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Oooh - not a simple answer
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Posted by Ari [Email] (#2847) [Profile/Gallery] (more from Ari) on Sat, 23 Aug 2008 18:38:18 Share Post by Email
In Reply to: buy vs. lease?, JMR, Sat, 23 Aug 2008 14:16:52
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A few big differences between buying and leasing - what you want from the vehicle, and price.

Leasing is good if you want to drive the car for 3 years and then turn it back in. If it's in good shape, you can just walk away (closed end lease). No worry about resale, etc. Or you could buy the car, and assume you can sell it at the end of three years. In a lease, the dealer/financing company take the risk on the residual value; when you buy it, you take the risk. How will the economy be in three years? What cars will be available? Uncertain.

If you want to keep the car, then it gets complex. Leasing can be just a different way of buying - lease payments for 3 years, and then come up with the buy-out at the end as a balloon payment. Think of it as a backwards down-payment, and three years to save up. Of course, if life has gotten tight, you can always walk away at the end of the lease.

Leasing is just a different way of financing, and you can bargain with the dealer just like buying. But some lease offers are better than others, and then you need to look at the cost of financing if you buy. So the firm answer is that it all depends.

Do you have the cash for a down payment if you buy? If you lease, will you have the money to buy it out at the end of the lease? If so, you can at least work out the financials. Given the lease terms, you should be able to figure out how much the lease will cost over the life (remember that most states charge sales tax incrementally, and you'll pay tax on the buyout at the end). Then figure out how you'll buy the car at the end - if you have the buyout cash now, you could invest it and let it grow over three years. If you don't, can you save for it now? Do you have the cash flow and the disipline?

I'm sorry I can't provide a definite answer - because it all depends on the lease terms, financing terms, and your particular economic position. I can say that leasing has gotten tigher in recent years, because financing companies have been getting stuck with lower-than-expected residuals - something about a poor economy and declining auto sales. So they're passing the risk back to the consumer.

When I get new, I get a car for the long haul, so I buy instead of leasing. There have been times in the past when there were lease rates that were more favorable than buying, assuming investing down payments and savings towards buy-out. But I'm not that savvy, or at least choose not to be. But get all the numbers and run a what-if. And a lot depends on what you want, your financial situation, and where you think you'll be in three years.

posted by 76.221.21...
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