Leasing a Vehicle

[tvguy]

Originally Posted by BlovesC

I'm definitely starting to feel that way too. My last two cars I purchased new, but I'm already looking into a lease for next time. The car I'm driving now I paid for in cash when I bought it, which was a huge mistake for many reasons, but mostly because I wound up hating it. It's only a few years old but barely worth half what I paid for it. I really have no desire to throw money away like that again. If I had leased the car, I could have gone right back and negotiated into a different model.

This kind of is what I don't get about leasing. With a lease you are paying owner for the depreciation on the car, the interest on loan that whoever is leasing the car to you is paying, and profit to the leasing company. And generally there is an early termination fee. There is no free lunch. At least if I buy the car, at the end of the payments I have something, and with modern cars, you likely will be able to go 10 years without major repairs.

[Squirlz]

Sounds like a lot of people are falling for the hype. Math is good.

[AndyLL]

Originally Posted by tvguy

This kind of is what I don't get about leasing. With a lease you are paying owner for the depreciation on the car, the interest on loan that whoever is leasing the car to you is paying, and profit to the leasing company. And generally there is an early termination fee. There is no free lunch. At least if I buy the car, at the end of the payments I have something, and with modern cars, you likely will be able to go 10 years without major repairs.

You are not required to buy a lease based on payments. You can lease it based on price just like you can with a purchase.

When you purchase a car you lose 30% of the value of your 'asset' the day you drive off the lot.

As you said... you have something at the end of the payments. Of course it may not be worth much and you are stuck with it.

WIth a lease if market value of your car at the end of the lease is high you can purchase it. If the market value is lousy you can dump it and the lease company takes the hit.

When you purchase you pay sales tax on the full purchase price. With a lease you only pay taxes for the years you own it.

With a lease you are usually under warrenty for the entire time you have the car.

If you look at Edmonds the maintaince/repair costs double after 3 years and go up every year.

Leases rarely require a down payment... you take that $5000 down payment and invest it you will earn more then you are paying in lease charges.

Financing a car is typically done by banks not owned by the car manufacturer. That want to make a profit on the financing and dealers will offer financing through banks that give the dealers the best deal... not the buyer. Most car manufacturers now do the lease financing themselves and advertise sweetheart lease deals that the dealers really can't get around.

Originally Posted by Squirlz

Sounds like a lot of people are falling for the hype. Math is good.

I agree but probably not in the same way as you.

Paying a premium upfront to purchase an asset that will depreciate 60% in 5 years doesn't make sense... especially since that 'asset' will be technically out of date after those 5 years.

I used to program 15 years ago the software that dealers use to try to take every extra dollar out of your wallet that they could.

Dealers loved the 'educated' buyer who would spend hours negotiating a price around invoice and then would procede to make 1000s off the trade in of that 'formerly purchased' car and then really make their profit off the financing.

Back then used cars ( profit off of trade ins ) and financing were the profit centers of dealers.

Today it is used cars and service ( mainly from out of warrenty cars ) that are the profit centers for dealers.

That 'math is good' people are making dealers a lot of money these days.

Dealers use leases to move cars and buyers to make profit.

[AndyLL]

Originally Posted by WDWBarb

Yes, what he said!

I leased ONCE and would never do it again. I did it because I couldn't afford the car I wanted (and I was young and I really, really wanted it). I was a SAHM when I leased it and had a decent payment. Then I got a job that required me to drive so I had to put more miles on it than I expected. To get out of my lease would have cost me a fortune (the sum of the remaining payments + buyout value at end-of-lease) so I drove the car and figured I'd just have to deal with it at the end of lease (3 years). The car had lots of problems and I had to put money into it and there was no way I was going to buy it at the end of 3 years. When I went to turn it in, I paid $2,800 for extra miles (I had 15,000 allocated annually) and then they hit me with additional fees because the car had mechanical issues (and I had already paid a fortune for those problems).

I am pretty sure I stopped breathing for a minute when they gave me those figures.

You got a lemon. If you had purchased it you still would have had a lemon. You would have still had to put in the money during those 3 years. If you had purchased it and it had mechanical issues after 3 years you still would have had to put in the money to fix it or discount the selling price if you got rid of it.

The high milage you had on it would have affected what you could have sold it for if you had purchased it.

If you had purchased it you would have been likely to have been stuck with it for another 1-2 years with all of its problems.

Originally Posted by WDWBarb

Yes, what he said!

Oh! But if you do lease, don't drive it off the lot without GAP insurance. If you total your leased vehicle, your insurance company will pay only for the (depreciated from the second you drove it away) value of the car. But you'll still owe the remaining payments and the buyout value. I know a guy who totaled his car the day he leased it and made payments on it for 5 years because he didn't get GAP insurance to make up the difference.

No difference with a purchase. That loan doesn't magically go away if you total it. Cars depreciate 20-30% once you drive it off the lot.

[tvguy]

.

Originally Posted by AndyLL

WIth a lease if market value of your car at the end of the lease is high you can purchase it. If the market value is lousy you can dump it and the lease company takes the hit.

THAT DEPENDS WHETHER TO PURCHASE GAP INSURANCE, OTHERWISE YOU ARE ON THE HOOK FOR THE DIFFERENCE AT THE END OF THE LEASE.

When you purchase you pay sales tax on the full purchase price. With a lease you only pay taxes for the years you own it.

MUST VARY FROM STATE TO STATE, HERE, YOU HAVE TO PAY THE FULL SALES TAX ON THE PURCHASE PRICE OF THE VEHICLE, WHICH CAN BE DIVIDED OVER THE TERM OF THE LEASE

With a lease you are usually under warrenty for the entire time you have the car.

If you look at Edmonds the maintaince/repair costs double after 3 years and go up every year.

Leases rarely require a down payment... you take that $5000 down payment and invest it you will earn more then you are paying in lease charges.

MOST OF THE LEASE "SPECIALS" IN NEWSPAPER HERE REQUIRE SEVERAL THOUSAND DOLLARS DOWN FOR WHAT THEY CALL "DRIVE OFF". SOME OF THE ADS SAY SALES TAX AND LICENSE FEE REQUIRED AS THE DRIVEOFF PAYMENT

Financing a car is typically done by banks not owned by the car manufacturer. That want to make a profit on the financing and dealers will offer financing through banks that give the dealers the best deal... not the buyer. Most car manufacturers now do the lease financing themselves and advertise sweetheart lease deals that the dealers really can't get around.



.

[bettymae1121]

Originally Posted by AndyLL

When you purchase you pay sales tax on the full purchase price. With a lease you only pay taxes for the years you own it.


Paying a premium upfront to purchase an asset that will depreciate 60% in 5 years doesn't make sense... especially since that 'asset' will be technically out of date after those 5 years.

As for the taxes, it depends on the state. I'm fairly sure that where I live (IL) you pay taxes upfront for the full sale price of the vehical. Even if it's a "no money down lease" you have to fork over a thousand or two for sales tax at the time you sign for the lease.

As for the depreciation, I think that only matters if you're the type that wants a new car every 3-6 years. I bought a Saturn in '98 and almost 15 years later my DH is still driving it 80 miles round-trip to work each day. What do I care that it was only worth $5k in 2003 or $2k today?

Also, depending on the make/model you're talking about, a lot of late model used cars in good condition are selling for only a few thousand less than a brand new model these days. The used value of a 3-5 year old Honda or Toyota sedan might surprise you.

[I Love Pluto]

I buy my car, keep it as long as it will go, then replace it.

My DH leases - getting a new car every 3 years. It's a great idea for a husband & wife.

[SaraJayne]

Originally Posted by I Love Pluto

I buy my car, keep it as long as it will go, then replace it.

My DH leases - getting a new car every 3 years. It's a great idea for a husband & wife.

If we didn't have kids, we'd probably lease, too, though I don't know if DH would go for that. LOL

Kids are pretty dang hard on cars, so there is no way we'd be able to do it until they were out of the house.

[jlewisinsyr]

Originally Posted by tvguy

THAT DEPENDS WHETHER TO PURCHASE GAP INSURANCE, OTHERWISE YOU ARE ON THE HOOK FOR THE DIFFERENCE AT THE END OF THE LEASE.

This is completely wrong! All general consumer leases are closed-end, meaning the final value is set and regardless of market value, there is no further obligation. It is possible to get an open-ended lease, but they are VERY rare and gap insurance would mean nothing in this case as that's not what gap insurance is.

Gap insurance is only utilized if the vehicle is declared a total loss due to an accident/comprehensive claim and the difference between the residual balance is greater than the insurance/market value. Gap insurance is almost always included in closed-end leases from a dealership and it's fairly inexpensive anyway. Rarely, if ever do you see gap insurance for consumer financing, including dealership financing, it just is rarely purchased/leveraged.

Regarding taxes, here is a great site that explains how taxes are calculated and the exceptions to how these are calculated:

http://www.leasetips.com/salestax.htm

The only state that charges up front on the purchase price is IL, all others are based on the lease payments or depreciation amounts (cap minus residual).

[clarkshel]

Originally Posted by jlewisinsyr

This is completely wrong! All general consumer leases are closed-end, meaning the inal value is set and regardless of market value, there is no further obligation. It is possible to get an open-ended lease, but they are VERY rare and gap insurance would mean nothing in this case as that's not what gap insurance is.

I agree with this. In 2008 when the lease on our Grand Caravan minivan was up, we where going to buy out the lease, but the buyout was about $4000 more than what the van was actually selling for. We tried to negotiate a lower buyout, but Chrysler would not budge on the price. So we let the lease go back. No extra charges.

[AndyLL]

Originally Posted by tvguy

THAT DEPENDS WHETHER TO PURCHASE GAP INSURANCE, OTHERWISE YOU ARE ON THE HOOK FOR THE DIFFERENCE AT THE END OF THE LEASE.

Sorry but that is incorrect. GAP insurance pays the difference between what you owe on a car and what it's worth if something happens to it. It's like mortage insurance.

At the end of the lease term you either turn in the car or you purchase it for the price in the contract.

Your choice and the price does not change.

Originally Posted by tvguy

MUST VARY FROM STATE TO STATE, HERE, YOU HAVE TO PAY THE FULL SALES TAX ON THE PURCHASE PRICE OF THE VEHICLE, WHICH CAN BE DIVIDED OVER THE TERM OF THE LEASE

If 'here' is California like your profile says then you pay a state use tax on the payments which means not the full price. Individual cities/states sometimes force tax payments upfront instead of on the payment.

I'd be surprised if there is a state that charges full tax on a lease... companies would revolt because they tend to lease a lot of items.

Originally Posted by tvguy

[Longsx3]

One thing to consider when leasing is insurance costs, everyone I know who has leased has had much higher insurance rates there by negating at least some of the savings. Also if something changes in your income, selling a lease is much more difficult.

[jlewisinsyr]

Originally Posted by Longsx3

One thing to consider when leasing is insurance costs, everyone I know who has leased has had much higher insurance rates there by negating at least some of the savings. Also if something changes in your income, selling a lease is much more difficult.

Leases typically require 100/300/50, some are less, some are more, but that is the general rule. All the same, driving around with less than that is almost crazy in this day and age.

[auntie]

Originally Posted by jlewisinsyr

This is completely wrong! All general consumer leases are closed-end, meaning the final value is set and regardless of market value, there is no further obligation. It is possible to get an open-ended lease, but they are VERY rare and gap insurance would mean nothing in this case as that's not what gap insurance is.

Gap insurance is only utilized if the vehicle is declared a total loss due to an accident/comprehensive claim and the difference between the residual balance is greater than the insurance/market value. Gap insurance is almost always included in closed-end leases from a dealership and it's fairly inexpensive anyway. Rarely, if ever do you see gap insurance for consumer financing, including dealership financing, it just is rarely purchased/leveraged.

Regarding taxes, here is a great site that explains how taxes are calculated and the exceptions to how these are calculated:

http://www.leasetips.com/salestax.htm

The only state that charges up front on the purchase price is IL, all others are based on the lease payments or depreciation amounts (cap minus residual).

This has been exactly our experience..

[tvguy]

Originally Posted by AndyLL

Sorry but that is incorrect. GAP insurance pays the difference between what you owe on a car and what it's worth if something happens to it. It's like mortage insurance.

At the end of the lease term you either turn in the car or you purchase it for the price in the contract.

Your choice and the price does not change.



If 'here' is California like your profile says then you pay a state use tax on the payments which means not the full price. Individual cities/states sometimes force tax payments upfront instead of on the payment.

I'd be surprised if there is a state that charges full tax on a lease... companies would revolt because they tend to lease a lot of items.

Sorry, wrong terminology, the common name for this insurance is "Residual Value Insurance".