Why Lease a car?

[n2mb_racing]

I'm struggling with this decision too. I have a Model 3 Performance now, and I want to get a Model S Plaid. I leased a P90DL back in 2016 when they had those ridiculous lease deals on inventory cars. I paid $700 / month with no downpayment for a 24 month lease. Leasing was fine, although slightly stressful to turn in the car, with some hiccups in the process. Probably still easier than selling. I bought my Model 3 with a loan that is now paid off.

Assuming the money doesn't matter, but I still want to feel like I got a reasonably good deal... Also, I apparently don't drive much, since my Model 3 has under 15k miles on it in 3 years. Why not lease?

If we compare a Plaid with FSD for $142,490. Lease payment would be 1937 / month.
Total payments over 3 years, excluding vehicle tax and registrations, would be $78,322.00 .
With a 3 year loan at 2.5% (likely can do better), you'd pay $149,256.00 over 3 years.
That should mean that if you can sell the Plaid after 3 years for more than $70,934, you'd come out ahead, although I didn't account for our NC highway use tax of 3% and yearly property tax on cars of ~1% of the value. That's kind of pain to calculate. I believe it is 3% tax on each lease payment, so 2349.66 in taxes for the lease. Purchase has 3% on the price immediately, that's $4477.68, plus about 1% each year, but the estimated value decreases each year. Estimating value of 120k for year 2 and 100k for year 3, puts total tax at $7,107.28 .

Now accounting for the tax differences, you'd have to sell the car for $75,691.62 after 3 years to come out ahead.

Ok, then it gets more complicated. I also have a business that makes automotive electronics for performance cars, hence, plaid fits right in. I'm trying to estimate the tax write-off for the lease. If we assume a marginal tax rate of 32% and 2.9% for medicare self-employment tax (social security is already paid for, so I don't think that factors into the marginal tax computation), I think that means 35% of the lease payment is the deduction.

That reduces the lease payments from $78k to effectively $50k. With taxes, if my math is right, $52,436.58 over 3 years.

Now, including the tax write-off, I'd have to be able to sell the Plaid for over $103,926.70 after 3 years to come out ahead. That seems unlikely given what we've seen on depreciation on the P100D (~50%?) , although there was a large price cut in there, that probably drove down used prices a lot. Although, if plaid+ comes out in <3 years, which seems likely, the Plaid will certainly be worth a lot less.

Last decision factor. I actually really want the new Roadster, but I'm pretty sure it isn't coming out for another 2 years. If it does launch in 2023, I'll be stuck in my Plaid lease until end of 2024 (I know, first world problems here). Whereas, if I purchased, I could just sell the Plaid whenever I want and buy the Roadster. Maybe I could sell the lease or trade-in early?

Decisions...

 

[TessP100D]

I hate seeing young people trying to keep up with the Bay Area rat race. IT is everywhere, the pandemic has permanently changed the rules. Free thy self. You’re two generations too late to own a home in Mountain View - it’s a mirage. Most everyone will never catch up.

Resigning yourself to a life of renting everything, from homes to cars to new cell phones every year, is no great way to live.

Exactly

 

[zhu-]

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.

Having pride in being debt-free and paying off low interest debt early is one of the biggest financial mistakes people make. Everyone I know who are high 6-7 figure earners and are truly financially smart take on as much debt as possible. Why? 1. Because interest rates are extremely low. I yield a minimum of 15% a year from my investments vs the ~2% interest owed on the loan. 2. Your debt is owed in an inflationary asset, the dollar. You're paying the same amount of dollars year after year but you're giving up less in value and actual buying power over time. I can afford to buy a semi full of Teslas each year but still take on a 6 year loan because the $40k financed amount I save now returns vastly more than the paid interest after 6 years.

I get your point though, the average person instead of investing will take on a long term loan so they can spend the difference at the Gucci store, or wasn't able to afford the car at all without it. For those in the middle range of income from $250k-$1m/year taking on low interest debt is often the smarter approach.

 

[airborne spoon]

Having pride in being debt-free and paying off low interest debt early is one of the biggest financial mistakes people make. Everyone I know who are high 6-7 figure earners and are truly financially smart take on as much debt as possible. Why? 1. Because interest rates are extremely low. I yield a minimum of 15% a year from my investments vs the ~2% interest owed on the loan. 2. Your debt is owed in an inflationary asset, the dollar. You're paying the same amount of dollars year after year but you're giving up less in value and actual buying power over time. I can afford to buy a semi full of Teslas each year but still take on a 6 year loan because the $40k financed amount I save now returns vastly more than the paid interest after 6 years.

I get your point though, the average person instead of investing will take on a long term loan so they can spend the difference at the Gucci store, or wasn't able to afford the car at all without it. For those in the middle range of income from $250k-$1m/year taking on low interest debt is often the smarter approach.

what?!
i took out a 7 year loan on my tesla and paid it off in 3 years. this saved me a fortune in interest payments and allowed me to put more money into my savings.

you saying that you make 15% in interest on investments is good, rock on and keep it up, but saying you DGAF about pissing away 2% on interest seems very illogical because you are giving the bank money you don't need to. Even a small amount of your income given up unnecessarily is a waste and should be avoided.

 

[Kairide]

what?!
i took out a 7 year loan on my tesla and paid it off in 3 years. this saved me a fortune in interest payments and allowed me to put more money into my savings.

you saying that you make 15% in interest on investments is good, rock on and keep it up, but saying you DGAF about pissing away 2% on interest seems very illogical because you are giving the bank money you don't need to. Even a small amount of your income given up unnecessarily is a waste and should be avoided.

For clarification purposes, was that a 7 year used car loan for a 2014 P85D? If so, at this point I would stop making any comments about what one should or should not do financially. Because you lost all credibility. Taking out a 7 year loan on a car, but paying it off in 3 years is not really something worth bragging about.
Even if you paid it off in 3 years, you're going to typically pay higher interest on a car loan greater than 60 months. The loan will have an even higher interest rate if it's for a used car, a used car older than 2 or 3 model years from the loan origination and a loan greater than 60 months. Since you said you just paid off the loan and it took 3 years, that would put the loan origination back in 2018. If you need a 7 year loan to pay for a 4 year old car, you definitely bit off more than you can chew financially.

 

[zhu-]

what?!
i took out a 7 year loan on my tesla and paid it off in 3 years. this saved me a fortune in interest payments and allowed me to put more money into my savings.

you saying that you make 15% in interest on investments is good, rock on and keep it up, but saying you DGAF about pissing away 2% on interest seems very illogical because you are giving the bank money you don't need to. Even a small amount of your income given up unnecessarily is a waste and should be avoided.

Let's say you won a $100k scratch off lottery ticket and will have $50k left after taxes - you can choose to pay off a $50k loan early and save 2% on interest or invest it and yield 15% annually and you'd rather pay off the loan? Not only would you miss out on a 13% growth arbitrage but you'd rather pay off the loan now while effective (not CPI) inflation is probably 10%+ each year after trillions were just printed in the past year? Not using debt strategically or paying off low interest loans early is saving you pennies while you're missing out on dollars long term.

Now, this is all assuming someone is an active investor which not everyone is - but they should not be claiming to be financially smart.

 

[airborne spoon]

For clarification purposes, was that a 7 year used car loan for a 2014 P85D? If so, at this point I would stop making any comments about what one should or should not do financially. Because you lost all credibility. Taking out a 7 year loan on a car, but paying it off in 3 years is not really something worth bragging about.
Even if you paid it off in 3 years, you're going to typically pay higher interest on a car loan greater than 60 months. The loan will have an even higher interest rate if it's for a used car, a used car older than 2 or 3 model years from the loan origination and a loan greater than 60 months. Since you said you just paid off the loan and it took 3 years, that would put the loan origination back in 2018. If you need a 7 year loan to pay for a 4 year old car, you definitely bit off more than you can chew financially.

I didn't need a long loan I actually wanted a 3 or 4 year loan but the interest rate was 1.5% for 7 years ($5,404) and it was 4% for 3 years ($6,286) so I took the lower rate and paid it off early, (ne fees or penalties for early payoff). So instead of paying $6k in interest if I took the longer time with the lower rate and I only paid about $2k in interest.
I only have random investments that I said **** it and bought a few random things. most of my savings is in my roth 401k and I cant exactly just add more to that whenever i feel like so i put a few bucks in a savings account and once a year for 3 months I make 100% of my pay go to the roth and then I live off the savings. I'm pretty sure there is a better method, but **** it I retire in 2 years and it works. Maybe once I get a new job after I retire and go to college I'll do something different for my 401k but for now its fine.
I've never said I'm financially smart, i just don't see how a lease makes sense for an average consumer since you don't have anything to show for it when you do the lease return. At least with my car once i got the pink slip it was mine and i have some equity, with a lease you may have saved a few bucks but your average consumer will have pissed away that money, and when the car is returned they got jack *sugar*.

 

[Kairide]

I've never said I'm financially smart, i just don't see how a lease makes sense for an average consumer since you don't have anything to show for it when you do the lease return. At least with my car once i got the pink slip it was mine and i have some equity, with a lease you may have saved a few bucks but your average consumer will have pissed away that money, and when the car is returned they got jack *sugar*.

A car is a depreciating asset. Leasing a car allows those who don't want to own a depreciating asset to enjoy reliable transportation without being on the hook for out of warranty issues. Some people just want to enjoy life and don't care about owning in the end. As long as you get what makes you happy in the end, who cares what some guy on the internet with a 7 year used car loan thinks.

 

[TessP100D]

A car is a depreciating asset. Leasing a car allows those who don't want to own a depreciating asset to enjoy reliable transportation without being on the hook for out of warranty issues. Some people just want to enjoy life and don't care about owning in the end. As long as you get what makes you happy in the end, who cares what some guy on the internet with a 7 year used car loan thinks.

Leasing for personal reasons really equals people Spending money they don’t have just to keep up with the Jones.

 

[Kairide]

Leasing for personal reasons really equals people Spending money they don’t have just to keep up with the Jones.

How do you figure? I leased plenty of cars, including my Model S. I did it because I didn’t want to own any of the cars. I drove them for a few years, traded them in for a new car and was happy. Just because you lease, doesn’t mean you don’t have enough money to buy. Same as those who rent, instead of own a home. Some people just don’t want to own a house for whatever reason. Judging someone’s financial stability based on if they leased or purchased the car they drive is the dumbest thing I’ve heard.

 

[RickParker]

Ok, so what happened to those whose leased say, a Model S in the earlier years at $110,000 lease, their lease is up and what do they do? Pay the residual or as some call it "bring back" and own it? Well guess what the residual on that car is $78,000 do they trade it in and pay the mileage overage (if any)? Then start the whole thing over again? You need a Model S of course but know they are $95,000 so you trade the first MS for the second one and you just keep making those low lease payment, if you still have a job or need a new home. It is as to justify ones self that you can rent a house inspite of rent increases year-after-year. Guess what, when has rent gone down? You keep just pushing money forward and awake one day and an have that moment that "I don't own crap!!!". Just like a home people buy payment not a home, when has Real Estate prices gone down? People just refinance to get there equity out and wake up at age 60 and say, I'm going to be making this payment til I'm 90! So as TessP100D posted in #70 above, "Leasing for personal reasons really equals people Spending money they don’t have just to keep up with the Jones." Unless you have a bonafide business reason that gives you tax benefit maybe. You can't game the bank on money anymore that you can game Wall Street, that's what lenders do for a living, they create cash flow at the expense of the customer. Banks aren't bad they are just banks. I would recommend that for those who don't have a retirement plan to go get a free session on how to guarantee that you can retire comfortably. Uncle Joe can't guarantee you get a car, house, retirement or food stamps for most people for the rest of their life. Get help from a pro financial planner and not from this forum.

 

[TessP100D]

How do you figure? I leased plenty of cars, including my Model S. I did it because I didn’t want to own any of the cars. I drove them for a few years, traded them in for a new car and was happy. Just because you lease, doesn’t mean you don’t have enough money to buy. Same as those who rent, instead of own a home. Some people just don’t want to own a house for whatever reason. Judging someone’s financial stability based on if they leased or purchased the car they drive is the dumbest thing I’ve heard.

No Renting is the dumbest thing you have ever heard, you just don't understand why. Let’s take that home you mentioned. you buy a home for 400,000 with 10% down. You know owe 360.00. In 5 years it appreciates to 450.000 and you only owe say … 260,000-280,000. So in 5 years your sitting on a possible 180,000 positive investment. If your renting what do you have. Nothing. But you made the landlord a ton of money paying all His mortgage and insurance and taxes payments. What tax advantaged did you get? Barley none. No interest deduction, no tax deduction. Maybe a renters credit?

it’s just dumb to even suggest that rental a home is better than owning.

 

[CapeOne]

No Renting is the dumbest thing you have ever heard, you just don't understand why. Let’s take that home you mentioned. you buy a home for 400,000 with 10% down. You know owe 360.00. In 5 years it appreciates to 450.000 and you only owe say … 260,000-280,000. So in 5 years your sitting on a possible 180,000 positive investment. If your renting what do you have. Nothing. But you made the landlord a ton of money paying all His mortgage and insurance and taxes payments. What tax advantaged did you get? Barley none. No interest deduction, no tax deduction. Maybe a renters credit?

it’s just dumb to even suggest that rental a home is better than owning.

I'm not saying buying still isn't (usually) better than renting but your figures are off,

1.) You need to factor in closing costs when buying, costs of potential repairs during five years of ownership, and closing costs when selling. Just the down payment plus closing costs at both ends (including mortgage fees, transfer taxes, selling commission, etc.) alone could be $85k assuming you bought at $400k and sold at $450k.

2.) At the end of five years, you would likely still owe at least $320k since you pay more interest at the beginning. The mortgage payments don't all go to paying down the principal.

So.....
$450k - $320k payoff = $130k. Deduct the $85k I mentioned above and you’re net positive is $45k assuming no repairs were required. Yes, it’s still a positive but not nearly the $180k positive you mentioned.

 

[Kairide]

No Renting is the dumbest thing you have ever heard, you just don't understand why. Let’s take that home you mentioned. you buy a home for 400,000 with 10% down. You know owe 360.00. In 5 years it appreciates to 450.000 and you only owe say … 260,000-280,000. So in 5 years your sitting on a possible 180,000 positive investment. If your renting what do you have. Nothing. But you made the landlord a ton of money paying all His mortgage and insurance and taxes payments. What tax advantaged did you get? Barley none. No interest deduction, no tax deduction. Maybe a renters credit?

it’s just dumb to even suggest that rental a home is better than owning.

It's interesting to see all of the ignorant comments made by people living in a scientific vacuum where everything is equal. The reality is, what works for one, doesn't work for another. It doesn't make it right and it doesn't make it wrong. Renting makes financial sense for certain people, just like leasing does. Those who like to move frequently and ones that don't want the hassle of dealing with the expenses of owning a home are prime examples. If your lifestyle or job causes frequent location changes, buying a home and trying sell it every couple of years is not good financial move. Once you buy a home, it's not like the price of the house is the final amount you'll be paying. At least in CA, you'll be paying $10K - $30K in property taxes annually plus repair bills for anything that breaks. When you rent, all you worry about is utilities and rent. I guess to some they only see it their way, but that's only because they worship Dave Ramsey and believe everything they read on the internet.
As someone who both rents and owns a home and also used to be a serial leaser, I see it from both sides.

 

[linux-works]

But paying ridiculous high rent is?

if you dont ever have enough for a downpayment, how do you suggest one actually qualifies for a house? and ensures they can pay for it, each month, along with its maint costs?

its fine to argue against paying rent, which is money that never comes back to help you (no tax incentives, no equity) but many people simply dont have inheritances or family help or other boosts to give them a leg-up on this very difficult quantum step to get a house.

god forbid you have an illness or lose a job for a while and you will be even more YEARS behind in your attempt to scrape up savings for a downpayment.

anyone who talks like this has probably not had to worry about things. must be nice, I'm told.

 

[RickParker]

Reminds me of an old quip:

It's like teaching a pig to sing. It doesn't work and only annoys the pig.

Nuff said

 

[TessP100D]

It's interesting to see all of the ignorant comments made by people living in a scientific vacuum where everything is equal. The reality is, what works for one, doesn't work for another. It doesn't make it right and it doesn't make it wrong. Renting makes financial sense for certain people, just like leasing does. Those who like to move frequently and ones that don't want the hassle of dealing with the expenses of owning a home are prime examples. If your lifestyle or job causes frequent location changes, buying a home and trying sell it every couple of years is not good financial move. Once you buy a home, it's not like the price of the house is the final amount you'll be paying. At least in CA, you'll be paying $10K - $30K in property taxes annually plus repair bills for anything that breaks. When you rent, all you worry about is utilities and rent. I guess to some they only see it their way, but that's only because they worship Dave Ramsey and believe everything they read on the internet.
As someone who both rents and owns a home and also used to be a serial leaser, I see it from both sides.

Ahh Dave Ramsey is pretty smart and you should listen To him and learn something.

it seems I have a whole heard of horses here, thirsty and dying… all standing right next to a large crystal clear water hole, but of course you know the ending.


all these young people - who can’t wait to spend their last dime each week on Starbucks, Apple phones, music, clothes, sun glasses and of course a car they can’t afford so hey… yes to Leasing is good with them.

in the end they realize all their stuff was just stuff and it’s all gone and they own nothing. No savings. No assets. Nothing.

i did not say it was easy. But… what in life is easy and without sacrifice… except leasing a car.

OK. Ok. Don’t get bent.


I’m out.

 

[TessP100D]

Reminds me of an old quip:

It's like teaching a pig to sing. It doesn't work and only annoys the pig.

Nuff said

I prefer horses to pigs. But that’s ok too. Lol.

 

[CapeOne]

It's interesting to see all of the ignorant comments made by people living in a scientific vacuum where everything is equal. The reality is, what works for one, doesn't work for another. It doesn't make it right and it doesn't make it wrong. Renting makes financial sense for certain people, just like leasing does. Those who like to move frequently and ones that don't want the hassle of dealing with the expenses of owning a home are prime examples. If your lifestyle or job causes frequent location changes, buying a home and trying sell it every couple of years is not good financial move. Once you buy a home, it's not like the price of the house is the final amount you'll be paying. At least in CA, you'll be paying $10K - $30K in property taxes annually plus repair bills for anything that breaks. When you rent, all you worry about is utilities and rent. I guess to some they only see it their way, but that's only because they worship Dave Ramsey and believe everything they read on the internet.
As someone who both rents and owns a home and also used to be a serial leaser, I see it from both sides.

Exactly. When considering a home purchase, people need to realize it's more than just about the purchase price and potential down payment. There can be many other costs and factors involved. This is also true on the selling side. Unless someone is planning to be in the same place for at least 3 or 4 years, renting can be the better option. Of course, plans sometimes change by choice or otherwise so you have to be prepared for that as well.

Although buying is often the way to go, it's not necessarily as financially beneficial as some seem to think (as demonstrated in my previous post above). This is especially true in the short term.

Similar to car leasing, the best answer to whether renting a house is better than buying or vice versa is..........IT DEPENDS!

 

[Kairide]

Ahh Dave Ramsey is pretty smart and you should listen To him and learn something.

He is smart, he gets millions of suckers to pay him hundreds of millions of dollars to listen to common sense. All he spews is common sense, spend less than you make.