Why Lease a car?

[zer0cool]

I don't know if the OP is stupid or just trolling...

Many, or most luxury cars are leased, because it's generally cheaper to lease if you want a new car every 3 years. A lease is a forward contract that guarantees the sale price of the car at the end of the lease - and this value is generally set higher than the trade-in value that an individual can get under most circumstances. Most people don't mod their cars or drive more than 15k miles per year.

 

[jjrandorin]

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.

That is true, but the argument most people who wont lease a vehicle make is that "why would I ever get rid of a car in 3 years?!?!?!?!??!?!??!?!?!?!!?!?!?!?!?!" (exaggeration intentional). Buying a vehicle usually works out better than leasing, somewhere around the 5-6 year mark. After about 6 years, the person buying the vehicle is usually ahead of the person who is leasing, who would have 2 cars during that time frame and still be making a payment.

Before 5-6 years though, if the comparison is "buy new and sell after 3 years" or "lease and trade in and re lease after 3 years", its normally fairly close, with some special circumstances / incentives possibly making leasing cheaper.


(not directed at person I am quoting above)
What normally amuses me, is when people take a hard line stance on something like this, like they know whats best for everyone. As was said earlier, Its pretty silly to have a discussion about "financial benefits" in a forum about buying cars that cost 80k+. There is no world where purchasing an 80K tesla provides any financial benefit, no matter HOW one pays for it... all cash, lease, loan, whatever.

There are plenty of other vehicles one can purchase to go from a to b that dont cost this much, and would fill the need of transportation. So, now that we have acknowledged that there is no world whatsoever where a model S purchase is a "financial benefit" in any way, shape or form, we have established that its a WANT, not a need. How people pay for "wants" and what they want is a personal thing.

I like nice cars, so have been driving BMWs and recently my model 3 performance. My sister drives an econobox minivan because she really doesnt care about cars, but has a collection of luis viutton purses. She thinks my cars are extravagant, and I think its silly to spend 1k+ on a purse. We all have things we will spend money on, that makes it worth it to us. Cars, cigars, golf, vacations. Most of that is not "financial benefit", but makes the person happy.

This debate has been around so long, that I am virtually sure that this post was made just to "get discussion going" as its a topic that can guarantee strong action on both sides of the discussion. There is virtually zero chance this OP didnt know that, but we all fell for it anyway.

 

[Cheburashka]

Yeah I agree. If you want the maximum "financial benefit" then just buy a 20-year-old Toyota truck which you'll be able to sell for virtually the same amount of money as you bought it for in 5 years.

I generally switch cars around the 3 year mark myself, so leasing makes more sense especially for a luxury vehicle. Leasing the Tesla made no sense because at the time I was looking the lease numbers were awful and I didn't mind a slightly used car that took a major depreciation hit.

 

[Ostrichsak]

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.

So Dave Ramsey has a monopoly on good financial advice with a proven track record?

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.

Haha.... I couldn't be more wrong? You then go on to describe the situation like someone has a gun to your head forcing you to buy a brand new car and ONLY a brand new car to make your point.

Buying a new car is a terrible financial proposition. It doesn't matter if you pay cash, finance or lease it. You still take the depreciation hit. Financing it just makes it so that you pay interest to some lender for the privilege of taking the depreciation hit and leasing is even worse yet.

It's a bad idea. If you talk to a financial advisor who tries to tell you it makes sense somehow financially it's time to find a new financial advisor.

 

[Ostrichsak]

Yeah I agree. If you want the maximum "financial benefit" then just buy a 20-year-old Toyota truck which you'll be able to sell for virtually the same amount of money as you bought it for in 5 years.

I generally switch cars around the 3 year mark myself, so leasing makes more sense especially for a luxury vehicle. Leasing the Tesla made no sense because at the time I was looking the lease numbers were awful and I didn't mind a slightly used car that took a major depreciation hit.

It's funny you mention that because my last gasser was a Tacoma I paid $26,800 for and drove for 8 years then sold for $30k. So yeah... tell me again how buying ANY new car financed or lease is a good investment. It should be noted that that wasn't some 20-year-old clapped out jalopy either. It was a fully loaded, lifted, heavily modified and TRD supercharged beauty. You don't have to sign your soul over to the devil to not lose your ass on a car. You just have to be smart about it.

FWIW, I've owned six Model S cars now that I've bought aged about 3-5 years old. I've made money on every single one of them. Choosing to NOT sign up for losing 50% of the new car price after only 2-3 years is a VERY easy decision to make. This idea that leasing that same 50% depreciation hit is somehow better is foolish.

 

[ucmndd]

So Dave Ramsey has a monopoly on good financial advice with a proven track record?

I mean, apparently not as you’re making a decent living around here parroting his same basic financial extremist formula.

 

[ucmndd]

Choosing to NOT sign up for losing 50% of the new car price after only 2-3 years is a VERY easy decision to make.

No fuggin’ sugar.

This idea that leasing that same 50% depreciation hit is somehow better is foolish.

You are the only one here comparing the two.

Here’s my take on this.

Your version of financial fundamentalist extremism makes sense - if and only if your singular, only goal is to maximize bottom-line financial benefit in every one of your decisions.

Most people don’t live that way. Most people don’t want to, and most people don’t NEED to. Some people do want to (like you it seems), and some people do NEED to because they’ve either completely ruined their finances in the past or have an addictive sort of personality that is short on impulse control and moderation. Some people need Dave Ramsey to give them hard and fast fundamentalist rules that they can never break, just like some people need AA to give them the same hard-line fundamentalist approach to alcohol.

Most of the rest of us live comfortably in the middle. We can rationalize not always singularly prioritizing financial benefit at all cost if it affords us some flexibility, or joy, or opportunity, or if we just fuggin want to - without that being a life-ruining transgression. Some people can choose to get absolutely snockered on a Saturday night without needing a meeting Monday morning. Not because it’s good for them, or the best possible life decision they can make - but because they want to, because it’s fun, and what the hell you only live once.

If fundamentalism works for you, more power to you. But it’s naive, arrogant, and preachy to presume that everyone prioritizes the same things you do, or that they’re stupid and reckless if they don’t. Are you trying to convince us, or yourself?

 

[Ostrichsak]

No fuggin’ sugar.


You are the only one here comparing the two.

Here’s my take on this.

Your version of financial fundamentalist extremism makes sense - if and only if your singular, only goal is to maximize bottom-line financial benefit in every one of your decisions.

Most people don’t live that way. Most people don’t want to, and most people don’t NEED to. Some people do want to (like you it seems), and some people do NEED to because they’ve either completely ruined their finances in the past or have an addictive sort of personality that is short on impulse control and moderation. Some people need Dave Ramsey to give them hard and fast fundamentalist rules that they can never break, just like some people need AA to give them the same hard-line fundamentalist approach to alcohol.

Most of the rest of us live comfortably in the middle. We can rationalize not always singularly prioritizing financial benefit at all cost if it affords us some flexibility, or joy, or opportunity, or if we just fuggin want to - without that being a life-ruining transgression. Some people can choose to get absolutely snockered on a Saturday night without needing a meeting Monday morning. Not because it’s good for them, or the best possible life decision they can make - but because they want to, because it’s fun, and what the hell you only live once.

If fundamentalism works for you, more power to you. But it’s naive, arrogant, and preachy to presume that everyone prioritizes the same things you do, or that they’re stupid and reckless if they don’t. Are you trying to convince us, or yourself?

Haha.. okay man. I never knew that "don't spend money you don't have, don't blow a lot of money on something that is going to lose value and don't make risky financial decisions or fall for get rich schemes" was seen as being some sort of extremist. ROFL

Sounds like sound financial advise to me and I also wasn't aware that giving the best advice mathematically speaking was somehow infringing on someone else's intellectual property.

If you put THAT much of your overall value in life in getting blasted on a Saturday night or buying a brand new 2021 Performance Model S over say a 2017 Model S that has already taken the lion's share of it's depreciation hit then, well... I feel sorry for you.

 

[maximizese]

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.

Not to be obtuse but I'll push back on the principle of your statement that "leasing a vehicle allows them to drive a vehicle they would not be able to afford if they purchased it"

If they couldn't afford it, they wouldn't be able to purchase it. Now if purchasing the vehicle would be too much of a financial strain for them, leasing the vehicle would probably be an even bigger financial strain...it's just a lot more covert. Leasees have zero equity in the vehicle and are faced with higher insurance rates than purchasers since they are technically extremely upside-down.

I agree that leasing is not a bad value proposition for folks who can deduct some of the cost for business usage, and that picking cars that hold higher than average residual value should keep the relative costs down. I also agree that manufacturers, dealerships, and financial arms can make a lot more money with the leasing model since it's essentially a subscription model where they'll likely retain repeat customers every 2-3 years and make money on the sale of the lease return. Leasing is not for me, but it works beautifully for other personalities with different circumstances.

 

[jjrandorin]

Not to be obtuse but I'll push back on the principle of your statement that "leasing a vehicle allows them to drive a vehicle they would not be able to afford if they purchased it"

If they couldn't afford it, they wouldn't be able to purchase it. Now if purchasing the vehicle would be too much of a financial strain for them, leasing the vehicle would probably be an even bigger financial strain...it's just a lot more covert. Leasees have zero equity in the vehicle and are faced with higher insurance rates than purchasers since they are technically extremely upside-down.

I agree that leasing is not a bad value proposition for folks who can deduct some of the cost for business usage, and that picking cars that hold higher than average residual value should keep the relative costs down. I also agree that manufacturers, dealerships, and financial arms can make a lot more money with the leasing model since it's essentially a subscription model where they'll likely retain repeat customers every 2-3 years and make money on the sale of the lease return. Leasing is not for me, but it works beautifully for other personalities with different circumstances.

From a pure "how much is my monthly payment" standpoint, leasing lets people drive a car with a higher MSRP, because you only pay for the part you are renting. So, your statement "if they couldnt afford to buy it they couldnt afford to lease it" is not correct, from a monthly payment point of view.

Now, whether they should or not, thats another question entirely, but people who cant afford to buy a 60k car many times can afford the lease payment on that same car, because its a few hundred dollars a month less.

 

[SageBrush]

I never knew that "don't spend money you don't have, don't blow a lot of money on something that is going to lose value and don't make risky financial decisions or fall for get rich schemes" was seen as being some sort of extremist.

Every business starting out that takes out a loan to get going would fail your first dictate. As would loans for education. And clearly these ventures carry risk.
Appreciation is never guaranteed.
"A lot" means whatever the person wants it to mean

So I would characterize your advice as homilies. And of course it does not scale since it precludes wealth redistribution for the common good. I would say libertarian claptrap but you might take offense.

 

[SageBrush]

Now, whether they should or not, thats another question entirely, but people who cant afford to buy a 60k car many times can afford the lease payment on that same car, because its a few hundred dollars a month less.

I'm not so sure that passes the sniff test. This is a zero sum game between the dealer/manufacturer (DM) and the customer. If leases are more profitable to the DM, if follows that they are more expensive to the customer. **

Once all the smoke and mirrors is dispensed with, I mostly view leases as a depreciation play: the manufacturer takes on the depreciation uncertainty in return for compensation agreed to up front. It then follows that a customer willing to hold on to a car for most of its life will not find leases attractive since the depreciation uncertainly is markedly reduced.

** This is not quite true since the manufacturer has in general better information than the average consumer, and is in a position to sell on the secondary market for more profit than a private person. Thus was born the car dealership that sells a new car, and then resells it a few years later.

 

[Ostrichsak]

Every business starting out that takes out a loan to get going would fail your first dictate. As would loans for education. And clearly these ventures carry risk.
Appreciation is never guaranteed.
"A lot" means whatever the person wants it to mean

So I would characterize your advice as homilies. And of course it does not scale since it precludes wealth redistribution for the common good. I would say libertarian claptrap but you might take offense.

So to start a business you HAVE to take out a loan? That's news to me. I don't take offense to your personal attack (even though it's entirely unwarranted) because I just consider the source. If someone pivots to personal attacks during a conversation regarding the merits of financing and leasing I don't hold much regard for anything they have to say.

 

[maximizese]

From a pure "how much is my monthly payment" standpoint, leasing lets people drive a car with a higher MSRP, because you only pay for the part you are renting. So, your statement "if they couldnt afford to buy it they couldnt afford to lease it" is not correct, from a monthly payment point of view.

Now, whether they should or not, thats another question entirely, but people who cant afford to buy a 60k car many times can afford the lease payment on that same car, because its a few hundred dollars a month less.

I think I get what you're saying and you're right. I suppose I'm conflating the ability to secure a vehicle to drive with one's long-term personal financial outlook.

 

[Tezla1]

I have been leasing cars for 15+ years.

Most people have no idea what they are talking about when it comes to financing a car. Just b/c you have a "pink slip" is meaningless. You need to look at the full picture.


Leasing a car can be significantly cheaper than buying a car. Leasing "can" be a cheaper way to drive a car than paying cash. Unless, of course, you drive more than 15k miles/year...in which case...buying a car may work out to be cheaper.

It all depends on how skilled you are at getting into and selecting lease offers. If you walk into a dealer and take their $6k down, $500/mo payment, you're a sucker. Not all cars offer good leasing terms. A high residual value car, often makes for the best leases.

First step, you need to understand HOW you calculate the real cost of a car: (hint: it is NOT your lease payment or loan payment or cash paid for car)

The true cost of any car = (total money paid towards the car (down payment, monthly payment, interest, repairs etc.) - (credit from sale of car when you sell, if any) / # of months you owned the vehicle

Example: You finance a car at $50,000 total including tax, make payments of $833/mo. After 40 months, you sell the car for $25k (optimistic)
You paid: $33,320 in payments. You owe roughly $18k lets say (optimistic). You get a cash payment on sale of car of: +$7,000. So, your net cost is: $26,320.
Which comes out to roughly: $658/month. (not including tires, oil change, maintenance, repairs, etc. -- you SHOULD add it, but for purpose of simplicity, I will ignore)

What if you could lease the exact same car as above for only $558/month with $0 down? You just saved yourself $100/month (or $4,000) + avoid repairs, maintenance, out of warranty issue)


I leased a $60k MSRP BMW for $487/mo. with 1k due as signing. If I bought the same car with cash 60k, the same car would have cost me more

 

[TessP100D]

For personal use, Leasing is fleassing. Bad idea. A total loser in the long run.
for businesses Leasing has some real advantages.

 

[Laketime]

Trying to discuss the nuances of leasing with someone who buys a car and runs it into the ground is like discussing the subtleties of bacon with a vegan...

 

[RickParker]

From a retired old finance guy having spent 45 years in mortgage lending: I used to tell people they don't might need a mortgage to buy a house, but you don't need a mortgage to keep it. But for having a taxable benefit to write off your lease payment, leasing is a trap that you bet against bank that the car will have value at the end of the lease term - the bank will always win. Get to that point in life where you learn to save to pay your next car all cash. On a mortgage pay it off as early as possible. Be resigned to have your home paid off before retirement. #justsayin.

 

[airborne spoon]

Most people have no idea what they are talking about when it comes to financing a car. Just b/c you have a "pink slip" is meaningless. You need to look at the full picture.

Leasing a car can be significantly cheaper than buying a car. Leasing "can" be a cheaper way to drive a car than paying cash. Unless, of course, you drive more than 15k miles/year...in which case...buying a car may work out to be cheaper.

Who only drives 15k ish miles a year? The point of a vehicle is to go out and use it.
I get how the pricing works, but you are still paying for a long term rental and have nothing to show for your money at the end of the day.

Trying to discuss the nuances of leasing with someone who buys a car and runs it into the ground is like discussing the subtleties of bacon with a vegan...

I've never run a car into the ground. When I buy a car I usually have no intention of ever selling it, but sometimes a different vehicle is needed. like how I sold my 10 second mustang for a truck when I moved to Alaska.

 

[CapeOne]

Who only drives 15k ish miles a year? The point of a vehicle is to go out and use it.
I get how the pricing works, but you are still paying for a long term rental and have nothing to show for your money at the end of the day.

Lots of people only drive 15k miles/year. According to the USDOT, the average person drives around 13,500 miles/year and some people, especially owners of "luxury" cars (which are more often leased on average), have more than one car which means those miles may be spread over multiple vehicles.

As far as having "nothing to show for your money at the end of the day", you most certainly can. Since lease payments are lower than purchase payments, the money "saved" via the lower payment can be similar to building equity in the financed car. For example, if it costs $1,400/month to lease a particular car for 36 months versus $2,600 to finance same for 36 months, you are saving $1,200/month over 36 months which means you'll have $43,200 more in the bank (not counting any interest) at the end of the term. If the car is worth $40,000 in three years then you would actually have even MORE to show for your money with the lease "at the end of the day" (36 months).

As with other financial products, you need to crunch the numbers multiple ways to see what works best for particular situations. To say leasing is always cheaper isn't right but to say leasing is always more expensive or you'll have "nothing to show for your money" isn't right either.