Lease vs Loan

[perichetla]

Hi All,

I will be the First time car owner in US
I am planning to go with Model3 (RWD), little consfuion about the Lease vs. loan
If we are going with Loan/Cash, we will be getting tax rebate 7500$
What are the Cons if we go with Lease option? i am hearing insurance premium will be little high if we go with lease option, Is it true?
Looking for some math calculations here. Also which Insurance is best for Tesla when we are on lease?
I am seeing so many concerns in this community with Insurance claims with Tesla.

If i go with 3 years lease with down payment 0$ down payment/488# per month (Blue Color)/10K Miles/36 Months, on an avg i will be paying - 17568 without taxes and documentation charges
If i go with loan option, just to reduce down payment i am interested to pay 10k down payment with 72 months duration, on avg its showing 578$ EMI with 5.44% APR (As a first time buyer 735 Credit score, i will be getting 6% APR, minimum current interest rates) - Overall i will be paying - 20808$ (Of course will be getting 7500$ tax rebate)

Am i doing any wrong calculations here?

Please advise and share your thoughts on lease vs loan Cons, Where i can get best interest rate as a First time car owner with my above details, what is your opinion on credit unions (I am from Florida,Orlando)

 

[perichetla]

and adding to above info, i am complete rely on SC/public charger as i don't have a home charging option

 

[TesslaBull]

Leasing is the most expensive way to drive a car. It's a long term rental and is the most profitable way for car companies to put people in cars. If you buy the car, you own it and it has value. You can keep driving your like new car after three years.

I got a good rate with Nationwide; full coverage on two new EV's for two drivers @$135 month and our teenager is covered, or my rate would be a bit lower.

Also, for home charging, is an extremely high quality outdoor extension cord for Level 1 trickle charging an option? I know, not officially recommended, but maybe worth mentioning.

 

[Shelburne]

I've only leased a car once and will never do it again. It is sometimes cheaper up front but in the end it usually costs more to lease. I especially hated the payment due when the lease ended.

 

[ODWms]

Not to mention, with leasing you’ll always have a car payment.

 

[jjrandorin]

Hi All,

I will be the First time car owner in US
I am planning to go with Model3 (RWD), little consfuion about the Lease vs. loan
If we are going with Loan/Cash, we will be getting tax rebate 7500$
What are the Cons if we go with Lease option? i am hearing insurance premium will be little high if we go with lease option, Is it true?
Looking for some math calculations here. Also which Insurance is best for Tesla when we are on lease?
I am seeing so many concerns in this community with Insurance claims with Tesla.

If i go with 3 years lease with down payment 0$ down payment/488# per month (Blue Color)/10K Miles/36 Months, on an avg i will be paying - 17568 without taxes and documentation charges
If i go with loan option, just to reduce down payment i am interested to pay 10k down payment with 72 months duration, on avg its showing 578$ EMI with 5.44% APR (As a first time buyer 735 Credit score, i will be getting 6% APR, minimum current interest rates) - Overall i will be paying - 20808$ (Of course will be getting 7500$ tax rebate)

Am i doing any wrong calculations here?

Please advise and share your thoughts on lease vs loan Cons, Where i can get best interest rate as a First time car owner with my above details, what is your opinion on credit unions (I am from Florida,Orlando)

No first time car buyer should lease a vehicle, IMO. Note that, I leased BMWs for close to 20 years for both my wife and myself, after learning all the ins and outs of leasing, so I am not totally "anti leasing". With that being said, these cars do not have attractive subvented lease rates, and leasing ties you more to the car than buying it.

A tesla lease you CAN NOT CURRENTLY BUY at lease end, either, further limiting what your options are. The only option for getting out of it is to transfer the lease to someone else.

Combine that with the fact that, it is entirely possible you find that the EV lifestyle combined with no home charging isnt for you (you are going to charge more than twice as much as you think you will, it certainly wont be once a month), and buying it would be much better so you have an exit strategy if you need one.

 

[afadeev]

I will be the First time car owner in US
I am planning to go with Model3 (RWD),

Congrats!
If this will be your one and only car, are you SURE you want it to be an EV>!?!
Especially a Tesla, with a 4+ week service appointments delays and 3+ months accident repair delays?

Personally, I love EVs, but would NEVER recommend a Tesla as the only car to anyone I care about.

little consfuion about the Lease vs. loan
If we are going with Loan/Cash, we will be getting tax rebate 7500$
What are the Cons if we go with Lease option?
[...]]Looking for some math calculations here.

Leasing can be an attractive option for vehicles you do not intend to keep post 2-3 years, but it does introduce a few additional variables you will need to calculate to work out if leasing is financially advantageous to you vs. buying and selling the car in 2-3 years. If you've never leased before, search internet for lease vs. buy spreadsheets and start doing the homework.

Pros: you outsource depreciation risk to a bank, which would be a very good thing with the resent trend in used-Model 3 values (new car price drops have screwed us all).
Cons: unless an automaker is aggressively subsidizing lease rates or residuals to move the inventory (Tesla doesn't), leasing usually costs more than buying. Outsourcing depreciation risk comes at a price.

i am hearing insurance premium will be little high if we go with lease option, Is it true?

That is not true.
Finance companies have minimal insurance requirements. But those are usually in line with (or below) what you would want to insure your car for anyway. Unless you were planning to go with bare-bones insurance plan (25K limits all around) and self-insure the rest, there is no difference in insurance rates between leasing vs. buying.

Also which Insurance is best for Tesla when we are on lease?
I am seeing so many concerns in this community with Insurance claims with Tesla.

Shop around for insurance, as you normally would.
Tesla has a well-earned atrocious customer service reputation, and on top of that, Tesla outsources insurance claims processing to 3rd parties.
Personally, I would price-out ANY and ALL insurance providers, other than Tesla (and Geico).

Where i can get best interest rate as a First time car owner with my above details, what is your opinion on credit unions (I am from Florida,Orlando)

First of all, stop talking about being first-time car owner. It's no-one's business how many cars you've owned.
If you have decent credit history, start here:

https://www.penfed.org/auto

Auto Loans | DCU

Whether your dream car is new or just new-to-you, DCU's auto loans make it easy to hit the road by offering low auto loan rates and flexible terms

www.dcu.org

HTH,
a

 

[KenC]

Hi All,

I will be the First time car owner in US
I am planning to go with Model3 (RWD), little consfuion about the Lease vs. loan
If we are going with Loan/Cash, we will be getting tax rebate 7500$
What are the Cons if we go with Lease option? i am hearing insurance premium will be little high if we go with lease option, Is it true?
Looking for some math calculations here. Also which Insurance is best for Tesla when we are on lease?
I am seeing so many concerns in this community with Insurance claims with Tesla.

If i go with 3 years lease with down payment 0$ down payment/488# per month (Blue Color)/10K Miles/36 Months, on an avg i will be paying - 17568 without taxes and documentation charges
If i go with loan option, just to reduce down payment i am interested to pay 10k down payment with 72 months duration, on avg its showing 578$ EMI with 5.44% APR (As a first time buyer 735 Credit score, i will be getting 6% APR, minimum current interest rates) - Overall i will be paying - 20808$ (Of course will be getting 7500$ tax rebate)

Am i doing any wrong calculations here?

Please advise and share your thoughts on lease vs loan Cons, Where i can get best interest rate as a First time car owner with my above details, what is your opinion on credit unions (I am from Florida,Orlando)

First, I'd stick this question in the Ordering section. Model 3: Ordering, Production, Delivery

Second, I didn't understand the purchase calculation that you made. Your payments will total $20,808 in 3yrs, but you'll also have put $10k down, and gotten $7,500 back, assuming you get the full credit back. So, you'll have paid more, but you may also have some equity in the car. Not to mention, you still have another 3yrs of payments.

Like others, I have experience leasing BMWs and, while Tesla leasing has in the past, been considered very expensive, I think the current Tesla lease offer is not bad at all. It's typically when loan finance rates are high, that lease rates tend to look more attractive. Plus, with the used price market fluctuating wildly, leaving the risk of residual value pricing to the mfr also looks more attractive.

As for insurance, I've never heard that leasing raises insurance rates.

Okay, back to add some back-of-the-envelope numbers. I haven't leased in a long while, so I'm rusty, but I just put in some rough numbers into a spreadsheet to get a vague idea of what figures Tesla may be working with.

In leasing the relevant figs are the Total Price, the Residual Value, and the Money Factor. The total lease payment is a combination of Depreciation and "Interest". I call it interest, others may call it rent, or whatever. Either way, there are two parts in a lease that make up your total, not too different than a loan.

Part 1 is depreciation. You take your total cost and subtract your RV, and that's the depreciable amount, and divide by the term of 36. In order to do this, you need to guesstimate what the RV percentage is. For 10k over 3yrs, anything over 60% is considered pretty good. I used 62.5%. That gave me a Depreciation fig of $395.

Part 2 is the interest or rent. You take your total cost and add your RV, so, $37880 after tax credit and $23,675 when applying 62.5%, for a total of $61,555. Then you have to guess what a relevant MF would be given this rate environment. Since I know the Lease payment is $488 with Zero down, then I know that minus the Depreciation of $395 means interest or rent must be $93 a month. Working with that, the MF becomes 0.00135 or 3.24%.

Typically, you can ask the dealer for what RV or MF they are working with, but in this case you can't, so you have to try to back into the figs. Personally, I think a RV of 62.5% for 30,000 miles and a MF of 0.00135 or 3.24% makes this a very fair deal given the current interest rate environment and wildly fluctuating used car market.

Haha, made some math errors, and have updated some of the figs. So, I'm just ball parking the figures. Who knows what the real RV or MF are, but by ballparking, you get an idea of whether a lease offer is normal or a little better than normal, ie subvented.

 

[GreenCoffee]

If a new car lessor who lives in CA qualifies for an increased CVRP rebate (going to $7,500 on 2/28 for BEV) then this person can effectively get all of the down payment including sales tax and lic. keeping the payment at $349 a month with no out of pocket, coupled with SCAQMD incentives to get a free home charger, SCE incentives on a lower rate plan (TOU-D-PRIME), gas savings, a lease is looking pretty good for that person as a Toyota Camry lease would probably cost you more.

 

[perichetla]

First, I'd stick this question in the Ordering section. Model 3: Ordering, Production, Delivery

Second, I didn't understand the purchase calculation that you made. Your payments will total $20,808 in 3yrs, but you'll also have put $10k down, and gotten $7,500 back, assuming you get the full credit back. So, you'll have paid more, but you may also have some equity in the car. Not to mention, you still have another 3yrs of payments.

Like others, I have experience leasing BMWs and, while Tesla leasing has in the past, been considered very expensive, I think the current Tesla lease offer is not bad at all. It's typically when loan finance rates are high, that lease rates tend to look more attractive. Plus, with the used price market fluctuating wildly, leaving the risk of residual value pricing to the mfr also looks more attractive.

As for insurance, I've never heard that leasing raises insurance rates.

Okay, back to add some back-of-the-envelope numbers. I haven't leased in a long while, so I'm rusty, but I just put in some rough numbers into a spreadsheet to get a vague idea of what figures Tesla may be working with.

In leasing the relevant figs are the Total Price, the Residual Value, and the Money Factor. The total lease payment is a combination of Depreciation and "Interest". I call it interest, others may call it rent, or whatever. Either way, there are two parts in a lease that make up your total, not too different than a loan.

Part 1 is depreciation. You take your total cost and subtract your RV, and that's the depreciable amount, and divide by the term of 36. In order to do this, you need to guesstimate what the RV percentage is. For 10k over 3yrs, anything over 60% is considered pretty good. I used 62.5%. That gave me a Depreciation fig of $395.

Part 2 is the interest or rent. You take your total cost and add your RV, so, $37880 after tax credit and $23,675 when applying 62.5%, for a total of $61,555. Then you have to guess what a relevant MF would be given this rate environment. Since I know the Lease payment is $488 with Zero down, then I know that minus the Depreciation of $395 means interest or rent must be $93 a month. Working with that, the MF becomes 0.00135 or 3.24%.

Typically, you can ask the dealer for what RV or MF they are working with, but in this case you can't, so you have to try to back into the figs. Personally, I think a RV of 62.5% for 30,000 miles and a MF of 0.00135 or 3.24% makes this a very fair deal given the current interest rate environment and wildly fluctuating used car market.

Haha, made some math errors, and have updated some of the figs. So, I'm just ball parking the figures. Who knows what the real RV or MF are, but by ballparking, you get an idea of whether a lease offer is normal or a little better than normal, ie subvented.View attachment 911521
View attachment 911523
View attachment 911531

You are Awesome friend, Thanks so much for detailed explanation, As i am relying on only Super charger and very few times in public/office L2 chargers. I dont have Garage as i stay in Apartment and i am seeing there will be impact on Battery life. Hence my car battery life will degrade and will not have best range.
Henceforth considering lease monthly EMI is so exciting value and interested towards lease with current MSRP car value
Am i eligible for 7500 $tax rebate if we take car on lease, i know Tesla will not give Buy back option at the lease end, what are your thoughts?

 

[perichetla]

Congrats!
If this will be your one and only car, are you SURE you want it to be an EV>!?!
Especially a Tesla, with a 4+ week service appointments delays and 3+ months accident repair delays?

Personally, I love EVs, but would NEVER recommend a Tesla as the only car to anyone I care about.



Leasing can be an attractive option for vehicles you do not intend to keep post 2-3 years, but it does introduce a few additional variables you will need to calculate to work out if leasing is financially advantageous to you vs. buying and selling the car in 2-3 years. If you've never leased before, search internet for lease vs. buy spreadsheets and start doing the homework.

Pros: you outsource depreciation risk to a bank, which would be a very good thing with the resent trend in used-Model 3 values (new car price drops have screwed us all).
Cons: unless an automaker is aggressively subsidizing lease rates or residuals to move the inventory (Tesla doesn't), leasing usually costs more than buying. Outsourcing depreciation risk comes at a price.



That is not true.
Finance companies have minimal insurance requirements. But those are usually in line with (or below) what you would want to insure your car for anyway. Unless you were planning to go with bare-bones insurance plan (25K limits all around) and self-insure the rest, there is no difference in insurance rates between leasing vs. buying.



Shop around for insurance, as you normally would.
Tesla has a well-earned atrocious customer service reputation, and on top of that, Tesla outsources insurance claims processing to 3rd parties.
Personally, I would price-out ANY and ALL insurance providers, other than Tesla (and Geico).



First of all, stop talking about being first-time car owner. It's no-one's business how many cars you've owned.
If you have decent credit history, start here:

https://www.penfed.org/auto

Auto Loans | DCU

Whether your dream car is new or just new-to-you, DCU's auto loans make it easy to hit the road by offering low auto loan rates and flexible terms

www.dcu.org

HTH,
a

Thanks So much for your reply
My intention is, As i am new to this country and trying to read and understand the policies here, hence i mentioned first time car owner. Nothing else.

 

[KenC]

You are Awesome friend, Thanks so much for detailed explanation, As i am relying on only Super charger and very few times in public/office L2 chargers. I dont have Garage as i stay in Apartment and i am seeing there will be impact on Battery life. Hence my car battery life will degrade and will not have best range.
Henceforth considering lease monthly EMI is so exciting value and interested towards lease with current MSRP car value
Am i eligible for 7500 $tax rebate if we take car on lease, i know Tesla will not give Buy back option at the lease end, what are your thoughts?

No, if you lease, the owner of the vehicle gets the tax credit. You don't own the car, whomever finances the lease owns the car, so they get the credit.

 

[akipal]

No, if you lease, the owner of the vehicle gets the tax credit. You don't own the car, whomever finances the lease owns the car, so they get the credit.

Correct
it shows monthly payment is after 7500 tax credit applied already

an if you purchase in SC you also can get CVRP rebate $2000-$4500 on top of 7500 tax credit
so your downpayment will be paid off
and after 3 years you probably will have more value on your car than what you owe to the bank.

 

[ATPMSD]

I have leased cars for 40-years! If you meet certain criteria then leasing is a good deal. The criteria?

1. You are not someone who keeps a car long term and instead replaces it about every 3-years
2. You drive no more than 12,000 miles / year
3. You are willing to keep up with all maintenance requirements
4. And your lease payment is significantly less than the loan payment, I use a savings of at least $150/month

But….

1. Tesla leases use a high money factor, so it don‘t save you much money
2. Tesla requires you to return the car at the end of the lease, you have no option to extend the lease for a few months or to keep the car (I have flipped a few for a profit). I have never leased from a company that imposed such a restriction.
3. At turn in, normally a 3rd party evaluates the car for excess wear and tear beyond the lease limits. Tesla does not do this and so fights abound at lease end.
4. It is almost impossible to reach Tesla if you have an issue

If I were leasing say an Acura I would probably do so, but never lease from Tesla!

And as others have noted, if you lease you do not get the tax credit where as if you buy you do.

I also suggest if you buy to get quotes from your local Bank and / or credit unIon. Not only will you likely get better rates, but you will get real customer service.

 

[akipal]

I have leased cars for 40-years! If you meet certain criteria then leasing is a good deal. The criteria?

1. You are not someone who keeps a car long term and instead replace it about every 3-years
2. You drive no more than 12,000 miles / year
3. You are willing to keep up with all maintenance requirements
4. And your lease payment is significantly less than the loan payment, I use a savings of at lest $150/month

But….

1. Tesla leases use a high money factor, so it don‘t save you much money
2. Tesla requires you to return the car at the end of the lease, you have no option to extend the lease for a few months or to keep the car (I have flipped a few for a profit). I have never leased from a company that imposed such a restriction.
3. At turn in, normally a 3rd party evaluates the car for excess wear and tear beyond the lease limits. Tesla does not do this and so fights abound at lease end.
4. It is almost impossible to reach Tesla if you have an issue

If I were leasing say an Acura I would problem do so, but never lease from Tesla!

And as others have noted, if you lease you do not get the tax credit where as if you buy you do.

I also suggest if you buy to get quotes from your local Bank and / or credit unIon. Not only will you likely get better rates, but you will get real customer service.

You are right.
i think Tesla has great lease deal only because they deduct $7500 off up front.
If you can enjoy tesla at least for 4 or more years purchase is good
If you just want it for 3 years then lease is good as well

 

[KenC]

I have leased cars for 40-years! If you meet certain criteria then leasing is a good deal. The criteria?

1. You are not someone who keeps a car long term and instead replaces it about every 3-years
2. You drive no more than 12,000 miles / year
3. You are willing to keep up with all maintenance requirements
4. And your lease payment is significantly less than the loan payment, I use a savings of at least $150/month

But….

1. Tesla leases use a high money factor, so it don‘t save you much money
2. Tesla requires you to return the car at the end of the lease, you have no option to extend the lease for a few months or to keep the car (I have flipped a few for a profit). I have never leased from a company that imposed such a restriction.
3. At turn in, normally a 3rd party evaluates the car for excess wear and tear beyond the lease limits. Tesla does not do this and so fights abound at lease end.
4. It is almost impossible to reach Tesla if you have an issue

If I were leasing say an Acura I would probably do so, but never lease from Tesla!

And as others have noted, if you lease you do not get the tax credit where as if you buy you do.

I also suggest if you buy to get quotes from your local Bank and / or credit unIon. Not only will you likely get better rates, but you will get real customer service.

Good points! Tesla leasing has been unattractive, but the tax credit makes the SR+ an intriguing option. Using your standard, is it $150/mon less? Well, nothing down, the SR+ is $729/mon for 72months, before the tax credit which effectively knocks off over $100 a month, so net $625/month.

The lease with zero down, to make the comparison easier, is $478/month. The difference is about $150/month.

 

[hakunamattata]

First, I'd stick this question in the Ordering section. Model 3: Ordering, Production, Delivery

Second, I didn't understand the purchase calculation that you made. Your payments will total $20,808 in 3yrs, but you'll also have put $10k down, and gotten $7,500 back, assuming you get the full credit back. So, you'll have paid more, but you may also have some equity in the car. Not to mention, you still have another 3yrs of payments.

Like others, I have experience leasing BMWs and, while Tesla leasing has in the past, been considered very expensive, I think the current Tesla lease offer is not bad at all. It's typically when loan finance rates are high, that lease rates tend to look more attractive. Plus, with the used price market fluctuating wildly, leaving the risk of residual value pricing to the mfr also looks more attractive.

As for insurance, I've never heard that leasing raises insurance rates.

Okay, back to add some back-of-the-envelope numbers. I haven't leased in a long while, so I'm rusty, but I just put in some rough numbers into a spreadsheet to get a vague idea of what figures Tesla may be working with.

In leasing the relevant figs are the Total Price, the Residual Value, and the Money Factor. The total lease payment is a combination of Depreciation and "Interest". I call it interest, others may call it rent, or whatever. Either way, there are two parts in a lease that make up your total, not too different than a loan.

Part 1 is depreciation. You take your total cost and subtract your RV, and that's the depreciable amount, and divide by the term of 36. In order to do this, you need to guesstimate what the RV percentage is. For 10k over 3yrs, anything over 60% is considered pretty good. I used 62.5%. That gave me a Depreciation fig of $395.

Part 2 is the interest or rent. You take your total cost and add your RV, so, $37880 after tax credit and $23,675 when applying 62.5%, for a total of $61,555. Then you have to guess what a relevant MF would be given this rate environment. Since I know the Lease payment is $488 with Zero down, then I know that minus the Depreciation of $395 means interest or rent must be $93 a month. Working with that, the MF becomes 0.00135 or 3.24%.

Typically, you can ask the dealer for what RV or MF they are working with, but in this case you can't, so you have to try to back into the figs. Personally, I think a RV of 62.5% for 30,000 miles and a MF of 0.00135 or 3.24% makes this a very fair deal given the current interest rate environment and wildly fluctuating used car market.

Haha, made some math errors, and have updated some of the figs. So, I'm just ball parking the figures. Who knows what the real RV or MF are, but by ballparking, you get an idea of whether a lease offer is normal or a little better than normal, ie subvented.View attachment 911521
View attachment 911523
View attachment 911531

Just curious where did you get that calculator from where it shows the Federal Tax Credit for leases? I could not find it on Tesla's site and to the best of my knowledge they are not passing it on to the customer for leases. If they are passing it on then it would be an icing on the cake

 

[Heckraiser]

I personally would not buy any EV without a home charging option. This is probably why so many EV's end up for sale with less than 1 year and 5k miles on them.

I'd get a hybrid Accord or BMW 330e or something along those lines.

Can't comment on lease vs. purchase because I drive too many miles per year to lease a car anyway.

 

[Chattanooga3]

Completely depends on what kind of car buyer you are, your financial situation, and economic factors.

There are some instances where it is financially beneficial to lease, and there are certain ones where buying is the only option.

 

[KenC]

Just curious where did you get that calculator from where it shows the Federal Tax Credit for leases? I could not find it on Tesla's site and to the best of my knowledge they are not passing it on to the customer for leases. If they are passing it on then it would be an icing on the cake

Look carefully, there are 3 images there. The first two lines is a screenshot of the Finance screen, to show total price and tax credit. The next image is the screenshot of the Lease calculation that Tesla.com shows.

The last image is my spreadsheet showing how I ballparked, backed-into, a hypothetical lease offer that matches Tesla's lease payment. Typically, there are only 3 variables, selling price, Residual Value %age, and Money Factor.

However, since there's no selling price negotiation, there are really only 2 variables, RV%age and MF. The Selling Price is the MSRP - Credit, since Tesla is getting the credit, or their leasing company or whomever is doing the financing for them.

Of course the tax credit is built into a lease. If it weren't, then the lease offer would be terrible and no one would lease! My spreadsheet shows how the numbers might work.

So, once you have your selling price, you only have 2 variables, RV%age and MF. Usually, the MF is going to be a very close approximation of the loan rate APR, but can vary if the mfr is trying to push one option or the other. You can do a sensitivity analysis and move the RV%age higher and the MF higher and get the same monthly lease payment, but just looking at it for reasonableness, leasing looks reasonable and attractive, for the least expensive Tesla.

Think about it, at low prices, the tax credit is a greater proportion of the cost, so it has a greater impact. On a SR+, it makes the vehicle a bargain, for a S Plaid, it barely moves the needle.

Just to be clear, you are not getting a tax credit for the lease on your taxes. It's built into the monthly payment. If you built a spreadsheet to get Tesla's lease offer, and didn't factor in the credit, the MF and RV%age would have to be insane. Okay, I just looked, to get the payment down to $480 a month, you'd have to make the MF basically zero, ie 0% interest.