Someone on another thread brought up a point with regards to always being in warranty. They were saying that they just hand the car back ever 3 years when the lease is up and re-lease a new car for 3 years so they are always under warranty and avoid the expensive servicing that normally takes place after the 3 years are up... ie: 96,000km service.

Has anyone here ever done an analysis on which way is cheaper? ie: cheaper to fix any problems that come up or to just lease a new car every 3 years so you don't have the auto repair expenses.

I'd be interested to hear everyone's comments and feedback on this one.

PJStyles

 

Ahhh... the lease vs. purchase debate.

Well, each situation is different and has advantages and disadvantages. Leasing is good if you are constantly upgrading to a newer car. Once the lease is up, you just turn the car in and get another one. You are always under warranty (assuming you don't do leases longer than three years, which is a bad idea anyways). You don't have to worry about depreciation. However, you are stuck with mileage restrictions (15,000 miles per year is the most common lease currently). Plus, you can't do many modifications to the vehicle. You also have car payments all the time.

Purchasing is good for the long-term owner. You do have to pay for expensive services during the life of the car. However, once the car is paid off, you no longer have payments so it is easier to swallow the service and repair costs. If you only keep the car for five or six years, you do have to worry about depreciation. If you keep your car longer, you don't.

Leases also have the advantage of having automatic gap protection. This covers you if your vehicle is totalled by an insurance company early on in the lease. Usually, the vehicle has depreciated to a point where the settlement from the insurance company won't cover the remaining loan. Gap protection covers this negative equity. However, many insurance policies now offer gap protection as an option.

Also, if you own a business or are self-employed, leasing can lead to some good tax write-offs.

So what is it that you want to do? Do you like upgrading to a new vehicle? Have you traded your vehicle in before it is paid off? Would you rather have constant payments you can budget for rather than unforseen service and repair bills? Do you own a business or are you self-employed? If you answered yes to several of the above questions, then consider leasing your next vehicle.

Do you like having the freedom of no car payments? Do you prefer not having mileage restrictions? Do you want to do major modifications to your vehicle? Do you generally pay off your vehicles? If you answered yes to several of the above questions, then perhaps you should purchase.

There is one common fact, though. It is much more expensive to lease a vehicle and then purchase it at the end of the lease. If you plan on keeping the vehicle, just purchase it from the start.

-Jerry

 

The other thing worth mentioning is the costs of repairs after the lease - excess wear and tear.

Don't blow this off - Over the course of three years, you'll have plenty of opportunity to scrape a curb, ding a bumper, crack a headlight, etc. Well, these things can add up to thousands of dollars at the lease end, and you are obligated to pay for them.

I bought my car - I like the freedom of knowing it is mine, and I can do with it as I please. Plus, my mileage (looking at 25,000 a year) is a hindrance to leasing.

For those who don't drive much, leasing is a decent alternative, IMO. And you can usually drive a slightly nicer car than you can really afford, because lease payments are generally less than loan payments.

To each his own, I guess.

 

Very good points and questions to consider... thanks guys.

PJStyles

 

I don't like leasing b/c you are never building any equity. It is the same as if you were renting a house. I like the fact that when all these payments are said and done (in 3.5 years) I will have a car that is all mine. A lease is just like a long term rental in my opinion.

 

To each their own...

I have never paid off a car and usually trade them in after 3 or 4 years. Each time I take a hit in depreciation. For me, leasing is a better option. I would love to have a Protege5, but I still have too much negative equity in my '99. If I would have leased, I would be in a Protege5 and not have to worry about negative equity.

However, as I stated before, if you like to own your vehicle and keep them a while, then purchasing is better.

BTW, worrying about building equity in a car is a lot of wasted time. Unlike real estate, vehicles are just a big money pit. My '99 has a current street value of $7,400. That's a 52% loss in 3 years. You are looking at a 60% loss in value over a four year loan, and a 65% loss in value over a 5 year loan. Plus, there's all the money you spent on maintenance and repairs, taxes, registration, interest... So, after you spend $25,000+ over five years for a $16,000 vehicle, you can sell it for $5,600. That's a $19,400+ loss! Show me where the equity is!

I sold Mazda's for years. Can you guess what the sales managers, accountants, and financial analysts do? They lease. They end up paying about $10,000 over 3 years (based on a $16,000 vehicle). After two consecutive leases, they have spent less money over a six year period than the average person spends over a five year period on a purchase. Plus, they've had two new cars with no repair costs over that time. Meanwhile, the owner has spent more money and has a five year old car and is spending more and more money on maintenace and repairs.

-Jerry

 

But by the time a normal person has the car paid off, how much is it worth? A car is a horrible investment really.

But a good point to consider.

Jay

 

I leased my last 3 vehicles before my P5 which I am buying.

It worked for me because I drove a small number of miles, I took excellent care of the cars, and the low monthly payment was super manageable. This was before "my ship came in" and it was the only way to own a much need reliable car without putting down a bunch of money (which I didn't have) and without the potential risk of a big ticket part going wrong (always under warranty).

I stopped leasing because I drive too many miles now. Plus, I have a better job and more money saved. So I got the P5 with low financing and wil have it paid off in 3 years or so.

The lease vs. buy argument is NOT as black & white as the anti-leasing crowd makes it out to be.

If you want a new car every 3 years, then you are stupid to buy... just lease it. If you want to buy a car and drive it for a long time, then buy it. The worst thing to do is lease, then buy at the end... you pay WAY more over that time so don't lease JUST for a low monthly payment.

Also, leasing is a loop. Once your in, you're in and it is hard to break out because you usually have to "step down" a level in car to go to a BUY intead.

 

If you factor depreciation, of course it looks like leasing is better on paper but the original question at hand is "out of pocket" costs. It's a no brainer that if you own a car you have to realize that the car will depreciate at a very fast rate and shouldn't be treated as an investment.

Having said that, leasing a car provides no equity, provides a continuous out of pocket expense on a monthly basis. I would love to see like a 10 year analysis of someone who leased v.s someone who owned and looked at the difference in out of pocket costs.

PJStyles

 

Very Very good point. Most people are just chasing their loan down.

If you can afford to pay your car off in 3 years instead of 5, it is better... but most people don't.

 

PJStyles is talking right. Look on a lot of car buying sites and mags. I have a motor trend somewhere that goes through the numbers and when they finish, it always ends up the same.....at the present time, purchasing a car is generally a better investment (a car is poor investment to begin with but wtf). The interest rates are usually the killer in these situations.

I have friends that have fallen under lease's magic spell because they can have the nice car they always wanted and be able to afford it. They just don't get any value out of the investment when it is said and done.

I also like to think that the car companies are generally not stupid, and would not create automotive leasing if it did not return something into their pockets. Leases would originally created for fleets and other business related purchases. Then somebody figured out that consumers were willing to pay the same and not receive the delicious tax write-offs that businesses do. I don't know, at the end of the day, leases seem to leave a tingly feeling on the back of my neck....or that could be the tag of my shirt.

 

If interest rates were normal, a three year term would be alot better, but when you can get 3.9% on four years, i say spread the love out. You could throw the difference in payments in some nice mutual funds and getter a better roi and still be able to pay for your ride. But generally, car loans aren't the best deal around.

 

Think of it this way. If you lease and turn the car over every three years, the only out of pocket expenses are going to be the regular services, which you can predict. Anything else would be covered by the warranty. So basically you pay your lease payment, you insure it, pay for the regular services, possibly put tires on it, put gas in it... Obviously someone who owns the car will be in the same boat, unless they own it past the warranty.

With a lease you are paying to drive a new car every 3 (or whatever years). If you want to OWN a car, buy one. Essentially leasing is renting in a way.

I want the luxury of driving a new car all the time, I am willing to pay the premium for that. It really depends on your life style and what you want out of a car.

Jay

 

How long do you plan to own your car? Short term or long term? It is possible that when you go to sell your car that your loss on it maybe more than the difference between leasing and financing.

I think that is the key. Long term or short term 'ownership'.

Jay

 

Okay - please - for the sake of this discussion, sotp referring to a car as an investment!

It is not a "good" investment. It is not a "bad" investment. It is not an investment at all, unless you consider purchasing a consumable to be an "investment".

This may not be Webster's definition, but to me, an investment - in the terms we are speaking of here - is an attempt to have money grow, or have a purchased good appreciate in value.

Any new car is a money pit - unless you buy some limited production vehicle, and never drive it. Someone who bought an MP3, and put it in their garage for the next 10 years, only running it to start it up and drive it around the block to keep the battery charged and all the seals in good shape, is making an investment. Cars are no longer durable goods - they are more of a commodity, which is meant to be purchased and used - almost like food or home appliances.

Who makes an "investment" that they KNOW will be worth 10% of it's current value in 10 years?

Sorry - but I just read the word "investment" in too many posts in this thread, and it was starting to annoy me a bit.