white_raven0

When time value of money is taken into account, leasing becomes more financially attractive, and more so as rate of return increases.

Let's look at a simplified example.

Assuming you purchased a car with MSRP $X with 10% discount, and to be paid off with a 4 year loan, assuming no down and equal monthly payments. Then accounting for a simplified and reasonable APR, you probably end up paying 100% of X in 4 years.

Now let's say you leased the car instead, and repeat so every 3 years. You leased the car also with a 10% discount, with 60% residual at the end of 3 years. Due to lease finance charges, you pay say 40% of X in 3 years (so 1/3 more than just the 30% in depreciation). This means that it will take you 7.5 years to pay X.

The present value of the 2nd cash flow, assuming the same discount rate as the 1st cash flow, is significantly less than the 1st due to being longer in term and thus more discounted.

In this case, you have ended up paying less, in PV, for 3 new cars, over 7.5 years, compared to another person who purchased the first car with you at time 0, and driving it for 7.5 years into the future.

This is not even account for cost of repairs, which are 0 on the leases, and >0 on the purchase.

Thus, if you find yourself in a situation similar to the above example, you are virtually always better off leasing compared to buying.

Mplayers2006

Now I Dont claim to know the car selling business. I'm sure you can teach me and most of us a thing or two but some years back, my ex-girlfriend was looking for a car and we visited some used car lots where cars ranged from 3K-10K. The owner told me the price is fixed and he would not go any lower unless I was paying all in cash.

I don't know how the back end deals work when financing a car. Maybe the dealership gets the full amount for the car right away or maybe a check is sent bi weekly or periodically. If a payment is sent right away with no fees associated to the their payment then I can see how cash is not king.

Mplayers2006

So you dont have to pay for brakes, rotors, tires, windshield whipper blades, & does the dealer pay the property tax?

MTrauman

WOW! You have sold over 100,000 cars personally yourself? Either a big
is in order or you are the only salesman at Fletcher Jones in Newport Beach, CA (largest volume new car MB dealer in the US). Sorry to question this but as a CPA with a law degree I can spot a mile away.

thefisch

Thanks for sharing that article. I fall into the category of having preconceived notions about leasing even though I have never done it. My father always said that leasing was just another way for the dealers, car makers and banks to make more money so how could it ever be good for the consumer. Rather than only selling to the limited supply of buyers who can afford and have desire to purchase with cash and/or loan financing, leasing was allowing them to find more buyers who could afford and desired to 'rent' the car for some time/miles. Sure there is an option to purchase at the end at a predetermined price, but all these lease returns allows the car dealers to potentially have more control over the used market and the residual values.

But reading this article and some others informed me that there are situations where leasing is to the advantage of the buyer given their financial or tax situation and perhaps, more rarely, smarter than buying depending on the car and residual value. I get it if you have a business that can deduct the lease which seems easier than depreciation and recapture. In that case, it's not unlike leasing other business equipment like copiers, machinery, etc. Cash flow is king and debt can choke that. I also get it in certain financial situations where monthly payment and little to no money down is important to folks. And I also get it if you desire to drive a new car every two or three years and this is more convenient and financially safer for you than buying and selling every few years.

I guess I just don't fit one of those categories. I try to buy cars that will last me at least 6 years and that I can afford to pay cash for or get a shorter loan of 4 years or less if the rate is within ~1% of CD or money market rates. Sure I could make a mistake and buy a car that I don't want to keep for the long term due to poor reliability or performance or my needs (not desires) change, but through good research and some luck I've happily kept my last four cars for between 6 and 9 years.

That doesn't mean I haven't been tempted to lease to enjoy the new car experience every few years. It would be cool to get one with options you want to try or bounce around between brands to drive the newest models rather than get the slight refreshed mid-cycle model. But I always think about having 'nothing' at the end of the lease and having to watch my mileage while driving and worry about finding a replacement just because my lease is coming up. What if a new model is coming out and I want to wait a year. What if pricing is not good because what I want is the new hot item and I'd rather wait it out. And where is the pride of ownership - am I really going to put good tires or get the car detailed before turning it in. I fear I would keep it up to the minimum standard to avoid lease end costs without putting to much money into it.

Also, when buying a car, once I negotiate a good (IMO) deal then I am done. With leasing, not only do I have to negotiate a good price on the car, but then I have to navigate the details of the lease and all the various fees at the beginning and the end. Seems like more time shopping and waiting for seasonal lease events.

Anyone convert from a 'buy only' person to a lease person care to share any insight? I keep feeling like I am missing something as leasing becomes more and more popular.

Yogujuhere

I'll keep this short.

In general. Never buy a depreciating asset. Rent it (lease it). The caveat with this is you must take into account the lease deal. If you're trying to lease an AMG car, Benz makes the residual and MF usually very unfavorably.

If you're trying to get a run of the mill car (lets be honest the E300 is the base level e-class), you'll see great number and incentives. Tack on the fact that you're literally doing next to zero maintenance on these cars during the term of the lease other than oil changes and you'll see its WAY better to lease these german cars.

German cars, particularly BMW and Benz have consistently had great lease terms depending on the exclusivity of the car (they probably make like a 1000 e300 to every 1 E63 S.) Take into account lease cash, incentives, auto-pay, one pay leases, multiple security deposits, fleet discounts etc and you'll be WAY ahead of the curve.

JALLEN4

Forty plus years managing/owning multiple dealerships made me responsible ultimately for those sales. Obviously I had many very competent salespeople who made it happen and no I did not sell them all by myself.

JALLEN4

The owner can tell you anything that facilitates the deal at the time. Factually, unless the dealer is financing the unit himself, he presents the paperwork when approved and completed to the lender and is paid.

When the dealer handles the financing or the lease for the customer and the lender, he generally has the option to "mark-up" the rate and collect the difference. In most cases, the dealer will be paid a minimal amount for originating the loan even if not marked-up.

In today's market the vehicle has become such a "commodity" that many volume dealers are making more on the Finance & Insurance part of the transaction than gross profit on the vehicle. The sale of a vehicle becomes a way to have the opportunity to sell financing, warranty, credit life, etc.

shortspark

Leasing makes sense for many people from a financial standpoint, especially those in business, but for me the money factor is not the most important thing. With a lease I must drive a certain number of miles or be charged up the butt for every mile I go over. Frankly, that is BS and I want to enjoy my ride as I see fit, take it where I want and do what I want with it. And by that I mean modifications. If I want to upgrade a stereo system or even just the speakers I really can't do it with a lease. Nor can I pinstripe if I want or do any real modifications to the thing to make a personal statement. If I want to go off road with my SUV I will do it and not worry about every little ding or scratch being looked at and charged for when I turn it in. Again, I want to go where I want and do what I want with my car.

There are other factors besides money that makes me shy away from leases. For example, I bought my ML350 at the end of May 2012. Lets say a four year lease would have been up a month ago and I would have to turn the car in. Well, I want to see some sedans I am interested in but they are not really out yet. I want to look at not only things like the Eclass but also the Lincoln Continental, Volvo S90 and even the updated Buick LaCrosse - all of which are highly anticipated sedans in motoring circles. But they won't be out for a couple more months so what would I be driving now? I would have to settle for something I do not want because the cars I want are not quite out yet.

By owning, I have the supreme luxury, (and one that is very important to me), to time exactly when I trade or sell, depending on the car(s) I am interested in and when they will be available, as well as market factors. Of all the sedans I have been interested in to replace my ML350, only the Jag XF was available at the time the lease would have been up. The others will be available for me to look at in a couple months.

I just don't want to be handcuffed by a lease and I don't care if it costs me a few thousand bucks over the years I own the car. Chances are it won't cost that much anyway. Lease works for some people but my mindset concerning driving and owning what I drive revolves around things other than money - it is different in my case so I do not think leasing would ever work for me.

davezaristo

Thats why I decline everything from extended warranty, perma plate, and all sorts of BS that the stealership trying to sell me on top of the car. Plus, I'll tell them I finance as much as I can and just pay it all off in 2-3 months hoping for a lower sales price by doing that.

Mplayers2006

I could never sink $30k+ in 2 or 3 months in a depreciate asset like a car. My time value on money is better placed somewhere else that could actually gain me interests on my money.

vaishalp

NJ Benz dealers. same range. I almost want to jump on 2016s deals.

AnirInTexas

Here in Dallas starting August 1st;

2017 E-300 sport
$549 a month for 36 months
$3699 Capitalized cost reduction
$795 Acquisition fee
$5043 cash due at signing

makris0000

That's the current lease "special" on mbusa.com

teksurv

$5043 at signing is brutal.

justinm001

Just signed a lease today for my 17 E300 with P3 (without HUD)
Msrp $70,xxx
- $750 mercedes discount
-$4xxx dealer discount
Total $65,xxx plus $1365 for prepaid maintenance

$1000 down was $920 with 12k miles and 36 months. They MB financial wanted me to put $3000 down because of my credit and now payments are $865 and change.

Other dealer had $1135 a month for msrp $72,xxx with 12k miles and $0 down. It was for custom build and they didn't haveven any incentives on the sheet.

damnhotrod

Is that price ($65k) including tax?

TestnDoc

I've leased numerous cars through the years. BMW is by far the best in terms of high residuals and low money factors. MB is so so, depending on incentives, and certain times of year, particularly around Christmas.
That being said, this is the deal I got:
68k car, P3, etc, plus 2yr maintenance
4k down, 1030/mo which includes tax (7.5%); 24 months, 12k miles/yr

justinm001

It was a lease so they tax the monthly payments and not the full price of the car, so no wasn't including tax. I'll see if i can find the lease paperwork and give actual numbers if that'll help.

mjsbenz

The lease prices are just too high for the MSRP numbers.

Wait a few months and programs will be announced.

teksurv

I would agree, excepting those who simply want/need the car now.

justinm001

I'd agree. There's always a premium when buying the brand new technology, especially when there's production issues like with these and the HUD.

Just took a look at my lease paperwork...
my MSRP $70715 - discounts brought it to 66584.40 - rebate of 750 and $3000 down
Looking at my lease paperwork.
Gross cap cost (66584.40 plus fees) = 71061.48
Cap cost reduction 2405.56
Adjusted cap cost 68655.92
Residual 43104
depreciation 25551.92
rent charge 5471.80
total 31023.72 /36 = 861.77
add in the 3750.00 down (750 was rebate) and $595 lease turn in fee the total cost is 34506.95

Saw a commercial saying lease E300 with 5k down and something like $539 a month. I don't see them lowering the price much more than that for a base E300. They really seem to be upping the game for the E class and bringing the C class to be priced similar to the old E. That being said I still haven't seen another E300 on the road but see tons of C classes every day.

ua549

Where are you located? I see more S, SL and E models than C's on the West coast of Florida.

Maril555

That is an outrageously high lease payment. Really in the S-Class territory, or Porshe Panamera, or 7-Series BMW.
I'm paying $540/month for my 2014 BMW528XI, comparably equipped.
My lease is due in December, and I was thinking about changing brands after leasing and buying 8 different BMWs over the last 15 years, but, if no better deals will be available in December, there is NO way, I'll pay that much for the base E-Class.

justinm001

I purchased a loaded E class which is why the lease is so high. No offense but a 5 series doesn't compare to the quality of this. My buddy has a 15 550xi and I had it for the week before buying my E300 and its night and day, even he agrees. Can you show us your lease info MSRP, actual cost, and residual rates for your 528XI. It'll give us more info on how it compares.