Is there any thread or faq that explains how leasing works?

[sdiver68]

Ok we agree on something!

One other point, you are not factoring in the trade in. So in the scenario where you only lease versus purchase and you go with 3yrs for both, which one wins when you add in the 20k for the trade up front on the purchase. It will lower the payment significantly.

Yes, what you call trade-in I call Asset Value. Its factored in.

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[IronG]

Love how you're trying to turn this around. The OP asked for information about leasing, I provided him with info and a link to research. What have you provided the OP?

If you look a few posts up, I supplied a link to Edmunds. I guess you missed it.

 

[IronG]

Yes, what you call trade-in I call Asset Value. Its factored in.

I used the low rate vs rebate calculator to simulate a 36 month purchase. I used a very conservative 22k for the trade in, but it would most likely be about 25-26k. The values were 36 month term, 9% tax rate, 2 % interest rate, 1500k rebate and 22k trade (0 down payment) it undercuts your lease by about $1500.Make the trade 25k and it now is about 5k less. Math does not lie, but sales people do (well they manipulate the truth).

In any event, either 3 year buying or leasing continuously is a waste of money. Just buy it keep it longer and save a ton of money on car payments and still have some actual value that you can turn into cash at anytime.

 

[sdiver68]

Just buy it keep it longer and save a ton of money on car payments and still have some actual value that you can turn into cash at anytime.

That's what economists call substitition. Sure, you can drive your car for longer. For that matter you can buy a Toyota Yaris. Nobody needs a new Mustang, it's all personal preference.

I would say in the scenario you describe, absolutely buy. At least you've now know how to run the numbers.

 

[TomcatDriver]

So back to the original question. Fundamentally the "what leasing is" would be more accurately called "residual based financing" or "depreciation based financing". You pay for the anticipated depreciation of the asset over the period of time of the lease. So if your $40K car is anticipated to be worth $20K after 36 months and 36,000 miles, you are financing $20,000. That's the simple answer. That being said, there is a lot of incentive for the seller to make the lease anything but simple. All the "stuff" is ultimately negotiable (purchase price, residual, mileage etc) however they like to make it complicated to bamboozle you into a bad deal. I think people have covered the pro's and con's of leasing adequately. If you can plow through it and get a good lease deal, and you want to have a new car every couple-three years, go for it. If you like the simplicity of "I pay X, I get car" then go buy. I think it's easier to get ripped off (and not know it) on a lease.

 

[sdiver68]

So back to the original question. Fundamentally the "what leasing is" would be more accurately called "residual based financing" or "depreciation based financing". You pay for the anticipated depreciation of the asset over the period of time of the lease. So if your $40K car is anticipated to be worth $20K after 36 months and 36,000 miles, you are financing $20,000. That's the simple answer. That being said, there is a lot of incentive for the seller to make the lease anything but simple. All the "stuff" is ultimately negotiable (purchase price, residual, mileage etc) however they like to make it complicated to bamboozle you into a bad deal. I think people have covered the pro's and con's of leasing adequately. If you can plow through it and get a good lease deal, and you want to have a new car every couple-three years, go for it. If you like the simplicity of "I pay X, I get car" then go buy. I think it's easier to get ripped off (and not know it) on a lease.

I think that's fair. Just 1 small technicality, you are still financing all $40k. But in your example it's like amortizing over 3 years with a bubble payment of $20k.

 

[Chumley]

Astonished at the unqualified opinions in this thread and the outright inaccuracies. Not sure why people get all upset over this. We have only ever leased (for the wife) 1 car out of dozens but view them as no more than an alternative means of financing. As others have said, the reason leases are bad are the same reason leases can be great. They are full of details that most people don't want to know as long as the payment is ok. There are tons of areas a dealer can screw you but also many ways a manufacturer can subsidize and promotes sales. Leasehacker.com is a great site as long as you assume you will never get the deals most of those guys can get! I'll give a real world example: Our 1 leased car was my wife's MDX. Comes due in a couple months so we started looking. Stopped by an Infiniti dealer and looked at a QX60. About $60K MSRP. Since negotiating price is the same on the lease or buy, after a couple go rounds they were down to about $53k & change. Add a 58% residual for 39 months and a very low money factor and the total cost of the lease with EVERYTHING(taxes, fees, plates, etc) rolled in was around $600/month, roughly $23,xxx in total payments (we were not exactly beating them up either). We have time so we passed for now but if you honestly think that vehicle is worth materially more than $35-$36K after 39 months and almost 40,000 miles or buying would be "cheaper" even if you kept it longer - well good luck with that. However, to the uninformed, the first offer the dealer "suggested" worked out to be over $6,000 more over the cost of the whole lease! You just have to do your research, know your figures and be willing to walk.

By contrast, the Kia Stinger I looked at earlier this year when it first came out and it had HORRIBLE 49% residuals and mediocre money factors for 36 months. No amount of lease cash they threw at it could fix that. The best payments they offered were almost $150 more per month than the Infiniti - for a car that cost $6k less! Total cost was close to $30K! Stupid! You'd have to buy it if you liked it that much.

Also - The obvious positives for leases are that you do have the option to buy if they underestimated the residual or if you drove it less than you thought. If it's damaged or just a bad car it goes away at the end of the lease and becomes someone else's problem. I think we must have the only bad MDX made because I would be miserable if we owned it. It's probably spent a month in the shop over the last 3 years. Constant transmission issues. If we didn't lease it, it would already be gone no matter how much of a bath we took. The car MIGHT be worth somewhat close to the residual at full retail but no where near that in any realistic trade-in scenario.

On the buy and keep forever front, I paid $50k for my BMW in '09 and it's worth maybe $8K?. Let's call it $42K to own for almost 10 years (paid cash). So well under $400/month but it's been out of warranty for a LONG time and if I didn't love to wrench I don't know how much I would have really saved if I had the pay the dealer for all the repairs and maintenance I've done.

For the record - not one of the cars I've driven has been leased and I've been driving for almost 40 years - but to dismiss them without consideration is ignorant.

 

[TomcatDriver]

For the record - not one of the cars I've driven has been leased and I've been driving for almost 40 years - but to dismiss them without consideration is ignorant.

True. One of the things that can allow some better deals on leasing is tax advantages for the finance company protecting their losses. They can take accellerated depreciation and if the residual is less than they anticipated at the end of the lease they can claim capital loss (which you probably can't). But as you admit, leasing is a little more complicated. Dealers try to just get you to agree to a monthly payment and forget all the rest. To be fair, they try to do that with purchases also by playing games with trade-in value, rebates, special financing deals etc. I like to negotiate from as simple of a position as possible. I want to know "the price" including everything except the non-negotiable TTL that I'm paying to the government. I bring my own financing (which I'm happy to let them beat...after the price is agreed upon) and I have only traded one car in ever and that was handled as a separate transaction.

I've lurked around on leasehacker and in some ways it sounds kind of fun to find those crazy lease deals and swap cars regularly.

 

[Dory]

Well, OP here. I can see that leasing is full of risk and it has to be done just right. I am leaning towards buying again. The ONLY reason I was considering the lease is I am afraid I might get sad if the 2021 car makes my 2020 look sad because it has more HP, sick new body or some other crazy feature. It could also be a lot worse, shit body, low HP ect... If they offer grabber blue in 2020 I will buy no questions asked. If they don't, I may lease.

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