I realize there are other threads here on leasing vs buying (most closed) but I’m more interested in the equity curve, especially now with the hot used car market.
In my experience, even before the current used equity environment, after about 2-3 years, equity almost matches (and many times exceeds) the lease buyout amount.
For finance, because more interest is charged upfront, if you do a zero down finance, the break even point seems to be further out (depending on make/model of course). This changes if you are able to do a zero interest finance as the entire payment decreases the “buyout” amount.
I’ve never done the math but which scenario is more favorable to an equity buyout if you consider similar payment/MF/interest?
Seems lease hacks like the Frontier aren’t good for equity buyouts because of the high residual, but are typical residuals/MFs more advantageous than low interest finances? And these Credit Union balloon payment plans (PaySaver?) add another option if you can get low interest.
Find a car with a ton of incentives such as the 4XE
Lease it, flip it.
If you are planning to hold to sell later, well you might end up with a turd. Don’t count on RV’s hold value after the carpocalypse ends or in some cases like INFINITI, hold it DURING the carpocalypse.
If you look at the residual vs ACV of 2016s in 2019s, I think you’d find it’s as short a list as what currently leases well.
Your third paragraph (which I can’t quote bc Discourse hates my phone) is mistaking mortgage amortization for how auto loans are amortized: the interest isn’t front-loaded, it’s peanut-buttered.
Maybe if you do the math, you’ll have a better answer to your question? Or a less hypothetical question?
And yes, this is probably a lazy post but the dynamics of the used car pricing and this equity has changed a few things, including getting good lease hacks as was the focus in another thread.
Not everyone wants a 4xe or Frontier.
I just recently leased a vehicle and it’s only 3 years but something might come up where I may want to exit early. We have another car need coming up and we are trying to figure out lease/finance/balloon flexibility as we leased almost all our vehicles.
Started doing some research because I don’t finance cars usually and it seems like auto loans do amortize with more interest on the front end and less principal reduction.
This topic came up in another thread:
And another member said the same thing I see on auto loan calculators.
Well, that’s the pros of finance… less fees… but there is upfront taxes.
With lease deals being poor nowadays… I’m more open to finance (although interest rates are much higher now than when I started this thread).
I was able to finance a car last year for 0% interest rate so that was sort of a no-brainer (also wanted to capture the purchase EV credit).
On the car I just got recently… I was having a hard time deciding between lease or finance. Dollar difference in payment was not that much, length of loan was longer than the lease of course… but I was trying to calc at a 3-year time… what would the balance be on the lease vs. the loan.
Well that’s the million dollar question, are you better at computing RV in 3 years than the Banks. For the last 18 months the banks have been losing the RV game hand over fist…but now they might be winning that game again (Aka Buying is better). But 2 years ago no one could predict the shortages that caused this.
Let’s be a bit more proper with our terminology to clear things up, since “front loaded” can be interpreted different ways.
With car loans, you generally have either simple interest or precomputed interest.
Most loans are simple interest. Each period, the actual principal is used to calculate interest. Because the monthly payment is fixed, when the principal is higher, the interest is higher, so more of your payment goes to interest and less to principal. Some people refer to this as “front loaded” because your earlier payments are made up of more interest.
In some situations, loans use precomputed interest. In these cases, the entire interest due if the loan is held to term is calculated and added to the principal. The monthly payment is then calculated by taking that new, higher principal and dividing by the term. Some people refer to this as “front loaded” because youre adding all the interest in up front, however, each month the amount going to interest is the same. In this case, even if you pay the loan off early, you still pay interest for the entire, precomputed term. These loans are usually limited to shorter term and/or poor credit loans.
“Front loaded” can be unclear as to which is being referred to.
