Leasing a car -no $ down any difference?

Posted:
in General Discussion edited January 2014
I'm always confused about leasing and monthly payments. What I've heard is that leasing is a good option for those who want a new car every 3 or 4 years.



But the key is not to put any money down upfront. Sure that seems like cost savings, but don't you basically end up paying through higher monthly payments?

Isn't it a wash in the end? What's the best approach in leasing a car? thanks
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Comments

  • Reply 1 of 67
    murbotmurbot Posts: 5,261member
    Say your payment is $495 a month for 3 years. If you stuck $2500 down on it, your payments will only go down to around $420.



    What sounds better to you? Paying a $2500 lump sum out of your pocket, or paying $2700 spread out of 3 years? ($75x36) I'd say it's worth an extra measly $200 to spread that money out.



    According to the guys at www.edmunds.com, a 3 year lease with no down payment is the way to go. If you decide that leasing is the way to go, that is.



    It's crazy, I know so many people that stick 2 or 3 (or more) grand down on a new car, because they want a lease payment that's low, like $350 a month. I think that mentally, they can then tell themselves "it's only costing me $350 a month!"
  • Reply 2 of 67
    matsumatsu Posts: 6,558member
    Except with a lease you're perpetually renting a car, a) that you could afford to buy, or b) that you can't afford to buy. Either way, unless you have a damn good reason to write that against a business, you're throwing away perfectly good money.
  • Reply 3 of 67
    groveratgroverat Posts: 10,872member
    I love it when people try to justify leasing a car.



    "Why would I want to drive a 5-year-old car!? GROSS!"
  • Reply 4 of 67
    murbotmurbot Posts: 5,261member
    *groverat grumbles and curses his '82 Civic*
  • Reply 5 of 67
    groveratgroverat Posts: 10,872member
    Your mom curses and grumbles.



    On my nuts.



    Or something.
  • Reply 6 of 67
    murbotmurbot Posts: 5,261member
    I am going to come back here after I think of something really witty and crude. Just wait...
  • Reply 7 of 67
    satchmosatchmo Posts: 2,699member
    Quote:

    Originally posted by Matsu

    Except with a lease you're perpetually renting a car, a) that you could afford to buy, or b) that you can't afford to buy. Either way, unless you have a damn good reason to write that against a business, you're throwing away perfectly good money.



    And one can still write car payments against a business not only through a lease but also through straight financing.

    I think the reason many have leased (myself included), is the idea that you're getting a new car every 3 years. When in actual fact, you could do the same through financing and then selling it.

    But any new car purchase is a money pit. At least purchasing a used car will lessen the loss of depreciation.
  • Reply 8 of 67
    enaena Posts: 667member
    Cars are just tools---needing a new car might be the problem that leads to the payments.
  • Reply 9 of 67
    matsumatsu Posts: 6,558member
    Hey, you'll get no complaint from me. I see no reason whatsoever to throw perfectly good cash after even a new car with all these lease crazy fools running around. 2-4 years old, straight back from leasing, is the definitive automotive sweet spot no matter what part of the market you're in.



    Be smart, save your money for better things than keeping up with the Jones'



    You'll get more value spending a few grand on a vacation, a nice renovation, furniture you can enjoy, etc etc...



    Any well cared for car will last ten years, easy. Buy a 3 year old for 40-60% off the sticker and drive it for the next 7-8 years. Best money you'll never spend.
  • Reply 10 of 67
    groveratgroverat Posts: 10,872member
    Quote:

    Originally posted by Earl

    I am going to come back here after I think of something really witty and crude. Just wait...



    I know it's difficult for a Canadian to do such battle with their inherent politeness.
  • Reply 11 of 67
    sdw2001sdw2001 Posts: 16,937member
    Quote:

    Originally posted by Matsu

    Except with a lease you're perpetually renting a car, a) that you could afford to buy, or b) that you can't afford to buy. Either way, unless you have a damn good reason to write that against a business, you're throwing away perfectly good money.





    That's not right at all. Leasing is a great if you understand it and you can do the mileage restrictions.





    Satchmo:



    Your monthly payment is basically the depreciation of the car over the term, plus an interest rate...all amortized per month. In other words, take the negotiated price of the car, subtract the residual value, and you'll have the amount that must be paid, plus interest. You simply pay this over the term. Making a down payment simply reduces the total amount that is paid. My advice is NOT to put a lot down on the lease. Put as little as possible down. Many dealers will even waive the security deposit and aquisition fee. If you put a lot down on the car, you are losing any interest income you would have had by keeping that money.



    Some important terms.



    Money Factor: It is the equivalent of an interest rate divided by 24. So a money factor of 0.00375 is the equivalent of a 9% rate on an auto loan (source: kiplinger)



    Cap Cost: Captilized Cost. The cost of the car as written into the lease. You STILL NEED TO NEGOTIATE the price of the car with a lease!!! Otherwise, the figured depreciation will be greater.



    Cap Cost Reduction: Essentially, the money you put down. It brings down the total amortized depreciation, and therefore your monthly payment.



    Residual: Very important. What the car will be worth at the end of the lease. Different banks and leasing companies have different figures. A high residual value means a lower payment in general. Any car that has a low residual is going to be tough to lease.





    Again, I have leased two vehicles and I think that if one knows the facts, leasing can be great. Stay away from the longer leases, ones that go out of the warranty period. The old argument about "throwing away" your money because you won't have any equity at the end of the lease really doesn't hold water. A car depreciates so quickly that after a five year loan, you won't have much left anyway.
  • Reply 12 of 67
    willoughbywilloughby Posts: 1,457member
    Quote:

    Originally posted by SDW2001



    Again, I have leased two vehicles and I think that if one knows the facts, leasing can be great. Stay away from the longer leases, ones that go out of the warranty period. The old argument about "throwing away" your money because you won't have any equity at the end of the lease really doesn't hold water. A car depreciates so quickly that after a five year loan, you won't have much left anyway.




    Exactly. You lease things that depreciate in value and buy things that appreciate. We're not talking about a house here. A car just gets to be a bigger hassle the older it gets. Especially if you're not a gear head and can't fix it yourself.



    I'd much rather drop $350 a month to drive a nice car like an Audi A4 than pay that same amount for 5 years to end up with a Kia. oooohh but I'd own it...woopdee crap, its still a Kia and a 5 year old one at that. Plus all the maintenance to keep it running. New car every 3 years means you stay within the warranty so you don't pay for any repairs. Plus with a lot of new warranties even the oil changes are free for the life of the warranty.
  • Reply 13 of 67
    trumptmantrumptman Posts: 16,454member
    Quote:

    Originally posted by Willoughby

    Exactly. You lease things that depreciate in value and buy things that appreciate. We're not talking about a house here. A car just gets to be a bigger hassle the older it gets. Especially if you're not a gear head and can't fix it yourself.



    I'd much rather drop $350 a month to drive a nice car like an Audi A4 than pay that same amount for 5 years to end up with a Kia. oooohh but I'd own it...woopdee crap, its still a Kia and a 5 year old one at that. Plus all the maintenance to keep it running. New car every 3 years means you stay within the warranty so you don't pay for any repairs. Plus with a lot of new warranties even the oil changes are free for the life of the warranty.




    Yeah and I would rather own multiple assets that appreciate rather than paying repeatedly for depreciation over and over.



    The problem with the assumption is that you would pay for the depreciation in either case.



    Any decently made car in the 90's will get 200,000 miles with decent maintenance.



    If I am giving money to someone for something, I want to own it, not worry about if a job change or family emergancy/vacation is going to trash out my lease agreement.



    Borrowed luxury is no luxury to me.



    Nick
  • Reply 14 of 67
    willoughbywilloughby Posts: 1,457member
    Quote:

    Originally posted by trumptman

    Yeah and I would rather own multiple assets that appreciate rather than paying repeatedly for depreciation over and over.



    The problem with the assumption is that you would pay for the depreciation in either case.



    Any decently made car in the 90's will get 200,000 miles with decent maintenance.



    If I am giving money to someone for something, I want to own it, not worry about if a job change or family emergancy/vacation is going to trash out my lease agreement.



    Borrowed luxury is no luxury to me.



    Nick




    Well its a matter of opinion and preference. I wouldn't say that leasing is for everyone, but you can't just outright say its a waste of money and stupid because thats just plain wrong (not that you're saying that, but others are).



    I really would never want to drive a car with 200k miles on it! In fact I don't think I've even had one with over 50k miles on it.



    If you're worried about your financial situation changing you're only in that lease for 3 years but the car purchase will typically be 5 years. So the same thing could happen in your 2nd year of purchasing your car. You can't really worry about things like that. You shouldn't get in over your head in the first place.



    They say that your debt, car loans, and other expenses such as housing expenses should not be more than about 30-40% of your gross income. Of course if you have no debt except a car you shouldn't be spending 40% of your salary on a car alone. If that were the case I'd be driving a Mercedes S600!!



    Instead I lease a nice VW Jetta. $260 a month and if I lost my job tomorrow I'd still be able to afford it on my Wife's salary alone. My lease will be up next June and since my financial situation has improved I plan on upgrading to an Audi. If our situation worsens during the lease we'll struggle for a little while and then just downgrade...but hopefully that won't happen.
  • Reply 15 of 67
    satchmosatchmo Posts: 2,699member
    Quote:

    Originally posted by Willoughby



    Instead I lease a nice VW Jetta. $260 a month and if I lost my job tomorrow I'd still be able to afford it on my Wife's salary alone. My lease will be up next June and since my financial situation has improved I plan on upgrading to an Audi.




    I'm in the exact opposite situation...had an Audi...now probably downgrading to a Jetta because of my bad financial situation.
  • Reply 16 of 67
    willoughbywilloughby Posts: 1,457member
    Quote:

    Originally posted by satchmo

    I'm in the exact opposite situation...had an Audi...now probably downgrading to a Jetta because of my bad financial situation.



    D'oh!



    Were you leasing the Audi as well?



    Its not like the Jetta is a terrible car or anything. I like mine a lot...but I guess its still not an Audi Sorry man.



    Do you mind me asking what happened to hurt your financial situation?
  • Reply 17 of 67
    sondjatasondjata Posts: 308member
    My car's got 160,000 miles on it, is 15 years old and is worth more than some 6 year old vehicles. and when the engine finaly goes. I'll replace it and keep on moving. A new or used engine is still a better deal than a brand new car.
  • Reply 18 of 67
    matsumatsu Posts: 6,558member
    Go on and lease those cars, I'll take 'em off your hands when you're done.



    Do the math over the 40 years you'll spend behind the wheel, the leaser ends up paying a LOT more to drive a car for those forty years than someone who buys even new cars. You must work for a dealership to be shoveling that BS. Dealers like to lease you vehicles for a reason that has nothing to do with your financial well being.



    With all kinds of 0-2% financing available ATM, there's just no way you can justify a lease. GM has 60 months ZERO PERCENT financing on all kinds of models right now, that kills any lease dead, if you want something higher end, go to SAAB, same deal as the rest of the GM family.
  • Reply 19 of 67
    Quote:

    Originally posted by Matsu

    Go on and lease those cars, I'll take 'em off your hands when you're done.



    Do the math over the 40 years you'll spend behind the wheel, the leaser ends up paying a LOT more to drive a car for those forty years than someone who buys even new cars. You must work for a dealership to be shoveling that BS. Dealers like to lease you vehicles for a reason that has nothing to do with your financial well being.



    With all kinds of 0-2% financing available ATM, there's just no way you can justify a lease. GM has 60 months ZERO PERCENT financing on all kinds of models right now, that kills any lease dead, if you want something higher end, go to SAAB, same deal as the rest of the GM family.




    true, but then you have to drive a gm car. saabs are alright, but i'd rather eat my own poo, than ever drive, much less own, a gm car.



  • Reply 20 of 67
    matsumatsu Posts: 6,558member
    Oh, and the cars from Japan inc are so much more inspiring? Please. A little more competent mebbe, but nothing to get excited about.
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