Getting a new car: lease vs. own

[LisaH]

There is another thread going on now where SDKath's leased car got totaled by a Lexus staff (Sorry Kath!). It sounds like it would turn out OK for her in the end. I am kind of in the market for a new car currently. I always bought and never considered lease before. SDKath's post makes me think that maybe I should explore leasing a bit. So, tuggers, please educate me - what are the benefits and drawbacks of leasing vs. buying?

 

[Ken555]

My first question... Can you deduct the payments?

 

[LisaH]

My first question... Can you deduct the payments?

Unfortunately, I don't think so (I have a regular salary job). I used to work for a company that gave me a monthly car allowance but not with the current company... I am not even sure if that would allow me to deduct the car payments?

 

[RX8]

There is another thread going on now where SDKath's leased car got totaled by a Lexus staff (Sorry Kath!). It sounds like it would turn out OK for her in the end. I am kind of in the market for a new car currently. I always bought and never considered lease before. SDKath's post makes me think that maybe I should explore leasing a bit. So, tuggers, please educate me - what are the benefits and drawbacks of leasing vs. buying?

Buying: PROS - you own it (at least after you pay off the loan you do); no worries about mileage or wear and tear; most cost effective way to own a car (provided you keep it 10+ years and don't trade every 3 years); simple and straight forward transaction; low interest rates. CONS - highler initial cash outlay (if paying cash); once you are out of the warranty, repairs on you; you miss out on new technology; new car smell gone after a couple of years; IF you decide to trade at any point, you assume the risk for the value of the vehicle (and depending on when you trade, you could owe more than it is worth).

Leasing: PROS - drive a new car every two or three years; factory warranty for most, if not all, of the lease term, low cost upfront (usually only first payment and registration due at signing); take advantage of new technology as they are introduced; payments generally lower than buying; guaranteed purchase option at the end of the lease; you assume no risk for value of the vehicle at the end of the lease (if your purchase option is LESS than value of vehicle, you can purchase and realize the equity. If purchase option is MORE than value of the vehicle, you can simply turn it back in and walk away); new car smell; envious neighbors; no worry about "negative equity" when your lease is up; usually strong manufacturer subvened lease programs; lots of options (terms and mileage allowance). CONS - continual car payment (assuming you keep leasing); wear/tear and mileage concerns (unless you purchase the vehicle at lease end); You are obligated to the term of the lease (unless you work a deal with the dealer to get out of the lease early, usually by leasing another vehicle).

 

[Mosca]

Is your decision financial, or emotional?

 

[ronparise]

Is your decision financial, or emotional?

Good question!

I may be the wrong guy to ask about new cars (my newest car has 150000 miles on it)

If the decision is an emotional one...Id buy a dog.

I wouldnt buy (or lease) a new car any more than Id buy a timeshare from a developer...The immediate depreciation is what makes me emotional...and not in a good way

A late model used car with 40-50k miles on it would be my first choice.

 

[LisaH]

Is your decision financial, or emotional?

Trying to figure out if there is a financial advantage to lease a car. We have not bought a used car in 20 some years so I am not sure if I want to start now. A little more info, the current car I am driving is 8 year old and we tend to keep the car for a minimum of 5 years. Of course if it makes financial sense, I would like to drive a new car sooner than that.

 

[antjmar]

Trying to figure out if there is a financial advantage to lease a car. We have not bought a used car in 20 some years so I am not sure if I want to start now. A little more info, the current car I am driving is 8 year old and we tend to keep the car for a minimum of 5 years. Of course if it makes financial sense, I would like to drive a new car sooner than that.

new cars are more reliable then ever! 8 years and 100K miles is not a big deal for most cars. In fact some manufactures (eg Toyota) offer manufacturer extended warranties that will cover prctically everything (other than normal maintenace items) for 8 years. Leasing probably not the best option finiancially if you plan to keep the car 5 years and cant write a lease off on your taxes.

 

[Blues]

A late model used car with 40-50k miles on it would be my first choice.

I see this comment from a lot of east-coasters and midwesterners. I grew up in the midwest, in the Chicago area, and thought the same way when I lived there.

I moved out to the west coast 30-some years ago, and discovered an interesting phenomenon. Used cars out here keep their value, and go for an incredible amount of money! It makes sense in a way. With no salt on the roads to corrode them, and mild weather to keep them in good shape, used cars here should be a little higher than elsewhere. But the extent to which it's true is amazing.

I generally use the following metric. I pro-rate a used car value based on a 150K mile lifetime. Yes, a good car will last longer, but I use 150K, because after that maintenance costs start to eat up the advantage you have in not paying for depreciation. Anyway, by my metric, your example used car with 50K miles should sell for 2/3 the price of new. Any more than that, and you're paying more per mile for the used car than you will for the new.

And you know what? In 30 years of living out here, by my metric, new cars have always been cheaper per mile than used. That is to say, in California, your 50K used car will sell for 80% or more of the new price, rather than 67%.

LisaH lives in the SF Bay area, so I'd expect that she'd find the same phenomenon. So, while I would have agreed with you when I lived in the midwest, Ron, I'm not sure it's good advice for Lisa.

BTW, I don't have a decent answer to the original question. Personally, I buy new and keep the car for at least 150K miles. Currently DW & I own two cars, with 100K and 200K miles respectively. If your usage pattern is like that, then buying is most cost effective. If you want a new car every 3-5 years, leasing can make sense. YMMV.

-Bob

 

[geekette]

"envious neighbors" as a Pro for leasing? I think that needs to be stripped out of there as I can't imagine that being a real consideration for most people. I really don't give a whop finkle what the neighbors think about anything I have/do and I imagine many here are the same.

Upfront, I'm not a fan of leasing because I want to own assets and escape payments. I also don't usually see "low" down payment on lease? When buying you can generally put down what you want, even 0.

Last week I traded in my bought-new "youngish" 1999 @ 118k miles for 4 yo with 45k miles. 10 years newer, ended up financing same amt as I did back in late 98. Someone else paid the upfront load for the first set of miles, I paid far less for the next 100k. It's a great engine, and solid car, I have no doubt that I can get at least that out of her. I expect to keep her 10 years.

I hadn't known if I wanted new or used but let research and test drives sort it out for me. I ended up spending LESS THAN HALF of what the new model cost and it does smell new and does have 12 mo warranty (always opportunity to buy extended, but I never do...)

For me, it boils down to 2 things:

MONEY and confidence in the car. I will spend more to get more confidence, or I can spend less if confidence is high in a lower priced vehicle. I don't buy into "you are what you drive" nor do I try to impress anyone. I am a lifelong GMer and fell in love with Buick Dynaride 20 years ago, this is my 3rd Buick now and friends tease me about my Old Lady Cars but not when they are in it enjoying the smooth quiet ride. I bought new last time because diff bet new vs used was $2k.

There are many attractive components to leasing, except the part about never getting out of car payments. I enjoyed at least 8 years without payments and without high repair bills. Also, the cost of registering and insuring her kept on dropping. I don't think that has been mentioned - newer cars are simply "administrativelY" more expensive. On a perpetual lease cycle, you will never really see those costs decrease.

I traded her right before that endless cycle of mysterious leaks, one fouled sensor leads to another ... etc, was ready to set in so never had any High repair bills. Pretty good for more than 13 years. I figured that I had slightly over $1000/year in "car costs" based on purchase price + repairs (not maint items). Seems like a bargain to me.

Leasing, I don't like the mileage limits nor that it isn't really My Car. Sure, it's nice for someone else to be on the hook for major repairs, but those shouldn't be necessary on a new car anyway. I find that I do not need a new car and have only had one, what I just traded. I'm not sure what happens if you total a lease car and are at fault? Do you have to pay to break the lease, forced to buy it...? details I don't know but would want to know.

Some of the most worry-free components about leasing are very appealling, but it's unlikely that I will ever be able to break free from my desire to own what I use in order to have "free usage". I also am not conditioned to change cars except when it's actually necessary. While a car is indeed a Need for me, swapping to another car remains A Want and I don't give in to those a lot.

I feel spoiled with my new-to-me 4 yo but it won't be long before she's Just A Car. 10 years newer than what I had, but still, she's transport. Suits me great but plenty of people would never want a Buick Lucerne and that is just plain lucky for me.

 

[Elan]

I generally use the following metric. I pro-rate a used car value based on a 150K mile lifetime. Yes, a good car will last longer, but I use 150K, because after that maintenance costs start to eat up the advantage you have in not paying for depreciation. Anyway, by my metric, your example used car with 50K miles should sell for 2/3 the price of new. Any more than that, and you're paying more per mile for the used car than you will for the new.

And you know what? In 30 years of living out here, by my metric, new cars have always been cheaper per mile than used. That is to say, in California, your 50K used car will sell for 80% or more of the new price, rather than 67%.


-Bob

I typically use 10% per year depreciation for my used vs new comparisons. Seems to produce pretty decent results (assuming 12-15K miles per year).

 

[DazedandConfused]

Interesting as my daughter needed a new car.

We started out looking for a used toyota Corolla or camry, but decided on a lease takeover.

We used leasetrader . com and found a 2011 Corolla with 28 months to go (out of 36) and paid no money down and now pay $199/mo

 

[PigsDad]

"envious neighbors" as a Pro for leasing? I think that needs to be stripped out of there as I can't imagine that being a real consideration for most people.

I am often surprised at how common this is. Example: my next door neighbors. He is a police officer, she doesn't work outside the home. She just "has to have" a new SUV every two years (lease), and she just got a Volvo a few months ago -- at least a $40K+ vehicle!

Their house just went up for sale, and I was talking to the husband last weekend over the fence. They are selling to downsize and "knock a couple hundred off the mortgage payment" so it is more manageable and hopefully pay off some credit card debt. What the heck are they doing driving a $40K+ vehicle when they are having trouble making mortgage payments, not to mention the CC debt!?! Unbelievable!

There are many attractive components to leasing, except the part about never getting out of car payments. I enjoyed at least 8 years without payments and without high repair bills. Also, the cost of registering and insuring her kept on dropping. I don't think that has been mentioned - newer cars are simply "administrativelY" more expensive. On a perpetual lease cycle, you will never really see those costs decrease.

Excellent point. Especially if you live in a state where the annual registration cost is based on value of the vehicle (as it is here in Colorado). I bought a new vehicle in 2009, and the initial year's registration was over $800. This year it was only about $400. My wife's 8-year-old car was less than $100.

Put me squarely in the "buy/own" camp, but then again, I view a vehicle as little more than a mode of transportation, and certainly not an extension of "who I am" like so many seem to treat it.

Kurt

 

[Ken555]

Interesting as my daughter needed a new car.

We started out looking for a used toyota Corolla or camry, but decided on a lease takeover.

We used leasetrader . com and found a 2011 Corolla with 28 months to go (out of 36) and paid no money down and now pay $199/mo

This is a great suggestion, along with swapalease.com

 

[ronparise]

"envious neighbors" as a Pro for leasing? I think that needs to be stripped out of there as I can't imagine that being a real consideration for most people. I really don't give a whop finkle what the neighbors think about anything I have/do and I imagine many here are the same.

It seems to me thats the only argument for buying a new car...nothing else makes sense

 

[ronparise]

I see this comment from a lot of east-coasters and midwesterners. I grew up in the midwest, in the Chicago area, and thought the same way when I lived there.

I moved out to the west coast 30-some years ago, and discovered an interesting phenomenon. Used cars out here keep their value, and go for an incredible amount of money! It makes sense in a way. With no salt on the roads to corrode them, and mild weather to keep them in good shape, used cars here should be a little higher than elsewhere. But the extent to which it's true is amazing.

I generally use the following metric. I pro-rate a used car value based on a 150K mile lifetime. Yes, a good car will last longer, but I use 150K, because after that maintenance costs start to eat up the advantage you have in not paying for depreciation. Anyway, by my metric, your example used car with 50K miles should sell for 2/3 the price of new. Any more than that, and you're paying more per mile for the used car than you will for the new.

And you know what? In 30 years of living out here, by my metric, new cars have always been cheaper per mile than used. That is to say, in California, your 50K used car will sell for 80% or more of the new price, rather than 67%.

LisaH lives in the SF Bay area, so I'd expect that she'd find the same phenomenon. So, while I would have agreed with you when I lived in the midwest, Ron, I'm not sure it's good advice for Lisa.

BTW, I don't have a decent answer to the original question. Personally, I buy new and keep the car for at least 150K miles. Currently DW & I own two cars, with 100K and 200K miles respectively. If your usage pattern is like that, then buying is most cost effective. If you want a new car every 3-5 years, leasing can make sense. YMMV.

-Bob

I am an east coaster and I knew California people were nuts...you just confirmed it...I cant imagine paying that much for a used car

I see a business opportunity buying used in Florida (no snow here either) and selling in California

 

[Ken555]

Every time this topic comes up on TUG I see the same opinions. At least we're consistent!

Leasing is popular for many reasons, including lower payments and more frequent opportunity to drive a newer car. It's not for everyone.

I've leased several cars and only once turned the car back in at the end of the lease, typically I buy the car at end of lease. I buy it because I've been able to negotiate the buyout at the end of the lease, and even on one occasion the bank offered excellent rates to provide me with a loan to buy the car (which was much less than any alternative at that time). I turned in a car last August because BMW wasn't negotiating, and the buyout was more than the car was worth (but I wanted to buy it). I then negotiated a fantastic lease on another European car instead.

I lease because it's worth the minor extra I may be spending to have a car always under warranty, as I simply am intolerant of taking a work day to get my car fixed and have to pay for the repair, as well. And, I am able to deduct most, if not all, of the expenses. In the past, I've bought an extended warranty with the car at buyout (it becomes a 'certified' car with extended manufactuer warranty) which provides the coverage I want. And, with the notable exception of my last lease, I tend to keep cars 6-7 years before replacement.

I think leasing vs buying is a really simple decision at this point for me. However, the moment I am unable to deduct most of the expenses will be the moment I buy an off-lease 3 year old car with an extended warranty, and stop getting new cars.

 

[geekette]

...She just "has to have" a new SUV every two years (lease), and she just got a Volvo a few months ago -- at least a $40K+ vehicle!
...What the heck are they doing driving a $40K+ vehicle when they are having trouble making mortgage payments, not to mention the CC debt!?! Unbelievable!

I guess Conspicuous Consumption is still alive and well!! Sad. If they had the money to waste, hey, go wild!!!

I can only think that maybe wifey *requires* new SUVs to help her cope with the ever-present fear that hubs ain't coming home "cuz of a work thing". Preferable to her developing a different kind of addiction but I'm betting that maybe she is a big fashion-spender as well... thus, enormous cc debt.

What I want to know is who are the Joneses and why should I want to keep up with them???

---

Returning to work parking lot after lunch: I forgot how many "Me, Too!" folks are here. Black Beemers everywhere, waaaay disproportionate to # employees. I think it is no coincidence that the owner of this firm loves black beemers. Odd, I didn't think that kind of thing was contagious, but it seems to be here! I maybe have not been here long enuf to detect SuckUpIsm (nor catch The Beemer Bug) but parking lot seems to indicate its presence.

Meanwhile, my red Buick is one of 4 red cars but I see no other Buicks. I like to park beside the lime green mustang or yellow car with racing stripe.

 

[Ken555]

my red Buick is one of 4 red cars but I see no other Buicks.

This may have something to do with Buick having abysmal sales for years more than anything else.

My folks and grandparents drove Buicks when I was growing up, and my first car was a Buick (which I fondly refer to as 'the boat'). Only the new Buicks in the last year or two could I even consider as potential cars for me...the last 25+ years of Buicks have been terrible, in my opinion.

 

[RX8]

"envious neighbors" as a Pro for leasing?

That was tongue in cheek...

Upfront, I'm not a fan of leasing because I want to own assets and escape payments.

Many people say the same thing - they want to "own" but they end up financing and trading it in before they ever pay it off - is that really "owning"?

I also don't usually see "low" down payment on lease? When buying you can generally put down what you want, even 0.

You can put nothing down out of pocket on a lease as well

Last week I traded in my bought-new "youngish" 1999 @ 118k miles for 4 yo with 45k miles. 10 years newer, ended up financing same amt as I did back in late 98. Someone else paid the upfront load for the first set of miles, I paid far less for the next 100k. It's a great engine, and solid car, I have no doubt that I can get at least that out of her. I expect to keep her 10 years.

For that reason, leasing just isn't for you. If you want to minimize cost of ownership, your way is the BEST way to accomplish that.

I'm not sure what happens if you total a lease car and are at fault? Do you have to pay to break the lease, forced to buy it...? details I don't know but would want to know.

Most leases come with "GAP" coverage. If a vehicle is a total loss, the lender will accept the insurance settlement as payment in full and the lease is closed out.



Leasing is simply an OPTION for some to consider. It is not to say it is the best or worst option - it all depends on the individual. I personally don't have a lease now but I have leased a couple of times in the past.

Final thought - I think it was J Paul Getty who said "buy what appreciates and lease what depreciates"

 

[geekette]

It seems to me thats the only argument for buying a new car...nothing else makes sense

New car? Really? I bought a new car last time, when diff bet new and used was a sliver - why not be the only driver, know everything that happened to the vehicle, break it in well, etc.? long warranty begins when I sign.

I have many reasons for a new car, none for a lease.

This time around, diff bet new vs used was larger, I bought used.

I can assure you that my Buick purchases are never to impress someone else, they have everything to do with my wallet and practicality.

 

[geekette]

This may have something to do with Buick having abysmal sales for years more than anything else.

My folks and grandparents drove Buicks when I was growing up, and my first car was a Buick (which I fondly refer to as 'the boat'). Only the new Buicks in the last year or two could I even consider as potential cars for me...the last 25+ years of Buicks have been terrible, in my opinion.

The ones I've had the last 20 years have not been terrible.

GM has taken a beating the past few years, for sure, and I agree that market value would reflect that. OK by me, I got what I need at a price I'm happy with. GMs have been reliable quality for me all my life. For me, if it weren't Buicks, it'd be Chevy's (nearing a sale on my 93 Chevy conversion van).

Clearly I will not be impressing my neighbors, and likely no one else's eitehr ...

 

[nkldavy]

Just Googled Whop Finkle ...

... and this thread shows up.
It's a "do loop" and I haven't seen one of those in decades.
I went to Wikipedia, and it's not there either.
Is Wyndham giving any out at their updates

Uncle Davey

 

[Mosca]

Financing, leasing, and paying cash are all financial tools, and you should use the tool that fits the "job"... meaning, what is your goal?

Myself, I like a new car every few years. I lease. Sure, I set some parameters, but regardless, it's what makes me happy. I'd rather have a car payment and money in the bank, especially when the cost of use of funds is so low and residual values are artificially high. I'd rather have 3 years of payments and turn the car in, than 5 or 6 years of payments and own an old car and have to trade it or keep it.

That's what suits ME.

Is that the answer for everyone? Of course not. What I do would probably drive someone else crazy. Just like what they do would drive me crazy.

If you like to change cars frequently, and often find yourself trading before the previous car is paid off, consider leasing. If you keep your cars, or dislike auto debt, don't consider leasing.

If you consider leasing, and have a trade, you might want to consider taking cash for the trade rather than using it to reduce the lease payments.

If you do decide to lease, it is often advantageous to stick with one manufacturer; the deals to re-lease can be outrageously good.

 

[RX8]

... and this thread shows up.
It's a "do loop" and I haven't seen one of those in decades.
I went to Wikipedia, and it's not there either.
Is Wyndham giving any out at their updates

Uncle Davey

There are only THREE references to WHOP FINKLE in the whole internet universe. One is from our Geekette on TUG and the other two are from a cruise board. That poster was retireewannabee. Retireewannabee MUST be Geekeete, is that right? It can't be a coincidence!

Geekette, do please share the meaning of Whop Finkle!