bigbluebea

Hello,

I've always purchased my cars and drive them for 5+ years before selling them. Given that, I think it is more economical for me to buy (exception: if i owned my own business and could write it off).

For other people, what is the tipping point between leasing and buying? If you plan on driving the same car for more than 3 years, are you better off leasing?

McBrain

I'm actually amazed at how many people lease these cars. Its almost the norm here. All the discussions on pricing etc center around leases.

I think you have to do the numbers yourself, but Lexus has very good re-sale.

Its possible that leasing works out better than financing (still doubt that), but even doing rough math, purchasing it outright and holding on for 5+ years works out much better. Maybe I'm overly conservative, but I won't buy a car unless I can comfortably buy it cash. It makes you scrutinize every dollar involved in the deal.

Maybe if you like to change cars every 1-2 years it makes more sense, but if you're doing that I don't think you're really concerned about the financial aspects of car ownership at all?

enoren

For me I had to acknowledge my tendencies. I bought cars for years, but got tired of them and traded them after 3-4 years. Inevitably, I wound up upside-down with the next loan and could never catch up.

Knowing that I won't stick with a car for very long, leasing makes sense for me. I get to drive new cars and I don't risk getting upside-down in a loan. My wife has different concerns: she doesn't want to worry about repairs, so she always wants a car under warranty.

I think the tipping point is 4-5 years. Now that they offer loans up to 7 years, you could use the loan length as your tipping point. Trading in at 5 years on a 7 year loan probably won't make much sense. I'll buy when I'm ready to stick with one car for more than 5 years.

McBrain

I think its a matter of what does "better off" mean for the OP. If better off means having a new car that is always under warranty I bet leasing starts to make a lot of sense. The reality is that nobody actually needs a Lexus. Its a luxury item to begin with so you have to apply some level of financial irrationality!
Maybe the profile of a Lexus buyer is someone that wants the latest, greatest and nicest and therefore its no surprise that leasing is so ubiquitous here.

If its lease vs finance and you have good idea of how long you plan to own the car, then the only unknown variable is how much you think the car will be worth when you're ready to replace it. With a lease, the calculus is totally determined (there are no unknowns) - perhaps this is the tipping point.

CtSFox

I agree with you and would just like to add to one of your points. You mention that "purchasing it outright and holding on for 5+ years works out much better." I usually keep my cars well past 5+ years and have found the math has always favored purchasing cash. This is especially true with a reliable and durable vehicle such as a Lexus. We purchased our RX 300 in 1999 and have 200,000 miles recorded on it currently. In addition to routine maintainence, the ONLY repair cost was an alternator two weeks ago. So reliability made the long term ownership of this cashed purchased vehicle very economical.

DexRox512

iTrader: (5)

Tying up cash in any sort of depreciating asset (like a car) is in my opinion, a very poor decision. Whether you keep the car for 2 years, 5 years or 10 years, really doesn't matter when it comes to reliability...these cars will cost very little to maintain throughout ownership and will probably run for 250,000 miles easily. The reason I like leasing all of my cars is that I am paying for only a percentage of the vehicle. A percentage of the tax, a percentage of the registration and a percentage of the depreciation. I agree that you should never buy or lease anything unless you can pay it off in cash tomorrow. I live by this as well and whoever said that no one needs a Lexus, is also right...but we all need a car. Whether it's a $100 a month car or a $1000 a month car is really neither here nor there. If you can write a check for $50,000 today for a car, wouldn't it be better to take $49k and pay down the principle on your home, put $1k down on a car and have a $500 monthly payment with 2.7% interest that if you own your own business you can write off? Or, just keep the money in the bank!!! It's better off there then with the dealer in one lump sum.

Leasing isn't for everyone I guess and it's definitely not for every brand. Lexus residuals are so good that if you sign for 27 months you're basically only paying for between 24-28% of the car over that period of time. Personally, I like paying for 25% of depreciating assets at 2.7% rather then 100% and tying up my cash. To each his own.

McBrain

I think that if you can deduct the lease costs from a business that is a different story - but I'm not convinced that most of the leasers here own businesses and further, business that allow them to claim a significant portion of their lease/financing against the business income.

So assuming you cannot get any tax benefit from servicing an auto loan or lease, my philosophy (clearly different than yours, but that's why we have forums to discuss and exchange ideas):
- Borrowing money for properties and investments makes sense. You get leverage, tax-deferred appreciation (properties), measurable tax-deduction against both investment and regular income
- Borrowing money for depreciating assets is a bad idea because
(a) Total cost of the product is higher.
(b) Borrowing money for non-assets (cars, boats, electronics, furniture), typically results in spending more than had you always paid cash. It does not foster discipline.
(c) Loans on depreciating assets limit your ability to borrow money for real assets like properties (or other investments). Banks don't like to see exposure to depreciating assets.

bigbluebea

Thanks Brian for sharing your viewpoint. I think at the end of the day, it depends on how investment-saavy you are. While borrowing money for property seems like a good investment, it isn't a definitive rule. Just look at the bay area in the mid 2000s.

keyframe13

Leasing is way more expensive but the advantage is that you get to drive newer cars but you pay premium.. If your car is just a commute it makes no sense to lease IMO.
After 4 years the one who leases has no car the one who purchase has a car and pays nothing(except gas insurance maintenance) for the next years. This is where it starts to "pay off" .
If you buy you have no restrictions on miles, on how the car looks, on maintenance, you pay less insurance and so forth.
If you lease a Lexus, BMW, Audi, Mecedes etc you should afford and those sshould not matter as you have enough financial support to pay extra.

McBrain

Totally agree! You have to know what you're doing - definitely can lose ones shirt on any investment. Having said that, anyone who bought in good parts of the bay area even at the peak and held has not lost money. Things have really come back there. I'm sure there are exceptions...

McBrain

I'm totally with you. Its ironic that I'm even debating "sound financial strategy" in the context of buying a luxury car. If I wanted to drive a new car every 2-3 years, I would lease for sure. I plan to keep my car for 5+ years.

TimboIS

Considering leasing was devised by a car dealer (Jim Patterson, so the story goes) to get people into cars they couldn't afford to buy, you know the scales are tipped in their favor.

WWM

The difficulty comparing a lease versus financing is that it's hard to know where the resale value will truly be in x number of years. I compared a 2 year lease to financing + trade in after 2 years, based on the previous IS trade-in values and financing came out ahead slightly. This could change if the trade-in value isn't as high as expected, but whatever. Financing provides greater flexibility because I have the option of holding onto the car for longer without paying a huge penalty. The only downside to financing is if you get into an accident, you're screwed on resale value.

albino1

I went in with the intention of buying (I'd never leased before) but walked out with a lease. It just makes a lot of sense, and then last few cars I've owned I've gotten rid of in 4 or 5 years anyway, mostly due to annoyance from lack of warranty and things starting to fall apart. In the end, I'm extremely glad I got a lease, because I feel my IS has a some major design issues and missing features that will likely (hopefully?) be rectified by the time my lease is done. If not, I can move along, no harm no foul.

CtSFox

...and there you have the tipping point.