midget fidger

Which is better for a 2005 SLK350 that someone plans on owning for about 2 years - buying it on a loan (4% from credit union) and selling it back after or leasing it? The guy at the dealership said you would probably lose less by going with a loan. Is this true?

Thanks!

LeaseCompare

With a lease there is a guaranteed number (residual) after two years. If the market value is greater than the residual then you'll have equity. If it's less, then turn it in.

With a traditional finance you leave everything to chance and you are the one who takes the chance.

Highend

How about you give the car a year wait and let it take its 7k hit and then get it used.............

midget fidger

yea, gonna do something similar. they're only giving 1k off for the car right now so gonna order a 2006 and it'll arrive sometime in july or so

tiggerfink

It depends on the monthly Lease Rate Factor, term of loan, initial lease fee, and monthly payments. My friend got 3.8% at the Pentagon Federal Credit Union for 5 years. In his case his monthly payment was about the same as the lease payment. In my friend’s case, he would loose less with a loan. He calls it minimizing his lost.

delbomber

The issue is, with a loan you are committing to the bank that you will pay off the balance of the loan, at any given point. With a lease, you are committing to paying only the portion of the car you will use, plus tax and interest on the whole car (just like buying).

I have done extensive analysis for my own purposes and have found that, given similar int. rates, it is better to lease if planning to keep the car three years or less. Because interest is a large portion of early payments, principal initially gets paid down slowly, and if looking to unload the car in this timeframe there is a high risk that the loan balance will be greater than the residual value of the car.

Four years is middle ground. Five or more you should buy.

Hope this helps. Will share spreadsheets with anyone who wants to see them.

Cheers.

midget fidger

hey delbomer, thanks for the extensive reply. can you send me that spreadsheet to show to my sister? i'll PM you my email address. thanks!

tiggerfink

You have to look at the whole picture before you make a decision on lease vs buy. If you want to give back your car after 3 years without any risk, get a lease with GAP insurance. If you want to take a chance on loosing less and pay higher monthly payments, get a loan. We did the numbers on 60% and 55% value and the loan was better in both cases. We even did the number on a 5 year loan with plans to sell in 36 months and the loan was a little better than the 36 month lease. It all depends on your interest rate, lease rate, and resale value.

delbomber

Yeah, I put together a spreadsheet for him, running multiple scenarios. Calculations are calculations, no room for bias. His sister will consider the options and hopefully will be behind the wheel of an SLK350 soon...

Cheers.