Without getting into super-geeky math or debating the merits of the dealer markup…
There are basically 4 outcomes to obtain usage of the vehicle.
Straight up cash purchase; there is an implied “opportunity cost” where the cash cannot be deployed to investing in an appreciating asset over the ownership term.
Financing the vehicle; depending on the mix of cash-down and debt, the cost is a combination of the opportunity costs from #1 and the interest rate paid to finance the debt. Also, some borrowers will want GAP insurance if their down payment wasn’t sufficient.
Leasing the vehicle - with no intention to buy the vehicle at the end of the lease term. In this scenario, the leasee is paying a large sum of money to affectively rent the vehicle for X years and then also the depreciation of the vehicle during the rental period. Should the market value of the vehicle after X years be greater than the lease-buy-out value, then this option could see the leasee lose value because they aren’t capturing the upside at the time of lease-turn-in.
Leasing the vehicle - with the intention of buying the vehicle at the end of the lease term. In this scenario, the depreciation and residual value may not be an issue since the leasee will become the buyer at the end of the term. But, the financing charge to have rented the vehicle during the lease term may be higher than that of option #2 above. And, there are other lease origination fees and other one-time costs that may cause option #4 to cost more than option #2. And last, some states have weird sales/use taxes that may make this option cost more.
Option #3 isn’t always a bad option. In some cases, the residual value (edit: in the lease contract) is too high. For example, on some Electric Vehicle leases originated lately, the residual value in the lease structure is much higher than what the car will likely be worth at the end of the lease (thanks Government and Tesla!). This means buying out the vehicle at the end of the lease term would be really bad.
Wait a minute Honda Civic are $50K? People really pay that amount. I wouldn’t even get it just because of the name. I’m pretty sure there are better options out there for that price range. Leasing price I assume is most likely around the Germans or Lexus
#1 - got it, that’s what I figured #2 - makes sense, thank you #3 - on 3 cars now I’ve benefited from making a few thousand profit on selling cars. Makes sense #4 - great points. When you mention “the financing charge to have rented the vehicle during the lease term might be higher”. In this case it is. 6.49% finance vs 5.4% lease (due to one pay). Would a one pay of $30k with him then selling the car back to honda in 3 years be better than financing today as described above?
Why no gap insurance on leases if the car company already doesn’t offer it “free” for a lease? Or are you saying with finance its bad?
Thanks for the suggestion - good point. I brought it up to him and he still wants the new car, plus apparently the model is slightly different (IDK how)?
Agreed on paying 100% cash for it up front as a purchase would be the best case scenario.
2nd post about an unenrolled third-party who DNGAF - have them make an account and post.
If you want to compare lease-vs-buy, look at acq. Fee + disposition/buyout fee, plus the spread between financing and buying. No incentives, residual and MF are not favorable, not a good lease.
On a Honda that you expect to hold its value, I’d be more concerned about being stuck in it for the duration of the lease. HFS restricts third-party buyouts, if it’s financed they can do whatever they want.
If your uninterested friend hates it, gets bored with it (c’est imposible!), unexpectedly finds themself expecting triplets before 36 months, they’re fire selling this to a Honda dealer, or trading it on an Odyssey irrespective of a preference for a Sienna/Carnival.
But ultimately you seem to care more than your friend, so let them spend their money and learn the lesson for themselves. If they cared, they’d make a LH account and post themselves.
The opportunity cost of cash is greater than the 150 bps MF buy-down is worth.
Honda Financial Services now gets all the one-pay cash up front. They basically giving your buddy 150 bps discount when the cost of funds from the fed discount rate is 550bps and the prime rate is as high as 900 bps.
Basically your friend can stagger the one pay cash into some laddered-maturity CDs and make more $ than what the MF buy-down is worth in this lease. A similar thing happens with MSDs… the financial services gets to offset their loss exposure and gets basically free $ by just dropping the MF a very small amount.
But, one reason people may like MSDs and one-pay is simply because they end up spending the cash on other stupid stuff instead of investing it anyway. So pragmatically for some people, getting the cash out of their bank account is better than watching them blow the money on dumb stuff like mods for their CTR.
Edit: Sorry for the joke about GAP insurance on leases. Most insurance companies won’t even let you buy GAP insurance on the lease since you don’t own the asset. To your point the GAP insurance is basically baked into the lease (one pay or normal lease).
Thanks - this is all super helpful. I thought I knew quite a bit about leasing, at least compared to the average consumer - but these past few days have taught me so much more. Definitely going to help me in my future deals especially when handling my family & friends money. Everything you noted makes total sense.
Yeah he’s super uninterested in the car buying process. His 2017 used alfa romeo giulia quadrifoglio that he bought back in 2019, which only had 8k miles - he didn’t even negotiate on. He hates the process of negotiating because he hates capitalism lol. IDK - I don’t try to change his opinion of that. He’s of course super happy I did all of this for him, and I am too since I learned a lot.
I was happy to help because it’s honestly fun for me, and I want to get better deals as I continue to lease my own cars.
If you feel your time is wasted then why reply? I only made that note so people knew I was self aware. My friend doesn’t care it’s over MSRP.
Everyone elses advice was generous and helpful to me, and the above thread helped me convince my friend to finance his car instead of lease it (which as noted in your reference, was a bad idea). Again, thanks to this community.
So that alone is a time not wasted achievement I’d say.
My follow up comment was so I could continue to learn how to compare the nuances of lease vs buy because I was over complicating it and confusing myself, which the kind commenters helped me with.
You’re not their target market. Some of the best performance cars in history haven’t been German. Americans in todays age are brand obsessed. They’d rather drive a 9 year old 200k mile 3 series than a new Kia.
The CTR isn’t my cup of tea, not because its a Honda though.
Take a chill pill my guy. You didn’t have to read his write up. Why are so many of you so uptight lately.
Whether we like it or not, this car is actually a very rare car perhaps worthy of MSRP markup. Last 2 years we’ve been seeing markups on cars like a Prius. At least hes got something thats a bit of a unicornn on the road.
I’m not quite a “today’s age” person, but I sure as heck would rather drive the Bimmer. Not own one mind you, but definitely the drive is leaps above a new Kia
The lease price for this Civic will most likely be around the Germans. If it was up to me for leasing wouldn’t you want more for your money. Honda only has reliabilty but why would you care about that when leasing. I assume the person that drive this care about speed. Your right this is not my cup of tea I prefer luxury.
70k seems outrageous but maybe 5K over MSRP? My local dealer sold an Integra A spec with like 15k ADM when it came out.
Like I said, it’s a different target market. No German car is going to bring back memories of me hanging out at Asian strip malls with all those modded Civics and Integras and I have had a few 3 series lol.
Some posters here get extremely angry and edgy for no reason. You may say you like certain make and model, or that certain lease option on it may exist, and you will have a baseball bat swinging bunch run at you ,screaming, ready to beat you to pulp so you would shut up and never talk about cars again. Strange bunch, indeed.
And I also find it very suspicious, as if they are hiding something or afraid something will get exposed. May be just some bored dealers/brokers, angry that they can’t sell cars and thinking that we are the culprits.
