When does it make sense to lease a car?

[96Firebird]

Here is my situation...

Right now my daily driver is a 1995 Cutlass Supreme with 218k on it. The drivetrain is fine, however, everything else is rusting/failing due to winters up here. It has a cracked windshield, brake light works intermittently due to failing turn signal switch, reverse lights don't work at all, inside door handle on the driver's side doesn't work. Suspension is pretty much shot, and the body is rusting pretty bad in some areas. Basically, it is ready for retirement in the coming months.

I've always bought cheap used cars to use as winter beaters/daily driver. Started out with an '86 Cutlass Supreme, then a '95 Ciera, '93 LeSabre, then my current '95 Cutlass. That was while I was in college, making close to no money. Now that I have a decent paying job, I want to get something a little nicer for a winter car/dog hauler. I will have the Trans Am paid off this month, and was looking at leases. I know this is a stupid idea since you basically pay monthly payments, then get nothing in the end. But it seems buying a $3k-$4k used car, only to run it into the ground in 3 years of winter driving is a waste of money as well. And then, on top of that, I have to fix any problems with the car. The plus side of buying a cheap used car is cheaper insurance. But with a new car, the cost of repairs is slim-to-none. Plus, I'd have up-to-date features, which I am not used to but would be nice...

Or would it be best to buy a few years old, drive it for a few years with the intent to sell, then repeat? Used cars in the $3k-$4k range around here are expensive for what you get. They are usually rusted out, have high miles, or need major repairs. I hate checking Craigslist, as it just depresses me more and more about how high used car prices have gotten.

My other option is to have my roommate's brother, who goes to car auctions for work, find me a good deal on a decent car for cheap. But that could take a while...

Enlighten me.

 

[Uppsala9496]

I have always purchased my cars. 3-4 years of financing; car is paid off and I can then sell it for a decent amount if I feel inclined to get a new one, or hang on to it.

I don't ever have to worry about mileage either.

What kind of car you looking for? A hatchback? Focus/Mazda 3 size?

 

[desy]

Leases are typically for people who can write it off as a business expense or like to drive new all the time with full warranty. Its more expensive but having no repairs issue headaches and limited downtime has value as well

 

[Uppsala9496]

I think I paid an additional $980 for 5 year maintenance in addition to the 2 years already included on my Focus. So, 7 years no cost maintenance. Includes everything from brake pads to wiper blades. Only thing not covered is tires.
And yes, I read the fine print too.

If you can negotiate a low cost maintenance plan up front, you will have no worries.

 

[Jimzz]

Leases are typically for people who can write it off as a business expense or like to drive new all the time with full warranty. Its more expensive but having no repairs issue headaches and limited downtime has value as well

Came to say the business angle and those with more money that don't care about the lose to have the new car every several years.

 

[vi edit]

Leases work for people that:

1) take care of their vehicles and are decent drivers (no wear and tear issues at end)
2) Don't drive excessive amounts and can stay within the limits, or close to them
3) Like having something new every couple years and always under warranty
4) Are fine with having a perpetual car payment
5) Land a lease deal that is dirt cheap and plan to buyout the car at the end anyway
6) Live a state that doesn't rape you on taxes (Like IL) on the original purchase value of the vehicle

There's a lot of terrinle leases out there, but there's a lot of good ones. The good ones are going to be as cheap, if not even cheaper than buying over a 3 year period. Some of the $199 a month and low/$0 down deals are incredibly inticing. If you meet the criteria above you really can not go wrong with those types of deals. Many people find comfort in knowing they are always under warranty, every three years getting new tech, better economy, and new car smell. If you do your shopping around there are some excellent leasing bargains.

It just comes down to personal choices, financial situations, and the specific lease deal.

 

[96Firebird]

What kind of car you looking for? A hatchback? Focus/Mazda 3 size?

I'm looking at hatches, wagons, or small SUVs/crossovers. Ideally I'd like to get something like an Outback/Forester, as the AWD would be nice in the winter and I'd like to be able to tow some light loads (thinking about getting a jet ski for the short summers we have here). With a wagon/SUV, I can throw my dog in the back and fold down the rear seats to give him a lot of room (he is around 85lbs).

Maybe leases aren't the best option for me, as one thing I didn't consider was the mileage limitations. My Cutlass rolled over 215k miles on Christmas Eve, and has just recently topped 218k miles. That is 3k miles in less than 3 months, and while I drive my Trans Am frequently in the summer, it will still cut it close.

I'm still mulling over all my options...

 

[Zivic]

Leases are typically for people who can write it off as a business expense or like to drive new all the time with full warranty. Its more expensive but having no repairs issue headaches and limited downtime has value as well

this...^^^

sometimes you can just get a great lease deal though. sometimes half the monthly of financing it. My biggest concern would be mileage. If you can stick to the mileage restrictions, it can be a good thing. the other concern is condition. you need to take care of the car physically. If your cars end up beat up after a year or two, expect to pay excessive damage costs upon lease end

 

[Kaido]

When does it make sense to lease a car?

Leasing makes sense if you meet 2 requirements:

1. If your situation allows for it
2. If you want to

The basic situational requirements are:

1. You can afford to make a fixed monthly payment
2. You can live within the mileage limitations

Most leases are 3-year leases, although they can be as low as 2 years and as high as 4 years. The standard mileage is 36k miles (approximately 12k/yr), which can go as low as 10k or as high as 20k. So you've got the mileage limitation there. That, and if you want to lease. Some people really like to own their cars, others don't care. And if you drive more than 12,000 miles a year and don't plan on purchasing the car at the end of the lease, then leasing doesn't make much sense.

If you don't want to have a monthly car payment, then leasing is not a good idea. Leasing is basically a rental car, so you own nothing at the end of the lease, thus you have no equity in your car. On the other hand, if you were to buy a $20,000 car in cash, you could lease a new car for 6 years instead. 6 years of now-hassle car usage is pretty nice, although pretty much any new car won't give you any major problems for the first 5 years these days.

Leasing is not the most economical option - typically buying a newer used car is (lower maintenance for a longer period of time than buying an older used car, with a lower up-front payment than buying a brand-new car). However, compared to pouring money into a car with problems, it can be a wash sometimes. Leasing has a lot of benefits:

1. New car every few years (change of car, better safety features, more technology features)
2. Fixed monthly payment (easy to budget around, instead of giant surprise car repair bills)
3. Gap insurance to cover wrecks
4. You only handle basic maintenance (ex. oil changes), so minimal "fix-it" hassle
5. Major maintenance (not usually required on a new car anyway) is covered
6. Can usually get a loaner car if in-shop maintenance required

Pretty much, leasing is a low-hassle way to have a car. You don't build equity in your vehicle, but you also don't have to deal with the hassles associated with owning a car (replacing tires, new brakes, selling it, etc.). I like to lease because I don't drive crazy amounts and I don't like having to deal with car stuff - so when I lease, the car is basically an appliance. I have a busy work schedule, so car "uptime" is really important to me.

I think a lot of it also has to do with where you want to put your time...leasing doesn't really require any time investment aside from picking it up, doing an oil change every few months, and giving it back. It's sort of like computers...I have a Mac at home, which give me minimum hassles. It's not the right solution for everybody, but one of the benefits is that I don't have to deal with a lot of the issues that comes along with Windows - security problems and whatnot. I'm also in a condo right now, so I don't have to deal with a yard or exterior repair work. So my free time is my free time, instead of getting sucked into fixing my car, computer, or house, and my free time is valuable since I work a lot and don't have much of it.

It has to make sense for your economic situation too...leasing works well for me right now because I have a steady, full-time job. It wouldn't have worked well for me in college because I had part-time, minimum-wage jobs and needed a cheap beater for a long time. But you can even argue against that...let's say a zero-down-payment lease for a nice car is $300 a month, which works out to about ten bucks a day. Even if you're working at a minimum-wage job, that's still less than a fifth of your daily income after taxes, without the risk of having huge maintenance bills come your way on a beater car. So there's a lot of aspects to it. Most people are turned off by the idea of leasing because they don't "own" anything, but most people don't keep their cars forever either, so if you look at the long-term costs, it may or may not make sense for you.

 

[halik]

Unless you have a business to expense it against, leasing is for people that enjoy paying the highest depreciation rate for any given car.

Aside from the business expenses case, you're strictly better off getting the same car as CPO with couple thousand miles versus buying it new. Also on the average case you will not come on top on the lease, as the leasing companies financing the "equity" part of the car are in the business of making money.

 

[halik]

Leases are typically for people who can write it off as a business expense or like to drive new all the time with full warranty. Its more expensive but having no repairs issue headaches and limited downtime has value as well

Leasing isn't the only way to get a car with full warranty...

 

[Meghan54]

Leasing isn't the only way to get a car with full warranty...

So very true, but it means buying used and a certified vehicle.

For instance, we're looking at a 2011 Chevy Silverado w/33K on the clock. Certified so it carries the balance of the 5/100K powertrain warranty, but then kicks in a 12/12K mile bumper-to-bumper warranty that actually extends the factory warranty out by another 9K miles beyond the standard warranty when bought new. Add a savings of about $8K over new and no reason to buy a new one.

And remember, desy, just because you have a warranty doesn't mean you won't have down time or repairs.

 

[iamwiz82]

Unless you have a business to expense it against, leasing is for people that enjoy paying the highest depreciation rate for any given car.

Aside from the business expenses case, you're strictly better off getting the same car as CPO with couple thousand miles versus buying it new. Also on the average case you will not come on top on the lease, as the leasing companies financing the "equity" part of the car are in the business of making money.

The key to a killer lease deal is to minimize depreciation (calculated from MSRP). A car with a high residual, rebates, and some negotiation skills can do wonders. This is why employee lease prices that you see all over the web are so low. They calculate residual from the sticker price but the employee is paying way, way under sticker. Add a rebate in there and you have a pretty good recipe.

 

[halik]

The key to a killer lease deal is to minimize depreciation (calculated from MSRP). A car with a high residual, rebates, and some negotiation skills can do wonders. This is why employee lease prices that you see all over the web are so low. They calculate residual from the sticker price but the employee is paying way, way under sticker. Add a rebate in there and you have a pretty good recipe.

I would be very surprised if even maximized residual and rebates you'd come in the same present value of the same car with 20K miles as cpo.

Even if you somehow magically manage to find a lease where the deprecation in the first 2 years is the same as the next 2 years (which won't happen, since depreciation curves are convex), you'll still lose more money as the price of the used car is lower.

 

[halik]

So very true, but it means buying used and a certified vehicle.

For instance, we're looking at a 2011 Chevy Silverado w/33K on the clock. Certified so it carries the balance of the 5/100K powertrain warranty, but then kicks in a 12/12K mile bumper-to-bumper warranty that actually extends the factory warranty out by another 9K miles beyond the standard warranty when bought new. Add a savings of about $8K over new and no reason to buy a new one.

And remember, desy, just because you have a warranty doesn't mean you won't have down time or repairs.

If the car is in good shape, you're essentially looking at 33% saving over the new car (24k msrp on the 1500) with the same factory benefits.

The only way leasing is rational is if you somehow see the second 2years/24K miles on your current car somehow way worse then the first 2 years/24K miles.

 

[soulcougher73]

Leasing makes sense if you meet 2 requirements:

1. If your situation allows for it
2. If you want to

The basic situational requirements are:

1. You can afford to make a fixed monthly payment
2. You can live within the mileage limitations

Most leases are 3-year leases, although they can be as low as 2 years and as high as 4 years. The standard mileage is 36k miles (approximately 12k/yr), which can go as low as 10k or as high as 20k. So you've got the mileage limitation there. That, and if you want to lease. Some people really like to own their cars, others don't care. And if you drive more than 12,000 miles a year and don't plan on purchasing the car at the end of the lease, then leasing doesn't make much sense.

If you don't want to have a monthly car payment, then leasing is not a good idea. Leasing is basically a rental car, so you own nothing at the end of the lease, thus you have no equity in your car. On the other hand, if you were to buy a $20,000 car in cash, you could lease a new car for 6 years instead. 6 years of now-hassle car usage is pretty nice, although pretty much any new car won't give you any major problems for the first 5 years these days.

Leasing is not the most economical option - typically buying a newer used car is (lower maintenance for a longer period of time than buying an older used car, with a lower up-front payment than buying a brand-new car). However, compared to pouring money into a car with problems, it can be a wash sometimes. Leasing has a lot of benefits:

1. New car every few years (change of car, better safety features, more technology features)
2. Fixed monthly payment (easy to budget around, instead of giant surprise car repair bills)
3. Gap insurance to cover wrecks
4. You only handle basic maintenance (ex. oil changes), so minimal "fix-it" hassle
5. Major maintenance (not usually required on a new car anyway) is covered
6. Can usually get a loaner car if in-shop maintenance required

Pretty much, leasing is a low-hassle way to have a car. You don't build equity in your vehicle, but you also don't have to deal with the hassles associated with owning a car (replacing tires, new brakes, selling it, etc.). I like to lease because I don't drive crazy amounts and I don't like having to deal with car stuff - so when I lease, the car is basically an appliance. I have a busy work schedule, so car "uptime" is really important to me.

I think a lot of it also has to do with where you want to put your time...leasing doesn't really require any time investment aside from picking it up, doing an oil change every few months, and giving it back. It's sort of like computers...I have a Mac at home, which give me minimum hassles. It's not the right solution for everybody, but one of the benefits is that I don't have to deal with a lot of the issues that comes along with Windows - security problems and whatnot. I'm also in a condo right now, so I don't have to deal with a yard or exterior repair work. So my free time is my free time, instead of getting sucked into fixing my car, computer, or house, and my free time is valuable since I work a lot and don't have much of it.

It has to make sense for your economic situation too...leasing works well for me right now because I have a steady, full-time job. It wouldn't have worked well for me in college because I had part-time, minimum-wage jobs and needed a cheap beater for a long time. But you can even argue against that...let's say a zero-down-payment lease for a nice car is $300 a month, which works out to about ten bucks a day. Even if you're working at a minimum-wage job, that's still less than a fifth of your daily income after taxes, without the risk of having huge maintenance bills come your way on a beater car. So there's a lot of aspects to it. Most people are turned off by the idea of leasing because they don't "own" anything, but most people don't keep their cars forever either, so if you look at the long-term costs, it may or may not make sense for you.

This is all good advice, but is there such a thing as the bolded? Equity in a car? Im a financial guru or anything.

 

[Midwayman]

I think a lease can make sense on certain vehicles. Mostly those with an uncertain future. New models to a line, cars with high failure rates, first model year of new designs, etc.

Basically if the used future is uncertain you can mitigate some risk with a lease. Usually manufacturers won't make leases crazy high in this category so they don't drive everyone away. For instance If I were buying a new electric car right now I would probably choose to lease it.

 

[Ferzerp]

This is all good advice, but is there such a thing as the bolded? Equity in a car? Im a financial guru or anything.

They are by no means investments as they depreciate in value, but I don't think that's what he was suggesting.

Equity should be interpreted here as the value of the object (even if that value is falling), minus any portion of that object that you still owe.

It's still, technically, $1k equity if you have a $20k valued car, and owe $19k on it.

 

[Kaido]

This is all good advice, but is there such a thing as the bolded? Equity in a car? Im a financial guru or anything.

They are by no means investments as they depreciate in value, but I don't think that's what he was suggesting.

Equity should be interpreted here as the value of the object (even if that value is falling), minus any portion of that object that you still owe.

It's still, technically, $1k equity if you have a $20k valued car, and owe $19k on it.

Yeah, that's what I meant - basically if you buy a vehicle, you still have money you can get back when you sell it (usually less than you paid for it, unless it's a classic car or something). When you lease a vehicle, you've got nothing at the end of the lease. Which is good and bad - on one hand, you're not stuck with a moneypit of a machine at the end of the lease, but on the other hand, you also don't own anything, so you'll be stuck paying monthly payments if you lease again and have nothing to physically show for it like you would if you owned the car. So there are pros and cons. It's not for everybody, and it needs to make sense in your situation to be feasible.

Another reason I like leasing is that you can get a nicer car for sometimes $100 - $150 cheaper per month than you would if you were to buy it. For example, I was looking a 2013 Nissan Altima 2.5 S the other day - the lease price was $0 down, $259 a month for 36 months. To purchase the same car with $0 down, it would be about $375 a month for 60 months. So if I were to buy it, I'd end up with a higher monthly payment over a longer period of time, and then at the end of the 5 years, be stuck with having to put new tires on it, new brakes on it, etc. Or, for less money, I could do lease an Altima twice over the course of 6 years and still pay less than buying the car ($3,000 less) - and also benefit from a lower monthly payment throughout that whole time and not having any major maintenance to worry about. I also like leasing from the maintenance aspect...I don't have to fix it, I don't have to sell it, all I have to do is drive it and cover a monthly lease payment.

 

[Doppel]

I have always purchased my cars. 3-4 years of financing; car is paid off and I can then sell it for a decent amount if I feel inclined to get a new one, or hang on to it.

You consider stopping this behavior. When you purchase a car you pay sales tax on the entire amount and in most states when you lease you pay on only the difference between sales price and residual, this can be a significant amount of money.

I'm on my third lease now. I use military grade precision when I identify and execute my leases, though. There are a lot of stupid ones out there; e.g. $3000 capital reduction + tax + title + fees and only 24 months.

Currently I am paying a little over $200/month for each vehicle (each commonly sold for mid 20's--these are not entry level Versas or Fiettas). In one case I paid tax title fees only and in the other case came out of pocket with zero. I basically stole the vehicle.

I find my leases by checking out local dealerships' online offers and then if the offer looks pretty good I negotiate down lower (if possible; sometimes it's a loss-leader and a take it or leave it).

Right now is a damn good time to lease IF there happens to be an incentive on the vehicle. For example I see locally I can get a new Toyota Sienna minivan with a V6 for $290/month for 3 years coming out of pocket only $1500 to cover tax, title, fees, etc. This is good buy. I've seen also a new Camry Hybrid for $210/month on 3 years--again just tax, title, etc. no capital reduction. This is a steal and a person would be a fool to buy it if they could lease it at that rate.

 

[halik]

Yeah, that's what I meant - basically if you buy a vehicle, you still have money you can get back when you sell it (usually less than you paid for it, unless it's a classic car or something). When you lease a vehicle, you've got nothing at the end of the lease. Which is good and bad - on one hand, you're not stuck with a moneypit of a machine at the end of the lease, but on the other hand, you also don't own anything, so you'll be stuck paying monthly payments if you lease again and have nothing to physically show for it like you would if you owned the car. So there are pros and cons. It's not for everybody, and it needs to make sense in your situation to be feasible.

Another reason I like leasing is that you can get a nicer car for sometimes $100 - $150 cheaper per month than you would if you were to buy it. For example, I was looking a 2013 Nissan Altima 2.5 S the other day - the lease price was $0 down, $259 a month for 36 months. To purchase the same car with $0 down, it would be about $375 a month for 60 months. So if I were to buy it, I'd end up with a higher monthly payment over a longer period of time, and then at the end of the 5 years, be stuck with having to put new tires on it, new brakes on it, etc. Or, for less money, I could do lease an Altima twice over the course of 6 years and still pay less than buying the car ($3,000 less) - and also benefit from a lower monthly payment throughout that whole time and not having any major maintenance to worry about. I also like leasing from the maintenance aspect...I don't have to fix it, I don't have to sell it, all I have to do is drive it and cover a monthly lease payment.

Residual value of an altima is 40% at 60months so depreciation of $16,700 at 28K msrp. Leasing twice at you're looking at 30 mo residual of 54% or $12,900. Over the same period you're paying $9000 more if you're leasing than if you'd bought out right and traded it in after 60 months.

The argument you are using is false.

http://diminishedvalueofgeorgia.com/2013-nissan-altima-sv-4d-sedan-3-5/

 

[dbk]

I think it's only for people who NEED the latest and the greatest.. people who desire to be current with their autos. Nevermind the financial argument (which mostly favor financing over leasing) - that doesn't matter. Leasers will continue to lease. To each his own. It's all good!

 

[Spicedaddy]

Buy a 3-4 year old car (preferably CPO), keep it 3-4 years then sell it.

Much less depreciation than getting a new car, and it should be reliable during the time you own it. Buying 3000$ junkers and spending a bunch on repairs doesn't save you much for the potential troubles...

 

[Vdubchaos]

Leases are typically for people who can write it off as a business expense or like to drive new all the time with full warranty. Its more expensive but having no repairs issue headaches and limited downtime has value as well

This

 

[Midwayman]

This is a steal and a person would be a fool to buy it if they could lease it at that rate.

Well they're both fools if they're buying or leasing a new car every 2-3 years. Talk about wasting a ton of money. Smart money is buying used and keeping it for a long time.