Looking to purchase my 3rd Lexus...need some advice. 36 month lease is $398 / month with 5k down (which is taken from 13.5k trade in, getting $8500 back). I plan on keeping the car for 5 years but I put about 16k miles per year, salesman is trying to push me towards a lease saying with all those miles, if I finance and trade in 5 years from now, my car will depreciate so much.

Really torn here.... Offering .0002% lease rate which is awesome but hate having to think about a new lease in 3 years.

But should I lease since I put on so many miles?
I have enough to put down to only have to finance about 7k....rate is 1.9%

Thanks members....

 

There are a number of variables here, but overall, even with what is essentially free money (.0002%) on the lease rate, I think you'd be better off buying, especially if you don't use your car in business for an IRS tax break on the lease payments. You'd also be better off, IMO, for three reasons. First, you could put on the 16K miles (or as many miles as you want) each year without worrying about the mileage-clause....mileage-clauses usually run 10-12K a year (sometimes 15K). Second, you wouldn't have to worry about the wear-and-tear clause in the contract if you get what are almost inevitable scratches and dings...those clauses vary quite a bit in what dings they allow, size-wise, so you have to read them carefully. Third, you would get around the salesman's smooth-talk about depreciation......yes, the car will depreciate more if you put more miles on it, which could cost you money. But it will also cost you more if you pay extra on the lease-contract to cover the 16K annual or more miles you want to drive....which, of course, you won't be paying if you own the car outright. In your case, the only advantage I can see to leasing (besides the business-use tax-deduction, if applicable) is if you don't put as many miles on the car as you say you will, and/or if you simply get tired of the car after 3 years or so, and decide you want something different. Then, of course, it's a lot easier to just take it back and turn in the key than to try and sell it or trade it in. But, in general, my advice would be to buy, negotiating the best deal and financing you can if you are not paying cash.

Whatever you decide, Best of Luck to you.

 

Marshall.... great response....makes a ton of sense. Was kind of confused since dealer was pushing the lease so hard. Made me feel like if I financed, I was picking the wrong option.

Definitely no business write off here. Last 3 years I averaged 15.5k miles per year so I'm very close to that 16, don't want to do an 18k lease. I would hate to want to take the car on a road trip but not be able to cuz of mileage....

 

5 years is a magical number. According to all of my calculations if you are going to trade every 5 years, it's no cheaper to buy vs lease. So the question is, do you want a new car at 3 years or are you happy to or would you even prefer to wait until 5 years (sounds like you might). It's about the same cost either way.

If you're going to trade before 5 years, in general it's cheaper to lease, after 5 years it's cheaper to buy. Excess wear and tear is a non issue unless you beat on the car.

 

I'm married with 2 little ones now so I know I need to stop with the 'wanting a new car every 3 years' like I used to.....lol..so I'm fine with at least getting to that 5 year mark now. I am leaning towards financing but I've never leased before so I wasn't sure what I would think of it....

 

Just remember, financing every 5 years won't save you any money vs leasing every 3. If you want to save money you need to stretch that out to 8,9,10 years and own them for a while with no payment beyond the steep early depreciation curve.

 

........And, of course, all else equal, the fewer miles put on the car each year, the flatter the depreciation curve is going to be....especially after those steep first two years or so. 16K a year, though somewhat more than average, still probably isn't considered an excessive amount, especially with the super-long commutes a number of people have nowadays.

 

Had my IS350 for 8 1/2 years and 92k miles before I traded it in so I'm hoping I can make it that far again. So u guys think if if look to get a new car every 5 or 6 years I'm better off with a 16k mile lease?

Dealer and I did the math, would cost me about 3.5k more to buy the car at end of lease as opposed to buying it now. So I wouldn't buy it out at end...

 

If you're going to buy the car at the end of the lease you should just buy it now. If you lease, except in certain circumstances (such as being able to write a vehicle off for business use) you should just lease, if you buy you should just buy. If you think you can keep the car 8.5 years and be happy doing that, that will be cheaper than leasing.

5 years generally is either/or. 6 years it would be cheaper to buy.

Even with low miles the depreciation curve is really steep. 15k is average, so 16k a year is close.

 

Like I mentioned in my first reply, with an annual 16K lease, you'd be paying more for it each year than you would a standard 10-12K lease (just how much more would be up to the dealership....I can't quote an exact figure). Then, of course, you'd still be coughing up the residual value, at the end of the lease, for the buyout....though the residual value, with the added miles on the car, would be a little less. I'm with Steve (SW15LS) on 6 years....buy, though, for 5 years, I'd tend to lean a little more towards buying...he has it basically 50/50. What you DON'T want to do, though, is to buy from the start and then decide, after only a couple of years, that you want something else....then you are going to take a bath.

 

You can get higher mileage leases, even so the penalty beyond a 15k mile lease (which is very typical, a 12 or certainly a 10k lease is a low mileage lease. Lexus also has a 7,500 mile lease). Over 15k next is 18k which would be overkill. You're better off to owe money on a lease than you are to get a lease with too much mileage, you can't get mileage you don't use back.

The mileage penalty is .25 per mile, so if you're over 1,000 miles a year for 3 years, thats $750, easy to negotiate when leasing the next car. I would just do 15k miles in your instance if you do lease. You can also just put $21 a month into a savings account and use that to pay any mileage penalty. It will cost more than $21 a month to go from 15k to 18k.

 

Is that universal? Doesn't it vary with the dealership, manufacturer, and contract?

 

It depends on the manufacturer. LFS (Lexus Financial Services) charges .25 a mile. My Kia is .20.

 

How much you pay in a lease is determined in large part by the residual value, which is the forecast value of the car at the end of the lease period, calculated as a percentage of the initial sales price of the car. The percentage difference between the initial sales price (100%) and the residual value is the forecast amount that the car's value has depreciated over that period.

Depreciation is affected by the how much wear and tear there is on the vehicle, and the distance driven. The amount of depreciation -- and therefore the quoted residual value -- is given in terms of "normal" factors -- expected (or "normal") wear and tear, and how many miles / kilometres allowed per month (or per year).

If you believe that you will drive less than the normal, allowed distance, you may be able to negotiate less depreciation / higher residual value (or there may be a low-mileage lease plan). If you drive more than the normal, allowed distance, you will be charged a penalty, some amount for each mile over, at the end of the lease. If you believe that you will drive more than the normal, allowed distance (as the OP believes), you may choose to pay that penalty up front, in effect paying for the greater depreciation / lower residual value; the up-front penalty is likely cheaper than paying the penalty at lease-end.

You may be able to avoid having to pay for greater-than-normal wear and tear, and/or greater-than-allowed mileage -- just buy the car for the pre-calculated residual value at the end of the lease. But you have to remember that your car may have depreciated more than normal because of the greater-than-normal use of the car during the lease period, so the price you paid to buy the car at lease end may be more than the value of the car at that time. This is the conundrum of retail leasing.

 

There is no way to buy miles upfront in a Lexus lease. All you can do is select from mileage options that have set residuals. Those residuals cannot be negotiated. Other manufacturers are slightly different.