Lease Vs. Finance

[kumanchu]

i think people have the feeling they are paying for something they can't keep. if you think of it at such a simple level then of course it makes sense to say leasing is stupid.

but leasing can be beneficial if you look at the value of the car over time; depending on lease terms and usage of the car.

in this case, we have a VW. VW's in recent history have notoriously poor resale value. If the OP were to keep the car for 3 years; and drive approximately 36k miles, the depreciation would probably be around 10k; similar to the cost of the lease. Other incidental fees would be the same as owning it anyways; like the aforementioned property taxes, maintenance, and insurance. Oddly enough, depreciation on VW's accelerates over time particularly towards the end of the warranty period.

Essentially; if the rate of depreciation on the car is likely to be greater than the cost of the lease then you should lease.

Depreciation should be measured by Purchase price - sale price. If the OP were to trade in the car; then depreciation would be greater. If the OP were to sell the car to a private party; then he has to deal with the hassle of selling the car (something I don't particularly enjoy doing).

Cliffs:
1. Lease cost < Depreciation = Get the lease
2. Selling a car is a pain in the butt

 

[TheSlamma]

Atleast with a lease you won't own a faulty electronics VW.

 

[dullard]

1) The lease special is on the $19,560 base model Jetta Wolfsburg Edition. It appears like you selected upgrades in your purchase (automatic, and the extra airbags). Thus, you aren't comparing apples to oranges. To get the $219/month lease price, you'll have to cough up the difference of $21,200 - $19,560 = $1640. This is in addition to $2294 downpayment + other fees. It appears that in your case the other fees are $23,000 - $21,200 = $1800 (including dealer fees, delivery, etc.) Total money up front for the lease: $1640 + $2294 + $1800 = $5734.

2) Thus, we are comparing (A) $6600 down, $361/month, for 48 months of buying to (B) $5734 down, $219/month, for 36 months for leasing.

3) Lets compare what happens at the 36 month point for a more fair comparison.

Buying
[*]After 36 months, you have paid 36*$361 + $6600 = $19,596.
[*]You still owe $4327.84 on the loan to own it outright.

Leasing
[*]After 36 months, you have paid 36*$219 + $5734 = $13,618.
[*]You still owe $11,312.00 to own it outright. (See the link I gave)

Option 1: You want to keep the car.
[*]If you buy the lease outright at the end of 36 months, you have paid $13,618 + $11,312 = $24,930.
[*]Compare that to if you pay off the car loan at the end of 36 months: $19,596 + $4328 = $23,924.
[*]Clearly buying is better if you buy the car at the end of the lease. Buying is $1006 cheaper.
[*]Note: If you invest the ($6600-$5734 = $866) downpayment and the ($361 - $219 = $142) monthly payments at 5% as mentioned above, you would have made $531 in interest. After tax (assuming 25% federal + 5% state), that nets you ~$372 of interest.
[*]Even including that investment interest, buying is cheaper.

Option 2: You don't want to keep the car.
[*]Assume you have $250 in damage / overmileage fees on the lease.
[*]Assume you sell the car yourself for $11,000 (A bit below the lease estimated value of the car).
[*]Leasing cost you a total of: $13,618 + $250 = $13,868.
[*]Buying cost you a total of: $23,924 - $11,000 = $12,924.
[*]Thus, buying and selling is cheaper by $944 than by leasing and ending the lease.
[*]Of course, you must include the $372 in investment interest, but buying is still cheaper.

Extra considerations
[*]Your state may have property tax differences. This may make leasing better than buying.
[*]Your income taxes may be different in some cases. This may make leasing better than buying.
[*]If you do better than 5% on your investments, leasing may be better than buying. Here, you'd need to make ~13% before taxes on your investments to break even.
[*]If you read the lease fine print in that link, it says the dealer must cough up $543.51 in incentives for you. Now, think about that, the lease option I calculated above already has a discount on the price. You can also get the dealer to give you a discount if you buy. That will make buying ~$543.51 better than what I posted above.

Conclusion
Buy. Leasing is almost always the worse choice unless (A) you lease for 2 years or less vs. buy/sell the car for 2 years or less, or (B) one of those tax breaks helps you. In those cases, leasing can be really good for the consumer. But in MOST cases, leasing is only a profit gainer for the car dealership. There is a reason they advertise leasing so much, because usually they make more profit from you.

 

[child of wonder]

My wife and I only buy "almost new" vehicles. We decide on a few car models we want, then start watching for a used one to go on sale with less than 20,000 miles on it for a good price.

I purchased a 2001 Ford ZX2 in November of 2001 that had only 3,000 miles on it for $11,690 when the price of a new one with the same options was over $15,000.

 

[TangoJuliet]

Originally posted by: dullard
1) The lease special is on the $19,560 base model Jetta Wolfsburg Edition. It appears like you selected upgrades in your purchase (automatic, and the extra airbags). Thus, you aren't comparing apples to oranges. To get the $219/month lease price, you'll have to cough up the difference of $21,200 - $19,560 = $1640. This is in addition to $2294 downpayment + other fees. It appears that in your case the other fees are $23,000 - $21,200 = $1800 (including dealer fees, delivery, etc.) Total money up front for the lease: $1640 + $2294 + $1800 = $5734.

2) Thus, we are comparing (A) $6600 down, $361/month, for 48 months of buying to (B) $5734 down, $219/month, for 36 months for leasing.

3) Lets compare what happens at the 36 month point for a more fair comparison.

Buying
[*]After 36 months, you have paid 36*$361 + $6600 = $19,596.
[*]You still owe $4327.84 on the loan to own it outright.

Leasing
[*]After 36 months, you have paid 36*$219 + $5734 = $13,618.
[*]You still owe $11,312.00 to own it outright. (See the link I gave)

Option 1: You want to keep the car.
[*]If you buy the lease outright at the end of 36 months, you have paid $13,618 + $11,312 = $24,930.
[*]Compare that to if you pay off the car loan at the end of 36 months: $19,596 + $4328 = $23,924.
[*]Clearly buying is better if you buy the car at the end of the lease. Buying is $1006 cheaper.
[*]Note: If you invest the ($6600-$5734 = $866) downpayment and the ($361 - $219 = $142) monthly payments at 5% as mentioned above, you would have made $531 in interest. After tax (assuming 25% federal + 5% state), that nets you ~$372 of interest.
[*]Even including that investment interest, buying is cheaper.

Option 2: You don't want to keep the car.
[*]Assume you have $250 in damage / overmileage fees on the lease.
[*]Assume you sell the car yourself for $11,000 (A bit below the lease estimated value of the car).
[*]Leasing cost you a total of: $13,618 + $250 = $13,868.
[*]Buying cost you a total of: $23,924 - $11,000 = $12,924.
[*]Thus, buying and selling is cheaper by $944 than by leasing and ending the lease.
[*]Of course, you must include the $424 in investment interest, but buying is still cheaper.

Extra considerations
[*]Your state may have property tax differences. This may make leasing better than buying.
[*]Your income taxes may be different in some cases. This may make leasing better than buying.
[*]If you do better than 5% on your investments, leasing may be better than buying. Here, you'd need to make ~13% before taxes on your investments to break even.
[*]If you read the lease fine print in that link, it says the dealer must cough up $543.51 in incentives for you. Now, think about that, the lease option I calculated above already has a discount on the price. You can also get the dealer to give you a discount if you buy. That will make buying ~$543.51 better than what I posted above.

Conclusion
Buy. Leasing is almost always the worse choice unless (A) you lease for 2 years or less vs. buy/sell the car for 2 years or less, or (B) one of those tax breaks helps you. In those cases, leasing can be really good for the consumer. But in MOST cases, leasing is only a profit gainer for the car dealership. There is a reason they advertise leasing so much, because usually they make more profit from you.

Hey Dullard...thanks for the amazing post :beer: for you! I was going to respond that the lease special for the wolf is $199/m for the manual and $219/m for the auto but looks like you covered it. I guess we're gunna go with the original plan and buy it. Thanks again!

 

[SacrosanctFiend]

It really irks me that so many people finance something that depreciates in value.

 

[Turin39789]

---- get a tdi-----

 

[FoBoT]

Originally posted by: SacrosanctFiend
It really irks me that so many people finance something that depreciates in value.

yeah, but what if it is 0% or really low % ?
i bought my wife a Saturn Vue 0% for five years, how is that worse than paying cash?

 

[Deeko]

Good post, but *shrug* I put no money down on my car, got a 36 month lease for $249/month (with the extended lease protection thrown in 'free'). That comes to a cost of $8964 over 3 years, with an option to buy for about $11,000 at the end. 2007 Mazda 6s, MSRP about $23,000 or so.

 

[dullard]

Originally posted by: alkohoLiK
Hey Dullard...thanks for the amazing post :beer: for you! I was going to respond that the lease special for the wolf is $199/m for the manual and $219/m for the auto but looks like you covered it. I guess we're gunna go with the original plan and buy it. Thanks again!

You are welcome. My math can always be tweaked here and there if you change some options or assumptions, but that is roughly what you can expect. Buying looks better in both cases for you, especially since you can get a 2.9% loan. With that lease deal, it looks like it is much higher interest that they are charging. If you couldn't get that 2.9% loan, things would be different.

Leasing can be quite good. But, too many people (See posters above) just assume it is bad or just assume that it is good. In reality, you have to crunch the numbers yourself to find out REALLY what is better, case by case.

 

[SacrosanctFiend]

Originally posted by: FoBoT

Originally posted by: SacrosanctFiend
It really irks me that so many people finance something that depreciates in value.

yeah, but what if it is 0% or really low % ?
i bought my wife a Saturn Vue 0% for five years, how is that worse than paying cash?

I should put that in as an exception. I had that argument with MrDudeMan the other day.

 

[TangoJuliet]

Originally posted by: FoBoT

Originally posted by: SacrosanctFiend
It really irks me that so many people finance something that depreciates in value.

yeah, but what if it is 0% or really low % ?
i bought my wife a Saturn Vue 0% for five years, how is that worse than paying cash?

They have 0% for 36 months but the payments are a little more then I would like....think its something like $455/m for 36 ($23,010 total payments) or 2.9% for 48 months its $362 ($24,000 total).

So by taking the extra 12 months and added APR we're paying $990 more for the car.

 

[ViviTheMage]

buy it. when you lease you end up throwing your money into nothing, its like renting...

 

[MrDudeMan]

Originally posted by: SacrosanctFiend

Originally posted by: FoBoT

Originally posted by: SacrosanctFiend
It really irks me that so many people finance something that depreciates in value.

yeah, but what if it is 0% or really low % ?
i bought my wife a Saturn Vue 0% for five years, how is that worse than paying cash?

I should put that in as an exception. I had that argument with MrDudeMan the other day.

:beer:

 

[spacejamz]

Originally posted by: ViviTheMage
buy it. when you lease you end up throwing your money into nothing, its like renting...

so what happens when you trade your car in 3 or 4 years from now for another new one?

especially when you get lowballed on the car when you trade it in or deal with the hassle of selling it privately...the end result is the same, if not worse if you finance the car to own and then get rid of it a few years later...

as I said earlier, if you are a person who wants a new car every few years and can stay within the terms of the lease, leasing can be a good option....

 

[Googer]

Originally posted by: ViviTheMage
buy it. when you lease you end up throwing your money into nothing, its like renting...

Leasing is as bad as renting to own a Nintendo wii with $10 per week payments for 60 weeks. But, we give you the first week free!

 

[Googer]

Originally posted by: SacrosanctFiend
It really irks me that so many people finance something that depreciates in value.

:thumbsup:


Buy a $500 car and then put $29,000 in to some Florida empty waterfront lots. If you had done this in the 1980's that same property today is now worth $250,000-500,000. Yes those numbers are true and is what happened in the neighborhood where I grew up. 150.000 homes in 1985-1990 now sell for $500,000-750,000! Despite the bust in real estate, certain areas of Florida seem to be exempt from it and demand keeps going up.

 

[dirtboy]

I like leasing. I don't feel like getting into it, but for me it's a good deal, so if you want to talk to someone who has purchased and leased cars lemme know and I'll try to help.

Beyond that, I wouldn't want to own a VW outside of warranty, well for that matter with a warranty since they are one of the least reliable brands available.

 

[Googer]

Buying the car and then selling it after 3 years is much cheaper than leasing. A lease will cost you about 25% more than a purchase.

 

[TangoJuliet]

buying the car today at 4pm. ill post some pics when i get a chance

 

[vi edit]

Originally posted by: Googer
Buying the car and then selling it after 3 years is much cheaper than leasing. A lease will cost you about 25% more than a purchase.

Can you back that up with anything besides BS?

 

[iamwiz82]

Originally posted by: Googer
150.000 homes in 1985-1990 now sell for $500,000-750,000! Despite the bust in real estate, certain areas of Florida seem to be exempt from it and demand keeps going up.

How unimpressive. That is only a 6-8% annual appreciation.

 

[ultimatebob]

Originally posted by: alkohoLiK
buying the car today at 4pm. ill post some pics when i get a chance

I'm shocked that nobody has told you to avoid buying this particular car yet. VW's don't exactly have a stellar track record for reliability.

 

[TangoJuliet]

Originally posted by: ultimatebob

Originally posted by: alkohoLiK
buying the car today at 4pm. ill post some pics when i get a chance

I'm shocked that nobody has told you to avoid buying this particular car yet. VW's don't exactly have a stellar track record for reliability.

I think there have been a couple posts stating that. However I have a couple friends with older Jettas and theirs are fine. I also checked Edmunds.com and its got a pretty high rating. I know there can be a lemon with any car but I think we should be ok with this. If not, then we'll sell it and get something else before the warranty expires.

 

[RichUK]

I prefer a company car allowance.