McBrain

Thanks for reminding us that the OP was actually asking a question

iampraneel

iTrader: (3)

Tipping point is relative to the buyer. The tipping point doesn't have to be limited to a financial reason.

As for the statement that leasing is way more expensive than leasing and then buying is not true. Don't get me wrong. You are paying more but how much more it based on what kind of deal you get on financing and leasing. I'm not going to go into specifics of my deal but I tried my best to do an apple to apples comparison of my lease vs lease then buy. I was surprised to learn the difference was less than $2000. $1738 to be exact.

DexRox512

iTrader: (5)

Whether you're borrowing or spending on depreciating assets, it's bad...let's be honest. Of course you are going to pay more...you're paying a fee to borrow the money! But typically, if you have stellar credit, you can borrow that money very very cheap. I would rather pay Lexus/Toyota back for the depreciation (with a rent charge) then know that the second I write a check and drive one mile off the lot, my money has evaporated. Call it a mental thing.

If you want to entertain yourself with how people with real money purchase their cars, cruise over to Ferrari Chat and read around the forums. 9/10 guys who are ordering brand new 458 Italia's are leasing them. They have many reasons, but mostly because they don't want to tie up the cash!!!

And come on, "Banks don't like to see exposure to depreciating assets."....seriously? Banks care way more about your credit score, age of accounts, late payments, etc etc...and most of all...HOW MUCH CASH YOU HAVE IN THE BANK!!!

randallo

I concur, a bank does not give a woot about a loan on a depreciating asset. credit score and your wealth (or the ability to maintain it) are their main concerns. McBrain - im not meaning to bash you. just saying.

I would also never buy a car in cash. i would much prefer to pay the cost of borrowing so i can have this highly liquid asset available. speaking from experience, it is super duper important. so remember, it is not a bad thing to incur a cost that allows you to do this.

i see nothing wrong with lease or financing. they truly are great tools. either way a car's main value is derived on the mileage. no matter what method you undertake you are going to pay for the cost of this. either through the lease as paid mileage or the devaluing of it when selling. all things equal.

let my 2 cents simply be principles to help you make your decision.

Bass Mech

for me leasing makes sense from another reason that has not been mentioned here, yes i own a business so there is a tax benefit, but the other thing is i live in a state where it snows!
i wanted a RWD car. there is no worse position to be in looking to trade in a used RWD luxury car where the market of potential buyers is so small. dealers just don't want to take the risk they will be married to the car and can't move it fast enough. they will end up accepting less than retail value to move the car.
so i decided to lease was the best option. there is no better less hassle and worry free way to unload a car your ready to trade out of than to be in a lease where the residual is determined the day you drive it off the lot!

also it gives you options, say the resale value of a car actually held value better then expected. you always have the option and ability to negotiate a trade early with the dealer and you might actually have equity in the car. you'll get more then the residual if that's the case to trade it in.

case in point, i leased a 2009 toyota tacoma 4x4 TRD offroad truck on feb 14 2009 i negotiated the 33k sticker to 31k and leased for 3 years. when the lease was up i had only driven the truck about 24,000 miles of a 36k miles lease.
i leased it because i wanted a low payment (at the time i wasn't making the money i make now by a long shot!)
when the lease was up i only owed 18k on the truck but it's value was 28k still!! had i traded in i would have lost 10 grand in equity!
so instead i went to my local bank and got a low interest loan and paid it off.

i recently checked again and the same trucks are selling for 27k with quite a few more miles than mine.

I've never seen a vehicle like hold value better then mine has.

so in short the lease helped me get the vehicle i wanted at a price i could afford, and i got to keep the truck rather than watch a dealership make 10 grand off me and my low mile vehicle.

the lease option protects you! and gives you choices when your ready to upgrade. a purchase is a great option if you plan to keep it and if the money is cheap enough why wouldn't you?
but if you purchase your far better off selling the vehicle on your own verses trading it in. you cannot sell a leased vehicle unless you pay it off first in full and pay the taxes. only then will you get the title to sell it.

so you really need to ask yourself how long do you plan to drive it? do you get bored with cars easily and have to have the new cars? do you like to keep cars under warranty and you don't mined a car payment for life?
(this very much describes me)
usually if i plan it right i can lease a car and still have enough tread on the tires to trade it in before i have to buy tires or brakes. and i never pay for any maintenance nor buy prepaid maintenance. i just change the oil myself and enjoy.
always have a new car smell and always something new and exciting to drive.
for me since i am self employed writing off the entire car payment actually saves me money on my taxes and makes up for any interest i might be paying.

compare that with buying a car that you can only write off what .59 cents a mile? lets see in a year and 12k miles that comes to 7,080 verses my lease payment of $7,644 and on top of that all my gas, oil changes and car washes brings me to probably about 8 grand for the year.

on the flip side if your car is fully paid off and you keep it forever my business use could potentially fully depreciate the car 2x over on my taxes, but then i have to drive a crappy old car with 100k+ miles on it and i just don't roll like that.

McBrain

On the topic of debt exposure. You could definitely borrow more money buying properties and renting them out than borrowing money for cars or other non-assets. Why is this so unbelievable? You can have $0 in the bank, and 10 houses all generating income and the bank will gladly lend you more money to get another property. If you have leases on a couple of fancy cars, you may not be able to leverage as much (even with more cash in the bank).

For me (personally), I just don't like having debt on anything but property. People are weird and irrational (myself included). Cars are a complete waste of money (in my mind). I deliberately create this constraint because it keeps me buying cars that are great value (excellent, yet very affordable). If I leased, I'd probably get something a bit too silly

WWM

I'll never forget what I heard from a salesperson from the Jaguar dealership. Talking about the well-off people who come in to buy cars: "Even if they can write a cheque, they don't." Paying cash for a car generally makes no sense because of the interest you're losing on the potential investment of that cash. The cost of borrowing compared to this will be either a trivial amount, such that it's not worth giving away so much liquidity, or it will be about the same or less, in which case you're losing money by paying in cash. This is unless one is unable to get a competitive interest rate on a car loan, in which case they are likely not in a position to buy anything half decent anyway.

McBrain

Dealers love the "monthly payment" buyers. More profit margin to squeeze out. Keep telling yourself that its a sign of financial success to lease an entry-level luxury car. That $40K is going to make millions, seriously. Hey, I just saw an ad that I can buy some furniture with no money down, nothing to pay for 24 months!! Just think of the fortune I can make on not spending my cash on that particle-board dining table!

WWM

I actually said earlier that leasing is worse than financing a car and trading it in for something else a couple years later. And I don't care how much profit the dealership makes. If I'm looking at a $40,000 car loan for which I will pay $3,000 interest and can instead invest that $40,000 and make $4,000 over the same period of time, I'm not going to hand a dealer the cash. I would be stupid to do so. You're giving away $40,000 worth of liquidity and you're losing $1000 in the process.Where do I sign up?

Bass Mech

what did you invest in that guarantees a 10% profit?

WWM

It doesn't have to be 10%. 2% will actually work if you're looking at a five year period. $800 interest per year. Right now, guaranteed savings accounts are at 1.4%, with occasional bumps to 2-2.5%, so you can come close to breaking even just with that. Then there's stocks, mutual funds or whatever else, depending on how much one has to invest.

McBrain

You can sign up when you can *comfortably* drop $40K on a car and not worry about some mythical 10% you're missing out on that particular $40K. I'm trying not to be rude or elitist, but you sound like you're just regurgitating finance 101 from a yahoo article. You may care about $40K for this 10% gain vs the 1% loan you speak of, but if you have $500K, $1M or more already working for you, you're not going to give it a rats ***, to buy a new car once every 5-8 years at this level with cash. Hopefully you'll get there one day. I'm opting out of further conversation on this topic and want to get back to talk about these lovely little IS cars we all own. How we owned them (if we own them or rent them) is boring me to tears at this point.

CtSFox

Well, bored or not, your posts make complete sense to me!

azmojo

I would do the math of both scenarios. You have to fudge and estimate a little, but the decision is easy. You have to pick a time period for comparison. From what the OP said, 5 or 6 years. You would probably have to compare 2 30 month leases to an ownership scenario.

Cost of lease = 2 x months x payment + $down, and subtract any estimated tax benefit
Cost of purchase = sum of payments (if applicable) or out the door price, and subtract any estimated tax benefit (if any), and subtract what you think you can sell it for in x years.

Be sure to back out tags, taxes, and insurance to compare apples to apples.
Of course for the lease, you have to assume you will use every mile given and not go over.
For the purchase, you have to estimate a sales price in x years. You can get a rough idea by looking at a price guide for a comparable 2 IS that is the same age yours will be (i.e, what is a 2009 IS with 60k miles worth, and that will get you in the ballpark for a 2014 IS in 2018 with 60k miles. You also have to make a comparison of non-tangibles, such as the benefit of having a new car after 30 months versus driving 1 car for 5 years, and possibly some extra maintenance on your dime in year 4 & 5, as well as tying up your cash in the car or making payments (opportunity cost).

Numbers will vary a lot from person to person. If you can negotiate a great deal on the purchase and you can sell your car yourself in 5 years, and you keep it in great shape and can get top dollar, that can make a big difference in the evaluation. If you always trade in, you will take a hit with the dealer.

dmvp29

My rule of thumb is if you can't afford to write a check for the car in full at the time of purchase, you can't afford to lease it.