What is so bad about leasing

[Gary Allan]

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The only way for it to work for the individual is if the leasing company has made a serious error in calculating the residual value and you turn in a car that is worth significantly less in the end.

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How does this work for the individual? It can only work against the dealer. If you fill the conditions of the lease ...the dealer gets a car/truck back that may NOT be worth the residual value ..yet has all the debt load on it. If the leasing is with an outside agency, they dealer sometimes doesn't even get to buy the car for the legit wholesale value and they send it to auction at the leasing companies demand.

Unless you've got a crooked dealer, the residual amount is pretty much fixed between 40-45% of the original value of the vehicle on a 1000 mile per month lease (60 month - adjusted for shorter leases). The only way you get screwed is allowing him to set too high a price to begin with.

Leasing is Detroit's way of keeping the pipeline full. Ford finances most of their stuff themselves. That's why you see some leasing that stipulates xxxxx amount down. This is the dealer/sales hold back. You're paying the dealer profit ..not Ford financing it. Ford then takes on the debt for their car and you pay them.

There are some delusions of mastery here. Anyone who trades is losing money. You have to trade since your car is worth so much that no one can (typically) just walk up to you and say "I'll buy it". They have to go to their bank and wait for this and that ..and you've got to have the car (that has a decent payment due on it) hanging around....and you work hard and you don't have time ...and yadayadya

..and you hand the dealer a minimum of $2000-$4000 to allow you to buy a new car from them.

So ..is leasing and buying it at the end (no trades involved) really that bad??

I didn't have to come up with a dime for either of my Wranglers. I did put up $1000 for the wife's ..but I rolled away with my SE with not dime ONE out of pocket and I got about $1900 off of list on a $20500 jeep.

 

[SteveD2]

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Originally posted by msparks:
My opinion, buy used and pay cash. This is usually the best deal.

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I agree. I've got $12k right now sitting in a savings account waiting to grow to about $20k so I can buy a slightly used Tahoe. Instead of paying intrest I'm earning it...

 

[Matt_S]

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Originally posted by msparks:

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Originally posted by Matt_S:
As long as you do the maintenance, keep it clean and don't exceed the mileage, you'll come out ahead.

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How will you come out ahead, in 3 years you will have no equity or anything.

Best way to come out so called ahead is to buy at the best price possible, so when you pay down your loan, you will have equity built into the vehicle, then when you sell or trade you will have something, instead of just turning the car in.

If you have to buy on credit this is the only way to come out with something, though you will never be ahead with any vehicle purchase because they depreciate in value.

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My point was that as long as you're going to be making car payments in perpetuity, you're better off making a lease payment than a loan payment. Lease payments are almost always lower. Equity doesn't mean squat when you take a $10 - $15k hit in 2 - 3 years, then trade in.

 

[msparks]

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Originally posted by ZmOz:

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Originally posted by msparks:
My opinion, buy used and pay cash. This is usually the best deal.

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I agree. I've got $12k right now sitting in a savings account waiting to grow to about $20k so I can buy a slightly used Tahoe. Instead of paying intrest I'm earning it...

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Awesome, let us know when you do this, it will be a great day. Paying cash!!!

 

[Jimbo]

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Originally posted by Gary Allan:

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The only way for it to work for the individual is if the leasing company has made a serious error in calculating the residual value and you turn in a car that is worth significantly less in the end.

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How does this work for the individual? It can only work against the dealer. If you fill the conditions of the lease ...the dealer gets a car/truck back that may NOT be worth the residual value ..yet has all the debt load on it. If the leasing is with an outside agency, they dealer sometimes doesn't even get to buy the car for the legit wholesale value and they send it to auction at the leasing companies demand.

Unless you've got a crooked dealer, the residual amount is pretty much fixed between 40-45% of the original value of the vehicle on a 1000 mile per month lease (60 month - adjusted for shorter leases). The only way you get screwed is allowing him to set too high a price to begin with.

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It works out for the individual if the car of your dreams happens to have a much steeper than average depreciation curve. A Taurus, for example, might only be worth 30-33 percent of the original price after 60 months. If the leasing company used a 45 percent residual and you turn it in, you win.

This assumes that you dont get screwed by any other terms of the contract.

In addition to garbage fees charged at the beginning and/or end, the payment contains interest charges, yet there is no requirement for an APR to be spelled out. A lease payment, or "rental" contains interest on the "capitalized cost", that is price of the car minus any "capital reduction", or down payment, plus an amount to amortize the difference between the cap cost and residual. It is really an amortized baloon payment loan, where you can just surrender the car at end instead of making, or refinancing, the baloon payment.

It is much eaisier to understand and therefore safer to negotiate the best possible price and interest rate on a purchase.

 

[1sttruck]

A former co-worker was able to lease Ford Rangers for a few two year leases at about $100 a month. It was evidently a 'loss leader lease'. That seems like a pretty competitive price, even if you keep your vehicle a number of years after it's paid off, considering that all that he did were oil changes and wash it once in awhile. For the typical $20k or so new vehicle these days you need to keep them quite awhile and have them end up being pretty reliable to beat that. As an example we paid about $13k for a new Taurus in 1993, which is $98 a month over the 11 years. Although it was paid off in three years, we've replaced tires several times, shocks, water pump, fuel pump, radiator, the air is too expensive to fix, O2 sensors, light switch, wiper switch, ignition switch, starter, power steering pump, battery, a couple of handfuls of turn signal and brake lamps, headlamps, a couple of distributor caps and rotors, ignition wires, plugs, transmission flushes, etc., all of which add up to a fair sum. It has 179k miles on it now, and we're trying to make it last as long as possible.

People who buy durable, fixable used vehicles at good prices can do well. Another main advantage of owning is that there aren't mileage penalties.