Lease vs Buy for Model 3 - could you please convince my thinking

[crowdpuller]

I placed the order this morning for Model 3. I am still debating on how to go about it Lease vs Buy.

• Lease: Tesla Model 3 residual for 36/10 is 59% w/ interest rate of 5.68%, total lease costs incl taxes, reg = 25K incl 10K downpayment (just so I could reduce the 5.68% interest rate), payment about 302ish
• Finance: about 17K down, and rest financed for total cost 26K on 60 months, payment is about 410ish. Again these numbers include the full cost reg, title, taxes etc

Here are some scenarios for sale vs lease @ 36 month mark (ofcourse I can sell earlier)

Sell @ 50% ~ 21K will bring TCO on purchase (23K after selling, loan, and my loan payments) vs 25K on leasing. Currently, even Tesla thinks they can recover is for 59% after 3 years.

Obviously, hardest part is to predict resale/residual of Model 3, and extended EV market. With time, with anything better things will happen... and how that will erode the value of this car.

Can someone comment on how they thought about this? I am sure I am not the only one. I have leased my cars in the past since we don't drive much, like newer cars, plus we see them as an expense.

 

[hakunamattata]

Couple of things to keep in mind when leasing

a) With Tesla leases you cannot buy them at the end of the lease
b) You are making a 10K down payment, if for whatever reason the car is totaled and Insurance does not pay the full amount then you lose that money. The rule of thumb for leasing is to do very minimal down payments ideally tax and title only
c) Leasing is beneficial if you are planning to write it off as a business expense

Hope this helps

 

[jjrandorin]

The payment on that lease is not "302" its "302 + that downpayment divided by lease term". Assuming the lease term is 36 months, that "10k" down (which assuredly isnt all cap cost reduction, but cap cost reduction + drive offs), is an additional 277.77 a month... meaning your effective lease payment is "302 ish + 278 ish".

you need to compare apples to apples on this, because you are comparing two different scenarios with 2 differing amounts of "down payment" (again, its not all down payment / cap cost reduction).

you can make any lease payment OR loan payment be whatever you want it to be, with putting money up front into it.. so comparing 10k lease drive offs (a mistake as mentioned) with 17k loan down payments gets you nothing in the way of meaningful information.

its got to be the same money in drive offs both ways to even give you meaningful information, and that does not even touch the "lease vs buy" discussion which I commented on in another thread recently, but the TL ; DR version of my comment is "this discussion happens on every car website, and has happened since leasing and buying cars and the internet has been a thing".

There should be no "convincing" you one way or another. Do the math with the same inputs and make a decision based on what you want to do with the car or not.

 

[YuzuDaddy]

Couple of things to keep in mind when leasing

a) With Tesla leases you cannot buy them at the end of the lease
b) You are making a 10K down payment, if for whatever reason the car is totaled and Insurance does not pay the full amount then you lose that money. The rule of thumb for leasing is to do very minimal down payments ideally tax and title only
c) Leasing is beneficial if you are planning to write it off as a business expense

Hope this helps

When I lease a Tesla, it says that after the lease period, you can purchase the vehicle so does that only apply to the USA?

 

[Michelle_eriw]

When I lease a Tesla, it says that after the lease period, you can purchase the vehicle so does that only apply to the USA?

Purchasing is only for the S and X. You can't purchase a model 3 (And presumably the model Y) at the end of the lease.

 

[hakunamattata]

When I lease a Tesla, it says that after the lease period, you can purchase the vehicle so does that only apply to the USA?

I am not sure about Canada, at least that is the case in the US where you cannot buy a Model 3 at the end of a lease

 

[jjrandorin]

When I lease a Tesla, it says that after the lease period, you can purchase the vehicle so does that only apply to the USA?

I cant tell but is that a model 3 in your calculations? The "cant buy it after lease end" statement applies only to the tesla model 3, at least in the US. Would be interesting for you to confirm you are seeing a buy option on a model 3 lease, in canada (this is the model 3 forum after all so other tesla vehicle leasing doesnt apply in this section).

 

[Deep Purple]

Isn't a downpayment on a lease just lighting money on fire?

 

[UncertainTimes]

Tesla leases are terrible. Nearly 6% interest, no ability to negotiate selling price, no MSDs, no ability to buy at end (Model3/Y). The only reason I see to lease a Tesla is a business deduction otherwise you are throwing money away. And this is coming from someone who leased 4 BMWs. Just search LeaseHackr forums and see why it’s a bad idea.

 

[jschmitt3]

Re-Echoing a lot of what has already ben said here ..... briefly looked at the leasing options myself - but the inability to buy the model 3 after 3 years makes no sense unless you only intend to hold the car for 3 years; in which case- i'd put as little money down except for what Tesla requires for delivery of the lease!

John

 

[jjrandorin]

Isn't a downpayment on a lease just lighting money on fire?

Not necessarily. A down payment on a lease isnt any more "lighting money on fire" than any other payment on a lease. There are a couple issues one would need to know if they intend to put a large downpayment on a lease.

1. (the one most people will talk about and reason number 1 on why people in general tell others dont put a large downpayment on a lease)...
If you put a large down payment down on a lease, and then get into an accident where the car is totaled somewhere near the beginning of that lease term, any GAP insurance will normally pay off the lease to make the car owner ( the leasing company) whole but a person is not likely to get a refund of a lot of that down payment paid. So the car would "go away" but so would much of the large down payment, depending on how much the car depreciates when driven off the lot, or has depreciated during the ownership period before the accident.

2. (a somewhat hidden gotcha, which is committed by many, including the OP in this thread). A large down payment on a lease only prepays the lease costs, and it does not change how much the person is paying. On a loan, a large down payment goes toward reducing ones loan, and eventually ownership of the vehicle. On a lease, it just pre pays the existing charges and doesnt save any money.

Even with the above, people tend to discount the large down payment when they are talking about the cost of the vehicle to others, just like this OP was doing in this thread. I like analogies so I always fall back on a specific one when explaining this to people. here is the analogy I always use.

Lets say you were going to rent an apartment for 3 years (typical lease term). The cost of the apartment rental (lease) is $1000 per month. The contract requires you to lease the apartment for 3 years, and you will be on the hook for those 3 years worth of payments whether you move earlier or not. So, the total cost of the Apartment to you will be $1000 per month, times 36 months (3 years) or a total cost of $36,000.

Now, lets say you decide you want to put some "money down" on this apartment lease. You decide you are going to put $10,000 down on this apartment lease. Notice that the total cost to you on the apartment does not change, its still $36,000 for the three years, but since you put $10,000 "down" your outstanding balance is only $26,000. Since you put this payment down at the beginning, your lease balance is $26,000, and that balance will be spread over the 36 months (because you gave them this money up front).

Your monthly payment is now $722.22 a month. Typically, in this situation, the person who is paying $attention 722 a month for this above "apartment" lease, would go to their friends / family and say "You know that new apartment I am renting? The going rate on those units is $1000 a month, but I got a great deal at only $722 a month! (insert proud smile here).

As can be seen, both the person who is paying 1000 a month and the person paying 722 a month are paying the exact same money in the end, with the difference being that one person gave a bunch of their money up front to make their lease appear cheaper (and they normally "forget" about that money as part of the cost of their lease similar to how the OP in this thread was talking about the lease payment being "302 ish a month".

 

[Michelle_eriw]

Not necessarily. A down payment on a lease isnt any more "lighting money on fire" than any other payment on a lease. There are a couple issues one would need to know if they intend to put a large downpayment on a lease.

1. (the one most people will talk about and reason number 1 on why people in general tell others dont put a large downpayment on a lease)...
If you put a large down payment down on a lease, and then get into an accident where the car is totaled somewhere near the beginning of that lease term, any GAP insurance will normally pay off the lease to make the car owner ( the leasing company) whole but a person is not likely to get a refund of a lot of that down payment paid. So the car would "go away" but so would much of the large down payment, depending on how much the car depreciates when driven off the lot, or has depreciated during the ownership period before the accident.

2. (a somewhat hidden gotcha, which is committed by many, including the OP in this thread). A large down payment on a lease only prepays the lease costs, and it does not change how much the person is paying. On a loan, a large down payment goes toward reducing ones loan, and eventually ownership of the vehicle. On a lease, it just pre pays the existing charges and doesnt save any money.

Even with the above, people tend to discount the large down payment when they are talking about the cost of the vehicle to others, just like this OP was doing in this thread. I like analogies so I always fall back on a specific one when explaining this to people. here is the analogy I always use.

Lets say you were going to rent an apartment for 3 years (typical lease term). The cost of the apartment rental (lease) is $1000 per month. The contract requires you to lease the apartment for 3 years, and you will be on the hook for those 3 years worth of payments whether you move earlier or not. So, the total cost of the Apartment to you will be $1000 per month, times 36 months (3 years) or a total cost of $36,000.

Now, lets say you decide you want to put some "money down" on this apartment lease. You decide you are going to put $10,000 down on this apartment lease. Notice that the total cost to you on the apartment does not change, its still $36,000 for the three years, but since you put $10,000 "down" your outstanding balance is only $26,000. Since you put this payment down at the beginning, your lease balance is $26,000, and that balance will be spread over the 36 months (because you gave them this money up front).

Your monthly payment is now $722.22 a month. Typically, in this situation, the person who is paying $attention 722 a month for this above "apartment" lease, would go to their friends / family and say "You know that new apartment I am renting? The going rate on those units is $1000 a month, but I got a great deal at only $722 a month! (insert proud smile here).

As can be seen, both the person who is paying 1000 a month and the person paying 722 a month are paying the exact same money in the end, with the difference being that one person gave a bunch of their money up front to make their lease appear cheaper (and they normally "forget" about that money as part of the cost of their lease similar to how the OP in this thread was talking about the lease payment being "302 ish a month".

I'm leasing my current car; I traded a paid-for car as part of the deal. My trade-in was enough to pay for the entire two years of the lease (giving me zero payments for 24 months) and get $4,000 immediately. If I had put down the maximum that the leasing company allowed, and made payments for two years, I would have got back $8,000; however the sum of 24 payments would have been more than $4,000, so I would have wound up paying more in the long run. And the residual was the same for both plans.

 

[UncertainTimes]

I'm leasing my current car; I traded a paid-for car as part of the deal. My trade-in was enough to pay for the entire two years of the lease (giving me zero payments for 24 months) and get $4,000 immediately. If I had put down the maximum that the leasing company allowed, and made payments for two years, I would have got back $8,000; however the sum of 24 payments would have been more than $4,000, so I would have wound up paying more in the long run. And the residual was the same for both plans.

You traded a paid for car for what is essentially a rental car?

 

[jjrandorin]

You traded a paid for car for what is essentially a rental car?

Money is money... paid for car, large cash payment out of a bank / selling stock to pay for it, making monthly payments on a lease, all the same, its all money.

The only consideration thats different is the "gap insurance wont pay you back the down payment if you total it near the beginning of a lease" situation. Other than that, its all money. A paid for car is simply an asset that is "some amount of money" so whether it was a car, or cash, makes zero difference.

Since you have leased BMWs (the car brand I am most familiar with as far as lease programs, as I used to evaluate 100s of BMW leases online for what used to be one of the largest BMW forums), you are not against leasing per se, just against a large downpayment on one for obvious reasons.

Once one gets past the large down payment, where it comes from doesnt matter.

I agree with you on the tesla leases being not competitive with other manufacturer lease programs though, they are not subvented by the manufacturer like many other car manufacturers do.

 

[UncertainTimes]

Bimmerfest?

 

[jjrandorin]

Bimmerfest?

Yes. I used to review lease deals there for almost 2 years, until I stopped for personal reasons. I still visit there though.

The qualifiers likely gave it away ("what USED to be...") lol