JTK44

I have posted many times that never, ever put money down on a lease. Putting money down to reduce the payments can be a huge mistake. Everything, including sales tax, lease acquisition fee, service contract must be in the lease. The only thing you want to pay is the first month plus motor vehicle fees.

Here is why in a nutshell:

If something happens to your car during the lease term, for example it is stolen or totaled, you will lose your down payment: The minute you drive your car you owe more than the car is worth. If after a year you have made payments of $12,000, your car has depreciated more than $12,000. If something happens to your car, there is difference between what your insurance company will pay, actual market value, and what you owe: "GAP"; Gap insurance is included in every MB lease to make up the difference. However when you make a $4,000 deposit, what you owe is actually greater than the value and hence there is no "GAP". The insurance company will once again pay MB Finance and your $4,000 down payment will be used to fill in the GAP.

Similarly if you pay the sales tax upfront, like a down payment, in the event your car is totaled or stolen, it too like the deposit, will be lost - puff in the ether never to be seen again.

see: https://www.realcartips.com/leasing/...ar-lease.shtml

I see that there is dealer markup of $1,350 over MSRP. Make sure you are comfortable about paying over MSRP.

Service contract: You are prepaying for two "A" service, 10,000 and 30,000 miles and two "B" services 20,000 and 40,000 miles. If you fully intend to keep the car for 45,000 miles this makes sense. If something happens or you do not drive as much (less than 40,000 miles) the cost of the second "B" service at 40,000 miles will be lost. However, make sure the service contract is put into the lease. But putting the service contract into the lease it is residualized.

Again: at lease signing all you want to pay is the first month and motor vehicle fees.

jdag

Thank you for the education. I have been made aware of this in the past, but quite honestly and to my embarrassment, had forgotten. I really appreciate you bringing it back up. I will certainly eliminate the out-the-door amount, which would impact the monthly by ~$120/mo. So now looking at roughly ~$1,120/mo.

As for the overall price, I am aware that this is, to be kind, a high quote. My suspicion is that it is a sign of the times as opposed to any particular dealer being overly greedy. Which is why I posted here for input. The education on the down payment was a bonus!

JTK44

Glad I was able to help about putting everything into the lease.

You are correct: Every dealer I have gone to is quoting between $3,000 and $7,000 above MSRP for a 2022 E450 so if your dealer is less than $2,000 above MSRP, in today's market that would be reasonable.

My gut tells me that when you put everything into the lease, sales tax, service contract, lease acquisition fee, for 45,000 miles/36 months, you will be looking at close to $1200 a month not $1100 a month.

After you get the monthly payment with everything in post it here.

Good Luck!

jdag

Yeah I am sure you are right as the less down means the higher payment means higher tax means higher payment. ;-)

Really, it becomes irrelevant at that level to be honest. I know it is not apples-to-apples, but I am quite happy with my GLC at $645/mo. And while I can afford the E, I don't know that I care to bother with something that significantly more costly. I'd likely either buy out my current GLC or get a new one (realizing that the new lease will likely be significantly more than my current one based on today's pricing).

The other thought would be to buy the E as opposed to lease. I keep my cars in great shape (I know, accidents can happen), and generally lease the same vehicle multiple times anyhow. For instance, I am on my 3rd C300 and 2nd GLC300 in a row.

JTK44

Actually no: A down payment is taxable: In New York for example, the tax is calculated on the sum of the lease payments plus any cap cost reduction aka down payment. There is no tax savings by making a down payment.

FYI: I am presently paying $896 on my 2019 E450, 10K miles per year/36 months MSRP of $70,050. For a 2022 E450 exact same equipment, MSRP $69,950 I am now being quoted $1284.

Unless you really want and/of need a new car, this is not the time to either buy or lease a new car. IMO, better to wait until there is an equilibrium in supply and demand.

jdag

Thanks again.

How do you get by on 10,000 mile leases?

JTK44

I live in the NYC Metro area. We use a lot of mass transit and driving distances are relatively short. I put 50% of miles on going to skiing in Vermont, about 3/4,000 miles a year. Without skiing 7500 miles would be sufficient.

My wife's 2018 Ford Edge Sport, 38 months has only 17,000 miles on it.

jdag

Meanwhile, I struggle mightily to stay under 15,000.

teksurv

It used to be (I can't say for certain now) that if you rolled from one MB lease to the next with MBFS that at least a certain portion of any overage miles would be forgiven. Something to ask about. 15k/yr. leases are rough.

Elvisfan0108

This is just me. I don’t understand this at all. Unless this is a business expense, I don’t get leasing. At the end of 3 years, you have put out almost $40,000 and you have no equity or anything. And like you probably did 3 years ago, you are forced to buy a car. Either a new one or your lease. You could finance for 4 years at a couple of hundred more a month and if you chose to sell, you would have equity. I understand the thrill of a new car. My wife and I have owned 37 cars. What we have done really doesn’t make sense. Leasing to me makes even less sense.
You did not mention your possible purchase price at the end.

jdag

In past years, the delta between leasing and buying was (often) much greater. Like I assume is the case with many others here, I absolutely love getting new cars every 3 years, always having a maintenance-free car, etc. I am definitely re-thinking that now though.

Elvisfan0108

I had a 2016 Bmw conv, then a 2018 Bmw conv. Now a 2021 Merc conv. I like new cars too.

jdag

I am not sure I understand your point. I too have had cars of all of those same years, and in fact even a couple of others. And I'd lay dollars to donuts that everyone that frequents this board has many many cars over the years too.

That doesn't change the point that at times a lease was elected, at times a buy was elected. Things change. No more so than over the last 18-20 months, making the decision more complicated (and costly).

My post of the pricing information earlier today was to see if it was aligned with what others are seeing in the market.

Elvisfan0108

I’m just saying that I think leasing every 3 years is more expensive than buying every 3 years. Though, I have to admit lower monthly payments are enticing.

jdag

I do a lease vs. buy comparison every time, and will do it for this decision as well. When doing so, I not only look at out-of-pocket, but also the estimated value of the vehicle at 36, 60, and 72 months (the likely expiration periods of leases or loans). I compare the costs based on monthly, total, and estimated resale (if buying). I also compute the cost of leasing and then purchasing that specific car off after 3 years (I've only ever done that once, maybe twice).

What I don't "compute" is the emotional value of getting a new car! I also don't compute the value of "I'll want a new car in 3 years". So yeah, the bottom line computation is not completely accurate.

Anyhow, my main point of posting this pricing was to get a feel for the legitimacy of the quote. It seemed high, but also seems based on other feedback that it is in line with current pricing out there.

I do appreciated being reminded about not putting any cash down a few posts back.

JTK44

Absolutely not.

Run your numbers and you will see that counting in use of money and sales tax it takes 5 to 7 years before buying is cheaper than leasing. That is mathematical and not in dispute.

If you get a new car every 3 years leasing is much, much cheaper than owning.

Another point is that when you own a very expensive car, in the event of an accident you can easily lose $10,000 worth of value: People buying Mercedes shy away from cars that have been in accident. When you lease the decrease in value because of an accident is on the lessor not you.

Leasing is for people like myself who never want to own a Mercedes out of warranty. Leasing is also a "win win": The lease payment is primarily depreciation plus some interest. At the end of the lease if the residual is higher than the market value than instead of paying or absorbing the depreciation when you buy, the depreciation you have paid is less by leasing.

For example the car you bought and/or leased for $70,000 is now worth $40,0000. Assume the residual is $42,000. If you own you have $30,000 of depreciation. If you lease you have $28,000 of depreciation. If the car is worth $45,000 owning means you have $25,000 of depreciation. If you lease you have equity of $3,000. So this is a "win-win" for leasing.

I assume that most people who get a Mercedes have assets that are earning them income. If you figure just a 5% return, when you buy a Mercedes $70,000 is no longer earning you anything. That $70,000, use of money or cost of money for 3 years at 5%, is $10,500. That must be added into your cost of ownership.

Finally there are sales tax: In New York where I live, sales tax when you buy is on the cost of the car: On $70,000 @ 8.625% that is $6037. Assume a lease at $1150 for 36 months. In New York the sales tax is based on the sum of the lease payments, $41,400 @ 8.625%, $3570. That is a tax savings of $2466.

POI: This is the reason that on Mercedes E Class and above 85% are leased and not bought.

Again sit down with paper and pencil and calculate the actual cost of ownership for three years including cost of money and sales tax vs. leasing and you will see that owning is far more expensive.

Elvisfan0108

When you lease, aren’t you expected to return the car in excellent condition? I haven’t seen a lease agreement but, I find it hard to believe that if you return a car that has been damaged, that doesn’t go against you. Sales tax is an issue.
If you return the car, you have no equity. In your example, you say $70,000 is not earning anything. That follows for the lease payments also, though obviously less. In the original post, $40,000 spent and no equity.
Assuming $62,000. 3 yr financing at 3% cost almost $65,000. Assuming value of $40,000. You are out $25,000. Based on the original lease example. That is almost $40,000. If you return the car, there is no equity. How is that less expensive? I see a difference of $15,000. Even if value is $35,000, there is still a difference of $10,000. Even if you take into account the extra sales tax, it’s still more. Equity means nothing if you return the car every 3 years.

jhpmbusa

ask about MSDs (multiple security deposit) basically you put a deposit of your monthly payment (usually 10x) and you receive the deposit back when you return the lease.

This lowers the interest rate and is quite noticeable on the monthly payment. Only some states do not allow it. I believe NY is one of them.

jhpmbusa

as an example I had a 2018 e300 36mths /12k miles - paid 6000 in MSDS around 1500 due at signing and monthly payment was 515 a month which was a savings of 80 bucks a month due to the msds. MSRP of E300 was 65k. The MSDS of 6k I received back once I returned my lease.

JTK44

Here is what I was quoted by my dealer:

Buying:

MSRP: $69,950
Additional markup: $3,000
Two year maintenance: $1290
Total: $74,140
Sales tax: $6394
Total out of pocket to buy: $80,500
Use of Money for three years @ 5% $12,000
Total cost for three years of ownership: $92,500

To lease: $1284 per month which includes sales tax, lease acquisition fee and maintenance, $46,224.

For owning to be cheaper than leasing, at the end of three years your Mercedes must be worth more than $46,294: This is your cost $92,500 less the cost of leasing 46,224.

$46,294 represents represents 66% of MSRP.

So if you think that a Mercedes after three years, 30,000 miles will retain 66% of its value, then owning will be cheaper. From my experience, the trade in value of a three year old Mercedes is closer to 52% of its value, or $37,000. See KBB.com for trade in value of a 2018 Mercedes.

As to your other concerns: Mercedes has a policy on their leases that any dent, scratch or paint chip that can be covered by a credit card is waived. No more than two such incidents per panel. When you return your car you must have 3/32" of inch of tread life left. Of course if you own and have only 3/32" of tread life you will have to buy new tires. If you beat up the interior you will of course be charged. But keep in mind that if you own and beat up your interior your car will also be worth less.

Another problem with owning is that if you are in an accident, you car is worth substantially less. As an owner you suffer that loss. When you lease, if the car is fixed with Mercedes parts, you are fine under the lease.

If you finance the $80,000 for 36 months @ 3% your monthly payments will be $2327, total for three years $83,772. For financing to be better than leasing at the end of three years your car must be worth $37,150 (($83,772 less total of monthly lease payments $46,224). $37,150 represents 53% of MSRP.

Another point: When you finance over the three year period you will lay out an additional $37,150 more vs. leasing: some value must be given to that money as well. If only 2% per year that is an additional cost of $2200. So your actual cost of financing vs. leasing is $37,150 + $2200, total of $39,350. That means for financing to be cheaper than leasing your car at the end of three years must be worth more than $39,350 or 56% of MSRP.

From an economic point of view, I see no reason to lay out $2327 per month vs. $1284, $1,000 more per month, and then hope in three years that my car will be worth more than 56% of MSRP to break even.. Hope is not a financial plan.

If you run the numbers, owning becomes cheaper than leasing after 5 to 6 years.

There is an old adage that applies: "Own an appreciating asset (a home for example) rent a depreciating asset".

Hope this clarifies.

ALFAitalia

On the other hand see below.......! And just so you know where Im coming from when I bought new cars I never leased!! Im also ex motor trade selling new cars for about 17 years so know a little bit about it and I still sell finance now on RVs.

Disadvantages to Leasing

As attractive as a lease may appear, there are a number of disadvantages:

• In the end, leasing usually costs you more than an equivalent loan because you are paying for the car during the time when it most rapidly depreciates.

• If you lease one car after another, monthly payments go on forever. By contrast, the longer you keep a vehicle after the loan is paid off, the more value you get out of it. Over the long term, the cheapest way to drive is to buy a car and keep it until it’s uneconomical to repair.

• Lease contracts specify a limited number of miles. If you go over that limit, you’ll have to pay an excess mileage penalty. That can range from 10 cents to as much as 50 cents for every additional mile. So be sure to calculate how much you plan to drive. You don’t get a credit for unused miles.

• If you don’t maintain the vehicle in good condition, you’ll have to pay excess wear-and-tear charges when you turn it in. So if your kids are apt to go wild with the magic markers or you're a magnet for parking lot dents and dings, be prepared to pay extra.

• If you decide that you don’t like the car or if you can’t afford the payments, it might cost you. You will probably be stuck with thousands of dollars in early termination fees and penalties if you get out of a lease early—and they’ll all be due at once. Those charges could equal the amount of the lease for its entire term.

• With a few exceptions, such as professional window tinting, you need to bring back the car in “as it left the showroom” condition, minus usual wear and tear, and configured like it was when you leased it.

• You’re still on the hook for expendable items such as tires, which can be more expensive to replace on a better-equipped vehicle with premium wheels.

• You may have to pay a fee when you turn the vehicle in at the end of the lease.

An Alternative to Long Loans

Some car buyers opt for longer-term car loans of six to eight years to get a lower monthly payment. But long loans can be risky, and these buyers might find leasing to be a better option.

Longer loans make it easy to get “upside down”—where you owe more than the vehicle is worth—and stay that way for a long time. If you need to get rid of the car early on, or if it’s destroyed or stolen, the trade-in, resale, or insurance value is likely to be less than you still owe.

Buying a car with a loan isn't the way to go if you want to drive a new car every couple of years. Taking out long-term loans and trading in early will leave you paying so much in finance charges compared with principal that you’d be better off leasing. If you can’t pay off the difference on an upside-down loan, you can often roll the amount you still owe into a new loan. But then you end up financing both the new car and the remainder of your old car.

If your goal is to have low monthly payments and drive a new vehicle every few years with little hassle, then leasing may be worth the additional cost. Be sure, however, that you can live with all of the limitations on mileage, wear and tear, and the like.

Difficult Comparison

It’s difficult to make a fair head-to-head comparison between, say, a six-year loan and the standard three-year lease. At the point the lease ends, the bank borrower still has three years of payments to go, but the lessee has to look for another car—or perhaps take the lease’s buyout offer.

A lease can also be subsidized, or “subvented.” The automaker either takes money off the top with an extra rebate just for lease deals, or it can raise the residual, or both.

An automaker may also kick in extra rebates on a lease deal, ones not available to a loan customer. In addition, the “money factor” (interest rate) on a lease may be different from the interest rate offered on a loan, making an apples-to-apples comparison almost impossible.

Generally, two back-to-back three-year leases will cost thousands more compared with buying a car (with a loan or with cash) and owning it over that same six-year period. And the savings increase for car buyers if they continue to hold on to the car, say, for another three years for nine years total—even factoring expected maintenance and repairs.

If a lease’s limitations put you off, consider buying a less expensive new car or a well-maintained used car, such as a certified pre-owned vehicle from a franchised dealer, or getting a longer loan term. Whether you get your new car with cash, a loan, or a lease, you can save by choosing one that holds its value well, stays reliable, and gets good fuel economy.

For savings upfront and over the long haul, buy used. And pay cash.

Elvisfan0108

I appreciate all this stuff. Thanks to all. Obviously holding on to a car makes financial sense. However, that’s not the way I roll. However, my wife’s car is now 4 years old.
P.S. with interest rates so low, I can’t see paying cash for a car. I financed at 2.34%. I’m earning way more than that in the stock market. Especially with my Apple, Costco and Microsoft stock.
I think I’m smart with finances EXCEPT FOR CARS.

Alan Smithee

I am a proponent of leasing luxury cars for many of the reasons you have been pointing out...primarily sales tax savings (I am in CA), protection from depreciation in the event of damage, and I have a business to run them through.

However, you cannot make the generalizations above, especially the assumption of a 5% return for the next four years. There are just too many variables with leasing. Yes, if you are very aware of them all, you can game it to your advantage. Maybe.

And there are disadvantages to leasing. It's great to get a new car every 3-4 years...but what if you are not interested in a pickup, SUV, or electric vehicle? Choices are becoming very slim outside of those categories...I am quite sure there will not be a wagon option for me in 3-4 years if I lease an All-Terrain. A few years ago I bought a sports car end-of-lease because there were no more new vehicles in the segment available with manual transmissions, therefore losing the sales tax benefit and in fact paying more in sales taxes as a result. And you cannot modify the vehicle. I know, you say, I am not a boy racer looking to hop up my Mercedes. But, for instance, with the All-Terrain's 20" wheels I have ordered, I will immediately buy a set of all-season non-runflat tires, a spare, and jack kit...well over $2k in 'modifications' I will never get back if I lease...in order to comfortably take the 'all terrain' vehicle on ski trips.

Of course, there are also unknowns. 3-4 years ago I never would have guessed my wife would decide to change careers, requiring her to drive twice as much...or that I would be working from home, requiring me to drive less than half as much...drastically throwing off the mileage estimates of our respective vehicles.

Alan Smithee

Many of us have lease terms ending and do not have much of a choice. The current situation will hopefully never occur again, but it just goes to show that it cannot be generalized that leasing is less expensive than purchasing.

JTK44

I am a bit confused:

Back in 2008 I leased a Porsche Boxster: When it came off lease it only had 5,000 miles on it, new ones for our purposes were identical but cost $15,000 more so we just bought it and kept until 2020 when we sold it.

Similarly, because of dealers asking for thousands above MSRP on a 2022 E450, I have decided to buy my car at the end of the lease.

I am no worse off than if I had bought either car instead of leasing: actually for all the reasons I posted I am ahead leasing vs. buying.

As I posted above for someone like me who does not own want to own a German car out of warranty, if I can help it, leasing makes the most sense. (when I buy my 2019 E450 I will weigh the pros and cons of an extended warranty, but I have until December 2022 to decide.)

Of course it is always cheaper to buy and drive your car into the ground if that is what pleases you: personally I like the safety, comfort and reliability of new cars under the manufacturer's warranty.