Ferrast

Does it ever make financial sense to buy (rather than lease) an MB S class or any other vehicle selling for $100k or so? My guess is that unless I am willing to own the vehicle for 8 years (assuming that maintenance costs aren't too high), it may not make sense. I only ask this question because it seems that you cannot take advantage of the historically low interest rates unless you buy.

Thank you.

BigHat

Hi. I guess the answer I'd offer is the cost of money is the cost of money. Neither leasing or financing is automatically the best approach. Over time, I have found the current financial climate at the time to favor both purchasing and leasing. I concur with you that financing seems a bit more transparent than leasing and often times the slightly more complex nature of leasing allows money factors to exceed the equivalent finance interest rates. When I last acquired a car (year ago) no one could rival my credit union on the cost of money. Of course, there are a number of other factors commonly debated here and elsewhere that make leasing more attractive to many, especially if some sort of tax advantage exists for them. No question, most of these cars are leased.

Ferrast

If you are an individual who does not obtain any tax advantage from leasing, is financing typically a better deal than leasing (since the money factor is not competitive with existing interest rates)?

Quadcammer

I wouldn't bother...then again, you get killed on depreciation in any case. Unless the car leases really poorly (unusually low residual)

Kratos-TM

The money factor right now is ridiculous and makes leasing a non-advantageous option.

BigHat

I'd say the tax advantages do push many business owners and sales people toward leases. For the rank and file customer, leases are primarily attractive for three reasons in my view: 1) can drive a pricer car for the same monthly payment, 2) hassle free turn in and no downside surprises on valuation, 3) preserve cash that may be required /desired to reduce loan amounts during financing.
If you workout an equivalent deal (price) on the car, the interest rate and MF are the same and the residual is accurately calculated, then the lease/buy options are a wash.
I used to analyze every financial decision 100% dispassionately, but the reality is that we all have "baggage" that impacts these decisions. For example, some just can't get past the point that they "don't own" their leased car even though one could assert the same when the bank holds your title. Some like to monkey around with aftermarket items and that can be more problematic with leases. Purchasing frees them mentally to do whatever they want with the car.
I think that if you get the deal you want and financing you like, there is nothing wrong with buying the car rather than leasing it. The buyer of the car when you're done with it will not be offering more or less for it just because it was leased or purchased.

Quadcammer

my opinion, if you are gonna buy, buy a 1-2 year old CPO car with a few K miles. You'll get a basically new car, and don't have to eat the brutal depreciation in the first few years.

AppleFan1

In my case, I HATE monthly payments. Thus, I decided to pay cash for my new s550. It's as simple as that.

BigHat

^^A classic case in point. I did the same.

My hate for making monthly payments actually led me to walk away from a 1.49% interest rate for 72 months. May have led to a spirited debate in an MBA seminar, but it's one of those intangibles that are as valid in determining a financial course of action as the cold financial details.

schuk

So basically there are 3 different options which can help you to decide to which category you belong:

Option 1. You are rich and don`t know what to do with all the cash laying around then dropping over $100K for the ride is the right option for you. It doesn`t make sense paying extra cash for the interest rate.

Option 2. You lease the car, pay no tax on purchase, pay lower monthly payments and saved cash re-invest in business and get much higher returns then 1.49% financing, write-off lease payments as a business expense and after lease end just drop the keys at the dealer. However, if you still want to drive the same car you have an option not to turn it in but to buy it from MBF at a market value. At the end all you did is just financed depreciation of the car plus small interest.

Option 3. Buy/finance a used car and let the rich guy to pay for the depreciation of the few first years..... Or wait, and a warranty... and brakes... and transmission service and whatever all these failing and glitching electronic crap they put in the dashboard. Write down all the extra expenses for 2 years then add together incl. purchase tax, warranty cost and deductibles on service repairs - divide total by 24, add you current monthly payment and compare to a lease payment for a brand new car (see option 2).

shortspark

I have gone through this debate most of my life. I have concluded that in most years and with most financial considerations factored in (ie, interest rates, residuals, depreciation rates of specific car, incentives, rebates, etc., etc.), it is usually better to buy than lease. This may not hold true of a business where the decision also may have tax ramifications. It also may not hold true due to collateral considerations, eg, credit ratings, cash flow, cash availability, etc. It will most certainly hold true if you are a modifier of your ride or if you have a history of dinging and scraping the car, all of which will come back to haunt you when you turn the leased car back in.

Since I found it better from a mental well being point of view, as well as financially more sound, at least in my case, to buy rather than lease, the question then turns to how to pay for it. This becomes just as problematic - how much do you put down, how much can you afford every month, what can you turn into the loan from MB or the credit union or the bank or finance company (such as extended warranty and maintenance agreements which some lenders will allow and some won't), etc.? I guess you could go on forever because this issue can become rather complex and it all boils down to what an individual wants and is capable of doing - no single answer fits all situations.

In my case, because I have decided buying is right for me, I go back to what my father said and in fact what he actually did all of his life - if you are going to buy something save up for it and pay cash. I know things have become much more complicated than they were back in my dad's day but that has always been and probably always will be the best course of action for most (but not all) people and situations.

DaveVY

I agree

Although the pure low cost of capital can make a compelling argument for financing or leasing it doesn't account for the broad assumptions that are made about the future cash flow needed. What happens if economics suddenly change (macro or personal job) and payments are too high? You end up losing the car. But if you save up ahead of time for a purchase and pay cash you don't lose the car if you lose a job. IMO, saving is the best solution. I once had a period of unemployment which has impacted my views on this. But I also understand why others will finance or lease.

And yes, there is a S550 in the garage with no payments on it.

BigHat

As expected, smart and financially clued in people abound here. As many have said, what's "comfortable" for you is an intangible factor and only the "buyer" knows just how much it means relative to the cold calculations.

If I can be so bold, I think we can all agree on one point -- we're all very fortune to be thinking about how one should best procure $100K+ automobiles.

drsaab

But you forgot that the purchase has a value at the end of the 24-36 mos that you get back in selling or trading, In a lease there is nothing that you get back turning it in. So you may purchase at $50,000 and it may be worth $30,000 at 36 mos for example.

If your going to change cars every 24 mos, you lose no matter which option you choose

the other limiting factor is mileage on leases. High miles cost alot.

BigHat

This really isn't accurate in one sense. If you paid cash or financed the vehicle you BOUGHT the residual initially and then you get it back on sale or trade (hopefully). When you lease, your payments cover the cost to finance the residual but you don't "buy" it -- thus the lower monthly payment. To use your example, you don't get $30K back after 36 mos, but the $30K never left your bank in the first place either.

Mileage is typically a wash for the informed lease customer. A car exposed to the used market is worth what the market says it is independent of if the means by which the first owner acquired it. High mileage drops the value. If you lease a car for 12K per year and are mindful you're going to drive it 20k then you're just stupid. Buy 20k per year mileage up front and it's typically a wash. Mileage is only expensive when it's penalty mileage.

schuk

Please don`t get offended but everything you just said just make absolutely no sense to me. There might be a logic (mental however) for a person who lived through a Great Depression but this is a different world we are living now.

If I would follow your respected father advise I would still be renting!!!
I don`t want to live in a ghetto and there is ALWAYS a better and bigger house in a better area (in this country at least). Without going into macro-economics I say that I want to finance my wealth being, for a fraction of an interest rate I can significantly improve my life style! That`s why we have credit ratings, that`s what moves economy. Following your logic makes absolutely no sense buying $120,000 car!

schuk

I don`t want to be harsh but let me brake this news to you: we don`t own anything in this life - It`s all rented and eventually will be passed on a new buyer.

BigHat

I know your post isn't referring to me, but the one above with the comment you cite. Understand one thing that's often viewed as a major distinction. Leveraging your resources (financing) to buy an instantly depreciating asset (car) is vastly different from doing so to acquire what is most often is an appreciating asset (real estate). That said, you hit on one of those "feelings" that illustrate why people do different things when it comes to a purchase. No right or wrong.

If everything is renting than why aren't you renting your house? Many people feel they "own" their property.

schuk

I was to comment on that but BigHat laid it out better. I would only add that even if you got a 12K miles lease and had to put 20,000 miles and had to pay $1,600 in fees it`d still be the same as if you financed and your car depreciated because of high mileage by aprox. same amount.

schuk

Let me correct: you are BETTER OFF on going over mileage on a lease that financing. Per KBB 2011 S-Class with 24,000 trade-in value $39,912. Same car with 40,000 miles - $37,090. $2,822 value depreciation vs $1,600 lease penalty!!!!!

BigHat

Interesting observation and frankly one I wouldn't have thought true. Good post.

Maybe it's just me, but I have the opposite issue with a very short work commute and multiple vehicles. I can buy no fewer than 12K per year (credit union lease) but rarely expect to put 8K on the car. I have no smart exit plan from a lease other than to buy it for the residual and hope the lower miles helps me recoup some $$. It rarely does as the wholesale vs retail margins eat it up -- plus the hassle of a private sale. Another minus on leasing for me.

schuk

BigHat you beat me by a minute, I wasn`t referring to you.

Think that - I pay mortgage that will never be paid off in my lifetime. And even if I could I wouldn`t because it wouldn`t be smart for me as I am not rich but a start up capitalist who can always implement extra liquid cash in credit tight financial market.

I choose to get a mortgage on a house (and not to rent) to keep a piece of mind that no one can discontinue my lease and throw me out (except lender if I get behind pmnt) plus I can modify my house as much as I need without asking landlord permission. Makes sense?

schuk

Why don`t you just get a 10K miles lease and at the end lease a new car and avoid option 3

Nice thread, wish I could spend here all day proving my points but gotta run take care of business as I am not rich

schuk

One last thing.


So let me ask you this question: when after 2.5 years you decide to trade-in your financed car and find out that your payoff is equal to a fair trade-in value of your vehicle how could you explain excessive monthly payment when compared to lease?

AppleFan1

I am obviously not poor but I do not consider myself rich. My motto has always been, "if I cannot afford it, I don't buy it". IF I were rich, I would probably trade in my cars every couple years to get the latest and greatest. Plus, I would own several luxury cars and not just 2 (my wife's 2010 RX450h being the other).

I just DO NOT like owing money to anyone. In fact, we paid off our house that we built back in 1981 (15.6% interest at that time, refinanced to 11% a couple years later) in 7 years. That's me.