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Why Lease a car?

Oct 10, 2019
386
188
So-Cal
Why do people lease cars? like from what i can tell a lease is basically a super expensive long term rental with mileage and time limits, and you cant mod the vehicle because you don't own it.

My tesla is my 7th car I've owned and the first one i got a loan on (its mine now, got the pink slip a couple months ago), i love to modify cars for performance and looks. now performance wise not much to be done to PD model, but my old cars ive installed custom exhaust, superchargers, modded the computer and all sorts of fun things to make the car better. But i digress i have made plenty of changes to the tesla and they are not easily reversible, and the car is better for it.

If i had a lease i couldn't make any changes, and after paying a shitload of money for the lease over the time of using it you turn it in and literally have nothing to show for it. At least after paying for my car for 3 years i have the pink slip and own it outright, and have it a an asset that i could sell or use as a trade-in/down payment on another car later in life.

Also I've had my car for like 3.5'ish years and put 110k miles on it. most leases are like 30-50k miles or there is fees and crap for going over that limit.
I honestly cant understand why anyone would lease a car because there seems to be no positive side to doing that vs buying a car. And I'm not just talking about tesla I'm referring to leasing any car in general.
 

ucmndd

Well-Known Member
Mar 10, 2016
6,698
12,572
California
I've always driven too many miles for a lease to be practical, so I've never been a prime candidate, but the benefits as I see them:

  • Perceived financial/tax benefits if you own your own business
  • If you only keep your cars for 2-3 years anyway you may come out ahead
  • Terms can work to your advantage, particularly with German brands that have learned to lean heavily on the Lease-to-CPO pipeline as a key part of their business. Luxury cars tend to lease much better than economy cars - dealers/manufacturers keep the residual value artificially high (which lowers your payments). They get the car back to pump into their CPO program and sell again with a fresh warranty to the next schmuck - meanwhile you start the process over again with a new cheap lease because no way you're gonna buy out your existing car at the inflated residual.
 
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jjrandorin

Moderator, Model 3, Tesla Energy Forums
Nov 28, 2018
9,600
10,838
Riverside Co. CA
One more benefit that @ucmndd touched on, but:

  • For many, leasing a vehicle allows them to drive a vehicle they would not be able to afford if they purchased it
To answer the question though, in general, a lot of thought is, "If I am going to have a car payment anyway, and I like swapping cars every 3 years or so, I can do so without worry of driving a car outside of warranty, and scratch that new car itch more.

Also as @ucmndd points out, the german brands tend to "lease well" because they pump up the residual artificially high, making it so it doesnt make sense for the person leasing the car to buy it at lease end. That means they need another new one (keeping those factories humming) and that their dealer network gets to not only sell that person a new car, but a gently used usually in great shape used car they can charge top dollar for.

That doesnt count the business right off that some can get for them, and "most people" neither mod cars, nor drive 30k miles a year like OP mentions they do.
 

rhumbliner

Member
Sep 24, 2015
685
824
Las Vegas
Why do people lease cars?

Several years ago, while I was working on an MS in Finance, one of my prof’s wrote the book on leasing (literally) which illustrated how leasing is just a construct to shift tax benefits from one party to another. For my term paper I suggested writing on which was better for a non-business entity: leasing new or purchasing new. He nixed the idea as being too simplistic since the answer was obvious. He asked me “When you buy a new car, what is the very first option the dealership pushes on you?”. Of course the answer is a lease because it’s more beneficial to the dealership at the expense of the customer.
 
Oct 10, 2019
386
188
So-Cal
  • Perceived financial/tax benefits if you own your own business
  • If you only keep your cars for 2-3 years anyway you may come out ahead
  • For many, leasing a vehicle allows them to drive a vehicle they would not be able to afford if they purchased it
To answer the question though, in general, a lot of thought is, "If I am going to have a car payment anyway

Y'all made some interesting poonts however, it's still illogical.
Why would someone want a new car every couple years? After having a $1300/month payment for 3 years I can't see why anyone would prefer that, compared to having a car payment but then nothing and you can then use the money you were paying for the car into savings.
Every time I sold a car it was either because it was a total loss from insurance or because as I move with my job a different car is needed, like when I moved to AK I sold my 10 second car for a 4wd truck, when I moved back to the lower 48 I bought my mustang. I only sold that car because I finally had saved enough money for a $35k down payment on my dream car of this Tesla.
It seems like having a lifetime car payment from constant lease is very shortsighted and from a tax standpoint dodgey. And a loophole that should be closed of there is a tax break for leasing a car because that's pretty stupid. I mean taxation is theft when it is attached to 100% of the transactions, you should be taxed on your income and that is it not any time money changes hands but that's another issue entirely.
 

ucmndd

Well-Known Member
Mar 10, 2016
6,698
12,572
California
Y'all made some interesting poonts however, it's still illogical.
Why would someone want a new car every couple years?
Who said it's logical? People want what they want and plenty plunk down for a new car every few years.

Buying or leasing a new car in any capacity is pretty much always a terrible financial decision, yet somehow we don't all end up with the sensible, low-mile 2015 Honda Accord when we go car shopping. If you're looking for something to make logical sense, this probably isn't the right place to dig in.
 

Ostrichsak

Active Member
Sep 6, 2018
3,515
3,549
Colorado, USA
The only thing worse than financing a depreciating item like a car is leasing it. If you can't pay cash... don't buy it. Someday many will look back at how much they wasted on finance charges over their lives and the numbers are staggering. Many others will continue to make things like car payments fit their monthly budget (which they don't actually have) until the day they die and then wonder why they never get ahead.

I know I'm in the minority with this approach on financing and leasing (especially on this forum) but there's also a reason why millionaires are in the minority as well. They tend to make the smart financial decisions that most don't. Most wonder why they're not millionaires and don't make any of the decisions they make. Weird.

But, what do I know? I don't have any car payments so it's hard for me to speak to why anyone would do such a thing. ;)
 

slainla

Member
Jul 25, 2018
142
95
Los Angeles
The only thing worse than financing a depreciating item like a car is leasing it. If you can't pay cash... don't buy it. Someday many will look back at how much they wasted on finance charges over their lives and the numbers are staggering. Many others will continue to make things like car payments fit their monthly budget (which they don't actually have) until the day they die and then wonder why they never get ahead.

I know I'm in the minority with this approach on financing and leasing (especially on this forum) but there's also a reason why millionaires are in the minority as well. They tend to make the smart financial decisions that most don't. Most wonder why they're not millionaires and don't make any of the decisions they make. Weird.

But, what do I know? I don't have any car payments so it's hard for me to speak to why anyone would do such a thing. ;)

I always thought the same until these things changed my perspective:
  1. Huge Tesla price drops ~2 years ago when a fully loaded MS went from $150k to ~$100-110k. People who leased literally avoided the huge depreciation hit as well as the associated sales tax and registration costs. The current MS prices seem pretty fair in terms of the segment so this may not apply anymore.
  2. For sales tax savings when you don't plan on keeping the car long term - Depending on which state you reside, leasing makes a lot of sense when you only need to pay sales tax on the leased amount. So if you end up selling the car within the lease period, you wouldn't unnecessarily pay extra sales tax. For example, if the car was $100k and you leased it for a year at $1500 a month, $0 down, and at a tax rate is 10%, you would've only paid $1800 in sales tax plus $18k in lease payments for a grand total of $19.8k. Let's say the car is now worth $85k and the buyout price is the same, you would walk away spending $19.8k by leasing it for a year. But if you bought it at $100k, the total price paid with tax would be $110k. With a car value of $85k, you would've spent $25k on the car for owning it one year.
  3. When the numbers make sense - Depending on the promotion the dealer may be running, it may actually make sense to lease to own, or to lease and then flip. I leased a Toyota Tacoma a couple of years ago and flipped it for over a $5k profit a year later. If I would've bought it instead of leasing, I would've only made $2-3k.
  4. And like the 2nd post mentioned, loyalty discounts. Car manufacturers offer rebates for returning leases, or from competitors which is known as conquest. Sometimes you can literally lease it for a month then buy it out and still come out ahead.
 

pabla

Member
Oct 17, 2016
284
149
Vancouver
The reason why I lease is simple

- Tax right offs through my business
- Switch up cars every few years
- Usually able to stretch my budget a bit more to get into something nicer
- In my case my residual for my RS7 is 57k and similar cars are going for 80k right now, so a easy flip

Buying a car is always a bad financial choice its a depreciating asset, whether you buy it outright, finance or lease
 

AMPd

Active Member
Nov 27, 2012
4,526
3,895
Northern California
Y'all made some interesting poonts however, it's still illogical.
Why would someone want a new car every couple years? After having a $1300/month payment for 3 years I can't see why anyone would prefer that, compared to having a car payment but then nothing and you can then use the money you were paying for the car into savings.
Every time I sold a car it was either because it was a total loss from insurance or because as I move with my job a different car is needed, like when I moved to AK I sold my 10 second car for a 4wd truck, when I moved back to the lower 48 I bought my mustang. I only sold that car because I finally had saved enough money for a $35k down payment on my dream car of this Tesla.
It seems like having a lifetime car payment from constant lease is very shortsighted and from a tax standpoint dodgey. And a loophole that should be closed of there is a tax break for leasing a car because that's pretty stupid. I mean taxation is theft when it is attached to 100% of the transactions, you should be taxed on your income and that is it not any time money changes hands but that's another issue entirely.
A Prius driver can say the same about you, why buy a Tesla when you can own a cheaper Prius.

At the end of the day enjoying life is just as important as saving money.

I financed and leased, I leased because I wasn’t sure how teslas would do in the long term and didn’t want to be stuck with a car I couldn’t off load.
I also financed 2 model S’s because I didn’t want to cash out 200k worth of stocks, not only was I earning slightly more interest when subtracting the interest of the loan but I was also protected in case of a total loss.

Many might disagree but I live my life without worrying too much about hoarding every penny I can, yes I splurge on expensive cars but that’s what I enjoy, and at the end of the day you can’t take it with you.
 
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David29

Supporting Member
Aug 1, 2015
2,239
1,878
DEDHAM, MA
My Tesla was my very first new car after 40+ years of buying only used cars. And it was my first lease.
In retrospect it was the "wrong" choice but it seemed to make sense at the time (2015) to lease. I had never owned an EV, Tesla was still a new company with an uncertain future, and I was not sure I would want to keep the car longer than the 3 years of the lease. I had just retired. Leasing avoided the need to commit $85,000 of my nest egg to a car under uncertain conditions. It was not that I did not have enough money, it was more a question of the wisdom of committing so much to what could have been a risky purchase.
As it turned out, I kept the car and bought out the lease. So, in hindsight and looking at it purely from a cost point of view, I would have been better off to have purchased the car outright. But using the lease preserved most of my capital and gave me comfort. As it happened, the stock market did well in those years, I liked the car, Tesla seemed secure, and I bought the car.
I never tried to calculate how much extra the lease cost me over an outright purchase, considering taxes and so on. It seemed unlikely to be an exercise that would make me happy!
Hindsight is not always that helpful. Sometimes you have to make a decision and live with it and not have regrets later....I am glad I got the car. I might not have done so if I had to purchase it outright.
 

Uncle Paul

Well-Known Member
Nov 1, 2013
6,296
6,863
Canyon Lake,CA
Lease Vs. Finance Vs. Cash buy has been argued forever. Most of the time it is dependant on the financial and emotional state of the buyer.
Just as often, whether it is financially beneficial will depend on how the buyers circumstances change over the length of the lease.
Getting into a lease is easier than getting out of a lease.
Big issue is that the lease vehicle is not the property of the driver, but of the leasing company.
Limited mileage owners, with little down payment, who desire to turn over their vehicles every few years can often benefit from a lease, but usually pay a bit more.
 

trekkie

Supporting Member
Oct 2, 2019
102
55
Wake Forest, NC
prior to 2018, for me it was about taxes, and the fact I was paid an allowance and had to keep a car around that was <4 years old and had four doors to get that allowance.

After the 'tax cuts' of 2018 all my deductions for that disappeared, so now it makes no sense unless I want more car for the money. A 36 month lease is usually a few hundred less than a loan on the luxury car market. Cars have been rapidly changing over the last 5-10 years in the EV space and I can 'trade up' pretty seamlessly for a similar payment.
 

SoCal Buzz

Supporting Member
Oct 9, 2018
484
388
Orange County, CA, USA
Bought my first Tesla and sold at decent price after 5 years, and then leased the second for 2 reasons: Tesla was dropping prices substantially affecting resale, and I didn’t want to get stuck on older tech. Worked out ok this time, given I want to try out the new S (if it ever starts shipping, and hopefully without yoke) or a different EV next year.
 

Cheburashka

Active Member
Jan 29, 2018
2,383
2,962
Los Gatos, CA
Except leasing can definitely work out cheaper than ownership. It all depends on a bunch of factors.

It's not really a long-term rental in the financial sense.

For example, I was able to lease a Chevy Spark EV in 2016 for ~$90 a month... WAY cheaper than buying. At that price it was a no brainer. You need to understand that leasing is a financial instrument that can be used in your favor. A lot of times it makes way more financial sense to lease than to buy. It's really nowhere as simple as OP put it.

Same with a lot of luxury cars. You know the saying that the car loses 30% of its value once it's off the lot. With a lease, you don't have to worry about that. Moreso, you don't have to pay taxes on the whole purchase price (in CA) which is pretty big too.

Finally, lots of smart people lease because you can come out on top in the end. For example, if you know what you're doing, you can come up with a car that's worth more than the residual value at the end of the lease. In this case you can actually take it to CarMax and they will pay your residual off + give you a check for the difference, so you can actually earn money at the end of the lease.
 
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FoxSTL2HOU

Member
Nov 12, 2018
495
288
HOU
Some pro-leasing points (some of which I haven't seen brought up yet):

Why would someone want a new car every couple years?

When you lease a vehicle, you are guaranteed to have a limited warranty ("bumper-to-bumper") for the entire time you possess the vehicle. That's a peace of mind critical to many (I mean, just look at how many TMC members have posted they would never own an out-of-warranty Tesla).

Similarly as others have posted, look at the improvements in auto tech over 3 year periods, especially as it relates to Tesla. At the 36 month mark of ownership of my car (which was one of the first 4G and dual-motor cars produced), if I had leased I could have gone from a pre-refresh AP1/MCU1 85D into a post-refresh AP2.5/MCU2 100D (or maybe it was Long-Range by this point...).

After having a $1300/month payment for 3 years I can't see why anyone would prefer that, compared to having a car payment but then nothing and you can then use the money you were paying for the car into savings.

As others have noted, leasing should have a lower monthly payment - you are paying for only a portion of the vehicle's value, not the full price.

Every time I sold a car it was either because it was a total loss from insurance

With a lease, a total loss is washes away any remaining payments for the lessee (driver) even if it happens the first minute of possession.
For an owner, depending on how much money was used as a down payment, a total loss has a non-zero chance of leaving the owner underwater aka owing money to the lienholder because the insurance ACV payout was less than the loan balance.

Similarly, if the vehicle is in a collision but repaired, the lessee only need keep driving it for the length of the lease, then then turn it in. An owner bears the brunt of the lost value from having an accident on the record. Speaking from personal experience, I wish I had leased - my car was hit at 35.5 months of ownership. Rather than taking a $20k equity hit, I could have handed it back to Tesla and moved on.

It seems like having a lifetime car payment from constant lease is very shortsighted and from a tax standpoint dodgey. And a loophole that should be closed of there is a tax break for leasing a car because that's pretty stupid. I mean taxation is theft when it is attached to 100% of the transactions, you should be taxed on your income and that is it not any time money changes hands but that's another issue entirely.

Depends on your state. Most states, you are paying tax on the capital cost (the portion of depreciation). In mine (TX), the lessor is taxed on the full MSRP...which the lessor just passes on to the lessee. Then, if you chose to buyout, the lessee would be taxed by the state on the purchase price (which should be the lease's residual value).

Full Disclosure: despite giving all those pro-lease comments, I can declare that I have purchased 6 autos in my life, and all 6 were purchases with loans (sorry to disappoint Ostrichsak) and only 2 of those were traded or sold prior to the loan being paid off.
 
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Skipdd

Supporting Member
Dec 30, 2015
681
572
Silver Spring, MD
My Tesla was my very first new car after 40+ years of buying only used cars. And it was my first lease.
In retrospect it was the "wrong" choice but it seemed to make sense at the time (2015) to lease. I had never owned an EV, Tesla was still a new company with an uncertain future, and I was not sure I would want to keep the car longer than the 3 years of the lease. I had just retired. Leasing avoided the need to commit $85,000 of my nest egg to a car under uncertain conditions. It was not that I did not have enough money, it was more a question of the wisdom of committing so much to what could have been a risky purchase.
As it turned out, I kept the car and bought out the lease. So, in hindsight and looking at it purely from a cost point of view, I would have been better off to have purchased the car outright. But using the lease preserved most of my capital and gave me comfort. As it happened, the stock market did well in those years, I liked the car, Tesla seemed secure, and I bought the car.
I never tried to calculate how much extra the lease cost me over an outright purchase, considering taxes and so on. It seemed unlikely to be an exercise that would make me happy!
Hindsight is not always that helpful. Sometimes you have to make a decision and live with it and not have regrets later....I am glad I got the car. I might not have done so if I had to purchase it outright.
+1. I leased the 85D in 2015 for the same reasons you cited. Once into ownership, I understood Tesla operated as a computer company more so than a car company. 2.5 years in I re-upped to a 100D to take advantage of the longer range and other enhancements. I was always over the mileage caps, but in the first case, I used that + payments to calculate the right time to re-up. In the second case, I bought out my lease, so overage didn’t apply. Fears around Tesla’s demise are gone, the 100D has been solid (knock on wood), and I’m going to retire in a year or so and don’t want a continued very high monthly rate. It wasn’t a pure financial decision. Neither is choosing how you set up you portfolio for investments. Risk is usually a factor.
 

ucmndd

Well-Known Member
Mar 10, 2016
6,698
12,572
California
Anyone suggesting leasing as some sort of a financial benefit know nothing of finances but want to seem like they've got it all figured out & know something nobody else does.
This is only true in the context of your Dave Ramsey hard-line fundamentalist view of what "financial benefit" is allowed to entail.

Did you have major financial trauma in a past life? You talk about this like a recovering alcoholic talks about AA.
 
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Cheburashka

Active Member
Jan 29, 2018
2,383
2,962
Los Gatos, CA
Anyone suggesting leasing as some sort of a financial benefit know nothing of finances but want to seem like they've got it all figured out & know something nobody else does.

You couldn't be more wrong. It's quite common that leasing a car is cheaper than buying it new and then selling it after 3 years. Just that alone makes financial sense.

A lot of people who buy new cars are just throwing money to the wind since they are paying cash that can be saved or invested for a rapidly depreciating asset. If you can get good terms and stack some incentives, save on taxes, and reduce the money factor by making deposit payments, you can come out on top.
 

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