J
jamie2112
Banned
I am thinking of leasing a new car as I am sick of my old one.Anyone do this? What are some of the things I need to look out for when signing a lease?
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M
mudrummer99
Senior Audioholic
Personally, I've heard it referred to "fleecing" by more than one person that has done it, but personally I have no experience doing it.
Mike
Mike
Stereodude
Senior Audioholic
If you would otherwise have a non-stop perpetual car payment precipitated by buying a new car the minute the prior one is paid for, then leasing might be a great fit for you. 
The short version is that it's not a great fiscal move, but for some people never having to worry about a car breaking down, long term maintenance, and always having a newish car is worth the cost
The short version is that it's not a great fiscal move, but for some people never having to worry about a car breaking down, long term maintenance, and always having a newish car is worth the cost
gene
Audioholics Master Chief
Administrator
Just don't take a lease that exceeds the tire life of the car. I did that with an 05TL and got hit for $250/pop for all 4 new tires. BMW I believe covers all of this but you also have a highly monthly payment.
I am done with leasing. I wait and buy a relatively new car with 10k miles or less and hold on to it for a very long time.
I am done with leasing. I wait and buy a relatively new car with 10k miles or less and hold on to it for a very long time.
Stereodude
Senior Audioholic
Oh yeah... Everyone always goes over their miles, so factor that in.
m-fine
Audioholic
Leasing can be a good deal, but you need to understand how they work or you will be negotiating blind. Also, because of the miles and the tires, and other issues, be prepared to buy it out at the end, depending on what the market is like when the time arrives.
I just leased a vehicle for my wife. After rolling in the fees, my effective interest rate is about 2.3% and because of incentives, my principal was actually a touch lower than what I could buy for. At less than 3% interest, I ran the lease as long as I could, 4 yrs, and minimal miles so I pay less now and will pay more later on the buyout. I plan to buy it at the end and keep it, so I am basically using the lease as a cheaper form of financing compared to a single straight loan.
I just leased a vehicle for my wife. After rolling in the fees, my effective interest rate is about 2.3% and because of incentives, my principal was actually a touch lower than what I could buy for. At less than 3% interest, I ran the lease as long as I could, 4 yrs, and minimal miles so I pay less now and will pay more later on the buyout. I plan to buy it at the end and keep it, so I am basically using the lease as a cheaper form of financing compared to a single straight loan.
Davemcc
Audioholic Spartan
I lease fairly regularly. It can work to your advantage. There are a few numbers you need to know. The first is the Acquisition Price (AP). The second is the Residual Value (RV). Then you need to know the term and finance rate. Basically, you only need to pay the difference between AP and RV plus interest on the whole AP for the term + tax.
For example, a $30K car with a $12K residual after 4 years. You need to pay $18K plus interest on $30K over 4 years, so $375 plus interest and tax. Think of it in the sense that you are taking out a $30K loan for the car, paying back $18K in cash and paying the remaining $12K balance with either the return of the car or cash if you choose to buy it out. Note the interest will be a set payment on a declining balance like a regular loan so it's hard to calculate without tables or an actuarial program. If you know these numbers, you should be able to figure out an approximation of what the payment will be. These numbers will be negotiable to a certain extent. The dealer can lower the acquisition price or raise the residual value to lower the payment.
At the end of my last few leases, I looked at the residual value (my buyout price) and determined that the vehicle was too expensive for me to buy out. It was not worth the buyout. In effect, when the dealer set the residual too high, it lowered my monthly payment and by lease end, I had paid less than the actual depreciation of the vehicle. I paid less than if I had bought it initially then traded it in for it's actual depreciated value.
But there are options. If the residual is set too low, the lease payment is higher but the buyout is an incredible value. In this case, it makes sense to buy it at lease end. It doesn't necessarily cost more to follow this course, either. Consider, if you lease for four years, get a low initial payment then buy it out with another three year finance term, essentially you are buying over seven years with an option to ditch it after four with no consequence. If you compare a straight seven year finance to a four year lease/three year buy, the interest will come out about the same yet still slightly higher interest cost than a straight 4 or 5 year term.
When negotiating, knowing what the numbers mean, you can customize a lease to your needs. If you want to own the car forever but want the lowest payment, negotiate the lowest residual to facilitate buying it at the end. If you think you want to get a new car at lease end, negotiate the highest residual to lower your monthly payment and damn the lease end value. In all cases, make sure that the acquisition price is the lowest possible number.
For example, a $30K car with a $12K residual after 4 years. You need to pay $18K plus interest on $30K over 4 years, so $375 plus interest and tax. Think of it in the sense that you are taking out a $30K loan for the car, paying back $18K in cash and paying the remaining $12K balance with either the return of the car or cash if you choose to buy it out. Note the interest will be a set payment on a declining balance like a regular loan so it's hard to calculate without tables or an actuarial program. If you know these numbers, you should be able to figure out an approximation of what the payment will be. These numbers will be negotiable to a certain extent. The dealer can lower the acquisition price or raise the residual value to lower the payment.
At the end of my last few leases, I looked at the residual value (my buyout price) and determined that the vehicle was too expensive for me to buy out. It was not worth the buyout. In effect, when the dealer set the residual too high, it lowered my monthly payment and by lease end, I had paid less than the actual depreciation of the vehicle. I paid less than if I had bought it initially then traded it in for it's actual depreciated value.
But there are options. If the residual is set too low, the lease payment is higher but the buyout is an incredible value. In this case, it makes sense to buy it at lease end. It doesn't necessarily cost more to follow this course, either. Consider, if you lease for four years, get a low initial payment then buy it out with another three year finance term, essentially you are buying over seven years with an option to ditch it after four with no consequence. If you compare a straight seven year finance to a four year lease/three year buy, the interest will come out about the same yet still slightly higher interest cost than a straight 4 or 5 year term.
When negotiating, knowing what the numbers mean, you can customize a lease to your needs. If you want to own the car forever but want the lowest payment, negotiate the lowest residual to facilitate buying it at the end. If you think you want to get a new car at lease end, negotiate the highest residual to lower your monthly payment and damn the lease end value. In all cases, make sure that the acquisition price is the lowest possible number.
J
jamie2112
Banned
I am leaning towards getting a used car again and just sucking it up and buying it......
Stereodude
Senior Audioholic
This is a good scenario. If you were going to buy the car after the lease, you want to lease a car with a high (incorrectly) estimated residual. It will have low payments while you lease it. Then, when it's worth way less than the buyout price at the end you simply turn it back in and then buy a similar lease return from a dealer for a lot less than your buyout would have been and you'll save money compared to if you bought the car outright. Of course you have to be comfortable with the fact that the car you're buying isn't going to be the exact one you leased.
No, this means you got screwed all along the way by overpaying for the car.
Leasing + the buyout will generally cost you about the same as buying the car outright. If you're going to take the buyout then it's really just a matter of whether you're frontloading the cost for the car or backloading it (high lease payments or high residual).
Basically, the way I see it leasing can serve one useful purpose. It can easily allow you to drive a more expensive car than you could otherwise buy for the same payment without having to go through the hassle of dealing with trade-ins or private party sales (again this is all predicated on the assumption you would be a serial car buyer). This also only works if the car has a high residual. You can get lease specials where the lease payment is significantly cheaper than the monthly payment on a 5 year loan.
m-fine
Audioholic
Seth,
You are leaving out the potential benefits of manufacturer lease incentives and the value of sales tax deferral etc.
In theory you could do a 4 year lease with a 20% residual and still come out ahead of a 5 year loan depending on incentives interest rates and fees.
The key to getting a good lease is to understand how to calculate one. You need to negotiate purchase price not lease payments. You also need to negotiate the extra fees and be able to calculate an effective interest rate or cost of borrowing including fees, so you can compare to other financing options.
You are leaving out the potential benefits of manufacturer lease incentives and the value of sales tax deferral etc.
In theory you could do a 4 year lease with a 20% residual and still come out ahead of a 5 year loan depending on incentives interest rates and fees.
The key to getting a good lease is to understand how to calculate one. You need to negotiate purchase price not lease payments. You also need to negotiate the extra fees and be able to calculate an effective interest rate or cost of borrowing including fees, so you can compare to other financing options.
Davemcc
Audioholic Spartan
Not necessarily. I'm suggesting a low residual in the event that you plan to buy the car at lease end. A certain amount of money has to be paid to own the car, never less than the actual price to buy it outright. The low residual may increase the lease payment during the term but it makes buying the car at the end much easier and affordable with a lower buyout.
Case in point, the Corvette I am currently leasing has a ridiculously low buyout. Sure, that make my payments higher during the term of the lease but not nearly as high as buying it over five years (0.9% lease rate at the time). When the lease is up this spring, I will buy it for that low, low buyout price and finance it as a purchase at that time with low, low payments. Because I always intended to buy it out, it's not a matter of getting screwed but rather a choice of when/how to pay for it.
Leasing also gave me one other MAJOR advantage. When I initially chose the Vette, I knew that my job was relatively secure for three or four years given our product contracts and plant schedules. Beyond that, it was a craps-shoot. By leasing for three years first, I had the option of returning it without penalty if future work/contracts did not turn up. I didn't want to be stuck with an expensive car and payments if I might be out of work. Luckily, we have new contracts that will likely take me to my normal retirement so that low, low buyout price is looking pretty good right now.
BoredSysAdmin
Audioholic Slumlord
Lots of very good info in this thread. I'd like to add one more - depends on your state tax laws, you could write down your car lease payments as your business expense (in case you own a business or sole proprietor) - in effect lower your taxes significantly
But after reading all this I tend to agree with jamie2112 - low mileage, few years old car, which already lost almost half of it's initial price seems like better option especially if it's certified - you get to enjoy extra warranty. The extra plus is you really get to customize your insurance as much as you like
jinjuku
Moderator
This all depends on your view point:
I have a 99 Nissan Altima rounding 187K (purchased new, probably my last new car). I paid it off ~27 months (extra hours, less eating out etc...)
After warranty I have $1600 in it (Thermostat, clutch, cv joints). This doesn't include standard wear and tear (wipers, brakes, etc).
So for almost 9 1/2 years I have a car that doesn't burn any oil, gets 33mpg hwy, starts at the first turn of the key and runs incredibly strong. There isn't a lease out there (tax wise) or else that you could get me to go with lease vs buying the car outright. The numbers will never add up.
While you may get tired of a car, You will get tired of the monthly fee even quicker. Think of all the audio gear you could purchase with a $400 / month allowance
So the flip side is that I have been investing that $325/month payment (averaging about 4.5%) and when my wife and I moved to Louisville for her new job I purchased her (used of course) an Infinity G35. I had cash so I had the most favorable terms. I let them THINK I was financing through them, negotiated the price and then 'changed my mind' and wrote them a check. It was $36K in 2004, we picked it up for $12.5 with 51K on it in 2009.
I have a 99 Nissan Altima rounding 187K (purchased new, probably my last new car). I paid it off ~27 months (extra hours, less eating out etc...)
After warranty I have $1600 in it (Thermostat, clutch, cv joints). This doesn't include standard wear and tear (wipers, brakes, etc).
So for almost 9 1/2 years I have a car that doesn't burn any oil, gets 33mpg hwy, starts at the first turn of the key and runs incredibly strong. There isn't a lease out there (tax wise) or else that you could get me to go with lease vs buying the car outright. The numbers will never add up.
While you may get tired of a car, You will get tired of the monthly fee even quicker. Think of all the audio gear you could purchase with a $400 / month allowance
So the flip side is that I have been investing that $325/month payment (averaging about 4.5%) and when my wife and I moved to Louisville for her new job I purchased her (used of course
) an Infinity G35. I had cash so I had the most favorable terms. I let them THINK I was financing through them, negotiated the price and then 'changed my mind' and wrote them a check. It was $36K in 2004, we picked it up for $12.5 with 51K on it in 2009.
BoredSysAdmin
Audioholic Slumlord
I believe this trick is so old WEB Griffin wrote in the Semper Fi and probably been used way before than 
aberkowitz
Audioholic Field Marshall
Leasing is good in general when you have confidence that your personal situation will change in a few years.Leasing also gave me one other MAJOR advantage. When I initially chose the Vette, I knew that my job was relatively secure for three or four years given our product contracts and plant schedules. Beyond that, it was a craps-shoot. By leasing for three years first, I had the option of returning it without penalty if future work/contracts did not turn up. I didn't want to be stuck with an expensive car and payments if I might be out of work. Luckily, we have new contracts that will likely take me to my normal retirement so that low, low buyout price is looking pretty good right now.
My wife and I leased a brand new Volvo S40 18 months ago when we moved out of NYC to Hoboken- knowing that we didn't need a bigger car just yet, but also knowing that we would be trying to have a baby soon. I got a great deal on a 3 year lease. Now in another 18 months we'll both be making a lot more money, plus we'll be thinking about a second child and will definitely need something bigger.
Patrukas777
Senior Audioholic
This is what consumer reports says:
Pros and cons of leasing
Buying a vehicle is a fairly straightforward process. You borrow money from a lending institution, pay the dealership for the car, and then make monthly payments on the loan until it's paid off. As you pay off the loan, you gain equity in the vehicle until it's eventually all yours. You can keep the vehicle as long as you like and you can do whatever you want to it, from giving it a custom paint job to entering it in a demolition derby. The only penalty for modification or abuse, perhaps, is a lower resale value when you're done with it.
Because you're typically paying back the entire cost of the vehicle (less any trade-in or down payment amounts), a loan's monthly payments are higher than when leasing. And when you're ready to get a new car, you need to either trade-in or sell your old one.
On the surface, leasing appears even simpler. You pay the leasing company a monthly payment that's lower than when buying. Then, after enjoying the most trouble-free two or three years of the vehicle's life, you simply bring it back to the dealership and lease another new one, or walk away. No muss, no fuss, right? Gone are your worries about haggling over the trade-in value or how to sell your old car. With a lease, that new-car smell need never leave your nostrils. Moreover:
There's often no down payment required when leasing, or only a low one.
You can drive a higher-priced, better-equipped vehicle than you might otherwise be able to afford to buy.
You're always driving a late-model vehicle that's usually covered by the manufacturer's warranty.
As attractive as a lease appears, however, there are a number of disadvantages:
Leasing typically costs you more than an equivalent loan, in part because of higher finance charges.
Once you're in the leasing habit, monthly payments go on forever. In contrast, the longer you keep a vehicle after a loan is paid off, the more value you get out it.
You have a limited number of miles in your lease contract, typically 12,000 to 15,000 miles a year. If you drive more than that, you'll have to pay an excess mileage penalty of 10 cents to as much as 25 cents for every additional mile. On the other hand, if you drive too little, you don't get credit for the unused miles.
You must maintain the vehicle in good condition, or you'll have to pay excess wear-and-tear charges when you turn it in. So, if your kids are apt to turn the interior into a finger-painting studio or your car's a magnet for parking lot dents and dings, be prepared to pay extra.
If you need to get out of a lease before it expires, you may be stuck with thousands of dollars in early termination fees and penalties-all due at once. This could equal the amount it would cost had you stuck with the lease for its entire term.
You can't customize your vehicle in any permanent way. In addition, arranging a lease can be a confusing complicated process that can easily leave you paying more than you should.
It's important to consider these pros and cons very carefully. You can also use the Documenting the deal worksheet to crunch the numbers for a particular vehicle both ways to see which makes the most sense.If you want low monthly payments but are concerned about the limitations of a lease, consider buying a less expensive vehicle or a well maintained used car, or getting a longer loan term (although there are risks to this).
Pros and cons of leasing
Buying a vehicle is a fairly straightforward process. You borrow money from a lending institution, pay the dealership for the car, and then make monthly payments on the loan until it's paid off. As you pay off the loan, you gain equity in the vehicle until it's eventually all yours. You can keep the vehicle as long as you like and you can do whatever you want to it, from giving it a custom paint job to entering it in a demolition derby. The only penalty for modification or abuse, perhaps, is a lower resale value when you're done with it.
Because you're typically paying back the entire cost of the vehicle (less any trade-in or down payment amounts), a loan's monthly payments are higher than when leasing. And when you're ready to get a new car, you need to either trade-in or sell your old one.
On the surface, leasing appears even simpler. You pay the leasing company a monthly payment that's lower than when buying. Then, after enjoying the most trouble-free two or three years of the vehicle's life, you simply bring it back to the dealership and lease another new one, or walk away. No muss, no fuss, right? Gone are your worries about haggling over the trade-in value or how to sell your old car. With a lease, that new-car smell need never leave your nostrils. Moreover:
There's often no down payment required when leasing, or only a low one.
You can drive a higher-priced, better-equipped vehicle than you might otherwise be able to afford to buy.
You're always driving a late-model vehicle that's usually covered by the manufacturer's warranty.
As attractive as a lease appears, however, there are a number of disadvantages:
Leasing typically costs you more than an equivalent loan, in part because of higher finance charges.
Once you're in the leasing habit, monthly payments go on forever. In contrast, the longer you keep a vehicle after a loan is paid off, the more value you get out it.
You have a limited number of miles in your lease contract, typically 12,000 to 15,000 miles a year. If you drive more than that, you'll have to pay an excess mileage penalty of 10 cents to as much as 25 cents for every additional mile. On the other hand, if you drive too little, you don't get credit for the unused miles.
You must maintain the vehicle in good condition, or you'll have to pay excess wear-and-tear charges when you turn it in. So, if your kids are apt to turn the interior into a finger-painting studio or your car's a magnet for parking lot dents and dings, be prepared to pay extra.
If you need to get out of a lease before it expires, you may be stuck with thousands of dollars in early termination fees and penalties-all due at once. This could equal the amount it would cost had you stuck with the lease for its entire term.
You can't customize your vehicle in any permanent way. In addition, arranging a lease can be a confusing complicated process that can easily leave you paying more than you should.
It's important to consider these pros and cons very carefully. You can also use the Documenting the deal worksheet to crunch the numbers for a particular vehicle both ways to see which makes the most sense.If you want low monthly payments but are concerned about the limitations of a lease, consider buying a less expensive vehicle or a well maintained used car, or getting a longer loan term (although there are risks to this).
jinjuku
Moderator
It's funny that it is mentioned that a lease helps you get a car otherwise couldn't afford.
Most likely if you can't afford that car outright you really can't afford the car in a lease scenario.
Here is the basic math of car affordability: 20% down, 36 month payback at no more of a payment that is 10% of your gross income. If you are having to up any of the three numbers (DP, term, Montly Fee) you can't afford it most likely.
I cringe when I see 60 and 72 month financing offers. At least the warranties are keeping up. I could see some people considering that a bit of a game changer and I wouldn't argue with that.
Most likely if you can't afford that car outright you really can't afford the car in a lease scenario.
Here is the basic math of car affordability: 20% down, 36 month payback at no more of a payment that is 10% of your gross income. If you are having to up any of the three numbers (DP, term, Montly Fee) you can't afford it most likely.
I cringe when I see 60 and 72 month financing offers. At least the warranties are keeping up. I could see some people considering that a bit of a game changer and I wouldn't argue with that.
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m-fine
Audioholic
There are advantages to borrowing money rather than dipping into your savings and investments, if the interest rates on the loans are low enough. A collateralized loan like a mortgage or a can loan/lease will generally give you the lowest rates. It is MUCH better to have a car loan than credit card debt, or often even a student loan. It doesn't make sense for everyone, but if you have stable or growing income, debt can be beneficial.
jinjuku
Moderator
You have to take into account that the money I saved up worked for me twice:
1. Interest earned
2. No Interest paid on an auto loan. That is a considerable delta.
3. I OWN the car at that point. No finance company holds the note.
4. You are in the absolute best bargaining position with cash on hand. Money saved is money earned.
It wasn't savings per say, but money earmarked for our next car purchase. I have savings out side of that.
I also have a particular mindset that outside of a house I hate financing ANY thing. I have put myself (knock on wood) in a place where I am saving up years in advance of when I will actually want X or Y. I think the financing of all our wants has this country in the particular bind that we find ourselves in today.
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