Author Topic: Car leasing is back with a vengeance  (Read 10432 times)

superhero

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Car leasing is back with a vengeance
« on: July 22, 2013, 01:54:33 PM »
Apparently leases are on the rise. This article here (http://features.blogs.fortune.cnn.com/2013/07/22/car-leasing-is-back-with-a-vengeance/?iid=HP_Highlight) claims 25% of car buyers could lease this year.

The reasons cited about young people are really discouraging:
Many younger buyers have been attracted by lease deals because they can more easily understand a monthly payment and the simplicity of returning a vehicle after a set period of time -- as opposed to a fixed price that is complicated by a down payment and several financing options.

It's just too easy for the dealerships (and rent-to-own places) to suck people into the "monthly payment" aspect. We really need to teach better finance in schools :(

SnackDog

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Re: Car leasing is back with a vengeance
« Reply #1 on: July 22, 2013, 03:38:59 PM »
Many people buy a new car every few years. This may not be frugal, but leasing is the most frugal way to do it. As long as you keep the car in good condition, all the downside risk is to the lessor.

dragoncar

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Re: Car leasing is back with a vengeance
« Reply #2 on: July 22, 2013, 05:18:54 PM »
Many people buy a new car every few years. This may not be frugal, but leasing is the most frugal way to do it. As long as you keep the car in good condition, all the downside risk is to the lessor.

What kind of downside risk?

cdub

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Re: Car leasing is back with a vengeance
« Reply #3 on: July 22, 2013, 06:08:51 PM »
If you buy a car and it depreciates like heckballs and have little to trade in for.

But leasing is stupid... there's a a reason Dave Ramsey calls it a Fleece (as in Baaaaaa)

Forcus

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Re: Car leasing is back with a vengeance
« Reply #4 on: July 23, 2013, 11:09:40 AM »
I disagree about it being stupid... IF you do your homework and it makes sense. I did before, and found that leasing was a touch more economical in my situation consider the cost of ownership of the car, purchase price, resale value, etc. It can make sense. On the other hand if you just blindly go in to it, then yeah.. not a good deal. I didn't end up leasing for a couple reasons but it can work if you are smart about it (now if you are ignorant and just go lease something because it feels right, that is stupid).

Jamesqf

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Re: Car leasing is back with a vengeance
« Reply #5 on: July 23, 2013, 11:52:34 AM »
The stupid part is getting a brand-new car.  Buy or lease really seems to make very little difference, especially since most people seem to buy on credit.

Albert

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Re: Car leasing is back with a vengeance
« Reply #6 on: July 23, 2013, 02:20:20 PM »
Someone has to buy new cars. Otherwise there won't be a supply of old ones for all of you...

cdub

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Re: Car leasing is back with a vengeance
« Reply #7 on: July 23, 2013, 03:28:39 PM »
I disagree about it being stupid... IF you do your homework and it makes sense.

No it's still stupid. Buying a new car is stupid... you're throwing away thousands and thousands of dollars the second you drive it off of the lot.

And you're signing yourself up to forever have a car payment - so yes it's stupid.

Car payments should not be normal...

Of course I've only recently seen the light on this. Our last car purchase was used - but the one before that was new which I still own - the Nissan Leaf - bought it the second it came out in 2011... probably for $25k after incentives and paid it of in less than 6 months.

I'm going to drive that car forever... and then replace the battery in 10 years so it becomes as good as new.

Christof

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Re: Car leasing is back with a vengeance
« Reply #8 on: July 23, 2013, 03:35:36 PM »
Someone has to buy new cars. Otherwise there won't be a supply of old ones for all of you...

Nope. If nobody bought a new car car, prices for used cars would simply increase till they reach the price of a new car. It is not about buying used, it is about buying a cheap car. It just happens to be that used cars are a lot cheaper than new cars right now.

Undecided

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Re: Car leasing is back with a vengeance
« Reply #9 on: July 23, 2013, 03:40:20 PM »
I disagree about it being stupid... IF you do your homework and it makes sense.

No it's still stupid. Buying a new car is stupid...

Of course I've only recently seen the light on this.

They say that ex-smokers are the hardest on smokers.

cdub

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Re: Car leasing is back with a vengeance
« Reply #10 on: July 23, 2013, 03:41:59 PM »
I disagree about it being stupid... IF you do your homework and it makes sense.

No it's still stupid. Buying a new car is stupid...

Of course I've only recently seen the light on this.

They say that ex-smokers are the hardest on smokers.

And this is supposed to mean what exactly?

Undecided

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Re: Car leasing is back with a vengeance
« Reply #11 on: July 23, 2013, 03:46:54 PM »
Someone has to buy new cars. Otherwise there won't be a supply of old ones for all of you...

Nope. If nobody bought a new car car, prices for used cars would simply increase till they reach the price of a new car. It is not about buying used, it is about buying a cheap car. It just happens to be that used cars are a lot cheaper than new cars right now.

Regardless of the effect on the price of used cars, ultimately Albert has to be right (until the auto makers figure out how to make used cars?). And, if anything, it's probably been more plausible to buy a new car over the past couple of years than at most times. While not a complete picture, consider, for example, http://www.forbes.com/sites/jimgorzelany/2013/02/14/used-car-prices-stay-high-heres-where-to-find-the-best-deals/

Undecided

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Re: Car leasing is back with a vengeance
« Reply #12 on: July 23, 2013, 03:52:54 PM »
I disagree about it being stupid... IF you do your homework and it makes sense.

No it's still stupid. Buying a new car is stupid...

Of course I've only recently seen the light on this.

They say that ex-smokers are the hardest on smokers.

And this is supposed to mean what exactly?

You had one set of values/preferences/priorities until "recently," but now, anyone with your prior mindset is "stupid." Doesn't that sound excessively judgmental? You do know it's ok for others to make their own choices, for their own reasons, right? That they may have different priorities or make different decisions doesn't make them "stupid." If you think that they don't understand some relevant factual element, you might bemoan their ignorance, but I don't think that's what you've said here.

cdub

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Re: Car leasing is back with a vengeance
« Reply #13 on: July 23, 2013, 04:00:14 PM »
Well, as a correction, I have always been against car leasing - because I feel that it is "stupid" to always have a car payment.

I have, until recently, only bought new cars. This changed probably around 2 years ago when I discovered Dave Ramsey and more recently this blog.

I didn't call him "stupid" - I was saying car leasing is "stupid"... It's a huge waste of money.

http://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/


SnackDog

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Re: Car leasing is back with a vengeance
« Reply #14 on: July 23, 2013, 04:09:39 PM »
Many people buy a new car every few years. This may not be frugal, but leasing is the most frugal way to do it. As long as you keep the car in good condition, all the downside risk is to the lessor.

What kind of downside risk?

If the car is worth more than the estimated residual at lease end, sell it and pocket the difference. If it worse less, hand the keys back to the dealer and it is his problem. You can't lose.  And in many states leasing can save you a fortune on sales tax over buying.

Jamesqf

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Re: Car leasing is back with a vengeance
« Reply #15 on: July 23, 2013, 07:08:47 PM »
Someone has to buy new cars. Otherwise there won't be a supply of old ones for all of you...

And?  I don't think I've ever claimed that there is not a sufficiency - nay, an excess! - of stupid people in this world.  I thought we here were supposed to be about sharing ways to be not stupid, at least in financial matters.

Christof

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Re: Car leasing is back with a vengeance
« Reply #16 on: July 24, 2013, 01:10:30 AM »
If the car is worth more than the estimated residual at lease end, sell it and pocket the difference. If it worse less, hand the keys back to the dealer and it is his problem. You can't lose.  And in many states leasing can save you a fortune on sales tax over buying.

Leasing contracts in the US seem to very different from those in Germany. Here we have a number of ways to lose on leasing:

You agree on a maximum mileage that you drive during your leasing rate. This mileage directly determines the leasing rate and should be kept as close to the expected mileage as possible. If it's lower - as I've seen with a number  of colleagues - you have a car that you still pay a leasing rate for but can't use.

The leasing contract here includes the state of the car upon returning. Consequently, the leasing company searches the car intensively for scratches, dents, spills on the seat to determine the current resale value. The difference between the agreed value and the actual value is owed, too. You basically have a rental car without rental car insurances.

Here you can't sell the car while you are still leasing. If you think it's valued higher you have to pay the agreed price and then try to recover your expenses by selling your car. The risk is your's, though.

Albert

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Re: Car leasing is back with a vengeance
« Reply #17 on: July 24, 2013, 08:42:46 AM »
And?  I don't think I've ever claimed that there is not a sufficiency - nay, an excess! - of stupid people in this world.  I thought we here were supposed to be about sharing ways to be not stupid, at least in financial matters.

Yes and I wasn't criticising you, merely pointing out that this strategy wouldn't work if majority of people would decide to be frugal on this.

Forcus

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Re: Car leasing is back with a vengeance
« Reply #18 on: July 24, 2013, 10:27:19 AM »
I disagree about it being stupid... IF you do your homework and it makes sense.

No it's still stupid. Buying a new car is stupid... you're throwing away thousands and thousands of dollars the second you drive it off of the lot.

And you're signing yourself up to forever have a car payment - so yes it's stupid.

Car payments should not be normal...

I'll give you the benefit of the doubt because you are making a lot of assumptions.

To wit:

For my situation, for a 36 month time period, including fuel, insurance, maintenance, and depreciation:

2002 Focus ZX5 with 115k miles = $275/mo
2012 Focus S with 12k miles = $266/mo

So making the argument that everyone should drive a 10 year old $3k car is specious. It's the total cost of ownership that needs calculated, which is based on your individual circumstance and needs. It would actually cost me less to make payments on the 2012 Focus vs. living with my paid for 2002 Focus (why I chose not to is for other reasons).

Of course, this particular thread was about buying vs. leasing, both new cars. I can't say either one is smart or stupid - it depends on your situation. If you are a traveling salesman, putting 50k a year on cars, and your livelyhood and job stability depend on having an ultrareliable car, buying a beater that needs frequent repairs is stepping over dollars to pick up pennies. On the other hand, if you drive rarely, like once a week to go wherever, a new car in the garage (bought or leased) is a waste.

My wife has to drive 40 miles one way to work and her job is somewhat critical in terms of getting to work safely without car issues. So I put her in a newer car. My job can be done from home and worst case scenario she can drop me off on the way to work, so I drive an older car (still reliable). This wouldn't work for other people. Other people can take the bus. Other people have to buy a newer car because of their particular circumstances.

Additionally if you are not car savvy and no amount of effort will make you car savvy, you will likely get raked over the coals when you go for repairs. Trust me, older cars will bleed you dry if the above is the case and you are particularly unlucky. Again, not saying a new car is the solution but I always get this little facial tic when folks on here claim that a 3 cylinder Metro is God's divine invention and anyone who doesn't drive one, with 250k miles on it, is a fool (and should take the bus).

So in closing, buy an old car, buy a new car, take the bus, etc. The only thing that matters is you make a rational decision primarily driven by recognization of circumstances and needs (instead of wants). I usually get the mudflaps and floormats for a little extra though :)

Christof

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Re: Car leasing is back with a vengeance
« Reply #19 on: July 24, 2013, 10:35:35 AM »
For my situation, for a 36 month time period, including fuel, insurance, maintenance, and depreciation:

2002 Focus ZX5 with 115k miles = $275/mo
2012 Focus S with 12k miles = $266/mo

Can you break these numbers down into the categories you mentioned? I'm curious why a paid off car would be more expensive to operate. I assume that this is because maintenance cost is high, but without a break down that would only be guessing.

Forcus

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Re: Car leasing is back with a vengeance
« Reply #20 on: July 24, 2013, 12:15:48 PM »
For my situation, for a 36 month time period, including fuel, insurance, maintenance, and depreciation:

2002 Focus ZX5 with 115k miles = $275/mo
2012 Focus S with 12k miles = $266/mo

Can you break these numbers down into the categories you mentioned? I'm curious why a paid off car would be more expensive to operate. I assume that this is because maintenance cost is high, but without a break down that would only be guessing.

No problem, and to be sure, it surprised me too when I first did it.

I do have to qualify it though. I found an exceptional deal on the 2012 Focus from a private seller, and it is my personal belief that based on the price, and the prices of similar cars (used) with up to 50k miles, that I could essentially drive it free for up to 3 years because depreciation was essentially zero. This does NOT apply to new cars, and may not even apply to most cars, even relatively cheap, efficient ones. Additionally, and what throws it off for some people, is I counted the car as NOT paid for, and assumed I was purchasing it for the price I could sell it for. I had to do that for the apples to apples comparison and to understand the true opportunity cost.

Category ------- 02 Focus ------- 12 Focus
Est. MPG           28.96                36
Est. $/gal          $4.049              $4.049
Miles/mo           1000                 1000
Fuel $/mo         $139.80             $112.47
--------------------------------------
Start Mi.            115000             13700
End Mi.              151000             49700
Value Now          3500                12000
Value 36 Mo.       3000                11000
Mods.                 1500                 2000
Adj Mo. Pay        $55.56              $83.33   
--------------------------------------
Ins.                    $40                  $50
Maint.                 $40                  $20
=====================
Total:                 $275                $266



prodarwin

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Re: Car leasing is back with a vengeance
« Reply #21 on: July 24, 2013, 12:47:15 PM »
You must have gotten a smoking deal on that car.

That said, you don't have any sales tax there?  Highway use tax?  Personal Property tax?

Here, you could add the following

02:  Highway use: $105  PPT:  $157.50
12:  Highway use: $360 PPT:  $540

Also, you assign no value to carrying the risk of losing a $12000 car to an accident/theft vs. a $3000 car?


Also, I find it odd that you would budget $1500 to mod a car you will only keep for 3 years, but not try to recover the value again before selling it.  (Same with the $2k for the '12 Focus)

prodarwin

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Re: Car leasing is back with a vengeance
« Reply #22 on: July 24, 2013, 01:09:08 PM »
Oops, forgot to include the time-value of the money spent on the '12 also.  At an average market return of 6.5%, you need to account for 1932.04 in lost income from the $9000 additional removed from your investments as well.

dragoncar

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Re: Car leasing is back with a vengeance
« Reply #23 on: July 24, 2013, 02:30:59 PM »
If the car is worth more than the estimated residual at lease end, sell it and pocket the difference. If it worse less, hand the keys back to the dealer and it is his problem. You can't lose.  And in many states leasing can save you a fortune on sales tax over buying.

Leasing contracts in the US seem to very different from those in Germany. Here we have a number of ways to lose on leasing:

You agree on a maximum mileage that you drive during your leasing rate. This mileage directly determines the leasing rate and should be kept as close to the expected mileage as possible. If it's lower - as I've seen with a number  of colleagues - you have a car that you still pay a leasing rate for but can't use.

The leasing contract here includes the state of the car upon returning. Consequently, the leasing company searches the car intensively for scratches, dents, spills on the seat to determine the current resale value. The difference between the agreed value and the actual value is owed, too. You basically have a rental car without rental car insurances.

Here you can't sell the car while you are still leasing. If you think it's valued higher you have to pay the agreed price and then try to recover your expenses by selling your car. The risk is your's, though.

I'm pretty sure it works like that in the us too, but I've never done it so can't be sure.

Forcus

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Re: Car leasing is back with a vengeance
« Reply #24 on: July 24, 2013, 06:58:56 PM »
You must have gotten a smoking deal on that car.

That said, you don't have any sales tax there?  Highway use tax?  Personal Property tax?

Here, you could add the following

02:  Highway use: $105  PPT:  $157.50
12:  Highway use: $360 PPT:  $540

Also, you assign no value to carrying the risk of losing a $12000 car to an accident/theft vs. a $3000 car?


Also, I find it odd that you would budget $1500 to mod a car you will only keep for 3 years, but not try to recover the value again before selling it.  (Same with the $2k for the '12 Focus)

You have some good points.

It was a smokin deal, but I passed for a number of reasons not having to do with the car itself.

Sales tax, yes. For the '12 Focus it would have been $350 or 390 (can't remember which one). Which would add about $10/mo. in cost. No highway or personal property tax.

I have full coverage on all my vehicles at this time. It costs almost nothing for me to do so (yes I do know MMM's stance on this).

Technically there would be some recovery for mods, but they are mostly perishable - springs, shocks, winter wheels and tires - so I called it a wash.

The math works for me but every situation varies.