Leasing?

[Tinton]

Be nice to drive a new 3-series or A4 for ~$400 a month, 15K a year with no maintenance costs or money down.

Yes, but in 10 years you will have paid $150,000 to drive a car that you could have bought for $40,000 and maintained for $1000 a year for a total of around $50,000. Admittedly there is a future value calculation on the initial $50,000 to take into account, but on the other hand you have to inflate the $15,000 a year lease vs the $1000 a year maintenance as the years go by.

It's true that you will have had the use of three cars in the lease scenario instead of the one car in the purchase scenario. But then again, you will have paid three times as much.

I don't know ANYONE who would spend 10 years leasing the same car. My aunt leases and she gets a new car like every 2 years.

And even if you leased for 10 years it wouldn't be $150,000. At most it might be $48,000 total.

Basically its the same as financing a car for a couple years, selling it off almost instantaneously, then financing another car.

[NonChalant]

whoops double post

look down for the edited version

[NonChalant]

Be nice to drive a new 3-series or A4 for ~$400 a month, 15K a year with no maintenance costs or money down.

Yes, but in 10 years you will have paid $150,000 to drive a car that you could have bought for $40,000 and maintained for $1000 a year for a total of around $50,000. Admittedly there is a future value calculation on the initial $50,000 to take into account, but on the other hand you have to inflate the $15,000 a year lease vs the $1000 a year maintenance as the years go by.

It's true that you will have had the use of three cars in the lease scenario instead of the one car in the purchase scenario. But then again, you will have paid three times as much.

I don't know ANYONE who would spend 10 years leasing the same car. My aunt leases and she gets a new car like every 2 years.

And even if you leased for 10 years it wouldn't be $150,000. At most it might be $48,000 total.

Basically its the same as financing a car for a couple years, selling it off almost instantaneously, then financing another car.

Yeah.. I don't quite understand where the $150,000 is coming from. If you lease (3 or 4 different cars) and your payment is always $400 per month

then thats 400 $/month * 12 month/year * 10 year = 48,000

If the car you wanted to buy was worth $40,000 initially, you'd probably end up paying $50,000 or more with financing (unless you got extremely lucky) and in that case you'd have the same one car for 10 years rather than three new cars. A lot can go wrong with a car after 5 years. So to me it makes sense to lease luxury vehicles.

Correct me if im wrong though, I just don't see where $150,000 is coming from.

edit: I actually think I see where you get the $150,000 from. He wasn't saying that adds up to $15k a year, he was stating that you can drive it for 15k miles a year.

$400 a month for a year is only $4800.

Still think leasing is that bad?

[Prodigal Son]

Be nice to drive a new 3-series or A4 for ~$400 a month, 15K a year with no maintenance costs or money down.

Yes, but in 10 years you will have paid $150,000 to drive a car that you could have bought for $40,000 and maintained for $1000 a year for a total of around $50,000. Admittedly there is a future value calculation on the initial $50,000 to take into account, but on the other hand you have to inflate the $15,000 a year lease vs the $1000 a year maintenance as the years go by.

It's true that you will have had the use of three cars in the lease scenario instead of the one car in the purchase scenario. But then again, you will have paid three times as much.

I don't know ANYONE who would spend 10 years leasing the same car. My aunt leases and she gets a new car like every 2 years.

I didn't say you leased the same car for 10 years. I was talking about leasing multiple cars over a 10 year period as opposed to owning one car for 10 years. My point is that fear of maintenance costs on an older car is a bogus reason for leasing. Maintaining one car for 10 years is much much cheaper than leasing a succession of cars over 10 years.

[NonChalant]

Yes, but in 10 years you will have paid $150,000 to drive a car that you could have bought for $40,000 and maintained for $1000 a year for a total of around $50,000. Admittedly there is a future value calculation on the initial $50,000 to take into account, but on the other hand you have to inflate the $15,000 a year lease vs the $1000 a year maintenance as the years go by.

It's true that you will have had the use of three cars in the lease scenario instead of the one car in the purchase scenario. But then again, you will have paid three times as much.

I don't know ANYONE who would spend 10 years leasing the same car. My aunt leases and she gets a new car like every 2 years.

I didn't say you leased the same car for 10 years. I was talking about leasing multiple cars over a 10 year period as opposed to owning one car for 10 years. My point is that fear of maintenance costs on an older car is a bogus reason for leasing. Maintaining one car for 10 years is much much cheaper than leasing a succession of cars over 10 years.

I wouldn't say it's much cheaper. In my luxury car example, financing the car would run around $50,000 if not more depending on interest rate you get. Leasing cars for 3-4 years at a time would run about $48000. Combine that with the fact that you dont have to pay for maintenance (and after 10 years, that car is probably going ot need some good maintenance) and you get the peace of mind that you're driving a solid new car.

You also get to pay $48000 over TEN years as opposed to having to finance $40,000 over maybe 3-6 years.
The only downside of course is that you'll never own your leased car.

[Prodigal Son]

I wouldn't say it's much cheaper. In my luxury car example, financing the car would run around $50,000 if not more depending on interest rate you get. Leasing cars for 3-4 years at a time would run about $48000. Combine that with the fact that you dont have to pay for maintenance (and after 10 years, that car is probably going ot need some good maintenance) and you get the peace of mind that you're driving a solid new car.

You're right. I was taking standardshifter's figures at face value. A quick use of an online lease vs. buy calculator show that for a $40000 car the finance cost to buy is $50000 whereas the least price is $680 per month or $8160 per year. Assuming you keep the purchased car for 10 years and pay $1000 per year after year 4, that give you $56000 to buy and hold. To lease a succession of cars over that 10 year period would cost the yearly lease rate times 10 or $81600 plus increased insurance premiums of say 500 per year after the first 4 years or $3000 for a total of $84600.

That means the buy and hold strategy has a (wildly approximate) advantage of $28,600.

Of course, buying a 3 year-old lease return of the same model and holding it for 7 years is a much better deal than either of the above.

Of course, if you have the money and you like to drive new cars, then you may be willing to pay an average of $2800 a year for that privilege. But if you are doing it because you think you will save money on maintenance, that's a bogus argument. the maintenance costs of an older car are not anything like the costs involved in leasing a succession of new cars.

[NonChalant]

I wouldn't say it's much cheaper. In my luxury car example, financing the car would run around $50,000 if not more depending on interest rate you get. Leasing cars for 3-4 years at a time would run about $48000. Combine that with the fact that you dont have to pay for maintenance (and after 10 years, that car is probably going ot need some good maintenance) and you get the peace of mind that you're driving a solid new car.

You're right. I was taking standardshifter's figures at face value. A quick use of an online lease vs. buy calculator show that for a $40000 car the finance cost to buy is $50000 whereas the least price is $680 per month or $8160 per year. Assuming you keep the purchased car for 10 years and pay $1000 per year after year 4, that give you $56000 to buy and hold. To lease a succession of cars over that 10 year period would cost the yearly lease rate times 10 or $81600 plus increased insurance premiums of say 500 per year after the first 4 years or $3000 for a total of $84600.

That means the buy and hold strategy has a (wildly approximate) advantage of $28,600.

Of course, buying a 3 year-old lease return of the same model and holding it for 7 years is a much better deal than either of the above.

Of course, if you have the money and you like to drive new cars, then you may be willing to pay an average of $2800 a year for that privilege. But if you are doing it because you think you will save money on maintenance, that's a bogus argument. the maintenance costs of an older car are not anything like the costs involved in leasing a succession of new cars.

I agree that the claim of maintenance costs trumping the lease cost is not well thought out, and that leasing will cost more.

There's a cost to having a new car every couple of years.

Great post, PS. That should clear up everything for the OP.

[Prodigal Son]

Great post, PS. That should clear up everything for the OP.

And thank you for holding my feet to the fire to actually look up some reasonable numbers.

[Standardshifter]

$680 a month for a $40K car? Maybe for a depreciation leader like a Lincoln!

Here are the latest actual July rates for a $40K car (2007 BMW 335i sedan) taken from:
http://www.bimmerfest.com/forums/showth ... p?t=216031

24 Month – Residual 71% of MSRP – .00175 Base Rate
36 Month – Residual 61% of MSRP – .00175 Base Rate

Minus taxes and other expenses and using the MSRP for base cap cost,

total amount for the 24 month lease is $14254, or $594 a month.
For the 36 month lease, it is $15669 or $435 a month.

I used http://www.leaseguide.com/calc.htm.

[NonChalant]

$680 a month for a $40K car? Maybe for a depreciation leader like a Lincoln!

Here are the latest actual July rates for a $40K car (2007 BMW 335i sedan) taken from:
http://www.bimmerfest.com/forums/showth ... p?t=216031

24 Month – Residual 71% of MSRP – .00175 Base Rate
36 Month – Residual 61% of MSRP – .00175 Base Rate

Minus taxes and other expenses and using the MSRP for base cap cost, total amount for the 2 year lease is $14254, or $594 a month.

For the 36 month lease, it is $15669 or $435 a month.

I used http://www.leaseguide.com/calc.htm.

Hrm. Well now using standardshifter's monthly value that he calculated and PS's estimated cost of $56000 for buying and owning for 10 years..

the cost of lease + $3000 for increased insurance premiums after 10 years is: $55200. (assuming lease for 3 years at a time.)

As opposed to $56000, now the only downfall seems to be that you do not get to own the car.

Correct me if i'm wrong.

[Prodigal Son]

Here's what Edmunds says. I'm sure they have put more time and thought into the calculations than any of us. Certainly more than I am willing to do.

http://www.edmunds.com/advice/buying/ar ... ticle.html

Of course, there is another option to consider. Save up your money and pay cash for the car. That's what I did. I don't think anyone over 45 should be borrowing money for anything. You need to have switched from borrower to saver by my stage of life.

[NonChalant]

Aha. I forgot to take the fact that the bought car retains its value, but after 10 years thats only going to be good for a couple thousand.

Good link though. Hope the OP sees it.

[Johnf514]

Of course, there is another option to consider. Save up your money and pay cash for the car. That's what I did. I don't think anyone over 45 should be borrowing money for anything. You need to have switched from borrower to saver by my stage of life.

This may be true, but there is a downside.

I considered buying the Mazda with cash - it would be nice not to have monthly payments. However, with low/no interest rate, you can make monthly payments and invest the money you didn't spend on the vehicle at a higher interest rate. Just something to consider.

I'm making 5% APY on the $16+K I didn't spend on the Mazda, and paying no interest.

[Standardshifter]

Ayup, cash-out-of-pocket is roughly the same in the Edmunds example, minus the residual vehicle amount that you have when you buy of course.

Again, for some people and certain cars, the numbers do work out for leasing. Remember for leasing you have a limited number of miles you can drive a year, and the car has to be in good shape when you turn it in.

Cash for a car works in a few situations, but with interest rates on car loans being as low as they are, why not just finance? Can't beat borrowing 30K at 0% over 60 months like some current GM offers. I got 1.9% over 36 months, and joked if I could borrow more at that rate.

[Prodigal Son]

True, but the companies offering those kinds of finance deals still have to finance that money thenselves at real interest rates, so in effect they are giving you a discount in the form or a low rate and you should be able to negotiate a similar discount for a cash purchase.

EDIT: Let's put this in perspective though. If you need reliable transportation you buy a four year old Corola or Civic and keep it about eight years, then do the same thing again. That gives you reliable transport at a very reasonable price.

Everything else is luxury and a big piece of luxury is the sleep-at-night factor. Which is to say that you choose the finance option that lets you personally sleep at night because that is part of the luxury you are paying for.