The pros and cons of leasing a vehicle.

[JJZ 109]

The right answer is to do the math, look at your situation and personal preferences and go from there. What other would "ALWAYS" do or try to make things sound carved in stone unchangeable are really irrelevant.
You know your financial situation. You know whether you'd like to drive new every couple years and not take the depreciation hit on trade. Some folks figure they're always going to have a vehicle payment if they want to drive something new or close to new, so they lease instead of trying to trade up every 2-3 years because they'll never have it paid off anyway. (see Suburban Farmer's paragraph above on that) Most can't afford to plunk down cash for a new vehicle and need another option.
Sometimes you can buy your leased vehicle at a reasonable price when the lease is up. If it's a popular vehicle, sometimes the manufacturer holds tight to the residual value and won't deal. You never know until you get there. Others have mentioned getting whacked for damages when you return the vehicle. A couple of times, I opted for the insurance protection on Ford Red Carpet leases. Some people just take their chances.
I've leased trucks a couple of times in the past because I wasn't racking up the miles, I wanted new every couple of years and also to keep the payment lower than if I had purchased. Once I inquired about buying the truck at the end of lease but Ford wouldn't budge on the price. No problem. I walked away and let them have the truck back. The current plan is to keep my F250 for several years, so I bought it.
So plug in your mileage/payment/desire for new every 2 or 3 years and make the call that works for you.

 

[Capricious]

"...True if you saved all of the money you didn't spend or warranties or just have a slush fund for such things..If you don't---Just sayin..."



No.

If I spend less on repairs than I would have spent on extended warranties, then I am ahead, regardless of what I actually did with the money.

Especially if you want to include interest costs (actual if you borrowed the money to pay the warranty; implied if you had the cash)

 

[Capricious]

"..No but it is still cheaper than new by a long shot...."


Saying it is so does not make it true.

We bought a 1996 Corolla new. We kept it for 17.5 years, then replaced it with a new 2013 Corolla, which I paid $16,274.00 cash for - no trade (sold the old car to someone at work), no financing, no lease, no extended warranty. None of the stuff that the dealers make their "back end" profit on.

6 months after buying it, I saw a dealer advertising the exact same car, used, 17,000 miles, for over $18,000.00 I don't care what the "program" is, you don't get a "deal" by buying late model
used cars from dealers. They charge a premium because they have immediate access to financing and leasing which allows people with little money to buy cars (they probably should not be buying).

First oil change on new car due @ 10,000 miles per "book." I changed it @ 2,500 miles. I will keep this car as long as the last. During that same period you will go through (2) program cars, and (2) extended warranties, if you are starting with a car that is already 3-years old, with 36,000 miles (+,-).

Why do you think that GM just announced that they are reducing the length of their standard warranty? Because they realized that they were cutting into the dealers' opportunities to make money selling extended warranties. Pure and simple. "Back end" profits. That's where the car dealers are making their money these days, since the internet has introduced some transparency into vehicle pricing.

Buy a new car, an established model, without the latest technology (remember the Oldsmobile diesel? or the first generation of GM antilock brakes?) which means no "weird" transmissions (CVT, 8 speeds of Italian design, hybrid auto-manuals, etc.) no weird engines, no aluminum bodies, and so forth.

Buy boring. Pay cash. Keep it a long time. That is how you save money on transportation. You probably will not impress anyone with your "ride."

Complicated "financial engineering" allow others to make a profit from you, which means it is costing you money.

 

[GolfAddict]

Check Edmunds: March's $199 Lease Deals | Edmunds.com

Steve

Thanks, Steve!

 

[Capricious]

Thanks, Steve!

Ok, let's look at the lease for the Corolla, a model I have experience with:


"Toyota's roomy and legendarily reliable Corolla sedan is available on some regional leases for $199 per month. This particular example is for Southern California and features the LE Plus model. It needs $1,999 at signing for 24 months and 24,000 miles of use. The offers in your area will differ, and be careful to note whether all acquisition and disposition fees are included in the advertised price..."



So, a total of $6,775.00 to drive this car (2) years and 24,000 miles*. At 12,000 miles/year this car should be good for (14) years (I got 17.5 years out of our 1996 Corolla and it was still running good).

So, at $6,775.00 for 2 years, then leasing for (14) years would cost (roughly) $47,425.00 ($6,775.00 X 7 = $47,425.00)

Or, you could buy it for no more than $20,000.00 and at the end of (14) years it would be worth scrap value, at minimum. Yes, you might have to put some repairs into the car over a 14 year period, but as long as the repairs do not exceed $27,425.00 you are still money ahead to buy rather than lease. Quite a bit of money. In fact, you could borrow the money and pay interest on it, pay some repairs and STILL come out ahead buying vs. leasing.


Looking at the dollars, leasing does not make sense. If one has other priorities other than minimizing cost, then fine, but be aware that there are costs to "wants."







(* Note comment about additional fees)

 

[arrow]

"..No but it is still cheaper than new by a long shot...."


Saying it is so does not make it true.

We bought a 1996 Corolla new. We kept it for 17.5 years, then replaced it with a new 2013 Corolla, which I paid $16,274.00 cash for - no trade (sold the old car to someone at work), no financing, no lease, no extended warranty. None of the stuff that the dealers make their "back end" profit on.

6 months after buying it, I saw a dealer advertising the exact same car, used, 17,000 miles, for over $18,000.00 I don't care what the "program" is, you don't get a "deal" by buying late model
used cars from dealers. They charge a premium because they have immediate access to financing and leasing which allows people with little money to buy cars (they probably should not be buying).

First oil change on new car due @ 10,000 miles per "book." I changed it @ 2,500 miles. I will keep this car as long as the last. During that same period you will go through (2) program cars, and (2) extended warranties, if you are starting with a car that is already 3-years old, with 36,000 miles (+,-).

Why do you think that GM just announced that they are reducing the length of their standard warranty? Because they realized that they were cutting into the dealers' opportunities to make money selling extended warranties. Pure and simple. "Back end" profits. That's where the car dealers are making their money these days, since the internet has introduced some transparency into vehicle pricing.

Buy a new car, an established model, without the latest technology (remember the Oldsmobile diesel? or the first generation of GM antilock brakes?) which means no "weird" transmissions (CVT, 8 speeds of Italian design, hybrid auto-manuals, etc.) no weird engines, no aluminum bodies, and so forth.

Buy boring. Pay cash. Keep it a long time. That is how you save money on transportation. You probably will not impress anyone with your "ride."

Complicated "financial engineering" allow others to make a profit from you, which means it is costing you money.

I can agree with "buy boring" if you keep a car. In the real world, you are an exception as people desire all the "goodies" so the "plain" car loses out in trade in value much like the 2 bed room house is now losing out to the 3 bed room home as far as desirability.

Some of your assertions are however (knowing what I know about the business) are not on target at all. 1. Any curtailing of warranties has much more to do with overall cost to sustain those warranties for the auto maker. 2. Leases can state end values but these have no necessary consequence of the price tag the dealer puts on the car for resale 3. Dealers pay about the same amount for program cars if they are derived from rentals. One of the few variables is the size of the "block" a dealership is willing to purchase with the larger blocks affording more savings... Any savings can then be passed along to the customer or NOT. 4. What is not in the least bit regulated is what the dealership can sell cars for. It's their choice. They can "whack" them any way they please depending on desirability and opportunity. (Try and find a Dodge Hellcat for list these days). 5. Traditionally, if the dealer is using outside institutions for financing, they are usually making 1% as a financing fee. Nothing complicated but to avoid that additional cost and if one is so inclined, it is cheaper to go in with your own financing either from your own credit union or banking institution or your own savings. Also, 0% is never really "zero cost".

I gave you examples of what program cars can be had for. Your $18,000 example might very well have been $14,900 (or cheaper) at another dealership. It depends of how fast a dealership wants to turn product weighed and balanced with what it thinks it can get for a car.

You keep arguing from your own stand point and it is making little difference as I try to relate "variables" to a decision making process other's may be considering. This is the point of "change" I was referring to and not what you do for yourself. I feel you are a very good money manager. I'm not attempting to change your mind. I'm trying to allow you to see what other's may consider as thinking points that are just as valid as yours depending on their situations. It is not always the conspiracy that you abide by.

Btw: CVT forces have been around since the 50's. In 1994, they were banned from Formula 1 cars as having too great an advantage.

I'll end with the same line you gave me: Because you think it so, doesn't make it always true.

Thanks Cap. I enjoyed the discussion but I believe I've said everything I needed to relate.

 

[Pixguy]

I helped my 90yo FIL into a 2 yr. lease Ford wagon a year and half ago with 10k a year and he only has 6500 miles on it. They are starting to contact him and I'm wondering if I should shop it around to other dealers who'd love to get their hands on it or turn it back in for a new model and another 2yr lease. Obviously at his age he won't be driving for 5 more years and he likes a new car to drive.

The residual on it is 24k which I'd love to grab for my wife but she hates the color. lol.......women. :laughing:

 

[Capricious]

"...can agree with "buy boring" if you keep a car. In the real world, you are an exception as people desire all the "goodies" so the "plain" car loses out in trade in value much like the 2 bed room house is now..."



We have a 2-bedroom house.

Yes, I am the exception. The cost of the deal is my primary concern, not "goodies." I will compromise on the vehicle before I will compromise on the finances.

If one wants the best deal from a financial standpoint, then my way works.

If, however, one's primary interest is in "goodies," or a low monthly payment (which does not necessarily translate into the lowest cost), or the latest and greatest (like a "Hellcat", whatever that may be) then one will not be happy with my way. But it will cost more.



"..(knowing what I know about the business).."

I have been on the buying-end enough times to know how it works.

 

[GolfAddict]

My car model wasn't listed on the Edmunds page that was linked, but I see they had a lease calculator a page back. I tried plugging in my estimations, and if I trade in my car and lease the latest model year, I have a -$77 payment.

I'm obviously doing something wrong. I don't think they'll pay me 77 bucks a month to lease their car! :laughing:

 

[dave1949]

Ok, let's look at the lease for the Corolla, a model I have experience with:

So, a total of $6,775.00 to drive this car (2) years and 24,000 miles*. At 12,000 miles/year this car should be good for (14) years (I got 17.5 years out of our 1996 Corolla and it was still running good).

So, at $6,775.00 for 2 years, then leasing for (14) years would cost (roughly) $47,425.00 ($6,775.00 X 7 = $47,425.00)

Or, you could buy it for no more than $20,000.00 and at the end of (14) years it would be worth scrap value, at minimum. Yes, you might have to put some repairs into the car over a 14 year period, but as long as the repairs do not exceed $27,425.00 you are still money ahead to buy rather than lease. Quite a bit of money. In fact, you could borrow the money and pay interest on it, pay some repairs and STILL come out ahead buying vs. leasing.

I don't think this makes sense. Would you pay the same lease rate for a 2,4,6,8,10,12 year-old car as a new car? No, it would be a sliding value.

In the link Steve provided, they compute the leasing cost-per-mile with the assumption that all allowable miles under the lease agreement are consumed. A valid comparison to leasing vs owning would need the cost-per-mile for owning (not including operating or financing). Presumably, at some point in age the cost-per-mile for owning long-term would meet the 2-year lease cost-per-mile.

The long-term owning cost-per-mile is at risk from repair costs above and beyond normal maintenance. You may be lucky, maybe not.

I've never leased and haven't done the math above that would be needed to know which is cheaper. On the face of it, if I could have the use of a newish vehicle forever for $0.35 - $0.40 cents per mile + operating costs through successive new car leases, it doesn't sound like that bad of a deal. I wouldn't like the added complications of conforming to the lease details most likely.