Diesel350

Huh? Why would I rather the be dead?

SW17LS

I think maybe you need to worry about yourself and what works for you and let everybody else worry about themselves.

These things are financial management tools. Am I basically just renting the car? You could look at it that way. Inflated payment? How? Taking 100% of the loss in value? How?. The money factor on my lease was .0007, thats 1.68% interest. If I'm buying a car and I can finance it for 1.68% interest...why would I pay cash? My cash makes me WAY more than 1.68% return. Remember too, if the thing it worth more than your payoff at the end of the lease just trade it in and pocket the cash.

As to my net worth, LOL. My payment is $700 a month....that is a very small percentage of my monthly income. Spending $8,400 (which is tax deductible for me) per year on a car does not in any way shape or form impede my ability to build net worth, invest, or save. I'm a car enthusiast...I derive a great deal of enjoyment from my cars...I work hard and I am going to enjoy the things that I want. Does that mean you might make it to the cemetery with more money than me? Maybe. Are either of us going to care when we're dead? No.

I don't want to drive an old car, bottom line. Leasing makes it less expensive for me to drive the cars I want for the lengths of time I want to drive them. So, its the right decision for me. Do whats right for you.

Diesel350

LOL, trust me I'm not worrying about anyone else nor how to tell you how you should spend your money. No need to get offended by my viewpoints, they still stand in that a lease is really just a tool for the majority of people to get into a car they really can't afford otherwise.

I think you are sorely mistaken if you think a lease is a financial management tool. A lease is nothing more than a money maker for dealerships and a luxury for the consumer to enjoy a brand new car every 3 yrs. and yes, you are renting the car from the dealership because at the end of the day you are giving the car back and left with no equity.

Also, You don't really think you are only being charged a 1.68% interest do you? Did you forget to calculate your Finance Fee? Dealerships are not doing leases out of charity.

praetor

Dude, while leases can get people into a car they normally couldn't afford, leasing is also a tool to get you a new car every 3 years at the lowest possible price. That's the part you need to understand. Some people like getting a new car every 2 to 3 years. Leasing is the best and often cheapest way to do this for most people.

It doesn't work for everyone but you can't say it's for people with no net worth. My next car might be leased. I will be at the age where I no longer want to keep my car for 10+ years like I'm doing now.

SW17LS

LOL, of course its a financial management tool. Auto leasing, adjustable rate mortgages, negative amortizing mortgages, these things may be misused, but they are financial management tools available for certain people in certain situations. If people are using them to buy things they cannot afford...they're idiots. Doesn't mean all of us do that. I know many very wealthy people who lease because they enjoy cars and want a new one every so often and its the cheapest way for them to have what they want.

Issues with what you posted:

1. Leasing does make the dealership a commission on the lease, but its about the same as the commission on financing. You are not "renting the car" from the dealership, the dealership sells the car to the leasing company and they own the car. After that the dealership is done.

2. If you turn the car in, it has no equity. BUT, you have paid significantly less for the vehicle over the 3 years you've owned it. If you put that difference in a bank account or invest it...there's your equity.

My lease payment is $700. A 60 month finance with nothing down financed at 2% would have been $983.31 per month, $283.31 per month more than the lease, over 36 months thats $10,199.16. Thats money I can invest and make a return on, vs build equity in a depreciating car.

If the vehicle does better than anticipated...you can trade it or sell it and pocket the difference between the buyout and the sale price...I did this with my 2010 ES and made $1k. If it does poorly...just turn it in. If you wreck it and its value is damaged...just turn it in.

Of course the dealer gets paid for doing leases. They do not however service the lease which you seem to think they do. They are paid a one time commission for selling the lease, that commission is built into the finance rate (money factor), just as with any financing.

The "finance fee" equals the depreciate (the difference between the capitalized cost [purchase price] and the residual) multiplied by the money factor (interest rate).

Yes, its calculated. Yes, I'm paying 1.68%.

1JZsoarer

Because we keep telling you that there ain't no magical solution for everyone. You seem to think Leasing is Satan himself and you disregard any comment by stating non-factual infos. Wether or not you want to admit it, for some people leasing makes more sense financially than buying. I'm pretty sure you calculated what a lease would cost you in 1980 and that was it, you did not try to calculate it again in the 2000's. Things have changed, leasing is not such a loosing tool anymore. Sure if you are stupid enough to pay 5% on a lease you are the stupid one.

JerryT

Leasing allows people to drive Lexus at Camry payments. For people who resigned themselves to always owing the bank for the privilege to drive a certain car. Leasing makes sense.

For others who prefer to have the title paying cash makes sense (Thats my world) But I buy three to four year old cars still in warranty. They have always been great vehicles.

The whole "Investing the difference" SAFELY brings a negative return in this financial environment. Now if one is talking risk investment, they can possibly do better saving the difference in payments and investing in riskier assets.

I paid $20,500 for a 2008 Tacoma 2.5 years ago and just sold it for $22,900. I rented nothing. I kept it "new" put 8000 miles on it and made money, Cost me nothing to drive and enjoy, I try to buy and sell cars privately and pay cash, I pay a little over wholesale and sell for well under what dealer inflated asking prices are. There are no tax advantages to trading here. Sales tax is capped at $300.

I prefer to keep my 2014 "Lexus, Acura, BMW, Infiniti insert name) "in the bank" and invest with savings, and drive the badge albeit older on the street. The enjoyment is exactly the same if it were new even more so because I saved $20,000.

Leasing a new car is a losing proposition and those who do so know it but THEY CAN AFFORD IT so they don't care. A four year old loaded Lexus can bring the same enjoyment at te HUGE discount to that owner as a new one every three years. The difference is the guy who loves his used Lexus can own it for a long time without payments of ny kind and the cost of ownership drops with each month. Even including repairs and maintenance, Who spends $400 a month on repairs of any of today's vehicles with 100K or more on them? I would say no one.

The bottomline is some people have to have the new car smell and hate looking like they are driving an "older" car (when the GP has no clue what year a car is anyway). To most people a Mercedes benz is the same car whether new or 8 years old. Like a corvette, No one asks "hat year?" except enthusiasts,

<VENOM>

Bottom line, if more money is coming into your bank account then out your doing good, this thread is on leasing, not on the variables of teaching people to be smart with money.

SW17LS

With opportunity comes risk. My portfolio is not that risky and my return is significantly better than what my Lexus lease costs me in interest. If you're seeing a negative return on your investments I think you should seek outside counsel.

The enjoyment is the same FOR YOU. It would not be for me. I don't want to buy a used car, I want the latest technology and styling and features. I want it to be my car from the beginning. I work hard, and I'm going to live my life the way I want to.

Diesel350

Funny, I've never heard any financial experts give advice using these tools for financial management. And it's even more laughable that you compare leasing cars to mortgage products with extremely high default rates and high risk.
And I know many extremely wealthy people that buy their cars cash. What's your point? As I stated, leasing is nothing more than a luxury for people that want a car every 3 yrs.

Sorry but you're naive if you don't think the dealership makes alot more money on leasing than financing cars.
So what if you pay less leasing! You are still left with no equity regardless of what you do with the money you save. When I rent a house cheaper than buying a house do I have any equity in it at the end? Investing the money you supposedly are saving does not give you equity in that car. Leasing is nothing more than long-term car rental.

If investing is a priority for you then why not buy a used car cash and with all the money you are saving on lease payments over time you can be making a much larger return on your money when investing. You said it yourself "It's a luxury purchase", there is absolutely no financial benefit to leasing a car.

Depreciation fee + Finance Fee = your monthly payment.

SW17LS

My accountant and financial planner both agree that for me leasing is the right fit. If they were advising me about whether to lease or buy a 3 year old car and drive it forever they would recommend the latter, but they know I'm not going to do that.

The reason those mortgage products have high risk and high default is they are overused by consumers who they are not appropriate for. They have their function, and borrowers who they work for. Issue is people use them to buy what they cannot afford. Thats not the product's fault...its the consumer's fault and although I'm a "caveat emptor" kind of guy, the fault of people who sell those products to people who don't know any better.

My point is there are plenty of types of folks in the world. Don't make assumptions like "people who lease don't have any net worth"

I don't think, I know exactly how it works. Dealers CAN make more money leasing because its very easy to hide profit amognst the complex terms and calculations. If you know how leasing works and can calculate things properly, theres no more profit in a lease than a financed purchase for the dealer.

Not comparable. Homes go up in value over time, and mortgage interest is tax deductible, you have neither of those benefits when comparing leasing vs buying a car. Home ownership is the greatest source of wealth for Americans...without homeownership the vast majority of Americans would have no wealth. That is absolutely not the case for cars. Cars are an expense, nothing more. A home is an investment. Purchasing a car is all about mitigating loss.

Why do I want equity in my car? Hell...I don't even want equity in my house quite frankly. I want it leveraged and that equity making money somewhere else. I want that mortgage as fat as it can be as long as I'm paying taxes and needing deductions and rates are low.

Because while investing is a priority, enjoying my life is also a priority. Yes its a luxury purchase, and there absolutely is a financial benefit to leasing a car depending on the person or situation.

Since I trade every 3 years or so anyways and can write a vehicle off for business, there is a significant financial benefit to me in leasing a car vs buying a car...thats a fact.

Yes...whats your point?

I'm not preaching to you about what you're doing, pay me the same courtesy. If you're happy driving a 6 year old car then fine...I'm not. Does it cost me more money to drive a new Lexus? Yes. Do I derive a great deal of enjoyment out of having it? Yes. Some people belong to country clubs and play golf and own boats...I don't do any of those things. If those things make them happy, great. Life is too short to work hard and be successful and just squirrel every dollar away IMHO.

swajames

Regardless of how you finance a car there are good deals and bad deals. Poor deals are far from the preserve of the lease customer. Also, those who choose to pay cash for their car always choose to forget that they had to drop the entire purchase price up front in conversations such as this. It's all well and good to talk about "equity" at the the end of the finance or lease term, but a lessee never had to fork out that cash in the first place. For certain brands such as BMW which artificially inflates residuals and subvents the money factors, it's almost insane not to lease. Sometimes the best deals are lease deals period. I've bought outright, financed and leased and no one way of acquiring a car is necessarily better than any other.

IS350jet

I’m going to take Diesel350’s side, here, simply because he never said that all people who lease have no net worth, he said “most people”. I’m afraid he’s right. Okay, maybe not “most”, but a very large population of car buyers lease their cars simply because they cannot afford the payment of a new car. These are the same buyers who are buying “more” car than they can really afford. Unfortunately, these are the same buyers that have little or no net worth. To reiterate, this is not saying that “ALL” people that lease have little or no net worth. There is a HUGE misconception about wealth in America today and one of those misconceptions is that the guy next to you in the $100k Mercedes is wealthy/rich. The reality is there is a very good chance that he has no net worth and is leasing a car he can’t really afford. It’s rampant in this country and it’s no wonder so many people have nothing at retirement. Read the “Millionaire Next Door”, it is truly eye opening.

Infra

iTrader: (1)

This logic does not follow: if A then B, therefore if B then A.

People want low payments so they lease; that does not mean everyone with a lease did so for low payments.

Many reasons to lease:

- The lease offer is better than the finance offer (it happens because the manufacturer will make money by selling the car CPO in the future, this can offset the contract price)

- It's a business expense

- You don't drive many miles

- You don't have or want to spend time to negotiate your trade-in (this DOES take time to shop around multiple offers to get the best price)

- You like having a new car every year or few and are willing to pay for it (the only thing money can buy in life is pleasure, everything you buy, in the end, goes towards enjoying life; therefore the argument that it's bad financially to do this is a fallacious argument. It's not whether it's good or bad, it's whether the money could be used to gain greater pleasure if employed elsewhere. This is subjective and unique, so one cannot judge others in this regard)

- You don't like driving a car out of warranty (The big one here is you simply don't want/have the time to deal with a car out of warranty. This one describes myself. My time is too valuable to me to spend it getting a car fixed and arranging alternative transportation while I do. I'd rather buy the insurance of a consistent monthly payment then deal with the headache of out-of-warranty car problems. Even extended warranties don't cover everything. I realize I pay more money for this, but it is a LUXURY, let's not forget)

- I could go on.

My point is that arguing about anecdotes is a waste of time. "There are exceptions to every rule" is an awful proverb because rules don't have exceptions. The correct word would be "trend" which by definition has outliers.

Diesel350

Of course leasing is the right fit for you because you want a new car every 3 yrs. You actually paid your accountant and financial planner to tell you that? The fact of the matter is over the long run your paying more for the lease.

These types of products favor the bank. When fixed rates are low there is really no benefit to doing an ARM or any other of these types of products other than for qualifying purposes. There is rarely a time when these products have a good function for the consumer and cannot be compared to leases that have virtually no risk. I still disagree with you that any of these can be used as effective financial tools.

I think I stated that the "majority" not "all" people who lease do not have a substantial net worth.

Even though some people may know how leasing works and can get a great deal, on average, the dealership profit on a new car lease is TWICE that of a regular car purchase.

Read up on Robert Shiller, the Nobel Prize winner in Economics. Homeownership was considered an investment in the 2000's when it was a FAD. It depreciates, takes maintenance, and goes out of style. And mortgage interest is only deductible if you take the itemized deduction when filing your taxes. As I stated, renting a house and renting/leasing a car give the same result. No Equity in the end.

If you don't want equity in a car buy it cash or lease, problem solved.

Since you own a business and want a new shiny car every 3 yrs, yes it makes perfect sense for you to lease BUT for the average consumer there is NEVER a financial benefit to leasing a car. You can't say that leasing a car is a priority and then say investing is a priority. It's one or the other. If investing was such a priority for you then you wouldn't be leasing cars.

I'm certainly not preaching to you what you're doing, merely stating the fact that leasing is not a financial tool, merely a luxury purchase and that most people that lease do so to get in a car they normally can't afford.

Not sure why my viewpoint gets you so defensive.