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Old 11-16-2009, 04:37 PM   #1 (permalink)
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Auto loan or lease?

Didn't know where to put this so mods feel free to move accordingly.

My wife wants to get an suv. Nothing too big or gas hog, but something 4x4 atleast for winter.

What is the advantage, if any, to leasing vs. getting a loan?
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Old 11-16-2009, 05:14 PM   #2 (permalink)
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I'm just a non-financial pedestrian so don't take my input as the best way to go, but here's my $0.02

leasing = little or no up front payment/down payment...though putting some money down up front reduces your monthly payment and end of lease residual payment if any

When I evaluated this question for myself I concluded that if you cannot write off all or part of the lease cost as a tax deduction, purchasing works out better (financially) for most people.
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Old 11-16-2009, 05:28 PM   #3 (permalink)
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She has a pontiac sunfire which we just paid off. Trade in value is somewhere between 3k and 4k. How would this impact a lease?
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Old 11-16-2009, 05:38 PM   #4 (permalink)
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Bear in mind that when you lease, you are only paying for the time for which you wish to operate the SUV.

When you get a loan, you are ultimately paying to have an institution help you own it.

I've heard that it's a good idea to finance an automobile that has just come out of a lease that someone opted out of buying. I think it depends on the make/model, mileage, dealership, terms, and whether it's certified by the manufacturer.

Shop around. I think now is a good time to buy a truck. I'm sure the financing/lease terms are really good.
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Old 11-16-2009, 06:08 PM   #5 (permalink)
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It depends on a multitude of factors, to figure out what is the effective cost vs. owning.

Do either of you two own a business where you can register the vehicle in the business name and deduct the entire payment?

In your state, is the sales tax charged on the entire price of the vehicle, or only on the lease terms?

What is the manufacturer declaring is the depreciation of the vehicle, for 3, 4, or 5 years, and can you accurately estimate her mileage per year?

What is the cost for mileage overages?

If the vehicle is in an accident and repaired, are you liable for diminished value? What happens if the vehicle is totaled? is it forgiven?

What is the money factor? What is it with your credit score?

Do you know that you negotiate the price of the vehicle, and that lease offers are based on full msrp? For a lease special, can you negotiate a better rate?

Would you plan on keeping the vehicle after?

The trade in simply reduces the amount of the payment. remember, all those lease offers on tv do not include taxes, tags, title, and still require an upfront payment.
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Old 11-16-2009, 06:40 PM   #6 (permalink)
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Quote:
Originally Posted by Baraka_Guru View Post
Bear in mind that when you lease, you are only paying for the time for which you wish to operate the SUV.

When you get a loan, you are ultimately paying to have an institution help you own it.
This is what I came here to post, so I'll add just one tiny thing: leasing and getting a loan are for two different situations. How long do you plan on using the vehicle and how much have you got?
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Old 11-16-2009, 07:55 PM   #7 (permalink)
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Quote:
Originally Posted by Willravel View Post
This is what I came here to post, so I'll add just one tiny thing: leasing and getting a loan are for two different situations. How long do you plan on using the vehicle and how much have you got?
I would hope to have it atleast 4 to 5 years. With her car to trade in I could probably scrounge up another 3 to 5k. As far as mileage estimation I don't know if we could accurately estimate yearly.
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Old 11-17-2009, 04:46 AM   #8 (permalink)
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In general, leasing is the more expensive alternative in the long run unless you don't plan to lease another after the first (i.e. it's a short-term/one-time thing). This is because, although with a lease you only pay for the part of the vehicle's value you used up, the leasing company assumes a fairly short life for the car. This means they think you're consuming the value of the car more quickly than you are. In addition, there is the leasing company administration/profit built in to the lease payment. That is actually on top of the imputed interest rate. With a bank loan, it's covered by the interest rate alone.

Another higher lease cost is insurance. The leasing company may (will likely) require more insurance coverage than a bank does for a loan purchase (or what you would carry if you buy the car outright).

If you purchase a car, there is some residual life/value left after you've paid for the car. You then have a period of no payments (the middle class wealth period), or an asset with a trade-in value to reduce the cost of your next car.

There are 2 reasons you can get a good deal on a just-out-of-lease car. The short life assumed in the lease means that the lessee has actually paid a bit more than the value they've used up. In addition, the leasing companies insure the sale price of the car after the lease. If they can't get that for it, the "loss" is somewhat mitigated by the insurance.

Bottom line... a lease guarantees you lower payments that never end, a new/late model vehicle that's always under warranty and should be reliable, but no equity, and a higher total cost over the life of the vehicle than if you own it.
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Old 11-17-2009, 05:38 AM   #9 (permalink)
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Quote:
Originally Posted by GreyWolf View Post
In general, leasing is the more expensive alternative in the long run unless you don't plan to lease another after the first (i.e. it's a short-term/one-time thing). This is because, although with a lease you only pay for the part of the vehicle's value you used up, the leasing company assumes a fairly short life for the car. This means they think you're consuming the value of the car more quickly than you are. In addition, there is the leasing company administration/profit built in to the lease payment. That is actually on top of the imputed interest rate. With a bank loan, it's covered by the interest rate alone.
Ok, I lease my wife's car and I own my car outright. Full disclosure.

Often times leasing can be the less expensive alternative. It was the last time that we swapped out her car. We ran those numbers at least a dozen ways at 3 different dealerships to get the right answer, and leasing was ALWAYS the cheaper option on a month-to-month basis. That's because the "nut" for the portion of the car that you're using is less than the whole car. Often the manufacturer will give you incentives to stay in their leasing program.

Quote:
Another higher lease cost is insurance. The leasing company may (will likely) require more insurance coverage than a bank does for a loan purchase (or what you would carry if you buy the car outright).
This makes no sense at all to me. They're not going to charge you higher liability rates, so you have to mean the physical damage aspect. Assuming that you're fully insuring the vehicle, why would lease vs. own be an appreciable difference in rates. More importantly, how would an insurance company justify those rate differences to the state insurance departments who have to approve those rates? What am I missing?

Quote:
There are 2 reasons you can get a good deal on a just-out-of-lease car. The short life assumed in the lease means that the lessee has actually paid a bit more than the value they've used up. In addition, the leasing companies insure the sale price of the car after the lease. If they can't get that for it, the "loss" is somewhat mitigated by the insurance.
This is the best advice that you can get in terms of buying. If you can find a gently used leased car - which is the norm based on the demographics of who leases - then you can save a lot and still get a car under warranty.
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Old 11-17-2009, 07:17 AM   #10 (permalink)
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Originally Posted by The_Jazz View Post
Often the manufacturer will give you incentives to stay in their leasing program.
The incentives are bit misleading... they will offer you a "reduced" buy-out after the lease, but it's a bit of a shell game. A 3-year lease on a $20,000 car assumes you will use up $10,000 of the car's value, leaving the leasing company still "holding" $10,000. However, the car's market value is perhaps $12,000, and they will then offer to let you buy-out the lease for $11,000, a full $1,000 less than they plan to offer the car to the public. But you've already given them $10,000 through the lease payments, so they're getting $21,000 for a $20,000 vehicle.

Quote:
Originally Posted by The_Jazz View Post
This makes no sense at all to me. They're not going to charge you higher liability rates, so you have to mean the physical damage aspect. Assuming that you're fully insuring the vehicle, why would lease vs. own be an appreciable difference in rates. More importantly, how would an insurance company justify those rate differences to the state insurance departments who have to approve those rates? What am I missing?
Sorry... I explained that poorly. If you normally carry only minimum insurance, the leasing company won't like that. They will insist on full coverage, a higher priced insurance package. A bank won't necessarily require that on a loan (it may). So the extra cost is that you might have to carry more insurance than you really want, not that the insurance is higher priced. If you, like I, carry full coverage, then there is no extra cost, except that you are always insuring a new car, as opposed to the slightly reduced cost of insuring an older vehicle when you purchase & hold on to the vehicle.
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Old 11-17-2009, 07:32 AM   #11 (permalink)
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As far as the residual value of the vehicle, this can vary widely. For example, a 2007 honda accord had a 36 month residual of 57%, which means you needed to pay for 43% of the vehicle in that time. A 2009 Toyota 4runner sr5 2wd had a residual value of 46% for the same time.

Leasing a vehicle to fit in the warranty terms can be a good idea, because then you always have a vehicle covered.

Some people turn over vehicles regularly. This can lower your costs if you are a new car nut and you are going to change vehicles out regardless. BTW, my two cars are 9 and 11, both with over 135k mileage.

if you buy a car and then you wreck it shortly, then your car is worth less for resale or trade in. It has diminished value. Nobody will pay as much for a repaired car. It is simple business. So a three year old low mileage vehicle that had 10k in repairs might be worth several thousand less in tradein, aand that affects you as the owner. Some lessors do not hold that against you.

Used lease vehicles are not cheaper because someone paid more for it. When a car goes to auction or sale, it is worth what people will pay for a particular model year in particular condition with x amount of miles. So there are no deals for leases vs tradeins. When a dealership takes back a lease, they don't even get the vehicle, they deliver it to auction, because the factory finance company owns the vehicle. A dealership can buy out the lease if they want to take the vehicle from the customer, but it depends if they feel they can make a profit. So the point is that dealer lots all go to the same auction houses to bid on tradeins and lease returns. They may end up buying back the same car, or buy a vehicle for their used lot that came from another dealer lease return.
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Old 11-17-2009, 07:44 AM   #12 (permalink)
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Quote:
Originally Posted by GreyWolf View Post
The incentives are bit misleading... they will offer you a "reduced" buy-out after the lease, but it's a bit of a shell game. A 3-year lease on a $20,000 car assumes you will use up $10,000 of the car's value, leaving the leasing company still "holding" $10,000. However, the car's market value is perhaps $12,000, and they will then offer to let you buy-out the lease for $11,000, a full $1,000 less than they plan to offer the car to the public. But you've already given them $10,000 through the lease payments, so they're getting $21,000 for a $20,000 vehicle.
That's assuming that he purchases the car at the end of the lease. If he wants to roll into a new lease, then the manufacturer will give him incentives to do so. The issue is whether or not he views the car as an investment or not. There are arguments either way, but if the intention is to lease new vehicles every few years ad infinitum then that could potentially be the cheaper way to go since he'll never be with a car more than 4-5 years old and will have less cash outlay over that time. If the intention is to buy the car at the end of the lease, then leasing is a bad idea for all the reasons you've laid out, Grey Wolf. If he's going to jump from lease to lease and would be buying new cars every 3-6 years, then leasing is probably the cheaper option (depending on the deal).

If your work gives you a car allowance, then leasing is your best option. If you own your own business, you can lease it in the company name and get tax benefits that way.

Quote:
Sorry... I explained that poorly. If you normally carry only minimum insurance, the leasing company won't like that. They will insist on full coverage, a higher priced insurance package. A bank won't necessarily require that on a loan (it may). So the extra cost is that you might have to carry more insurance than you really want, not that the insurance is higher priced. If you, like I, carry full coverage, then there is no extra cost, except that you are always insuring a new car, as opposed to the slightly reduced cost of insuring an older vehicle when you purchase & hold on to the vehicle.
If you only carry the state minimums (which is, in my professional opinion, a fantastically bad idea), then you're right. That said, the premium difference between the state minimum liability limit and $100k or $500k isn't really all THAT much.

In terms of physical damage, the bank lending you the money would be fiscally irresponsible if they let you insure the vehicle for less than the cost. Over time, the cost will drop as the value of the car drops, but that's an automatic thing, and it's unusual that an insurance buyer can state the value of the vehicle they want insured. The insurance carrier usually bases the insured value on the details of the vehicle when you take it off the lot, which won't be appreciably different on lease vs. purchase/loan.
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Old 11-17-2009, 07:59 AM   #13 (permalink)
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Now if you can lease through your business that is generally the best deal. Take everything, into the lease payment, put down no taxes or upfront costs. Then write off the whole lease payment as a monthly deduction. Keeps more cash for the business, allows you to write off a greater portion of the expense. if you planned on buying the vehicle outright, put the lease at ridiculous terms, like 30k mileage a year, so most of the depreciation is paid through the business and you getthe writeoff and deduction. then the buyout of the vehicle is very cheap at the end, because otherwise that buyout comes out of your pocket and is not tax deductible.
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