What are people’s thoughts on the relative advantages of leasing a car for 3 years versus buying the car outright and then trading it in 3 years later for a new car?
It seems that you’d avoid the danger of going over mileage and the acquisition and disposition fees.
I haven’t run the math, but would be interested in hearing people’s thoughts.
unless you drive more than 15k mi per year, leasing is the much better option.
It is difficult to sell a car to begin with, you will most likely not get the price you think you can get.
When you lease the finance company is obligated to take the car back.
In a few cases you can come out ahead if you were buying but if you got a good deal on a lease it will most likely cost you less and most certainly cause you less headache even when taking the disposition fee into account.
Here’s a biggie. You’re protected against diminished value if you get into a car accident.
As long as the car is restored to OEM state at the end of the lease, the leasing company has to take it back. And pretty much any non-crappy insurance company will repair back to an OEM state.
I’ve been screwed over on two different trade-ins due to being rear ended – now I’m leasing my cars so that doesn’t happen. Food for thought especially if you live in an area with a lot of crappy and/or impatient drivers.
What city is that?
Another way would be purchasing a used vehicle- porsches are are the best when it comes to retaining value.
I’ve been lucky enough to own a new 2003 Honda Odyssey. It really paid off over the course of 190,000 miles in the course of 13 years. Recently I’ve had to retire the poor thing cause for some reason all the coolint leaked out and the engine was smoking once I made it home.
You pay taxes on the entire cost if you buy. That money you never get back. Lease you only pay tax on depreciation.
Also disposition fee is waived if you buy same brand. And if you a good negotiator, sometimes you can get a dealer to pick it up.
And, if there is positive equity, you can get a dealer to buy the car outright early. Saves lease end and excess wear.
There is a simple rule to follow to see if you are better off leasing or buying.
The rule is your lease payments should be less than $125/month for every 10k that the vehicle is worth.
Now lets do simple math, for most vehicles the residual is %55 after 3 years and 36k miles.
Now lets say our vehicle costs $10,000. We buy its with cash from the dealer, 3 years down the line we sell it for $5,500(10,000 x %55) So we bought it for 10k sold it for 5,500 we end up spending 10,000-5,500=$4,500
Now lets say we lase it for $125/month. $125 x 36 = 4,500 So you ended up spending the same amount of money. $125 is also considered a bad lease that is %1.25 of the MSRP, most leases on here are %1 or less.
Now this idea wont work on all cars, because some makes keep their value and some don’t, so you really have to do the research your self.
Something not considered in your scenario, the sales tax. If it was $40,000 @ 6.5% you’d also pay $2,600 in sales tax on the purchase. If you pay tax on the lease amount, using your payment above, the taxes paid would be only $1,080.
You forget that some states charge full tax on a lease. And also have the “property tax” on top of that, no matter lease or purchase.
good point with the accident.
I tried to take my last car into car max which i do for every car just to see if there’s a little equity in it, when he came back with a really low number i was shocked. He told me had my car not been in the accident it had (was minor) they would have offered $10k more. So that speaks to your point.
Not to hijack this thread, but I consistently see people here (and other places) mention the 1% of MSRP rule for determining a good lease. Are most of you assuming 10k miles for this ‘rule’? My wife and I both lease and between the two of us do a 12k and a 15k lease (wife has a 30+ mile round trip commute and we both have family roughly 125 miles away that we visit multiple times a year).
My first 2 leases I was fairly dumb and rolled over positive equity in a trade into the lease to buy down the payment, so I’m not really sure what my % rule was but my next 3 leases I believe have all been under the 1% threshold:
2013 Avalon for $393/month on a 40k MSRP for 12k miles
2014 Santa Fe Sport for $356/month on a 39k MSRP
2015 BMW 428XI Gran Coupe for $522/month on a 54.5k MSRP
so I feel like I’m doing ok here, but just curious if you’d bump up the ‘rule’ when looking at 15k miles since most of the deals I see around these parts are on 10k (or some 12k) leases.
Leasing is really just an alternative form of financing. Most of the time the cost of leasing for 2-3 years then buying is more or less very similar to straight financing a car for 5-6 years.
Advantages of a lease? Lower up front costs, option to walk away after 2-3 years and get a new car. Also, there is a chance the lessor will negotiate on the residual (especially for EVs…sometimes effectively letting the leasee cash in on the federal tax credit twice in some instances) if you buy the car out.
The 1% includes taxes and any drive offs…I only do zero drive off leases, so I actually reduce my monthly by about 3 percent.
Did you just sign and drive, or did you pay anything at lease inception?
And yes, you should bump up the 1% rule…however, I suggest always getting the lowest lease possible unless you are fairly certain about your mileage. Personally, I’ve never been over…and in one case was over 20K under!
Thinking back, in the case of the Avalon and Santa Fe Sport I made first month payment up front…and on the Santa Fe/BMW i believe I ended up paying registration out of pocket as it was an out of state lease and I had to pay those when I went to the DMV in my state to get plates. For the BMW I also did some MSDs, but assuming those don’t get added in for the 1% since you get that money back.
As for the miles…my Avalon lease was a 2 yr/24k and I had roughly 23500 on it when I turned it in…and that was with having 3 cars for a couple of months. And I’m currently around 600 miles over pace on my current BMW lease at the 9 month mark…but I just love driving the thing and want to take it on trips more than my wifes car.
My wifes car is sitting at roughly 37k miles (so 8k left) with over 5 months until we turn it in (assuming we keep it until lease end). We just do a lot of driving so I don’t see how we could ever get by w/ 2 leases at 12k per year unfortunately.