If I follow your basic assumptions on cost and monthly payments, I get a different result because you don't consider the out of pocket costs for the same time period. I don't see a $3,860 savings by leasing when you compare similar financing periods. In your example you will be without a car for a year or you will have to re-lease a car. Leasing also brings an exposure to end of lease termination charges, which could easily add a grand or two to the lease cost. So follow me:

Buy
Down Payment 2000
Finance 520 x 60 = 31200
Loan/Financing Costs
(Other than Interest) 0
Total Cost Month 60: 33,200

Less Trade in Value -7,000 (25% in month 60)

Net Cost for 60 Months 26,200

Lease:
Cap Cost Reduction 1,500
Bank Finance Fee 500
Lease Payments 350x48 16,800

Lease Cost to Month 48 18,800

Cap Cost on New Lease 1,500
(Waddya gonna do? Walk?)
Bank Finance Fee 500
Lease payments 350 x 12 4,200
(assume same deal)
Lease Cost to Month 60 25,000

So leasing might save you $1,200 over 60 months assuming all other aspects are equal, but you could lose that in end of lease charges. Or your second lease may cost more and there would be fewer savings.

Alternatively, buy the $28,000 car with $2,000 down and 6.5% on 48 month term, assume monthly payments are $617 per month (I know, few would do this). Total cost is 48 x 617 or 29,600 plus the 2,000 down equals 31,600. Now you own it, so deduct an assumed trade in cost of 40% of 28,000 in month 48 , or 11,200, you get a net out of pocket cost to own a car for 48 months of $20,400. A savings of 4,600 if you buy rather than lease.

Leasing lets you put the risk of the residual value on the bank, but you are limited in your mileage per year. Buying gives you the flexibility of use but you assume the risk of residual value/trade in value. Any analysis has to consider all of the costs involved. Leasing is no panacea.

posted by 208.212....

• is it possible to trade in a car..., larry, Thu, 27 Dec 2001 14:18:23
  • Here are some options..., pmr, Fri, 28 Dec 2001 07:28:17
    • Good advice from pmr, or to put it another way, Texron, Fri, 28 Dec 2001 10:36:46
  • If you can't afford the payments, don't lease >, ChipJ, Thu, 27 Dec 2001 15:14:47
    • Leasing is for Rich people???, Richard P., Thu, 27 Dec 2001 15:58:55
      • Keep an open mind & run the numbers, Marc, Sat, 29 Dec 2001 15:25:24
        • Interesting worksheet but >, ChipJ, Sat, 29 Dec 2001 17:10:38
      • Flawed analysis, Richard (Long), pursang, Thu, 27 Dec 2001 18:59:24 <-- Viewing This Message
        • Flaw in your logic...compare apples to apples..., Richard P., Fri, 28 Dec 2001 08:37:03
          • Re: Flaw in your logic...compare apples to apples..., NewYorkCitySaab, Fri, 28 Dec 2001 12:42:25
            • You need to look around..., Richard P., Fri, 28 Dec 2001 14:04:29
        • Pursang is correct >, ChipJ, Thu, 27 Dec 2001 20:52:59
      • Define "rich" as someone who >, ChipJ, Thu, 27 Dec 2001 16:41:57
        • hey chip and richard, larry, Thu, 27 Dec 2001 17:05:50
          • so far you have lost $6000 on paper >, ChipJ, Thu, 27 Dec 2001 20:39:07
  • Money is never "lost" when you trade in...., Richard P., Thu, 27 Dec 2001 14:33:37

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