Author Topic: Is a car lease EVER a smart idea...?  (Read 6261 times)

EconDiva

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Is a car lease EVER a smart idea...?
« on: September 17, 2016, 09:57:47 AM »
I have never had a car payment and I'm going on 38 years old.

Never been 'in' to cars too much and I just always paid cash...last car I did purchase in 2010 was a 2000 mercury cougar coupe for about $2500 if I remember correctly.

I know a couple that was leasing a luxury vehicle (BMW) and although they're not together anymore, I never got the chance to ask the husband his reasoning around leasing instead of purchasing it.  The couples are both graduates of top MBA programs and one of them majored in Finance so I assumed they had to have decided somehow it made financial sense over buying.

In what situations is a lease on an automobile a financially solvent idea since you don't end up owning it?

MayDay

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Re: Is a car lease EVER a smart idea...?
« Reply #1 on: September 17, 2016, 10:17:04 AM »
2 scenarios I can think of:

1. You buy a new car every 2-3 years anyway. Cost is probably about the same.

2. I've heard some discussion that leasing an electric vehicle makes sense. The leases are very cheap due to tax credits, and the technology is changing so fast that 2-3 year old EV's are quite terrible compared to new ones, so you might not want to commit to owning one for 10 years.

rhadams1988

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Re: Is a car lease EVER a smart idea...?
« Reply #2 on: September 17, 2016, 10:30:34 AM »
Generally, it's going to be cheaper to buy a used car and own it for a long time. Like MayDay said, it's only going to be cheaper (or about the same) when you compare it to buying a brand new care every 3 years, since you'll see a crazy amount of depreciation.

I work with a ton of Finance MBAs, but in my experience that doesn't necessarily make you good with money. For example, one of my MBA friends recently sold his car and started leasing a new car because his car was 6 years old and the tires needed to be replaced. My point is that even MBAs make decisions for emotional reasons even if the finances are plain silly.

The other scenario where leasing makes sense is if you think you're living situation will change in the next few years. I've had friends who worked in the suburbs who bought brand new cars, but then they got jobs in Chicago where it's pretty inconvenient/unnecessary to own a car, and they're stuck with those cars. In those cases of high uncertainty, I think it's a fine decision to lease a car.

englishteacheralex

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Re: Is a car lease EVER a smart idea...?
« Reply #3 on: September 17, 2016, 12:01:47 PM »
I love thought experiments like this--also play the game with my husband: "Is it ever a good idea to rent furniture from Rent A Center"? And "Is it ever a good idea to rent storage space"?

To this question, I have seen one example where I didn't think the people were fools for leasing...but I would have done things differently:

These are very good friends of ours. The husband works in downtown Honolulu, and monthly parking rents for $150 (more like $200+, realistically). Electric cars park free, however. They lease a Leaf because the monthly payment is the same as parking was costing them. Didn't seem like the worst idea ever.

BUT I would have had them move close enough to his job (they rent) for him to walk or take the bus (metro Honolulu has pretty good public transport). They both work in the same neighborhood, and have a 30+minute commute each way. Actually, they are trying to find a rental in the area now, 1.5 years later, so they can get rid of the Leaf and only have one car.

Spork

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Re: Is a car lease EVER a smart idea...?
« Reply #4 on: September 17, 2016, 12:19:42 PM »
I'm no tax expert, but I've commonly heard that in some cases leasing comes out ahead when it comes to business use of a car and taxes.  I believe it is something along the lines of: The more the car costs, the more advantageous leasing becomes.

undercover

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Re: Is a car lease EVER a smart idea...?
« Reply #5 on: September 17, 2016, 01:07:03 PM »
I can't think of any legitimate situation in which it ever makes sense, no.

Sam (another respectable personal finance blogger) over at FinancialSamurai leases a 2015(?) Honda Fit with an option to buy. As far as I can tell, the reason is that he wanted a mid-life crisis car, but settled on the most expensive (but cheapest) car he could justify to see if that would ease his cravings. Turns out it pretty much has so I'd say he will be buying it at the end of the lease. I think this is a very unique perspective and is probably smart in his situation, but we all know he could've just bought a used one and it would've been smarter.
« Last Edit: September 17, 2016, 01:18:30 PM by undercover »

cchrissyy

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Re: Is a car lease EVER a smart idea...?
« Reply #6 on: September 17, 2016, 01:16:34 PM »
with business taxes, the reason to lease not buy is that lease costs can be deducted in the year they actually occur, as opposed to purchasing the car, where the cost has to be deducted over the car's useful lifespan.

Rubyvroom

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Re: Is a car lease EVER a smart idea...?
« Reply #7 on: September 17, 2016, 02:46:21 PM »
This is a very one-off situation, but my husband works for an auto dealership that offers a credit of $X per month towards a lease of one of their vehicles (can be new or used) once you are "certified" (requires you to take ~3 years worth of training to get certified). So essentially, employees that have been there 3+ years are eligible to receive additional compensation (which is taxed) if they decide to lease a vehicle from the dealership. Some employees choose to lease expensive vehicles that cost more than the credit and they pay the difference out of pocket. Others lease super cheap used vehicles and actually get paid the difference in cash if the lease payment is lower than the credit.

I am fairly against leasing vehicles myself, but once my husband is certified (should be later this year), we plan on selling our vehicle while it's still somewhat low miles, investing the cash, and taking advantage of this free money from his employer.

MoonLiteNite

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Re: Is a car lease EVER a smart idea...?
« Reply #8 on: September 17, 2016, 03:04:20 PM »
Maybe as a delivery driver or taxi driver and you timed it to use the mileage you are allowed to use.

Telecaster

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Re: Is a car lease EVER a smart idea...?
« Reply #9 on: September 17, 2016, 05:47:14 PM »
These are very good friends of ours. The husband works in downtown Honolulu, and monthly parking rents for $150 (more like $200+, realistically). Electric cars park free, however. They lease a Leaf because the monthly payment is the same as parking was costing them. Didn't seem like the worst idea ever.

Not a bad idea, but leases really only make sense if you use the car for the exact term of the lease and then walk away.   If you need or want to own for a shorter or longer period time, then you are almost always better off buying.




SnackDog

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Re: Is a car lease EVER a smart idea...?
« Reply #10 on: September 17, 2016, 06:53:16 PM »
Sometimes automakers offer crazy low leases just to move cars with the hope they can lock you in on another when the lease ends. I think VW was leasing new Jettas for like $59 a month a few years ago. Hyundai Genesis near-limo is currently as low as $193/mo. As long as you don't go over on mileage or wear and tear it can be a good alternative to buying new. In many states you will save the sales tax on the residual.

backyardfeast

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Re: Is a car lease EVER a smart idea...?
« Reply #11 on: September 17, 2016, 09:57:38 PM »
We got suckered into a lease and I would never do it again.  We looked for the truck we wanted in the used listings for more than a year and couldn't find one.  So we decided we would buy new--end of season sale, almost 0% financing.  Knew this would be the truck we would drive until it dies--hopefully 15-20 years.  Took a deep breath. 

When we talked to the dealership, they told us that the overall price would be exactly the same for a lease or a purchase, the only difference was with the lease the monthly payments were lower, because they were taking the chance that when the lease was up, most people would want to either re-finance the buyout cost, or exchange the vehicle for a new lease.  Either way, the dealer liked the lease option because it created an ongoing customer.

We decided that the lease was the way to go.  It kept our payments lower, our options open, and we saved up the money for the buyout so we would be ready when the time came.  As it happens, that did end up being useful, as that savings pot became an emergency fund when a health crisis hit during the 5 year term.  We borrowed from ourselves and paid ourselves back. 

Anyway, this past month, we were ready to close the deal and buyout the truck.  That's when we realized we had been suckered.  There are WAY more closing costs for shutting down the lease than simply financing a purchase until the vehicle's paid off.   Tons of bullsh*t extra fees, and a HUGE amount of hassle: the dealer still technically owns the vehicle when you lease (obvs), so there were inspections, appraisals, title transfer fees, lease buyout fees, taxes on everything...it took hours of time, another round of dealing with incompetent salespeople absolutely intent on not letting you out of that "relationship".  Massive amount of frustration for no reason.

We hope we'll never have to buy new again.  If for some reason we do, we'll never sign another lease.

Oh.  And the morning AFTER all of that hassle to actually end the lease and own the vehicle, we got a call asking if we wanted to come in and talk about trading in our lease for a new car!  AARrrgghhh!

K-ice

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Re: Is a car lease EVER a smart idea...?
« Reply #12 on: September 17, 2016, 11:01:38 PM »
Leasing. I don't personally think it's advantageous.

I remember the lease sales man at Toyata trying to tell me what a good deal it was to lease because they retain their resale value.

For example $30K car. Lease for 5 years. At that time you owe $15 to buy it out. Yet the resale price should be $20K so you could sell it tomorrow for more money than you owe.

Ok. At first that sounds great. But then I quickly said. "Arn't I overpaying for the car during my lease? Shouldn't I just be paying $10K if it will be worth $20K"

He had no answer for that.

Another lease story:
A relative wanted out of their lease as I was looking for a car. They wanted me to take over the last 2y of a 5y lease. I would just continue with the payments. I didn't go for it thinking "so you got to drive a shiny new car for 3 y at $500 a month. Now you want me to take over a 3y old car at the same price? no thanks,"

Last point, as it has already been mentioned, I think there are business tax differences for leased cars.


MayDay

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Re: Is a car lease EVER a smart idea...?
« Reply #13 on: September 18, 2016, 05:49:28 AM »
My BIL had to lease when he moved to the US for a job. He didn't have credit for a loan in the US. It worked out well with the terms of his expat package- when he left the us after a year, he dropped the car back off at the dealership, and his company paid any early return fees. He didn't have to mess with selling while trying to move internationally.

chasesfish

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Re: Is a car lease EVER a smart idea...?
« Reply #14 on: September 18, 2016, 08:27:30 AM »
Leasing - If you're not FI, then the answer is no.

If you're FI and enjoy luxury cars, from time to time the manufacturers will supplement the leases on luxury cars (lower rate, residuals, higher mileage allotments) instead of cutting the face amount of the car.  They can keep their 60k price tag up there but offer you a residual at say $45k when they know the market value of the car is really only going to be 35k.  It acts as a ploy for the auto manufacturer to push their loss three years out into the future verses absorbing it now.

That should only be done for people who have a car hobby and aren't likely to be hanging out around here.

myrax

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Re: Is a car lease EVER a smart idea...?
« Reply #15 on: September 18, 2016, 11:12:09 AM »
The possibility of leasing a car is part of our long term financial plans. My husband and I got rid of our car recently, but we recognize that life circumstances (like a really appealing job that would require a car) might change and we would have to get a car again. Our emergency savings doesn't take into account the possible need to buy a car -if we need one in the future, we plan on leasing it and then figuring out how to get out of needing it within 2 years.

EconDiva

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Re: Is a car lease EVER a smart idea...?
« Reply #16 on: September 18, 2016, 07:35:15 PM »
So it seems others as just confirming what I was already thinking (it's a bad idea the vast majority of the time).

Now as for myself, I may be in the market for a car early next year.  Budget is maybe 5K.  Now I just need to be talked out of buying a 2004 BMW and go for a 2004 Accord instead :P

Luxury vehicles aren't usually my thing (maybe I'm going through an early female mid life crisis lol), but I'd been looking all weekend and seeing around the same price range and mileage for both vehicles. 

cchrissyy

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Re: Is a car lease EVER a smart idea...?
« Reply #17 on: September 19, 2016, 12:05:29 PM »
here you go

in 2014, I bought a 2006 BMW with about 50k miles on it.
My independent mechanic checked it out, all good. Maintenance records were there, also good. 

It lasted only *9 months* until total engine failure.

I took it to 2 places and the quotes to fix it were just shy of $10k.  I sold it at a loss instead.

your acura parts and service will be much cheaper.

jamesbond007

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Re: Is a car lease EVER a smart idea...?
« Reply #18 on: September 19, 2016, 12:25:24 PM »
I don't like to lease but I did when I leased my Chevy Spark EV. Here's why:

1. The lease was $120 a month with taxes (10K miles/yr for 35 months)
2. $120 is lower than my monthly train pass which is $140 and requires me riding my bike 3 miles to the station. Getting down at Station B, Taking a free shuttle to go near work and biking another 3 miles to get to work. Then I'll be sweaty and need a shower every day at work (not a problem actually) and at home after I return.
3. Driving in a regular car is not an option (My commute is 17 miles one way) especially when...
4. I get free EV charging at work.

So in my case, it made sense to lease. Sure, I could've bought it but I feel in 3 years the battery tech in EVs will be much advanced and I, as a consumer, will have more options than what I have now.

EconDiva

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Re: Is a car lease EVER a smart idea...?
« Reply #19 on: September 19, 2016, 04:11:53 PM »
here you go

in 2014, I bought a 2006 BMW with about 50k miles on it.
My independent mechanic checked it out, all good. Maintenance records were there, also good. 

It lasted only *9 months* until total engine failure.

I took it to 2 places and the quotes to fix it were just shy of $10k.  I sold it at a loss instead.

your acura parts and service will be much cheaper.

Are you serious?? 10k?!