hyperion667

Heads:

whats good...........

when you lease a car, do you actually own it? Is it YOUR car........
what about insurance? full coverage? does anyone get money back for being a 'good driver'?

Seems like a lease is like rent, except when your done..........you have nothing but memories............


such as life...........................................:zo om:

SnakeDoctor

edmunds breaks down lease vs. buy pretty well.

Leasing is good for those that change cars a lot. You pay for the part of the car you use, and move on to the next one. You will always have a car note. Typically costs a little less per payment, depending on the mileage you put up per year.

It is very much like renting. You definitely do not own the car. heck buying, you don't own the car until it's paid off and you receive the title from the bank or lien holder.

Johnny Mo

If you want a good sense for what leasing a car is (essentially you are paying for expected depreciation + finance charge over the lease term- use this analogy...it is very much like gambling.

The gamble is what you are paying/willing to pay to use the car for a proscribed period of time and limitation of mileage. Unfortunately,the house (the dealership and manufacturer) makes the rules.

So the buy-in is the amount of money you will have to pay including the finance charge...but this is based on the "potential" residual value for the vehicle at the end of the lease. 55% residual means you pay for 45% of the car now (over the lease term).

In first year of a newly redesigned vehicle - this is usually a crapshoot for the buyer and the dealer - no on really knows how well the car will hold it's value - so the residual is a best guess...this is where you can "win" big or lose big. If the value of the car is higher after the lease than the residual it may make sense to keep it/buy it out and then re-sell it privately...but it also means you paid more up front. If you have a car that is well below residual value - then you reallly win because you don't want to buy it out, you didn't pay as much as the car depreciated up front and you can walk away.

The longer you go into a lifecycle of a particular model year the better the residual data is and ultimately the house wins...but early on it can be worth the gamble.

997 Dude

Mercedes seems to inflate the residual to unrealistic values (i.e., understating depreciation) in order move product through the leasing channel. So, there is more to it than guessing the residual / depreciation. Even with inflated residuals, the "house" will nearly always make money, but that is really not the right way to evaluate the transaction, imo.

If you switch cars every 4 years or less, leasing usually makes sense because you effectively have a pre-negotiated put option. That is, you can drop the car off at a dealer without taking a whack in transaction costs that you would if you were trying to sell a car. You also shift the risk of a bad car with design / reliability issues to seller, by returning it while it is still within warranty. All of those are pluses.

But, over the long run, you typically will pay more money if you lease than if you buy. As a serial lessee, you could end out paying much more than the person who buys a CPO'd 3 yr old car for cash and keeps it 8-10 years.

In reality, it is more of a lifestyle choice than a financial decision. Either you prefer to save money, or you prefer to drive newer cars. (For me, it depends what I am buying.)

As for whether you "own" the car, it really depends on how you think of it. You certainly don't have the title -- so you don't own the car in that respect. But, you do own a set of rights, including the right to use the car over a given period of time and mileage. This sounds like renting to me, but some folks think of it as fractional ownership. It's really more a matter of perspective.

Tjdehya

I trade my cars frequently (1-2 yrs) and I absolutely see no benefit in me Leasing.
I buy my car, I drive it as much as I want, I do to it whatever I want, and I trade it in whenever I want.
Why would I want to put all kinds of restrictions on car ownership?
My W211 was the cheapest 1 year ownership ever for me. I traded it in for almost exactly what I paid for it. I am not expecting that to become a trend but you try walking into a dealership and tell them you want a no money down 12 month lease for $100 a month and see what they say. lol

sosh

The only people that should even consider a lease are those with a legitimate business write off and use. Those that lease that do not meet this criteria are only doing it for a smaller payment and are kidding themselves or driving a car that they otherwise could not afford. As far as insurance goes its the same as any owned car except that the loss payee in the event of a total loss is the leasing company.

peeta123

someone should make a poll to find out whether most people lease, finance, or full payment.

park423

I don't think you're better off buying a 3 y.o. cpo'd car, imagine the possible repair costs in year 7, 8, 9, 10 - 13 on an S class. With a lease, you are just paying for the depreciation, with little or no money down and with 3-4 year leases, never an out of warranty repair, plus you get a new car every 3-4 years, I personally could not drive one car for 10 years.

However, I do like to drive a lot and like to customize my cars so I do buy more than lease but for my wife's car, I do lease as it is worry free driving and we get a new car and leasing a car every 3 years cost about the same as buying a new car every 7 years not including any out of warranty repairs.

K-A

Have any of you previous Leasers gotten dinged with "wear and tear" extra fee's, or damage fee's, etc. Were they fair about that?

I Leased my car this time around, and I think it'll be the last time I Lease a car that I really like. I'm an old-soul I guess, in that I at least like to romanticize about owning the "perfect car" that I will own for a long time. Especially if the mileage on my car is super low, and knowing how I will take better care of it than about anyone else, I like to think that I'll buy it after the Lease period.... But if the car has low miles, and is very clean, then M-B will probably not negotiate much with it, and residuals are almost always higher than actual market value (brain VS heart will be what I'll be dealing with in that case). I've also heard of people returning it to the Dealer, with the immediate "deal" with the Dealer that they will immediately buy it as a now CPO'd car, at a lower than residual value.

I'd rather just buy very smartly, and sell if I please, and hopefully still come out ahead than if I Leased. It also comes down to how the deals sound, etc.

In an ideal situation, I'd like to own my "baby", and I'd like to Lease my "second car". Right now I'm doing it the other way around, lol.

E550Shopper

I have a hard time believing that leasing ends up being a better deal in the long run, unless you really, really understand the leasing process. Even then, trying to accurately forecast the depreciation *better* than the dealership -- no way you can do that consistently.

I think it's much better just to negotiate on price -- there's one number to discuss, and easy to compare competing offers. Even financing can be dangerous if you're not careful. Walking into a dealership and telling them what you want your monthly payment to be is a sure-fire way to lose your shirt.

Leasing is even worse -- way too many parameters to the deal: Down payment, monthly payment, duration of lease, residual value ... I'm probably forgetting something. The more parameters there are, the easier it is for them to put you into some corner of the lease terms that may work for you in the short term but is (nearly) guaranteed to be more profitable for them (and, consequently, a more of a loss for you) in the long term.

I also don't buy that there's some critical ownership time where it becomes better for you than buying. It *must* be that no matter when you turn the car in, the dealer expects to profit at least as much as they would if you buy. And again, given how complicated the deals are, it's really easy for them to get a deal where they're making even more.

Furthermore, as others have noted, given that a lease deal sticks the dealer with considerably more risk, they have to get compensated for that, i.e., you have to pay them to take on that risk.

I don't think I'm explaining myself terribly well here. :-) But let me try to summarize:

Suppose you're able to negotiate a deal to buy the car at the lowest price they'll take, so they're earning the minimum profit they're willing to earn on the deal. Since this is the minimum they'll take on a deal, the dealer has to expect to make at least this much on any lease, and the best you can hope for is a lease deal that is the same economically, in expectation, as the deal to buy. But given the risk premium you need to pay the dealer to lease, it must be that you're paying them more -- again, in expectation. Further, given the complicated nature of the deals, and being better than the dealer on estimating the residual value, all around it seems to be a good way to lose a lot of money.

Of course, on any particular deal, you may come out ahead -- you get a lemon, for example. But, on average, unless I'm missing something, it seems to me that leasing has to be a raw deal.

That's not to say that it's necessarily a bad deal for people, just that you should go into it knowing that you're losing money in expectation. It's a bit like an insurance policy in that way -- you pay more money up front, but reduce your risk. On average though, the insurance company makes more money as a result, as does the dealership. :-)

K-A

Just to state on the contrary, there are people here who have posted RIDICULOUS Lease deals, that seem like Dealer giveaways more than anything. I think in those cases, the buyer came out ahead. But in the other 99% of scenario's, Leasers are probably getting the raw deal, as most people don't have such negotiation tactics, and/or haven't ever gone to a Message Board/Online to compare prices and see what people are posting up as their own Lease rates, etc.

ttoE550

E550Shopper, you impress me, and I think you've nailed your explanation. Understanding the difference between expectations and individual outcomes is a rarity, based on my experience teaching this concept. The decision to buy insurance, in my opinion, is really one about whether you are willing to give advantage to the house or to take the advantage for yourself. That decision is a complicated one indeed. Some places I give the advantage to the house (buying umbrella insurance), and some places I keep it for myself (not leasing, no wheel-tire insurance). For me, it is largely wealth-dependent.

E550Shopper

"Just to state on the contrary, there are people here who have posted RIDICULOUS Lease deals, that seem like Dealer giveaways more than anything."

Fair enough, though who knows what prices they would have got on those same cars had they negotiated a straight purchase. It's also a biased sample -- you're only likely to post your lease terms if you think you got a sweet deal (though, obviously same is true for buying, but it does seem like there are more lease posts than buy posts).

"E550Shopper, you impress me, and I think you've nailed your explanation."

Heh, thanks. My argument is obviously pretty theoretical, but mostly, since I'm about to "acquire" a car, I would like to know if I'm missing some great feature of leasing before closing the deal.

K-A

True. If I had my choice, Leasing wouldn't exist. Although many treat it wisely, and use it to their benefit, I see it as sort of a social ill.

It allows people to be careless with their Rental Cars, "who cares, give it to the next poor b@stard". It doesn't promote for people to be responsible, and careful/caring with their assets/"property". And of course, worst of all, it allows people who can't afford cars, to "afford" them, abusing and misusing what is said to be the "American Dream", pushing our economic climate into a black hole of a state eventually. Of course, the blood sucking Creditors won't learn their own lessons, and they don't care, as capitalistic perversions get the best of them, as they push the same tactics to the sheep, that got them/us in the mess in the first place.

Not to mention, Leasing is the antithesis of what car enthusiasm is about. Not only does it have automakers looking at their cars as flash-in-the-pans, to just rent to buyers in 3 year increments, not having to focus on ultimate long term reliability and dependability, but it also promotes for the public to view expensive and well engineered cars as beat-up-then-throwaways, etc. It's just not a very respectable format for the automobile.

hyperion667

thanx for the comments all........a poll would be cool...

Nola

Actually, leasing is very much NOT like gambling, in that exactly the deal that is agreed is exactly what is executed. You have complete certainty of the expected costs. You enter a lease precisely when you do not want or can't afford to gamble.

That there is a possible upside for you at the end (buy it out and resell privately for a profit) is just that, an upside, but there is no gamble.

Example of the perfect case for a lease: You have a job, are on a budget, need reliable transportation but don't have cash on hand enough for a good reliable car, or time/skill to keep an old car running properly. Get a lease, budget the cost, enjoy the warranty and forget about car headaches for 3-4 years.

This is the same with startup companies... no need to bury cash in assets and gamble on their future value when you can least afford it.

997 Dude

Negotiating a lease is harder than a purchase, but it is not really all that hard -- there's really only a couple of numbers that move and you can use some nifty online calculators to refine your work, if you are so inclined.

Also, it really isn't a guessing game on depreciation, bc your car almost certainly will depreciate more than the residual value so long as you buy a MB, Bimmer, etc. that subsidize leases heavily. If you buy a new car, it is usually a PITA to unload it without taking a hit. You typically need to do a private sale, which is something I have done in the past and have no desire to do with an expensive car. (As for the guy who sold his car for almost what he paid for it, you simply will not be able to do that typically; there are always exceptions, and the economics of the past couple of years would have created some anomalies.)

FWIW, I paid cash for my Porsche and am leasing the MB. For me, it was not a matter of cash flow, etc. I could have easily just written a check for the car. Rather, my reasons for leasing are (1) I don't want to own the car long term; (2) I wanted to have the option to upgrade to a direct injection engine in a couple of years (after the kinks are worked out) with no hassles; (3) I wanted to figure out if I like MB, dealer / warranty service, etc.; (4) I can afford to keep doing this indefinitely; (5) I don't mod my cars; (6) we drive a low mileage and it is pretty predictable / controllable.

And K-A, I see no moral ill in leasing. It's just one, very easy way of owning the best years of a car's life. It's pretty hard to thrash this car from what I can tell. And, in any case, I have no desire to do that.

This is really one of those things where its just a matter of preference. I used to be an old school buy w/ cash and hold kind of guy, but that makes less sense after getting burned holding a couple of cars that are a pain in the *** to maintain / fix as they age.

Tjdehya

Yes I know it’s not typical to trade in a car for nearly what I paid for it. My point was that you will NEVER walk out of a Mercedes dealership with a 12mo, no money down, $100 Lease... on any of their cars. But I essentially did.
Do I expect that to happen again? No! Not even close.
How did it happen? I have no Idea!
But I have much more freedom to do what I want, when I want.

Question: When you lease, what do you pay taxes on? Total price of vehicle, residual, or total lease payment?

E550Shopper

Nola: You're right in that you get known cash flows out of the lease, and a lease is less risky than a purchase. But, at least on average, these known cash flows have to be worse than some (amortized) cash flows from a purchase. Johnny Mo's point is that this only ends up being a win for you if you "bet" correctly and the car ends up being worth a lot more than the residual value (or, if there's some major issue with the car). In that sense it's a gamble to lease.

997 Dude: Fair enough that various calculators can help a lot. But, at a minimum, as you note, you're unloading risk to the dealership (and also taking on convenience for yourself) when you lease a car, and implicit in the lease terms you're paying them a premium to take on that risk (and also inconvenience).

Maybe I'm saying something trivial here: That leasing on average is worse for your pocketbook than buying. It may still be a good deal for you if you think the added convenience and lower risk is worth the additional cost. But if all you're looking to do is save money, it seems to me that it's almost certainly better for you to buy.

hyperion667

very easy way of owning the best years of a car's life.

997 Dude

This is what I meant..........you don't OWN the car..............
just like a mortgage.......the bank owns your house, until you pay for it.......

my opinion

K-A

Of course, that's the technicality.

But what do you really own anyway. We don't even own the future to our own lives!

I owned my W211 outright, and my W212 is Leased. I don't "feel" any different about them. Of course, if I ever tired of my car, I'd probably switch into "Lease Mode" mentally, and not care about it, treat it like a Rental, stop babying it, wait until the months run out so I can get a fresh new car.

Otherwise, considering I'm not living "month by month" financially (thankfully, knock on wood), if I want to feel the fuzziness about owning my car, I just see it as me buying it brand new, and keeping that cash in my Bank/liquid, as opposed to tied up in a car, and buying it through a long and drawn out process, paying extra for the "luxury" of having that cash on hand (of course, this is considering that I buy the car after the Lease, which is a whole other subject on its own).

A C

Interesting posts.

I'm on my 5th MB lease of 6 cars in the past 15 years.

It is the opposite of gambling, you know all the parameters, zero risk. I really think it was created to make dealers more money and get folks into cars they normally could not afford. It is more complicated, but has many benefits. Good example regarding risks and benefits; 2007 e350 lease with a $40k residual was only worth $28k at lease end. Had I wanted to get out of the car it would have been a 12k bath in Dec '09. Lease = walk away.

I lease in December typically because that's where trunk money lives. If I want the new model it's there and last year's is on the way out at full residual. Want a better deal, get the outgoing year. My last E350 (2009) was leased at $14k back of msrp and .0003 mf. Dirt cheap with a 52% residual for 36 mos.

I have purchased/leased 4 MBs from the same dealer so they do work with me. I've also leased demos and purchased one (E430).

If you don't drive >12k, don't mod and trade in less than 5 years time leasing makes sense. Many people don't pay attention to the tax part - with leasing you only pay tax on the payment, big impact if you're in a high tax state. On that alone I save $3k per car txn.

If you negotiate well you can get the outgo down to less than 1% of the msrp per month. Buy and hold for 10 years is cheaper, but I like newer cars. My goal is always to pay the least for a depreciating asset and I like to drive a new car every couple years.

K-A

What I don't get is when you Lease, part of the down payment usually consists of "Tax & DMV Fee's", so aren't you paying Tax on something other than the monthly payment every month?

park423

License/DMV fees and or registration are one time fees, future regis. fees are billed by the state, sales tax is charged monthly based on your payment amount. You do only pay sales tax on portion of car you use over the lease period but it doesn't matter, you can pay $600/month with no down every 3 years or $1200 a month for 6 years with no down and deal with out of warranty issues and the itch to get a new and better car. The way I see it, lease every 3 years or buy and hold for 8-10 years.

MatOhio

The dealer is NOT assuming any more risk with leasing vs. selling the vehicle to you. When they lease it, the leasing company is buying it from the dealer - if it is MB Financial, they assume the risk on the terms of the lease, not the dealer. In either scenario, the dealer sells the vehicle and is out of the deal. That is why you can turn the vehicle back in, at any dealer, at the end of the lease. The dealer you got it from generally prefers to get it back, so they can have first crack at opting to keep it (i.e. the really low mileage, primo condition vehicle with an attractive residual). If not the case, they just move it and get paid to do so by the leasing company (owner of the vehicle).