A New Look at Auto Leases

Dumb...

With the exception of very few people, leasing is typically a bad deal financially. First of all, you generally need to make a large upfront cash down payment when you sign your lease. Then, after making payments w/ out building any kind of equity, you have to give the car back or worse yet, have the option to buy it outright at a significantly higher price than what you could have paid at the start. You have to worry about mileage requirements and every little scratch and blemish will result in additional charges. Sure, a car is a depreciating asset, but it generally makes more sense to buy something than lease it--it give you more options when you own something and have equity in it.

Buying a new car is one of the worst financial decisions you can make. Why would you buy something that loses nearly 20% of its value the minute you drive it off the new car lot? You would be much better of buying a good used car that has been taken care of. Buying a one owner car from a private party that is in good condition is the best way to go because of the savings difference versus a dealership. The benefit to buying a quality used car is that your payments will be both less per month and also your loan term will be shorter. The people who are driving new cars do not typically own them. They are dragging behind a large payment over 5-6 years. If they drove an older, paid for car, they could reinvest a portion if not all of that car payment towards their retirement or paying off other debt, ect.

I recently purchased a nearly 10 year old Lexus ES300 with 100k on it. The car was a private party sale and was driven by an older gentleman who took it to the Lexus dealer for all service and oil changes. The car had a few scratches and dings, but for a 9 year old car, it was in good condition. I paid $7,500 for the car, which was a fair price agreed to by both parties after some negotiating. I took out a small loan for the car which will be paid off in 18 months. After that, I will have a nice, paid for car that I can drive for many years. Lexus makes some of the finest cars on the road and they are highly reliable. That being said, every car will need repairs at some point, so my plan is to continue paying myself that the $250/month payment after the car is paid off. That money will go into an interest bearing savings account and will be used to save for a replacement car in 10 years and any repairs the Lexus might need. I drive 10k per year, so the car will have 200k on it in 10 years. I know someone with the same car that has 240k on it, so I'm confident it will run that far with proper care and maintenance. The $250/month payment will equal $30,000 in 10 years (not accounting for coumpounding of interest). Let's say that I can only save $20,000 during that time...that will still be more than enough for me to buy a replacement car with money left over.

The moral of the story...with proper planning, you do not need car payments.

Eric of NE @ Jul 03, 2008 17:23:28 PM

Down Payments

Leasing is fine when the terms are reasonable. I have actually seen some lease offers state the lease needed a "down payment." Uhuh, well I put money down on things I buy and not things I rent. This is like a video store offering movie rentals for 99 cents and in small print saying it is with a $5 down payment. Don't get me wrong, real leases are fine but I am not giving someone a gift of several thousand dollars for the privilege of renting something. Whether they have the audacity to call it a "down payment" or just simply state "$$$ due at signing" it is just unacceptable as far as I am concerned. Apparently, there are a lot of really, really dumb consumers in our society. Oh well, that keeps the rest of us in business I suppose.

Steve Baxter of CO @ Jul 03, 2008 17:04:56 PM

Lease vs buy

I like cheese. Cheese is yummy. You shouldn't eat cheese in a lease car because they get mad at you. My cat likes to jump in cars at night if the windows are down. That's bad for lease cars also. Knicks rock the socks.

sunnyone of NJ @ Jul 03, 2008 16:54:13 PM

SUV debacle

Boy it felt real nice turning in my leased SUV that got 16 mpg instead of being stuck with a used dinosaur that I would have no shot at ever selling, not to mention feeding! Leased a Subarau that gets 25mpg, good, not great. But, guess what, in 4 years when that lease is up I have choices! I can pay the buyout on the lease-less than the total of having bought it when you factor in interest or I can turn it in and get what I hope will be the same car getting 32 mpg!

pjo33us of CO @ Jul 03, 2008 16:54:03 PM

Leasing Vs.Buying

First of all I would like to make clear that I am speaking from buyers' perspectives not the manufacturers. As I am observing the skyrocketing gas prices, I am also expecting the demand shift from gasoline consuming cars to hybrids or the Water Powered (of Japan) soon to be on the market. Guess what? If I buy the gasoline consuming car today, in the long-run I may want to sell it (given the demand shift). I would rather lease for this transitional period than buying until I can see the clear direction of the Oil prices and new arrival hybrid cars. In regards to leasing Vs buying of those Hybrids, there is no right answer the answer is directly proportional to the interest of a person. But at this time as an urgent remedy, I would rather lease the hybrid cars and redeem it at a market price in the long-run.

Tekle of CA @ Jul 03, 2008 15:52:13 PM

Leasing vs. Buying

When people think about all the money they save in leasing, I have to laugh because you pay and you pay and you pay. I ask you who lease to add up what you have spent over the years in leasing, then figure out how much buying a car and keeping it for the same amount of time would cost. Granted, we all know buying a new car it stupid, but if you keep it until it has two or three hundred miles on it before you shop again you will understand. Of course I understand that for some, the car is a status symbol, to the rest of us, it's called transportation. My last car I bought new in 1998 - SL2 Saturn with an estimated 36 MPG; 277,000+ miles later, I can prove that it got 35 MPG and I was not easy on the car. I just purchased a 2009 Toyota Collora with an estimated 35 MPG. Can anyone explain to me why cars are not getting better milage? (The Saturns are even worse.) I thought the car manufacturers were supposed to be IMPROVING gas milage. Instead it has gotten much worse.

E of VA @ Jul 03, 2008 14:43:37 PM

It really works for growing families...

We are now on our 5th lease. It has worked out that our family has grown between leases. We began leasing in 1996. We had one child and leased a Chevy Malibu. Lease payments were half of the price to purchase. We then had another child in 1998. When our lease ended, we leased a Tracker. Then had another child and leased a Venture Van. We have now have a 4th child. We just leased a Saturn Outlook. My husband has leased two other vehicles as well. I'm extremely happy. Payments are affordable. I am glad we didn't buy. It wouldn't have worked for our family. One word of advice, always make sure to get the 15,000 miles lease. Just to be on the safe side.

Heidi of MD @ Jul 03, 2008 14:09:20 PM

I made out really well on my SUV lease

We got our 2006 Toyota SUV brand new on a 36 month lease at payments that were half what it would have cost us each month if we bought it. Now with 7 months left to go on the lease we are overjoyed we didn't buy this SUV. The value at the end of the lease is 19k according to Toyotas paperwork, but actual market value is around 15k, maybe less with the glut on the market.

If we had purchased this vehicle instead of leasing, we would have paid twice the amount every month for the payment, then took a hugh loss trying to get rid of it.

This way Toyota is taking the loss as they way over estimated the market value at the end.

So for us, we made out extremely well on this deal by leasing instead of buying.

Dale of OH @ Jul 03, 2008 13:22:15 PM