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Lease pros and cons..... Posted by Mike Lynch [Email]  (#81) [Profile/Gallery]
(more from Mike Lynch) on Tue, 30 Jan 2007 13:38:57
In Reply to: Re: Value of nav....., A123, Tue, 30 Jan 2007 10:55:53 Members do not see ads below this line. - Help Keep This Site Online - Signup |
I'm nobody's financial advisor. My family motto is "A man who can't live beyond his means shows a lack of imagination."
Leasing has many advantages, and not many disadvantages. The payment is lower and shorter, often within the warranty and free maintenance interval. You're paying for exactly the amount of the vehicle you use and when the lease is done you can then buy it out or move on. There are significant tax adavantages, not only from a tax write off stand point, but there's no sales tax on the cap cost or purchase price of a lease, 7-8% ish on $30k is a big chunk of change to piss away in the first day of ownership.
Overall the total cost of ownership whether leased or purchased for the same period of time is roughly the same. The amount of money you put towards the leased vehicle in that period will be less, but breaking the lease results in about the same total outlay as a purchase. You generally put more towards a purchase and then are still in the negative equity position or "upside down", owe more than it's worth, when you trade on the short term.
Many folks who can pay cash lease, because they'd rather have small payments and their $30k in the bank working for them than not. Even higher mileage drivers can make a lease work for them. The lease can be adjusted to reflect the higher mileage, though people who purchase and drive heigher mileage are always seriously negative or upside down because they don't pay their cars off fast enough. They put 100k miles on a car in 3 years and two years of payments becomes way, way, waaaay more than the car is worth.
Owning a car for 60 months financing puts you squarely in to the bulk of maintenance and wear issues in the 50-75k mileage range and unless you put 30% + down you seldom have equity. Having a $500 purchase payment for 60 months seldom get's you equity, so why not have a $300 ish lease payment that's designed to never give you equity in the first place.
I mean why make $500 a month payments on a 5 year loan for 2-3 years and still be told at trade in time you don't have equity, when a lease means that at the end of 2-3 years you're are by design even, or walk away.
If a lease car is worth more than the estimated end of lease value called the "residual", than buy it or trade it and use the equity, thought that's seldom the case. Usually the residual is more than the car is worth and walking away and acquiring another lease.
If you think leasing is endless payments, well at least it's always on a new car in warranty and often within the free maintenance period. Endless payments is 5 year or even 6 year (72 mos) financing and making that huge payment on a 5 or 6 year old, old tired car.
I believe people who lease a new one every 2-3 years ultimately pay less than people who buy/own and trade every 4-6 years. The only way a purchase pencils out is to keep it 10 years, in which case you coulda' leased the first 2-3 years and then purchased the car out of the lease.
I also firmly believe that leasing a car for 3 years is less costly, dollar for dollar than purchasing a 3 year old lease return and then financing it for 5 years to make the payment roughly comparable to the lease, and the lease also comes with a new car, not a 3 year old one.
And finally manufacturers including Saab often subsidize or subvent their leases with low rates and artificially high residuals as it's to the manufacturers benefit to gain a new customer every 2-3 years and to offer the dealer a desirable used car, or seemingly desireable as IMHO it doesn't pencil out though 2-3 year old CPO cars are all the rage.
, Wed, 31 Jan 2007 13:36:22, Wed, 31 Jan 2007 13:34:00, Tue, 30 Jan 2007 14:27:11, Tue, 30 Jan 2007 13:46:41, Tue, 30 Jan 2007 10:48:54
, Tue, 30 Jan 2007 12:18:10, Tue, 30 Jan 2007 13:38:57 <-- Viewing This Message, Wed, 7 Feb 2007 19:24:29, Tue, 6 Feb 2007 14:37:57, Fri, 2 Feb 2007 19:00:53, Thu, 1 Feb 2007 13:23:54, Fri, 2 Feb 2007 19:02:09, Sat, 3 Feb 2007 08:44:06, Sat, 3 Feb 2007 17:22:51, Sat, 3 Feb 2007 22:22:34, Wed, 7 Feb 2007 16:35:48
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