going toward the depreciation of the car.

Also, on your example of leasing a car and using the cash to invest.... I think you would have a much better chance of your return beating the interest rate on a financed vehicle than the money factor on a lease.

I'm not trying to totally slam leases because I do think there is a need for them. When the residual on the car is high, and the money factor isn't "massaged" to make up for it, then a lease can be a good deal.

LeaseCompare

I understand your point and I wasn't trying to make a blanket statement because you can't, whether you are for or against leasing.

Here are the facts that we deal with every day.

1) More than 40% of the people that finance and trade in before the end of the term are upside down. Putting money down on a finance will help lower that possibility but more and more people are not and it's not the best use of your money dumping it into a depreciating asset.

2) With interest rates on the rise leasing will become even more of an advantage.

3) We don't agree that leasing with an artificially inflated residual is a good thing. Try getting out early, for whatever reason - we hear them all, and you will really be in a negative situation.

We look at each client's needs and driving habits to structure a lease that is good for them during and at the end of the lease.

Oxygen

Leased cars usually take a beating.

I know that I do beat on my 2 leases a little more than I would on a car that I was planning on keeping.

Leasing is cool, but my next vehicle is going to be a purchase.

mostolf

Don't forget to factor-in depreciation. To really equate the 2 options (buy w/ cash v. lease), you need to take into account what you would lose on the later sale.

W210

Don't forget depreciation if you get into accidents.

I lease for my wife as she routinely gets into accidents which makes my selling her car privately quite a headache.

With leases, I return the car, no questions asked.

Natalie

Excellent idea!
I'm a little ignorant on financing. How much is the average rate to borrow the money? Without getting too complicated, where would you suggest investing the cash that you would have paid for the car?

LeaseCompare

Take the money factor, for example .00220 and multiple by 2400 (5.28%) to get an idea of what the comparable interest rate would be and then look for something to invest in that pays more than that.

revstriker

Tarry, thanks for the response.
Sorry if I came off sounding like this. It's more the deceiving lease commercials I hear on the radio all the time. Not that the info is false, they're just not comparing apples to apples.

Agreed. But you can also be upside down if you try to get out of a lease early. I see an awful lot of 4 and 5 year leases out there.

Admittedly, I do not completely understand what drives money factors on a lease, so help me to understand this. With rising interest rates, won't these also transfer over to the money factors on a lease? What's the driving force behind the money factor?

Yes, you have a great point. I was saying they were good to have when comparing to a finance deal, when you are going to keep the car until the end of the lease term and turn it in. Of course, having such a high residual is a negative if you try to get out early.

It sounds like your company is really doing it's part to help the consumer. Again, I apologize if my last post came off a little negative on leasing, you, or your company.

JDM

if you lease, lease SHORT term, then it still has residual value at the end of the lease. Long term leases are no good, beacuse the vehicle depreciated to nothing, and has hardly been paid for.

Ppower

I personally like leases, because I lease under a business and write the lease cost off my taxes. So, the cost is even less.

LeaseCompare

No problem.

We don't recommend long term leases for the reason you mention.

Money factor rates usually increase with finance rates.

We have people contact us every day needing to get out of a lease early. Most people say "I'll stay in the whole term", but there are many things that can happen. We just had someone that got a DUI, he's not driving for a couple of years. He ended having to stay in it as it was a subsidized VWS lease and it was more expensive to get out early than to keep making the payments.

There is not always a clear lease vs buy answer.

Tony007

I was involved in a conversation before with a customer at a dealership and they mentioned somthing called a "1 payment" lease? What are the advantages to doing a 1 payment 36 mo. lease as opposed to the standard 36 mo lease with regular monthly payments? Is this something that is commonly offered by dealerships these days?

LeaseCompare

The only advantage of a one-pay lease is that you will normally get a discounted rate. You can usually invest your money and make more than the discount offered.

Most indpendent lenders do not offer this as an option.

Brav

Do you feel better? Maybe so for some, but the reality is, as already mentioned, you save money if you rotate through cars. period.