The pros and cons of leasing a vehicle.

[namesray]

My wife is in the market for a "newer" vehicle. We have always bought our vehicles before, never done a lease deal. Lots of people have been telling me we should lease instead of buy it. I myself have always had older high mileage vehicles that I just run. I even put a new engine in the gmc truck I own now and keep on running it. My wife likes to have a reliable vehicle so she gets the better one. Usually keep vehicles on a 6 to 8 year. After hearing the dealer say the monthly lease payment, I will admit it sounds good, but...

The numbers run simular comparing buying or leasing, but it still seems like owning it (eventually) still saves money over a lease. My hang up is the tax, and fees due down at lease signing is where the cost is higher doing a lease deal, but on a 3 year lease, alot of that cost can be off set by advoiding certain repairs and maintenance that seem to show up around 36000 miles. Such as tires and so on. But you also will have at that time another round of tax and fees due at lease signing for the next vehile when the lease is up. Every 3 years this can get expensive.

She puts between 10000 and 12000 miles on a year, so that fits into the lease catagory good. With a 3 year lease, everything is under warrenty, so that is also good.

We planning on getting a ford escape 4x4.

Still I m very unsure of which is best. Any advice and experiences will be appreciated.

 

[Capricious]

I would never lease a vehicle unless it was for business purposes where the entire lease payment would be deductible.

I have always bought, and have always paid cash. I also always buy the cheapest "trim" level, with the fewest options, and I always keep them for as long as possible, and
always sell them myself, rather than trading-in.

In my opinion, all the above is how one gets the best "deal" on transportation.

 

[George2615]

I leased my trucks a couple different times over the years. One problem I see with leasing is after 3 years you either have to turn it in, buy it at the end of lease, lease another, buy a new or used vehicle.
If you keep your vehicles 6-8 years and decide to buy new, I guess it depends on how long you finance the vehicle for. If you buy and finance for 6 years you pay a higher monthly payment for the term of the loan than you would if you leased. After the 6 years you own it and if in good shape could get a several more years at no monthly cost.
Just my opinion but your wife want the reliability of a new vehicle so lease a vehicle for her. At the end of the lease you can buy her leased vehicle for yourself to use and lease another new one for her.
Most leases are 36 month but at a much lower monthly cost than buying. (Example: I bought my current 2013 truck and monthly payment is about $450, I could have leased the same truck for about $260 a month, turn it in after 36 month and lease another new truck.
Either way you pay every month but by leasing you never own it. By owning you pay more per month then at some point will have to start putting money into it to keep it going as you did with your GMC. If leased for business you can write off expense on taxes.

 

[arrow]

First, it no longer matters whether you lease or buy a vehicle. If it is work related, you can still "write it off". Dealerships love leases because they get a lot of money for the half the car they rent and then acquire a two or three year old car with not that many miles on it that they can sell for all the money. You are always ahead of the game by purchasing even if you trade in a car every 2 or 3 years. Leases work for people who need reliable transportation to get to a new job and cannot necessarily afford the full nut on a vehicle that is purchased. Leases work for those who want the transfer to a new car "mindless" and automatic and who do not mind a perpetual car payment.
Depending on the dealership, acquisition fees can be enormous. If you get dings on the lease or it needs slight cosmetic work, you can get shocked with what some of these charges are. If you say "I'll bring it to my guy", they'll say "I don't think so as it is not your car but ours". There can be many "hooks" with a lease and "convenience" can end up costing one big time. Some simply do not care as "convenience" is king to some. Whether you lease or not has more to do with you as a person than what any lease or purchase presents itself as.

 

[smstonypoint]

Back in 1995 (Has it really been 20 years?), I wrote a journal article on the economics of auto leasing by consumers -- http://www.jstor.org/discover/10.2307/23859248?sid=21106147538193&uid=70&uid=2129&uid=3739896&uid=2&uid=4&uid=3739256.

Post some numbers and I will do the analysis for you.

Steve

 

[roadhunter]

I would never lease a vehicle unless it was for business purposes where the entire lease payment would be deductible.

I have always bought, and have always paid cash. I also always buy the cheapest "trim" level, with the fewest options, and I always keep them for as long as possible, and
always sell them myself, rather than trading-in.

In my opinion, all the above is how one gets the best "deal" on transportation.

Makes perfect sense.

 

[Capricious]

"...If you get dings on the lease or it needs slight cosmetic work, you can get shocked with what some of these charges are..."



In August 2013 I bought a new Corolla, to replace a 1996 Corolla we also bought new*

I "shoe horn" the car into my detached garage, which doubles as my "shop." Where I store my tools. Where I keep my hi-lift jack. Which I accidently knocked over and it hit
the new car, putting a big scratch in the fender. I touched-up the paint to keep it from rusting, but it sure doesn't hide the damage. If I keep this Corolla as long as the last,
the scratch will do little to diminish the value of the vehicle at the end of my ownership of it. So, the scratch will end up costing me little.

IF, however, the car was on a (3) year lease, I had better get it fixed ($$) before turning the car back in, or it will be ($$$$).





(*1996 Corolla cost about $14,000.00 cash, no trade; 2013 Corolla cost $16,274.00 cash, no trade. In April 2014 I saw a dealer on Craiglist advertise the same model & color car, same options (very few) and 17,000 miles, for $18,000.00 Which is why I do not buy "late model" used cars. The dealers want too much for them, and private parties owe too much on them.)

 

[GolfAddict]

Back in 1995 (Has it really been 20 years?), I wrote a journal article on the economics of auto leasing by consumers -- http://www.jstor.org/discover/10.2307/23859248?sid=21106147538193&uid=70&uid=2129&uid=3739896&uid=2&uid=4&uid=3739256.

Post some numbers and I will do the analysis for you.

Steve

I'm sure your article is awesome, but I'm too cheap to pay the 39 bucks. Any chance we can get the cliff notes free?

 

[MoKelly]

Leases tend to be used for people who want more car than they can afford to buy and want a new car every 3 years. Leases are favored in this case as they have little to no down payment and have lower monthly payments than buying the car outright. The lower monthly payments come from the fact you are only buying 3 years use of the car vs. buying the car.

Leases, in my opinion, are more costly longer term as:

- you will typically be paying a higher interest rate to the lease company than to a credit union.

- you are paying for the highest years of depreciation on the car (first year) and not enjoying the years where the car depreciates more slowly.

- You will always have a car payment --- the mortgage is never paid off.

- You are accepting what the lease company says is the cars value after 3 years vs. what you could sell the car for yourself. Wonder if they are aggressive or conservative on this value?

I leased when I was young and leased higher end cars. I buy now that I am older and drive 4 doors.

Good luck.

MoKelly

 

[The Suburban Farmer]

I ALWAYS buy my vehicles and pay in cash. I save whatever I can manage to squirrel away into a savings account, and when it's big enough I know that I can buy a new vehicle if I want. Generally, I keep mine 5-6 years or more, so this works really well for me. If I need to do a big maintenance or repair, the money comes out of my new-car savings account, and it just adds a little time to my buying timeline. I figure, I'd rather pay myself each month instead of the bank.

BUT, my wife is a chronic "new car syndrome" buyer and usually wants to trade her car in every 3 years for the "next coolest mom-mobile on the planet." Honestly, I'm fine with that -- we're comfortable enough that I don't lose sleep over it, even though I wouldn't do it this way myself, and it makes her happy. Anything that makes her happy works for me, in general.

IN HER PARTICULAR SITUATION, we have found that leasing makes sense. GENERALLY, if you are always trading in at 3 years or so, you never pay the balance down to $0 on your note, so you always have a car payment, and you are absorbing the worst 3 years of depreciation -- the worst of both worlds. IF that's the case, then the economics of leasing can make sense so long as you don't get suckered into one of those "$399 lease (then in very fine print) with $5K initial down payment" deals. If the lease is one of the "first-month plus tax and title down" structures, it really isn't that bad so long as you are doing it for a particular purpose.

Bottom line -- I think the BEST way to buy cars to is buy a car that is 2-3 years old -- maybe one just coming off a lease -- and paying cash and keeping it until you build up the savings to buy another one. But that doesn't always work for everyone.

What I absolutely HATE though is that the car companies have positioned leasing as a way for the middle-class to get cars they really can't afford by making the monthly payment seem low enough. I think that is a scam, and really takes advantage of folks that think "short term" instead of "long term" in terms of costs. But I guess the luxury car guys had to invent a way to move more inventory, so leasing became "mainstream" when it REALLY ONLY SUITS PEOPLE WITH A VERY PARTICULAR SITUATION.

You'll have to decide if you think of the vehicle as an "expense" or as "an asset" -- if it's the former, then maybe leasing makes sense. If not, then I would suggest you stick with the old-fashioned approach of actually owning the car you are paying for.

Just my 2 cents -- your mileage may vary.

 

[DABSGT]

Years ago wife and I leased new vehicles for her to drive, Buick, Volvo, 2 Chevy Suburbans and a Lincoln. During that time I drove the same ford bronco, had it for close to 25 years loved that truck. I was lucky to be able to buy at the end of the lease then sell for a profit to cover the cost of the next vehicles down payment. My wife enjoyed a new vehicle every 3 years and this worked best for us at the time more car for the money. We purchased my wife's new car and my truck cash this last go around, my wife's car is now 4 years old only has 5,500 miles since she retired it spends most time sitting in the garage.

If you are going to keep the vehicle long term I would purchase, if you plan on new every 2 to 3 years lease may be the way to go. Check on the local property tax some manufactures would pay them in the past not sure about now. They say that taxes are included in the payment but may only be sales tax.

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[smstonypoint]

I'm sure your article is awesome, but I'm too cheap to pay the 39 bucks. Any chance we can get the cliff notes free?

As the great man said:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

As I don't get any of the $39, I'll spill the beans.

Some auto leases state a specific price at which the lessee can purchase the auto at the end of the lease -- others state that the lessee can purchase the auto at the end of the lease at its fair-market value. The first type of lease has an embedded call option that can be valued (using standard capital budgeting tools) if information on the cash flows for both types of leases is available.

Steve

 

[The Suburban Farmer]

Years ago wife and I leased new vehicles for her to drive, Buick, Volvo, 2 Chevy Suburbans and a Lincoln.... If you are going to keep the vehicle long term I would purchase, if you plan on new every 2 to 3 years lease may be the way to go. Check on the local property tax some manufactures would pay them in the past not sure about now. They say that taxes are included in the payment but may only be sales tax.

Ha! Dabsgt -- looks like you and I were posting the exact same thing at the exact same time. I should have just waited for your post.

 

[DABSGT]

Ha! Dabsgt -- looks like you and I were posting the exact same thing at the exact same time. I should have just waited for your post.

Have to keep the wife's happy! If it isn't a new car they think of something.

Sent from my iPad using TractorByNet

 

[smstonypoint]

Just curious. For those who have leased recently, are lessors requiring you to purchase gap insurance? Are the premiums included in the lease payments?

Steve

 

[Bird]

Elderly next door neighbor leased a Toyota pickup for 3 years, went to turn it in last year, and said they offered him a deal he couldn't refuse, so he bought it. I remember a time, many years ago, one of my wife's brothers did the same thing with a Nissan pickup. One of our daughters recently turned in her leased Toyota Camry for a new one, also leased.

Personally, I've never been able to see how I could come out ahead by leasing, but obviously it's good for some.

And I guess it may have been before some of you were born, but there was a time when fleet management for the police fleet was part of my responsibilities. In those days, our police cars were costing the city a total of $0.51 a mile. And of course some young officers thought that was too high, sometimes were not happy with work done by our mechanics, and sent a memo to the chief that we should just lease the police sedans. Naturally, it came to me to investigate. The cheapest lease I could find for police sedans was $1.50 a mile; almost 3 times what it was costing us to own the cars.

 

[s219]

You honestly have to run the numbers for yourself to make a decision. I did one lease which worked out very well financially, but it required me to learn about the lease process and make a fairly complex spreadsheet in order to determine if it was a good decision. I also spent some time in the sales manager's office negotiating the sale price of the vehicle down quite a bit, which made the lease even more compelling. Many people just see a canned lease offer and take it, but in reality you should be understanding the effective sale price of the car built into the lease and then factor in everything else to make sure it's a fair deal compared to financing.

When I came to the end of that lease, I liked the car (Honda S2000) enough to want to buy it, but that time around it was a better deal (in my opinion) to negotiate a deal on a brand new model and buy it with cash rather than to buy out the lease on the old car with cash.

 

[Will_C]

As had been previously posted, I think leasing makes sense for many business situations. My cousin, who owns a large acreage farm operation, leases large, 150k+ John Deere farm tractors. This allows him to spread the cost of purchase over many years- he has a 1998 tractor that he leased for 3 years and then purchased. He got the tax advantages up front from the lease, and then was able to further deductions from depreciation.

That does not happen for us leasing passenger cars and trucks. My sister went to graduate school 100 miles from home, and literally was busy between work and school 80 hours a week. Dad, my brother and I were not around to look after her car. Her leased car was fully warranted and had complimentary maintenance for the duration of the lease-it proved to be a good choice for her at that time.

Personally, I would never lease- of course I am the kind of guy who is happy with my 10 year old truck, and paid cash for the car I bought last year. I'll run the truck as long as it is reliable, and the car is destined for a 10 year career.

Will

 

[smstonypoint]

And I guess it may have been before some of you were born, but there was a time when fleet management for the police fleet was part of my responsibilities. In those days, our police cars were costing the city a total of $0.51 a mile. And of course some young officers thought that was too high, sometimes were not happy with work done by our mechanics, and sent a memo to the chief that we should just lease the police sedans. Naturally, it came to me to investigate. The cheapest lease I could find for police sedans was $1.50 a mile; almost 3 times what it was costing us to own the cars.

Bird,

Just curious. How many miles did your officers typically put on their squad cars during a year? And how many total miles did they put on their cars before replacement?

The $0.51/mile cost is interesting. The IRS is allowing $0.575/mile as the business mileage rate for 2015.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil.

New Standard Mileage Rates Now Available; Business Rate to Rise in 2015

Steve

 

[smstonypoint]

As had been previously posted, I think leasing makes sense for many business situations. My cousin, who owns a large acreage farm operation, leases large, 150k+ John Deere farm tractors. This allows him to spread the cost of purchase over many years- he has a 1998 tractor that he leased for 3 years and then purchased. He got the tax advantages up front from the lease, and then was able to further deductions from depreciation. Will

Wow -- two opportunities for shameless self-promotion in one thread in one day!!!!!!!

Here's a link to an Agricultural Finance Review article that I wrote back in 2001 that deals with the lease versus purchase decision for business situations -- http://www.emeraldinsight.com/doi/pdfplus/10.1108/00214830180001124.

Steve