The other side of the coin is that if the cap cost is high and the residual low, the fixed depreciation component of the lease payment will be much more significant than the interest component. This means that getting a few thousand off the lease price can have a bigger impact on payment than reducing the MF a little. It pays to do some calculations beforehand to arm yourself with the affect of both.

 

I've been through the comparison a few times and it doesn't seem that the payments are that different for the car to justify leasing. I don’t have a business so I can’t deduct any payments.
Every time I go to do the financing and do the comparison the monthly payment is less then 100 dollar difference. I've been averaging a new car every 2-3 years and I'm usually ahead when I trade my old Mercedes in versus not having anything to show at the end of a 2-3 year period.

 

I've been wrestling with the lease vs buy for a long time. Every time I get into a lease I regret it because I hate watching the odometer.

If the business tax write off thing is NOT a factor for you, the lease is only a good deal when MB "subvents" it (dumps a lot of money into it and makes a super deal).

For instance, When they were blowing out the old body style S class, my dealership had a $499 a month lease for an $80000 S class, 27 months, 10k miles a year, $3k down. There was also a deal for a 4Matic E 350 for $399 a month, same terms. When you add up all of the payments on those deals, in 27 months, you'll lose that or more in value compared to owning it. You'll save on the taxes because you're only paying sales tax on the amount paid, not on the whole car. And the point about any body damage is an excellent one because even a minor fender-bender will have you "bent over" when you go to sell it and that shows up on a carfax.

So I'll lease but only when MB makes it worth it. Their everyday lease rates are NOT a good deal for a personal buyer.

 

IN my opinion, don't ever buy a car hoping to sell it down the line. MB have such fast depreciation that its just more comforting to take a lease you know what your total payments will be and You have a definite buyer at the other end. On the other hand, if you have a car that you can sell really quick there is a good reason to buy it out right.

The 599 is there everyday rate..When it hits below 500 , then, you have a good deal.

 

I see most MB leases are 27 or 39 months. Has anyone done an analysis on these 2 products as far as financial considerations? I know the 27 month costs more because you are absorbing the biggest depreciation in the first year. I assume it just boils down to personal preference if you are willing to pay the extra to keep it only 27 months.

 

I decided on a 27 month lease with 10k miles per year with my main motivation being that I wanted to flip into the latest hot car with the newest technology 2yrs to 3yrs from now. I would have happily purchased the car with cash had I thought it was a "sure thing" better deal than leasing, but after finding out MB was offering a very high 73% residual in August(for comparison the residual on the new '07 Audi A8L was 64% at the time for the same 10k miles per year, but only 24 months, not 27 months). It was a no brainer for me to take the lease deal. This was two months ago. I'm not sure the residual is still that high because they tend to reduce by 1% or so over the model year. I checked '05 s500's on Ebay, cars that would be 2yrs to 3yrs old now, and saw very few bids on any of the dozen or so '05's offered for sale and I can't exactly recall but most were MSRP 85-90k cars and bids were no better that mid 50% of MSRP which made me think that 27 months from now the wholesale value of the 95k S550 I just leased will be somewhere in the 50-60% of MSRP range - so that 73% residual was way subsidized and even thought the money factor was very high, .0039 at the time - around a 9% interest rate equivalent - I felt it offered a better deal over buying and I don't have the resale headache or the chance to get robbed on trade in.

If you want the quick math here u go: I got a 3k discount on a 95.7k car and took on a 27 month lease with a 73% residual, a .0039 money factor. bank/registration fees were 1k, I paid 3k in cap reduction, a 595.00 return car fee, and NJ USA state taxes of 7%. I calculated my "all-in" cost to be 44k over the 27 months. Simplified, I wrote a check for 6,000.00 on the day I picked it up for bank fees, first months payment and a few thousand in cap cost reduction(so i could get an even 1450.00 monthly payment). After that I have 26 months of 1450.00 a month payments(which includes taxes), a 595.00 return car fee and I'm out all in 44,295.00 (6000.00 + 26 months of 1450.00 + 595.00 = 44,295.00)

If I bought the car with cash and sell the car 27 months from now for 55% of the MSRP(55% of 95.7k = 52,635, which is what I believe my car will wholesale for 27 months from now) then I'd be out what I paid for the car, 92,700, less the depreciation, 40,335(92,700 - 52,635 = 40,335), and the taxes on the purchase, 6,489(7% of purchase price, 92,700 x .07 = 6,489). I'm out 40,335 + 6,489 = 46,824. So in this case my lease deal BEATS buying by over two thousand dollars! Now imagine you finance some of the purchase instead of paying cash, and the costs quickly add up and you can be out over 50k all in over 27 months if you buy the car and sell it in 27 months.

My educated bottom line opinion: if you are deciding on buying or leasing AND you want to get a new car two years or three years from now AND the residual is around 70% and the money factor is .003** or lower then lease is the way to go.

 

this is simple, great info for us non-bankers.....i will use this when deciding on leasing vs buying when my car arrives in a couple of weeks.

thx very much

T

 

That's a good analysis, though don't forget to factor in the investment of the capital (downpayment or cash purchase amount) that you save upfront in the lease and that you save if you finance a good portion of the purchase.

If you KNOW you will want another car in 2-3 years and you KNOW you can stay within the mileage constraints of the lease, then the lease is the obvious choice (combined with other reasons mentioned in earlier posts), even if you don't have the business write off option.

If you like to keep your cars and/or you KNOW that you drive alot of miles, then a lease is not for you.

 

Just forget all the complicated math equations! Here are SEVEN black and white, plain and simple reasons why leasing makes more sense than conventional bank financing or paying cash:

1) You don't tie up precious capital in a heavily depreciating asset that could otherwise be WISELY invested in something that appreciates and at a much higher rate of return than the lessor's money factor %.

2) Most monthly lease payments are structured so that it precisely equals the rate of depreciation; the exception being something like the last CL series which took such a hit, most lessees are upside bigtime after a 3 year lease (but that's STILL better than having paid cash and watching it ALL go down the tubes; at least a dealer with whom you have a good working relationship can bury the negative equity into another deal and you just pay it off & amortize it over a long period of time in which you can still get the deduction and barely notice the hit). Of course, if you want to keep the cash and don't care about your credit, just screw the lessor and walk away!! Then, put your next car in someone else's name and credit the next time around!!

3) The obvious tax benefits, especially if you own your own business.

4) Little or no up-front down payment (cap reduction) to come out of pocket.

5) Sales tax on the vehicle is amortized over the term of the lease, whereas if you pay cash, it's 100% out of pocket - nothing for you to benefit on there!

6) A lease is the ultimate asset protection mechanism. Better than offshore, in fact. For one, you, as the lessee, are technically NOT the registered owner of the vehicle - that's one major advantage. Most people don't even realize this. In an lawsuit, or if the IRS is after you, the 3 major assets they try and seize or lien or attach are - your home(s), your car(s), and your bank account(s). NEVER, NEVER, NEVER leave any positive equity in anything with your name on it! A maxed out lease on your vehicle, just like the liens on your home, will render you a waste of time to pursue. A plaintiff's lawyer will realize this as soon as they do an asset search. Never leave yourself exposed with more than 10% equity in any standing asset to which you have 100% title!

7) With body styles changing and a car's lifeline getting shorter at an increasingly exponential rate, not to mention the perpetual competition from other brands in the same categories, it makes no sense to sink a lump sum of cash into a car whose styling as well as technology will be totally obsolete within 3 years. All the more reason to lease the car, enjoy it, then dump it for the newer, better model, or another brand - by rolling the lease (another dealer accomodation) so you don't even feel the change.

CONTROL EVERYTHING - OWN OR HAVE EQUITY IN NOTHING!

The bottom line is LEVERAGE, LEVERAGE, LEVERAGE. O.P.M., baby - Other People's Money. Never use your own. Let someone else hold the bag!

The only exception to this rule is IF AND ONLY IF THE VEHICLE IS AN APPRECIATING COLLECTOR CLASSIC ASSET & YOU GET A HUGE DISCOUNT BY PAYING CASH, OTHERWISE IT SIMPLY MAKES NO FINANCIAL SENSE TO EVER PAY CASH FOR ANY BIG TICKET ITEM, ESPECIALLY 99% OF THE CARS OUT THERE!!!

 

You make some excellent points! I have never really considered leasing, but now I am...

 

Me too. That is one of the reasons I started this thread--to get the great input we have thankfully received. I was a "cash guy". I wanted no debt. I made a lot of good financial decisions using the OPM concepts long ago but lately I have wanted to avoid all debt. Maybe you do that when you get older or maybe after you have already "acquired" it--who knows. But anyway, after i saw what I was going to get on a trade-in on my 2003 SL500 (whch I bought for cash) I started re-thinking paying cash. I mean, no matter what, you are going to lose XX $$ every month to depreciation, which is like a payment that is made for you--if you know what I mean. That, coupled with the hassle of trading in the car and getting hit with a bigger depreciation factor than you hoped, not wanting the hassle of selling the car myself, possible write-off advantages and getting a new car every 2-3 years pushed me to consider leasing. If my only debt is a lease on a "wasting asset" then I am okay with that. If not, after 27 months, I can always pay cash for a new S class Just my 2 cents, Jayhawk.

 

He posted a great reply. Tellin' it like it ought to be!

 

bump for comments on this deal....this includes about $1000 shipping to my house

Dear Todd,

MSRP $103,500, discounted to $100,000. 7% Florida sales tax included in the payment.

39 months, 12,000 miles per year $1825 with $1825 total due at delivery. 58% residual, money factor of .00390

48 months, 12,000 miles per year $1691 with $1691 total due at delivery. 50% residual, money factor of .00390

 

I used to be the same way, I used to wait until I had cash. This is why it took longer for me to get my last car. But now, Like the poster said before you , basically by leasing you don't put yourself into a huge debt at any point, ...like he said, IF YOU KNOW that you are going to want to get another CAR in another year or two, Which is probabaly most of the Car fans here....you don't want to put yourself into that much debt ...you don't want to potentially be left holding the bag if there are no buyers..plus you don't want to potentially be paying more depcreation if the car is hit hard like the previous CL series... the potential negatives out weight the positives ( which is not that of a positive considering..you are probably not going to keep the car for life and will want to change later on)..the only except is if you get a GREAT deal to buy a car that you know you can sell later on

 

YIKES!!! First off, 39 months is a long time and 48 is a LONG long time. Is that what you wanted? Also, you're going to pay $73000 to use the car for 3.25 years? Holy crap! Will you adopt me please? (or did I misunderstand something in those numbers?)

Like I said above, the only good lease deal is a "subvented" lease (one where the mfg kicks in a BOATLOAD of money). IMO you would be MUCH better off buying vs. leasing at those numbers. Is the car going to lose $73k in value in a little over 3 years? If so, I wouldn't want it either way (even if I was rich!).

But then again . . . I'm the frugal one.

 

Doc:

I really hate to say you are not getting a good deal but I think you really want to know how we really feel about your deal so.....I do not think those are good deals based on the quotes I received. First, I would try to do better on the price. I would aim for a $4000 or $5000 discount. Markets vary and certainly the desirability of the particular car will affect your deal. I understand Black AMG sports are in very limited supply right. (Believe me, I know).

I was quoted about $1700 for 39 months with 0 down and about $1900 with zero down for 27 months--with 15000 annual miles. That was a vehicle with a msrp of about $105,000 discounted $4000-$5000. (I had 3 dealer quotes)Dealers clearly "add-on" to the leases and re-coup some of the discount they give you on the msrp. I think in your case, they are "adding-on" too much.

I think you should pay no more than about $1700 with 15000 annual miles for 39 months--with 0 out of pocket except for lic/reg.

You could also check out leasecompare.com which is on this forum to see what rates they have for you.

Good luck.

 

Thx guys....when i told him i wanted a residual of 73%, this is what he counteroffered. I havent agreed to the deal. The deal im being offered is $3500 shipped by truck to my house, or i can wait til the end of the month for $4500 off locally with who knows what rate. If i can negotiate a good lease rate now, then i might take it. The car im being offered now has the drive dynamic seats....which i kinda want. I also dont want the pressure and $1000 deposit at risk when the car i ordered arrives early December, and then i have to haggle with the finance guy. What a waste of time.

thx for the input.

T

 

You're missing the key to actual frugality by limiting yourself to the aspect of condensing and present-valuing all the payments as if that cost of borrowing was paid up front. Loan and lease interest cost is relative to time. And so is investment interest. You need to understand the TIME VALUE of MONEY and LEVERAGE. If you expend a lump sum of cash, you lose the time value of accrued interest in advance the same if not worse as the interest cost of borrowing over time. Thus, if you amortize the lease out + the fact that you're only paying for the car while using and enjoying it and spreading that usage out over a long time period, which is a non-mathematical value-added, so long as you're INVESTING (the key here) the lump sum of cash you're saving that you'd otherwise be throwing away (thus earning a negative return) into this heavily depreciating "asset" and getting a HIGHER return than the money factor on the lease, then you will ALWAYS come out ahead on the lease.

Again, the key formula on a lease that will always put you ahead is to make sure that (i) the lease payments equal the amortized depreciation based on historical statistics for that particular model, (ii) that you leverage as much as possible and limit the cap reduction as much as possible, thus preserving your cash, and (iii) that you invest the liquid cash in an instrument that will exceed the interest rate or in lease terms, the money factor of the lease.

The only exception to this rule is, again, if you're bidding on a limited edition collector classic or deeply-discounted vehicle in which cash is mandatory to close the deal. I'll say it again, NEVER dump cash into a car deal that is at market price AND is destined to lose over 50% of its value (most all production Mercedes) within 4 years!

 

All this science . . . I don't understand

It's just my job . . . 5 days a week

A . . . never mind! You get the idea! I'm sure that what you wrote is sound and factual in a general sense but when you plug those numbers in (the ones mentioned above that I commented on), do they fit in your "model?" I still say a much, MUCH better deal can be had.

 

There are ALWAYS exceptions to what I'm stating and not all leases are alike nor do they always provide a better deal than alternative financing or cash. Only if the lease numbers are the same if not close to what I'm talking about + you follow the other parameters (like investing your liquid cash at a higher return) will it work 99% of the time. I just think that a buyer needs to be educated when it comes to leasing BEFORE setting foot in the dealer's shark cage and gets bamboozled with a great-sounding deal; believe me, they are NOT doing you a favor; anything THEY suggest only benefits them. That's why you need to know the lay of the land and need to tell them what you want - not the other way around. Otherwise, you take your business elsewhere. That's when they'll usually bend.

 

Mercedes will subsidize the lease with low 70% residuals and low money factors to move inventory at this time of the year, be very weary of the $1000 lease deals you see on the internet, Ive yet to come accross a real lease price less than $1200 and we discount S550's as much or more than anybody.

 

I would like to learn the ins and out of leasing (and this definitely looks like the place!).

I guess the reason I feel any 4 digit lease payment is too high is because of that $499, 27 month deal when they were blowing out the $80k 2005 S cars (3 or 4 k down, 10k miles per year).

I would have jumped on that except I really want a Diesel.

 

Ok...i understand what you mean by keeping your cash in a higher investment. I have heard that "cash is king" before. But if i finance the entire value of the car(which i always do) then i am still keeping my liquid.

My next question is....is MBFinancing the only place to lease? Im getting the same mf and residuals quoted. Leasecompare.com doesnt have great deals either...

Lease Offers Residual Money Factor Payment
Bank Lease B (42 Month) $37,638 0.00230 $1,699
Bank Lease A (39 Month) $39,474 0.00224 $1,750
Bank Lease A $42,228 0.00224 $1,800
Bank Lease B $41,310 0.00230 $1,838
Bank Lease C (39Month Spec) $33,048 0.00300 $2,069
Bank Lease C $33,048 0.00300 $2,208

Comparable Finance Payment (7.29% APR) $2,946

 

Hey Doc:

2 points:

(1)Yes, if you finance 100% you are keeping your cash but you are taking a risk your car might be worth less than what you owe when you want to trade up to a new car.

(2)Based on 3 dealer quotes I received I believe you should be able to get a 39 month lease for less than $1800 per month with 15000 annual miles and zero out of pocket (except you pay license and registration).

Obviously, if you really want the car and you can't find one at the above rates you can just do the deal and "forget about it" and just enjoy the car. Good deal, bad deal.....we all have some of each. Just have to move on sometimes.

 

Conventional bank financing is a sort of a mix between paying cash and leasing because with each payment, the principal increases so that by the time the loan matures, the balance is zero. Same mathematics as your conventional fully-amortized real estate loan. Moreover, on 100% financed deals, you can build equity over time rather than coming up with a lump sum down payment. Another tidbit is that you can usually pre-pay/terminate and payoff the loan in full WITHOUT any penalty or termination fee, unlike most leases. However, the trade off, is that you are having to come out of pocket more each month when you are comparing with like lease rates and terms, something guys like me that want to have the cash working in something else that's making us money - don't like. The solution is to therefore amortize the loan payments out over a longer period of time, taking advantage of the leverage, so that the monthly payment equals or is less than that of a lease! The only loan company I know of out there that beats leases all to hell, has no pre-pay penalty, has terms up to 144 mos., and competitive rates is Woodside Credit www.woodsidecredit.com. Unfortunately, the only Mercedes they will finance is the SLR. They won't touch production non-exotics, probably because of the steep depreciation in the first 3-4 years unlike your average Ferrari, Bentley, or other limited-production exotic.