Stiggs

I was thinking of leasing a CLS55 for 36-39 months then when the lease is up MAYBE finance the residual value of the car. Is this a bad thing? Also I was going to use the equity I have in my car now as a "money down" type of thing. Is this also bad?
Thanks for the help.

E55AMG99

Putting money down on a lease on ly reduces the monthly payments, no? Why bother? It can't be deducted from your taxes.

Buying after is a tough decision to make now. You might find that the car is a POS or there are better examples out there for less money.

MBZFAN55

It depends on a number of factors. I lease to take advantage of the tax deductibility of a substantial portion of the monthly payment. There is a leasing "surcharge" over just financing, but it is more than offset by the corporate tax savings. I then buy the car at "lease end" with my business absorbing the brunt of the three year depreciation. Over the years I have developed a "following", who look forward to buying my "off lease" vehicles, so I very seldom return the vehicle to Mercedes (Credit). Also, depending upon the wholesale market at the end of your lease, you may be offered a lower price to buy the vehicle.

Stiggs

So you are saying that the residual value printed on the contract doesn't have to be what I can buy it for. They actually might go lower?
That sounds too good to be true. Probably doesn't happen often, right?

LeaseCompare

Never go into a lease thinking that you will be able to buy the vehicle for less than residual. This became common when the residual values were artificially inflated during the late 90s and lenders were losing a lot of $$$$ if you turned it in.

Most have a better lease disposition process in place now including upstream selling. Plus most have residual value insurance.

Also, don't use your trade-in equity as a cap reduction. You could end up losing it if the vehicle is totaled or stolen.

Here is a real example:
Cap Cost Reduction Lost

slvrstar

It depends a couple of factors. In my opinion, it depends on your driving and pride of ownership habits. If you like to drive the crap out of your car and take it to the max all the time and don't care about taking it for maintenance or a wash even when bird poop is on it. or if you like to eat in the car and trash your car, then leasing it and turning it in is the best way to go to avoid future maintenance headaches. But on the contrary, if you baby and garage the car, then it's probably better to purchase. As for the tax issue, you can deduct by the lease dollars or if you purchase it and is working off a 1099, you can still deduct the mileage off the car. So either way, you can still save money in that aspect. The question is how many miles do you plan to put on your car. If you plan to put 30K/year on your car. Leasing it will kill you when you turn it in.

Stiggs

I don't plan on putting more than 10-12K miles a year on the car.
I always pamper and clean my cars...no matter if leased or own. I just want them to look good.
As far as cap cost reduction.....I know you don't get it back in the end.....and I know its best to put as little down as possible....but I think I need a cap cost reduction to keep my payments at what I can afford.

E55AMG99

That is puzzlng. If you need to reduce the monthly payment with an up front cash payment, why not save the money to be payed out monthly later? Wouldn't this be close to the same thing? Less risk and more reward, IMO.

MBZFAN55

Slvrstar, I think you have severe misconceptions about leasing.

I care for my car just as much as anyone who "purchases" and would never think of "trashing" it or ignoring the maintenance. As I mentioned in a prior post, I have several "repeat" purchasers of my "off lease" vehicles, obviously indicating that proper care has been maintained. Regarding the tax deductibility of the lease payment vs. the finance payment, the purchase price of the vehicle is "capped" by the IRS, so you are severely limited to the amount and time frame of any deduction. The lease however is viewed as an expense item and is deductible to the extent that it is used for business. In my case, the business use is substantial, so my personal tax benefit is also substantial. You may wish to consult with your tax advisor for your specific situation.

Finally, I didn't mean to imply that the residual value is negotiable at the end of the lease. I was saying that I have been offered lower acquisition prices several times over the past couple of leases. Market conditions change and sometimes that has been to my benefit.

lennyr

At the end of the term, the desirability of buying it out depends on what your puchase price (residual) is vs. the fair market value (FMV) of the car; FMV is partly a function of what kind of shape the car is in, but more a function of market forces that are hard to predict three or four years in advance.

Two schools of thought wrt working the residual to your advantage:
1) Negotiate it as high as possible. If the car is worth less than that at the end of the term, you walk away and the lessor eats it. You come out ahead.
2) Negotiate it as low as possible, if you can deduct the resulting increased payments. Therefore, you have what amounts to a bargain purchase option at the end of the lease which has been subsidized by the government, which will almost certainly be a gain for you. Obviously, this shouldn't be done without the advice of a good (and probably aggressive) tax accountant.

slvrstar

unfortunate but true that I'm referring to the mentality of the group of friends that I know who leases cars. I'm sure most people are not like these guys but I'm just referring to my friends. And I wouldn't want to pick up one of their cars after they are done with it. Even though the dealer would use the warranty and put it back in shape before they sell it.