Thoughts on trading in a car for a check and leasing a new car to reduce bills

[RedShirt]

So, ever since we have had to replace both our AC and heater, I've been looking at ways to reduce our monthly bills.

We have 2 vehicles. One is a 2014 Dodge Caravan, and the other is a 2009 Subaru Forester. Payments on the Caravan are about $400 a month with an interest rate of 2.4%. We have been making extra payments on the van to try to pay it off as quickly as possible, but that stopped once we got the new AC and heater. There is about $15,000 in principal left. The Subaru is paid off.

Would it be dumb to trade in our Subaru and lease a Honda Civic for $200 a month for 36 months (zero due at least signing)? I'd have the dealer cut me a check for the trade-in and that would pretty much cover what is left on the Caravan. The issue is, I have never leased a vehicle before and don't know all the "gotchas". I drive well under the 12,000 miles a year.

Is this a dumb idea? I'd have the option to buy the Civic for $12k at the end of the lease. While it would be nice to have a lower car bill, it is not a critical issue. We just aren't able to save much each month while paying off the AC and heater.

 

[MidasKnight]

Sell the van. Buy a $1000 beater. Put $400 a month towards paying off debt.

 

[RossMAN]

Sell the van. Buy a $1000 beater. Put $400 a month towards paying off debt.

Agreed and wrong forum.

 

[Banana]

I wouldn't, if it were me.
Without knowing your vehicular requirements, I suggest you sell the Caravan and get rid of that payment. Hopefully you're not upside-down on the loan. I'm guessing you feel that the Caravan is a necessity, but if you really want to improve your financial footing, make-do with the Forester, and add a cheap reliable car.
If you really really want to get rid of the Forester, then sell it yourself and get more $ than trading it in. Subarus are growing in popularity, and "winter is coming!" Thus increasing demand for 4WD. Even so, will the '09 Forester fetch you $15K on a trade-in to pay off the Caravan?

and wrong forum.

I disagree with that part.

 

[RossMAN]

Last edited by Banana; Today at 08:32 PM. Reason: disagreement with the Grand Nagus

:whiste:

 

[Kaido]

So, ever since we have had to replace both our AC and heater, I've been looking at ways to reduce our monthly bills.

We have 2 vehicles. One is a 2014 Dodge Caravan, and the other is a 2009 Subaru Forester. Payments on the Caravan are about $400 a month with an interest rate of 2.4%. We have been making extra payments on the van to try to pay it off as quickly as possible, but that stopped once we got the new AC and heater. There is about $15,000 in principal left. The Subaru is paid off.

Would it be dumb to trade in our Subaru and lease a Honda Civic for $200 a month for 36 months (zero due at least signing)? I'd have the dealer cut me a check for the trade-in and that would pretty much cover what is left on the Caravan. The issue is, I have never leased a vehicle before and don't know all the "gotchas". I drive well under the 12,000 miles a year.

Is this a dumb idea? I'd have the option to buy the Civic for $12k at the end of the lease. While it would be nice to have a lower car bill, it is not a critical issue. We just aren't able to save much each month while paying off the AC and heater.

I like leasing when:

1. You drive within the set mileage
2. You're not hung up on "owning the car"
3. You're not big into modifications, DIY maintenance, keeping the car forever etc.
4. You like having a fixed monthly fee with no big surprise bills

I leased for about 10 years, great experience. Never had to worry about transportation, which with being on call 24/7 was a big stress relief for me, plus the fixed budget was excellent for financial planning. I drive too many miles now to continue doing it, unfortunately. As far as gotchas go, Honda is better than most for leasing deals. Usually zero down with a good monthly price ($50/week in your case) & a nicely-equipped base or near-base model (they all have Bluetooth, power doors & locks, A/C, etc. these days). Most leases include a $400 return fee, but Honda doesn't, and they also allow like something upwards of $1500 in damage upon return. I've leased a couple cars with them, no complaints.

 

[halik]

Sell caravan, buy something used and cheaper and finance via penfed or similar @~2%

When you lease, you're paying for the steepest part of the depreciation curve. Unless you own a small business and get to expense the entire amount, you're universally better off buying. If you're concerned about warranty, buy a CPO car.

EG: There's a CPO 2012 civic in my area with 33K miles for $14K. Buying that on a 60month note works out to $245/mo and after 36months you owe $5.5K on a car that's worth ~11K (civic residual is about 62.5% @36mo and 46.9% 60mo).

So you pay around 1620 bucks more (45/mo), but end up with 5.5K in equity. Net savings of 4K over leasing.

 

[RedShirt]

I should have mentioned this, but selling the Caravan is not in the cards. Selling the Subaru for a beater would be an option, but would buying a beater be worth the gamble of repair bills vs paying 200 a month (fixed, known value) for a lease? Then there is the value of time. How much is my time worth in calculating the financial drain on repairing a beater?

The Subaru has a book value of 15,500. It has under 50,000 miles and is a model with leather, moonroof, etc.

 

[Scarpozzi]

Cars cost the most when they're brand new. Leasing vehicles usually ends up being close to on-par with what the highest cost of the vehicle would be (when new) due to cash due at signing, but there are occasional exceptions.

If you buy a new vehicle, you're going to get stuck paying taxes on the new purchase...like you already did on the Caravan. If you think you'll keep the van for X years and won't be enticed to sell it in 2-3 years, you could extend your loan terms to minimize your monthly payment, but still look at the payment as a suggested minimum. That would free up cash if you needed to pay off higher interest debt. Most vehicles 2011 and newer can be financed as "new", even if you've owned it by many credit unions for 2.5% APR. There are typically no fees for switching lenders or adjusting terms. Check the local credit unions and see what you can get. You could probably do 2.5% @ 72 months and get the payment down to $225.

 

[gorcorps]

Cars cost the most when they're brand new. Leasing vehicles usually ends up being close to on-par with what the highest cost of the vehicle would be (when new) due to cash due at signing, but there are occasional exceptions.

From my experience, if you have to put money down on a lease you didn't negotiate well enough.

 

[dullard]

No matter how many mental gymnastic tricks you try to fool yourself with, trading in a car with $0/month payments for a $200/month lease does NOT reduce your monthly bills.

 

[_Rick_]

No matter how many mental gymnastic tricks you try to fool yourself with, trading in a car with $0/month payments for a $200/month lease does NOT reduce your monthly bills.

That depends on maintenance bills. If you expect the Subaru to require a big ticket replacement soon, then a lease might be cheaper over the same period.
If over the next three years, the Subaru needs maintenance to the tune of 5k (assuming an optimistic 2.2k depreciation over 36 months), then a leased replacement with warranty will be a superior option.
So, a lunched engine, bad diffs or transmission, or recurring electrics issue can all incur the kind of cost that could flip this equation.

They key information is how much work you'd expect a 6-10 year old Subaru to require.

 

[Scarpozzi]

From my experience, if you have to put money down on a lease you didn't negotiate well enough.

At the end of the day, they have something you want and they know it. You aren't going to get something for free because you're using the asset. Either they adjust the rate or annual mileage or money due at closing. You can fool yourself and think they're losing out or just trying to push another unit, but they are in business to make money and that's revenue is coming from your wallet.

I personally don't lease vehicles because I want the asset after most people would consider its useful life up....because I have a short commute (meaning my vehicles are typically older with lower miles) and I can fix most problems that don't require a hydraulic lift at home since I keep 3 vehicles. I try to keep a car for 8-12 years before selling/trading and I'm sure those numbers may decrease as I get older and have more fun money to throw at poor investments like vehicles.

 

[jlee]

That depends on maintenance bills. If you expect the Subaru to require a big ticket replacement soon, then a lease might be cheaper over the same period.
If over the next three years, the Subaru needs maintenance to the tune of 5k (assuming an optimistic 2.2k depreciation over 36 months), then a leased replacement with warranty will be a superior option.
So, a lunched engine, bad diffs or transmission, or recurring electrics issue can all incur the kind of cost that could flip this equation.

They key information is how much work you'd expect a 6-10 year old Subaru to require.

I would buy $300 in tools and turn that $5k maintenance into $500.

 

[dullard]

That depends on maintenance bills. If you expect the Subaru to require a big ticket replacement soon, then a lease might be cheaper over the same period.
If over the next three years, the Subaru needs maintenance to the tune of 5k (assuming an optimistic 2.2k depreciation over 36 months), then a leased replacement with warranty will be a superior option.
So, a lunched engine, bad diffs or transmission, or recurring electrics issue can all incur the kind of cost that could flip this equation.

They key information is how much work you'd expect a 6-10 year old Subaru to require.

Assuming that at least the minimal maintenance has been done so far, a 6 year old Forester with under 50,000 miles is almost certainly going to have nearly $0 in problems over the life of the lease of the new vehicle.

But you are still trying to overly complicate it. Forget the lease altogether for this thread since it has nothing really to do with the OP's actual question. RedShirt's real question (even though RedShirt was unable to phrase it that way) is "should Redshirt turn the prinicipal that they have on a car into a loan". The answer is no. No, it will not save monthly payments to do so.

 

[Thump553]

I should have mentioned this, but selling the Caravan is not in the cards. Selling the Subaru for a beater would be an option, but would buying a beater be worth the gamble of repair bills vs paying 200 a month (fixed, known value) for a lease? Then there is the value of time. How much is my time worth in calculating the financial drain on repairing a beater?

The Subaru has a book value of 15,500. It has under 50,000 miles and is a model with leather, moonroof, etc.

Best case scenario if you do this-when the lease is up you own one car (the van), the leased vehicle is gone (unless you pony up to buy it at the end of the lease) plus the equity you had in the Subaru is gone.

IMO leasing only makes sense if you can deduct it as a business expense and you meet the parameters kaido outlined. I'd say for the vast majority of people leasing is the most expensive way to go in the long run.

Possible alternative-can you get by on one car? Maybe get a rental for the day or two a month you absolutely need the extra car. If so sell the Subaru. If not and you absolutely have to cut expenses either keep what you have now or buy a beater and hope/pray for the best. The Subaru isn't cheap to fix and isn't the most reliable brand anyway.

BTW it sounds like your finances were too tight to begin with. You should not have been buying new fully loaded vehicles in the first place. That is a very common mistake people make-living at or just beyond their ideal earning power and hoping nothing ever goes wrong. I guess you are too young to remember the lessons of 2008 or have forgotten them already.

 

[DrPizza]

I think you would be nuts to get rid of the Subaru with less than 50,000 miles, and that you own outright. Except for oil, brakes, tires, and provided you maintained it well, it will very likely go another 5 years without needing anything remotely costly, if not 10 more years. Though, I'm a drive it into the ground type of guy.

 

[RedShirt]

Best case scenario if you do this-when the lease is up you own one car (the van), the leased vehicle is gone (unless you pony up to buy it at the end of the lease) plus the equity you had in the Subaru is gone.

IMO leasing only makes sense if you can deduct it as a business expense and you meet the parameters kaido outlined. I'd say for the vast majority of people leasing is the most expensive way to go in the long run.

Possible alternative-can you get by on one car? Maybe get a rental for the day or two a month you absolutely need the extra car. If so sell the Subaru. If not and you absolutely have to cut expenses either keep what you have now or buy a beater and hope/pray for the best. The Subaru isn't cheap to fix and isn't the most reliable brand anyway.

BTW it sounds like your finances were too tight to begin with. You should not have been buying new fully loaded vehicles in the first place. That is a very common mistake people make-living at or just beyond their ideal earning power and hoping nothing ever goes wrong. I guess you are too young to remember the lessons of 2008 or have forgotten them already.

Like I said in the first post, it's not critical that we get the bill lower, it would just be nice. We did a 0% loan for 12 months on a new heater and AC and we are making sure we get that paid off in 12 months. This comes out to about 900 a month. 900 a month of extra expense is quite a bit, yet we still can do this, pay the car payment, mortgage, etc. It's just that we don't have much going into savings right now, and if we were to take on another large expense, things would be super tight. Additionally my wife is a teacher and is only starting up school again now, which will give us income we were missing over the summer.

We could have used savings to pay the entire amount of the AC and heater, but we only dip into savings as a last resort.

 

[RedShirt]

The next big maintenance on the Subaru is at 60,000 miles:

https://www.driverside.com/service-...forester-2009-23568-31464-57717?mileage=60000

It'll also need new tires soon, which will likely cost $500 or more. It all depends if I get the cheapest tires possible or higher quality tires.

That's about all I can think of for major expenses with the car in the next 20k miles. I've recently changed the brake pads.

 

[dullard]

The next big maintenance on the Subaru is at 60,000 miles:

https://www.driverside.com/service-...forester-2009-23568-31464-57717?mileage=60000

It'll also need new tires soon, which will likely cost $500 or more. It all depends if I get the cheapest tires possible or higher quality tires.

That's about all I can think of for major expenses with the car in the next 20k miles. I've recently changed the brake pads.

The dealer knows that too. They'll just subtract $1500 off of what they would give you otherwise since you are trying to offload a vehicle with bad tires that needs maintainence. You really are looking at a $10,000 to $11,000 trade in if you have to do all that, not $15,500. You can't magically make your costs go away by trying to fool a dealer. Maybe you could do so with a 3rd party buyer, but not with the dealer.

 

[RedShirt]

The tires have a good amount to tread left, I just would replace them because they are old, maybe at year 7 or 8. I don't know how the dealer would appraise the tires, but I'd have to believe that they'd expect a Subaru with 50k miles on it would have it's original tires.

I doubt they would knock off a ton of money because it's 60,000 miles maintenance hasn't been done at 50k miles....

 

[dullard]

It'll also need new tires soon...The tires have a good amount to tread left.

Seems like you are arguing both sides of the argument. To me, that means you have already made up your mind and aren't listening to advice. Good luck with your decision.

Just a FYI, I've driven both a Civic and a Forester through Des Moines in winter (very close to your marked location). I would never choose to drive the Civic again in winter.

 

[RedShirt]

I have not made up my mind... I am leaning towards keeping the Subaru, but haven't decided yet.

I'm just saying a dealer would offer more than 11,500 for the Subaru.

 

[Thump553]

The tires have a good amount to tread left, I just would replace them because they are old, maybe at year 7 or 8. I don't know how the dealer would appraise the tires, but I'd have to believe that they'd expect a Subaru with 50k miles on it would have it's original tires.

I doubt they would knock off a ton of money because it's 60,000 miles maintenance hasn't been done at 50k miles....

Maybe someone else has more or better experience, but the only time I've had to replace tires because they were old was my elderly father's car. For 3-4 years it was barely used (maybe 2000 town only miles a year), then when it started getting regular use again the tread began separating from the tire body, causing very loud thumping at highway speed. When they went bad it was very obvious. I wouldn't replace the tires solely because they were old.

Any other places to cut expenses? Cable TV (too big a package) or cell phones? Getting off cell phone contracts and switching to a MVNO can easily cut each phone line to a third what it was.

Glad to see you are not one of those types where a $500 "unexpected" bill causes total havoc, please excuse my initial misjudgment.

 

[DrPizza]

Why would you replace the tires before they're worn to where they need to be replaced? Unless they're dry rotting, this isn't like milk in a refrigerator with a best by date.