Author Topic: Is Leasing a Car A Terrible Idea?  (Read 4583 times)

TryingtoFIREinLAnow

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Is Leasing a Car A Terrible Idea?
« on: July 24, 2017, 03:03:12 PM »
Hi guys,
I'm asking on behalf of my retired mother (mid 60s, lives in upstate NY, mostly retired, not a super confident driver).
Her Rav4 is on the way out and they went by the Honda dealership and the guy did a pretty decent song and dance about the magic of the lease and the CRV that would be leased.
 My mother has a teacher's pension, but doesn't have $15,000 laying around to pay off the rest of the car in three years, it would mean financing  etc etc. She's nervous about not being able to hand it back after 3 years because she and her husband do often bump into the trees around their driveway etc when entering and exiting during the winter and their cars tend to get a little bumped around the edges.
I have only had two cars in my life, always used and paid in full at time of purchase so I have little experience with this.  My gut says that buying a used CRV would be a better long run idea than leasing a new one, but I understand that she wants to minimize the hassle etc etc. and she's never bought a new car in her life, so there's a little "I deserve this" factor too, which is fine.

Can anyone give some basic compare and contrast on the reality of leasing, positive/negative experience etc? Hidden fees? Advantages?

She's been coming to me for financial advice lately as I've become more Mustachian and (sheesh!) more adult and I'd like to have some info!
Thanks in advance, all info is appreciated!!
O.

Cowardly Toaster

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Re: Is Leasing a Car A Terrible Idea?
« Reply #1 on: July 24, 2017, 03:07:16 PM »
It's a terrible deal, I'd highly advise against it. About the only upside to it is that you can get rid of it with no further commitment after 3 years. But you'll pay if you go over the very limited number of miles, and any damage besides normal wear and tear will have to be paid for.

Buy her a nice used car.

Frankies Girl

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Re: Is Leasing a Car A Terrible Idea?
« Reply #2 on: July 24, 2017, 03:22:15 PM »
Leasing is a terrible idea.

Don't forget she will have to carry full insurance on a leased vehicle too. And pay extra for any mileage overages, and likely get stuck with lots of cost for every little scrape or ding.

For her, buying new is also a terrible idea. The second it's off the lot, it loses a ton of value.


What is wrong exactly with the RAV4 she has? Those usually are tanks that last forever...

If it was me, I'd likely go to a place like CarMax. Find a nice 3-4 year old RAV4 or CRV if she insists she needs a small SUV - but why not consider a Corolla, Camry or Civic? As she ages, it may be easier to handle a smaller vehicle and will be much easier to get into and out of.

You pay a bit more going to a CarMax, but they vet the cars well, it is no haggle, and they will take tradeins. It is a much easier and less slimy process which would be better all the way round for someone that is elderly and not into haggling and researching. And you get a practically new vehicle without the insane new vehicle pricing.

birdiegirl

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Re: Is Leasing a Car A Terrible Idea?
« Reply #3 on: July 24, 2017, 03:27:15 PM »
A lease isn't always a bad thing.  I've leased a couple times in the past and my retired parents currently lease a vehicle because they drive very few miles and wanted a newer car. 

But if they are not likely to keep the car in pristine condition, I'd definitely think twice about the lease.  They can be extremely picky (although not always) about what they consider damage.   She'll need to be prepared to either make insurance claims to fix dents, scratches of more than 1-2", and any paint damage or be ready to pay the dealer for repairs when she turns the car in. 

Depending on the dealer/manufacturer, they may also charge a lease return fee at the end to turn in the car.  Be especially careful to understand all the fees and potential charges before signing because once you sign you are stuck, they usually won't negotiate anything at lease end unless you are getting another new vehicle through them. 

TryingtoFIREinLAnow

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Re: Is Leasing a Car A Terrible Idea?
« Reply #4 on: July 24, 2017, 05:21:46 PM »
Thanks for the opinions.  It doesn't seem like a good idea to me either.  I'm going to check out this CarMax - I'd never heard of it, but sounds like a happy medium.

And I'll just get her a bottle of that "new car smell" car air freshener : )

O.

Broadway2019

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Re: Is Leasing a Car A Terrible Idea?
« Reply #5 on: July 25, 2017, 08:11:03 AM »
BTW, Carmax is awful unless you really want the "Carmax" warranty which is good for more expensive vehicles to repair (Jaguar, BMW, etc.). I actually leased a vehicle this year because I find myself wanting a new car every 3-5 years and this is the cheapest with the least amount of hassle to go. You definitely need to do your homework though to understand all parts of the lease. Check out leasehackr.com if you are interested.

I realize many on here do not agree with leasing because it is obviously not as cheap as buying a car and keeping it 10+ years. However, if you want to keep short term or always want to have a warranty, leasing is not a bad idea.

DarkandStormy

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Re: Is Leasing a Car A Terrible Idea?
« Reply #6 on: July 25, 2017, 08:17:01 AM »
Part of it depends how much she'll drive it and what she plans to do at the end of the lease.  That said, while they try to sell you on "oh, you're just paying for the depreciation," the reality is they set up the residual value (i.e. purchase price at the end of the lease) to be wayyyyy more than its market value at that time.  It's a bit of a guessing game, but if they have good actuaries they will profit big time off of a lease and then purchase at the end of the lease.

I do understand that this might be one of her last cars and having never bought new, she might want those fancy bells and whistles for a few years.  If she's comfortable paying $150-$200 for every minor ding/dent (or getting them fixed out of pocket) and not having an asset at the end of the lease, then I'd say at least consider it.  I would study the residuals though to make sure you don't overpay at the end of the lease should she want to buy it outright.

Laura33

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Re: Is Leasing a Car A Terrible Idea?
« Reply #7 on: July 25, 2017, 09:30:42 AM »
1.  Never lease if you think you might ding the car and/or put on extra mileage.  The lease contracts basically give the dealership free rein to argue about whether you returned it in the appropriate condition, and the mileage overage is just punitive.

2.  If she doesn't have a pot of cash to buy outright, there are plenty of cars you can finance for equivalent monthly cost.  And end up with an asset at the end of it.

3.  I think one of the unstated "costs" of leasing is that you basically have to go back and change vehicles every 3 years.  Think about it:  you put down a downpayment, and you pay for tax/title/license; you pay the monthly lease; you turn it in and pay whatever damage/overage fees they charge; and then you have to turn right around and come up with another downpayment and tax/title/license fee to start over again.  [And if you lease-then-buy, well, congrats, you've just paid full price for a new car, because residual price + lease payments = MSRP + interest]

4.  General rule of life:  if a car salesman is really, really excited about a particular option, don't do it.  It is in his best interest, not yours.

Broadway2019

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Re: Is Leasing a Car A Terrible Idea?
« Reply #8 on: July 25, 2017, 10:57:57 AM »
1.  Never lease if you think you might ding the car and/or put on extra mileage.  The lease contracts basically give the dealership free rein to argue about whether you returned it in the appropriate condition, and the mileage overage is just punitive.

2.  If she doesn't have a pot of cash to buy outright, there are plenty of cars you can finance for equivalent monthly cost.  And end up with an asset at the end of it.

3.  I think one of the unstated "costs" of leasing is that you basically have to go back and change vehicles every 3 years.  Think about it:  you put down a downpayment, and you pay for tax/title/license; you pay the monthly lease; you turn it in and pay whatever damage/overage fees they charge; and then you have to turn right around and come up with another downpayment and tax/title/license fee to start over again.  [And if you lease-then-buy, well, congrats, you've just paid full price for a new car, because residual price + lease payments = MSRP + interest]

4.  General rule of life:  if a car salesman is really, really excited about a particular option, don't do it.  It is in his best interest, not yours.

Not saying I don't agree that leasing is more expensive, however, I leased a brand new Subaru Outback w/ $0 down, not even taxes or tags. Also, you negotiate the same as the sale price of a car. For example:

MSRP: 36,000
Sales Price: 30,000
Residual: $22,000
Money factor (Similiar to interest rate): .0005 (apr 1.2%)
Acquisition Fee: $595

Tax is paid on the payment in most states not sales price. So you only pay tax on what you use. This would be roughly $285 including 6% tax over 36 months or $10,260 total cost. If you bought the same car for 0% financing and 60 months it would be $530 a month. Yes you own it and could trade it in later and maybe have a little equity. Or lease and just return. Depends on what you want to do. But if you do your research and know what you are doing, leasing is not a bad option if you value having a new car and like to trade in often.


 
If you did the above lease for 36 months you would pay

Mr.GrowingMustache

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Re: Is Leasing a Car A Terrible Idea?
« Reply #9 on: July 25, 2017, 11:31:50 AM »
Leasing is terrible idea, so is buying a new car. You'll get a bunch of "arguments" for it but it never pays off.

My wife bought a used 2011 Civic with 6k Miles for $12,500 back in 2013. Was it easy? No.
We searched for months and had to negotiate a lot with the sellers who wanted 14k for it.

There are plenty of cars out there on Craigslist for $10k-15k in excellent condition 3-4 years old with low mileage (<50k miles).

Secure a 10k-15k used car loan! Obviously you need to do a bunch of leg work to get a good deal!

Why blow that same $$ on a car you own for 3 years.

Find a reliable vehicle model. Make sure it's been maintained. Ask for maintenance records! Ask if it has been garaged! Get a private party inspection if you need to.

here I just spent 30 seconds to find this 2014 CR-V. Asking $15,800. I think you can do better, go 2 years older, and aim for $10k-$12k. Even Cheaper if you go for a Hyundai.

https://newyork.craigslist.org/brk/cto/d/honda-cr-ex/6217484733.html



Blonde Lawyer

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Re: Is Leasing a Car A Terrible Idea?
« Reply #10 on: July 25, 2017, 11:37:41 AM »
The ONLY time I have seen a convincing argument for leasing was for a service member that didn't expect to be in the area long.  There are special federal rules for service members that lease and they can return the car early at no extra charge.  Then they don't have to worry about moving with the vehicle (sometimes overseas), selling it first (often losing a bunch of value to depreciation), or trying to get out of a traditional car loan.  Other than that, I'd say leasing is a bad idea.

Broadway2019

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Re: Is Leasing a Car A Terrible Idea?
« Reply #11 on: July 25, 2017, 11:42:54 AM »
I will add one more thing. I too was in the camp of thinking leasing was always more expensive and to many people on this board it would not make sense. Many buy cars less than $15k and keep them for at least 10 years. I on the other hand, prefer a new vehicle every 3-5 years. So I would buy them, however, I have never been ahead equity wise doing that. At best, I broke even and that is when I started leasing. It just makes more sense if you trade in often or want to "rent" a car before you buy. If you don't then I would suggest buying.

Tetsuya Hondo

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Re: Is Leasing a Car A Terrible Idea?
« Reply #12 on: July 25, 2017, 12:41:41 PM »
I on the other hand, prefer a new vehicle every 3-5 years.

There's your problem.

DarkandStormy

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Re: Is Leasing a Car A Terrible Idea?
« Reply #13 on: July 25, 2017, 12:46:20 PM »
I on the other hand, prefer a new vehicle every 3-5 years.  It just makes more sense if you trade in often or want to "rent" a car before you buy. If you don't then I would suggest buying.

This is one of the worst financial mistakes you will make in the long run.  Once, as in the OP's mother's case...fine, I get it.  To consistently do it for the bulk of your adult life, to me, is idiotic.

Schaefer Light

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Re: Is Leasing a Car A Terrible Idea?
« Reply #14 on: July 25, 2017, 01:04:41 PM »
Secure a 10k-15k used car loan! Obviously you need to do a bunch of leg work to get a good deal!

Where are the best places to look for used car loans?  While most new car loans have very low interest rates, I've found it hard to get a decent interest rate on used car loans in the past.

Mr.GrowingMustache

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Re: Is Leasing a Car A Terrible Idea?
« Reply #15 on: July 25, 2017, 03:13:04 PM »
Secure a 10k-15k used car loan! Obviously you need to do a bunch of leg work to get a good deal!

Where are the best places to look for used car loans?  While most new car loans have very low interest rates, I've found it hard to get a decent interest rate on used car loans in the past.

That's where the leg work comes in, and I was lucky enough not to need one. But I heard the Federal Credit union had a 3.5% for a coworker or mine, there should be comparable rates out there. Perhaps another topic?

If you do decide to get new, take a look at this.

http://www.tellmethebest.com/car-deal.html

http://www.tellmethebest.com/car-buying.html

http://www.tellmethebest.com/

http://www.tellmethebest.com/toyota.html

Looks like a basic corolla LE can be had for $16,218. Not bad for a car you can keep 10 years

dcozad999

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Re: Is Leasing a Car A Terrible Idea?
« Reply #16 on: July 25, 2017, 03:13:31 PM »
Leasing is a terrible idea.

Don't forget she will have to carry full insurance on a leased vehicle too. And pay extra for any mileage overages, and likely get stuck with lots of cost for every little scrape or ding.

For her, buying new is also a terrible idea. The second it's off the lot, it loses a ton of value.


What is wrong exactly with the RAV4 she has? Those usually are tanks that last forever...

If it was me, I'd likely go to a place like CarMax. Find a nice 3-4 year old RAV4 or CRV if she insists she needs a small SUV - but why not consider a Corolla, Camry or Civic? As she ages, it may be easier to handle a smaller vehicle and will be much easier to get into and out of.

You pay a bit more going to a CarMax, but they vet the cars well, it is no haggle, and they will take tradeins. It is a much easier and less slimy process which would be better all the way round for someone that is elderly and not into haggling and researching. And you get a practically new vehicle without the insane new vehicle pricing.



I would argue that a CRV is much easier to get in and out of than a corolla, camry, or civic. Especially if you have any sort of back issues.

frugaliknowit

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Re: Is Leasing a Car A Terrible Idea?
« Reply #17 on: July 26, 2017, 01:45:50 PM »
Secure a 10k-15k used car loan! Obviously you need to do a bunch of leg work to get a good deal!

Where are the best places to look for used car loans?  While most new car loans have very low interest rates, I've found it hard to get a decent interest rate on used car loans in the past.

https://www.penfed.org/