My questions below may seem basic to the super experienced members of this forum, but please bare with me as I try to explain my rationale. I am hoping for guidance from the members so I can make an informed decision in today’s high interest rate environment when deciding between leasing/financing/cash-buying a car. I hope this is the right topic to post my question under. If not, please tell me and I will re-post.
Lets assume:
We are considering a comparatively high end car, something like a Mercedes GLC 300 Coupe AWD, MSRP 70,000.
Cap cost = MSRP (yes, lets just go along with this for now)
Tier 1 credit
I want to dispose off the car in 3 years time (I get bored quickly)
I am in NJ/NY tristate area
Now I compare the 3 options above.
Cash Buying:
I pay the dealer 70,000 USD, drive the car off the lot.
Pros - zero interest
Cons - I am now on the hook for the car, assume the risk of the car not holding sufficient value at the end of 3 years (or getting totaled, accidents, etc), lose interest in the bank on the 70k (~4.5% if I would have put the same amount in a CD at Marcus)
Financing:
I get a car loan, approx interest rate 6%
Pros - Slightly cheaper than leasing the car
Cons - I am now on the hook for the car, assume the risk of the car not holding sufficient value at the end of 3 years (or getting totaled, accidents, etc) and I pay 6% interest over the life of the loan. My own money continues to earn interest in the bank @4.5%
Leasing:
I lease the car, Tier 1 MF equivalent to 6.5% annual interest rate, 36 month / 10K lease, $0 DAS
Pros - After 3 years, I drive the car back to the dealer, done. Not a big deal in case car gets in an accident / totaled. My money continues to earn interest in the bank @4.5%
Cons - I pay 6.5% interest for the lease
Comparing the options above, it seems Cash buying v/s financing - cash buying is the clear winner. No need to pay interest if not needed.
Leasing v/s cash buying - Are we really only talking about 2% extra interest? Leasing gives more the extra flexibility and less risk. What am I missing here?
People see the whole mf x 2400 = interest rate and think that means its the same cost as a loan at that interest rate, totally ignoring the average value the interest applied against. It isnt that cut and dry.
The other bing things to factor in here are application of sales tax, additional lease fees (acq and disposition), and opportunity to capture equity.
I dont know the NJ rules, but in FL, we only pay the sales tax for the leasing portion every month, so that is a big saving esp if we are going to sell the car early. So we can avoid the whole sales tax situation. Plus there can be extra lease incentive so that can offset the lease acquisition fee.
Leasing is like buying a put option. It can protect you if the actual value of car is lower than RV at the end of the lease term. In short, acquisition fee is like a premium that you are paying to buy the rights to sell the car back to the manufacture at the RV regardless the market value of the car. Regarding your decision for lease/finance, so just run your numbers to see the total cost of ownership, and the potential risk if the actual market value goes lower than RV.
Thanks a lot for your input here! Could you please expand a bit? What is the best way to think about MF? What is the principle its applied against? Is the MF applied against per lease payment, and hence one should think about it as a staggered outflow of money v/s a one time payment?
The best way i can think of explaning the difference here is to pretend you purchased the vehicle.
Lets say you have two loans, both at 5%. One loan is a 36 month loan. The other is a 72 month loan.
How much more interest do you pay in the first year on 72 month loan compared to the 36 month loan, even though theyre the same apr?
With a lease, your rent charge is based on the average value between the adjusted cap cost and the rv. That can be a very flat sloped depreciation curve. For example, i just leased a grand cherokee, where the adjusted cap cost was about 76% of msrp and rv was 60% on a 24 month lease. Basically, to have a loan have the same interest cost over the first 2 years as the rent charge on the lease, i would have to do a 10 year loan at the same interest rate. If i were to purchase and do a more normal 60 month loan, it would take a much higher interest rate to generate the same interest expense.
You should search the forum and see which posters have posted MMR values in other threads. Ask them for the MMR on this vehicle. Qualitative discussion is no substitute for numbers.
Btw the interest earned is taxed right? So need to use the effective or net APR you’d be getting at Marcus.
I clicked on almost every box on the builder and got up to 68.5, so I guess it’s possible
But you allude to a good point. Options beyond the “usual” don’t have good resale value. So a $60k GLC300 coupe might have similar resale to a $68k one. If so, that $8k + tax went down the drain.
Definitely something to keep in mind when considering ownership vs leasing.
Our local dealer has an ugly, base model GLC for people to test drive. It smells like pot inside. They just check your driver’s license and you can take it for a spin. I don’t think they take GLC buyers seriously. In the last years or so, I have seen about half a dozen GLCs in our neighborhood being replaced by Teslas. The last one got replaced by a small Porsche SUV
Is that the reason why I am not seeing much chatter about GLC Coupe leases in recent months? Maybe its a trash model to lease? Cost-wise, it is close to the Porsche Macan base model (within 5K or so)
There is an option 4 if you are looking at the best deal. You abandon acquiring a specific vehicle and instead look at a model in the same class is leasing best at the time you want to acquire. So if MB has trash leases on the model you want, would the same type of vehicle from Volvo/Lexus/Audi/BMW have a screaming lease deal that month - either through additional dealer cash/rebates/reduced MF and or dealer ability to discount heavily.
