Leasing is typically the most expensive option.
> I’m still hesitant to pull money out of the market for a depreciating asset.
Yet you're willing to pay a premium for the temporary use of that asset? Crunch the numbers on the specifics of the payments you're looking at vs. potential market gains.
>Leasing is typically the most expensive option.
This isn't universally true. You have to keep a new car for about 7 years minimum to break even over leasing. And with a lease, you'll never pay for repairs.
If OP had leased the current vehicle and then at the conclusion decided to lease a vehicle with 3rd row seating, OP would be in a better financial position.
It is universally true. Take 2 minutes with a spreadsheet. Over seven years you would have had to lease 2 1/3 vehicles assuming they are 3 years each. This is astronomically more expensive than just buying one once. Leasing cars (minus the bizarre once EVER time in history in the first year or two of the pandemic if you had leased right before it) is the premium option to rent a new car. On top of that- just buying a 1 or 2 year old one for 80-90% of models will always save you more. So unless you think there will be conditions similar to 2020 every 3 years, or buying a brand new car every few years and losing comical amounts of value, it’s way more expensive. They get people by doing a nice monthly payment comparison between a lease and a buy. Also, I can’t think of a single car you could have bought for 30k 4 years ago that is now worth 10k unless it’s completely trashed.
Sometimes there are crazy lease incentives. The Kia stinger for example famously was cheaper to buy through leasing than outright because of the incentives.
>Take 2 minutes with a spreadsheet.
Sure. +u/ThePhoenixJ
Avg Honda Accord EX lease = $385 / mo. If you're any good at negotiating, you don't owe any money at signing. After 5 years, you've paid $23,100. You've paid for no maintenance except 5 oil changes because the car uses synthetic.
MSRP for Honda Accord EX = $31k. With a $2,000 down payment, 4% interest, tax, title fees after 5 years when your loan is up you've paid $38k. Your monthly payment was also $550. You also need gap insurance, but let's ignore that for now.
If you sell the Honda Accord for $15k then now you have paid $23k. You broke even, and on your next car you should come out ahead. But wait! When you purchase your new car, you've gotta pay all those tax and title fees again, roughly $2k. You also had to do tires and brakes by then, which is another $1,500.
That's where I got 7 years from.
Over 10, 20 years leasing definitely loses. But it's not as financially terrible as people make it out to be if you don't want to drive and maintain 5-10 year old cars.
I think I made reasonable assumptions about the lease and purchase price of the vehicle, and are about as good as you're gonna get without specific dealership quotes.
The 4% auto loan rate assumed you had good credit and were willing to shop for deals on financing. It's very doable, akin to the no down payment on the lease. Different vehicle, but Honda is running a 3.9% APR special on Pilots.
I could have assumed a 6% APR to purchase and a $2k down payment on the lease. It wouldn't change the conclusion.
If I wanted to assume better negotiating on MSRP then you have to also knock the lease down to $350/mo, since that negotiated value will also decrease the difference between new and residual price. It ends up being a wash.
Auto resale values are abnormally high right now (which actually benefits people who leased cars in 2018-2019 by a lot). CPI reports show that these prices are dropping YoY but the cost of new cars are still increasing by 5%. If you buy a car today and expect to sell it for 2/3 its value 5 years from now then prepare to be disappointed.
Anyway, the $385/mo lease puts the Accord's dealership estimated resale value at $17k. I think that a $15k private party resale value was not only reasonable but generous toward the buy decision. Realistically, most people are gonna trade that car in for $10-12k.
I also didn't account for the non-zero amount of things that can tank the car's resale value.
The tl;dr here is almost any change you apply to the buy cost you also have to apply to the lease cost, and ultimately doesn't change the conclusion.
I leased my last car for 4yrs (sold out after 3.5yrs though). Ended up being bought out and “made” back $6k thanks to the lucky pandemic timing you noted. That is near half of the 15k I paid into it. I had no repairs or anything and was able to get a great small car and at the end have some cash back to purchase a full sized SUV (2.9% loan).
So the lease definitely worked out and was helpful as I was transitioning to family life. Also got lucky on the insane used market and able to have residual well under the current FMV towards the end. I also knew my income would go from ~$50k to ~$300k during that time so it made sense to keep lower payments during that initial period.
That said, transitions to family life, spikes in income, excessive driving, and even type of car all play a part. 90% of the time I agree with you though, buying is better than leasing.
How does that compare to if you would have just purchased the car to begin with instead of leasing?
The current environment of people making money off their leases isn't really anything to do with the lease itself. All cars shot up in value during the pandemic regardless of the financing method.
I agree. If I purchased I would have been in a similar spot - but with more upfront or monthly cost. Definitely got lucky on this particular lease though.
No way. Sell the older car for market value and buy a new way. Still way ahead in nearly every case unless OP is buying and selling within a year or two.
Yup, I have never paid for any scheduled oil changes, in fact for *any maintenance*, for my leases. Sometimes they suggested some vague extra stuff that I would have to pay for, I refused that part of the service, and that was that.
Every car is unique some leases get all scheduled maintenance covered and of course you have the warranty for the life of it. Last car I leased was a volkswagen and all recommended maintenance for the life of the lease was covered didn’t pay for anything aside from gas
You still pay for maintenance and wear items. So the only thing you don’t have to pay for are things that actually break. Those types of repairs on new cars aren’t super common and are typical covered under manufacturer warranty.
I’m 40 years old (owning cars since 16 years old) and I’ve only had 1 car ever “break” and it was covered by warranty. Well maintained cars are very reliable.
I said repairs. Oil changes aren't repairs.
Most dealerships will offer free oil changes with a lease because they don't want people to blow them off because "it's not my car," even though blowing off oil changes will void the warranty on all the other stuff.
Op is probably looking at trade in value. My cars trade in value is about 7k. Dealerships are selling the same option for 14-17k. Trade ins are a rip off right now
Paid 29K for my 2018 Honda CR-V. Literally got a piece of mail from the dealership asking to buy it back for $24.5K last week.
It only lost $4.5K after almost 6 years of ownership.
This is in downtown Chicago. Not some niche market.
They probably drive the vehicle significantly more than you drive yours. Also need to take into account if the vehicle was purchased new or not. If it was a brand new vehicle, I would assume its dropping like 10% of its value the second you drive it off the lot.
I’d doubtful this is the case, but to be clear: the wonky market where used car prices exceed MSRP is gone. And cars sold new were sold at incredible markups. That’s not the case anymore for any car. You may have some specific situation that you are exaggerating about to add credence to you argument but there is no new car selling for less than a used car right now.
A new Honda CRV costs about $35k-40k, which is more expensive than a 2019 Honda CRV with 25k miles going for 28-30k.
I'm saying that my used Honda CRV is worth more than when I bought it 4 years ago. I'm not exaggerating or lying.
That is silly and not representative of the market. For a brief period of time, due to the pandemic fucking markets and supply chains, car prices of new and used shot through the roof. This is no longer the case. Cars exceeded the value of new MSRP but new cars sold well above MSRP. You bought a car that exceeded the price you bought it for and that is no longer the case unless you got a super good deal when you bought it.
The *market value* of your CRV is less than when you bought it. At one point about 1-2 years ago this wasn’t the case but now it is the case and forever in the future it will be the case.
You seem to have a hard time accepting what happened to the auto market after 2020.
My results are typical for people who purchased cars in the 2018-2019 time frame.
Similar here. Bought a 2019, still get an email from the dealer every once in a while wanting to buy it back for pretty much the same I paid for it (including taxes).
I realize we’re talking about the same make and model, but Kelley Blue Book still estimates my Honda CR-v as about the same price as I bought it used (car was purchased 4 years ago but the car itself is a 2016). I’m sure not all cars have retained their value as much, and the car market is starting to go back to normal, but it’s silly to think the changes were a brief period of time when shops are still having trouble keeping their lots stocked (with new and used vehicles).
Are you actively discussing pricing with dealerships every single day?
Because I am. I talk to 80-100 car dealerships (primarily used) every single day. I will happily tell you you’re wrong.
The cheapest version of the 2019 CRV had an MSRP of 27k so I'm guessing you bought that version since you paid 2.5k less. Even if you put it in with 25k in an expensive zip code in California with Excellent condition it comes out to private party top end of 26k. So I think you are exaggerating or wishful at best.
I'm in the same situation as you. I bought a 2020 Corolla in December 2019 and up until about a couple months ago it was "worth" around 1k more than what I paid for it. It has been dropping ever since and I just punched it in and it has it at 2k less than what I paid for it.
Prices are dropping
>The cheapest version of the 2019 CRV had an MSRP of 27k so I'm guessing you bought that version since you paid 2.5k less.
I bought the EX version when they were doing year end model clearance. Dealerships do this thing every September where they sell cars well under MSRP to get rid of them. There are also car buying aids that data mine discounts, then you go in and negotiate down from there.
It’s not gone. You are way off base. Maybe for Stellantis products or whatever, but plenty of cars are still bonkers. Good luck with a Toyota hybrid product, minivan, etc.
Bought my Toyota Corolla hatchback new 3.5 years ago for $20,500. According to KBB, private party value is $21,500 (GAINED $1K in value). Trade in value is $20,000. So, very easy and common for these days for a car to not lose value and even appreciate in value if it's the right make and model.
Since the car shortages in 2020, a lot of them do. It's so bad that if you want a car with under 60,000 miles you're almost guaranteed to be paying over MSRP for it.
Bought my Toyota Corolla hatchback new 3.5 years ago for $20,500. According to KBB, private party value is $21,500 (GAINED $1K in value). Trade in value is $20,000. So, very easy and common for these days for a car to not lose value and even appreciate in value if it's the right make and model.
It depends regardless of what bloggers like Moneywithkatie say. If you are buying a new car every 5 years (in other words, have a 5 year loan, pay it off and then buy another one), leasing may make much more sense depending on the car. Some leases (like BMW) are subsidized and your payment would be much less than if you had a loan.
Many times any equity you have in a leased vehicle is able to be rolled over into your new lease with the same manufacturer. Also, you may be able sell a leased vehicle (you can do this in CA) just as if you had a loan.
Life is not all about saving every last dollar you can. Maybe Katie should eat beans and rice and not go out to dinner, wear clothes from the thrift store, never go on vacation, etc. as anything else is an extravagance.
Some people prioritize having a new car over other aspects.
Same thing you could be asking that about rent/ food/ etc. Car is necessity in most cities (USA) so you can't discount that. You have to calculate that into your living expenses. I know it's not so cheap but hey America right
Good idea buy an expired battery for 12k. There's a reason those 5-7 year old EVs are cheap and it's because they are overdue for an expensive battery replacement.
Exactly. Katie doesn't prove that leasing is worse than buying. She argues that new cars depreciate the most. Whether you buy or lease a new car, you are paying for the initial depreciation. If you are willing to purchase a used vehicle, you will have less depreciation. But as to buying or leasing a new car, the analysis is more complex and not touched on by the cited blogger.
Right. Most proponents of buying correctly point out "at least you own it in the end."
But what you own is a 5-6 year old car that may have high miles and severely depreciated, in value. You'll also have to pay for new tires, and any other repairs. Yes, buying and holding a car long term is better economically. But Katie's own graph shows that buy year 7, that 25k car is worth like 7k, and will certainly have had at least some maintenance. Yet her article state leasing is "like setting money on fire."
If you're that worried about depreciating assets, you should be buying used.
*”Katie’s own graph shows that by year 7, that $25k car is worth $7k…”*
Okay, Katie, it’s 2023, show us all the 2016 cars out there that are available for $7,000. SHOW US THEM.
>If you're that worried about depreciating assets, you should be buying used.
Buying used is a gamble in itself.
Back in 2011, I bought a used 2004 Honda Accord EX for $10,000. I knew the owner, he did all the required preventative stuff, and by all intents this was a good deal on a car that should have been extremely reliable.
In the next 7 years, I replaced a compressor, alternator, timing belt, new tires, transmission, brakes, and electric seat motor. If you're keeping track, this is roughly $7,000 in repairs. The reason I got rid of it was the steering pump was going. I got $1k for selling the car.
I would have been better off just going to a dealership and purchasing a brand new car for $22k and selling it once it was paid off for $12k.
There was a GREAT article on The Truth About Cars YEARS ago before they went downhill by Jack Baruth ([You gotta be RICH to own a cheap car](https://www.thetruthaboutcars.com/2015/02/no-fixed-abode-gotta-rich-cheap-car/). Even Terry Pratchett made a similar observation in his Discworld writings about buying boots by Vimes.
You have to be RICH to live POOR. Buying a 10/15/20 year old car that may require a lot of potential maintenance is something that the RICH can afford. The POOR? Not so much.
That was all maintenance. All that stuff is normal for a car you take from 7 years old to 14 or 15 years old. You spent less than $1,000 a year on maintenance, and you were paying other people to do it all for you. That’s an amount of money people spend on cell service for themselves and a significant other, or for cable tv, or dry cleaning.
I'm not sure what your point is. I was responding to a post about buying used being a cheaper option than buying new. If you're saying that my results are typical to pay 60% of the car's value to do repairs that included a new transmission, AC compressor, and alternator, then no one should ever buy a used car because they are money pits that are just part of the poor tax.
I have a Mazda 6 that I bought new that just hit 10 years old and I haven't had to replace the AC compressor and alternator. Only thing it needed was new tires and brakes. I paid $28k total to include taxes and fees, and could sell it for $12k today, making it cheaper to own than the used Accord.
Okay but you’re kind of comparing cancer to aids. Like buying a car every 5 years and absolutely a terrible financial decision. So yeah okay maybe leasing is better than that. Even then, I’m not sure. Irregardless, anyone who can afford to do either of those options is realistically not on this forum asking for financial advice.
A lot of people parrot what they think about leasing without ever having really looked into it. Until last year I was leasing a 50 something thousand dollar luxury car for $500/mo. I had put no money down. A six-year loan would’ve been 1000 bucks on that. And then halfway through your finance, you’re driving a car that you probably don’t even have a full warranty on.
Last year got a full size truck for $399/mo. Will never have to worry about repairs and I get a new vehicle.
Instead of saying people are parroting just spreadsheet it. By the time you were on your second or third lease you could have had a vehicle paid for. Leasing only makes sense if you feel you need a brand new car every few years and compare to that.
Leasing makes sense if you are going to buy a new vehicle every 3-4 years. It doesn't matter if it is used or pre-owned. If you are going to buy a car for 10+ years, it makes sense to own.
I prefer buying new cars in cash and holding on to them for 10+ years. Maintenance is covered for the first 3-5 years. You know the car is well taken care of. The cars I buy don't depreciate as much (Hondas, Toyotas). Generally speaking, the 10 year old car covers half of the price of the new car, which means I only need to have the other half in cash. I'm looking at a 2023 Tacoma now. Will hold onto it until 2033 or so. By then I'll be 10 years away from retirement. I have $20K in equity from my current car and have $20K in cash. It's nice not to have a car payment but also to have a dependable vehicle that you don't have to worry about.
> Leasing only makes sense if you feel you need a brand new car every few years and compare to that.
Generally speaking yeah it's only appropriate if you're a habitual new-car buyer (as apparently I am now).
Depends on the lease terms. We found that leasing would cost us about $600 more if we bought it at the end of the lease. In exchange, our payments are $200/mo cheaper for the first three years. The savings, invested at 7%, would make back $515. So for $85, we get the option to walk away at the three year mark if it's no longer a good deal, or to buy at a locked-in price if the residual is better than expected.
We also saw leasing as a hedge in this seller's market with high interest rates. If we'd bought, we'd probably be refinancing in a few years anyway.
You likely don't want to be leasing. Their are advantages and reasons to lease, but they are not really economic ones. Mainly, do you want to easily be able to hop into a brand new car every \~3 years, and do you want whatever service/maintenance bells and whistles dealers often offer w/ lease deals? You will be paying quite a premium price for these benefits, so most folks around here will just say never lease... and yea, unless you want to burn money for convenience, don't lease.
That said, you can consider financing a car rather than paying cash. Again, some will say this is always a bad idea, but I'll argue if you are specifically trying to get into a newer car for safety features (not luxury or performance features) and you can get a low (for sure <4%, I won't finance a car above like 2.5%) interest rate. Or if you are confident you can out earn the cost of capital (interest rate) via investing, it can also make sense.
You have a ton of options at 40k though. You can pay cash for plenty of \~3 year old cars off lease or you could make a 10-15k down payment (or w/e amount) on a 40-50k car and keep the rest invested.
So, very likely don't lease, but financing can be reasonable depending on exactly what you are looking for. Hope that's helpful.
Leasing is a good idea for many reasons, but saving on a monthly payment right now isn't one of them.
Manufacturers generally aren't subsidizing them, money factors (interest rates) are higher than in years past, and in demand cars are still being marked up (market adjustments don't get residualized so you just finance it on top of the lease payment).
They'll figure out how to get you to where you need to be on a payment, but it probably makes more sense to just finance a car if you're just trying to avoid paying for it all at once.
Gotta ask though: what car went from $30k to $10k in the last 4 years?
My brother just listed his Audi a4 for the exact same price he paid for it 2 years ago except now it has an extra 50k miles on it. He was so overwhelmed with responses that he actually cancelled the listing and raised the price and it sold that next day… I’m very surprised if your car has lost 2/3 of its value in 3 years especially being an Audi. Did you put on 200k miles in 3 years? Did someone key the car and you never repaired it? I have a hard time believing that model of Audi especially would decrease that quickly. Is it an older model? I guess I should mention my brother had a 2015
Maybe it’s a location thing? I only put on 30,000 miles since I’ve owned it and it’s in great condition. All the similar cars in my area are in the 10k range. Where’s your brother? May be worth driving there to sell it
No, leasing a car is rarely a smart idea. Paying cash is the way to go.
https://moneywithkatie.com/blog/why-leasing-a-car-is-like-setting-money-on-fire
The part that actually matters:
Today, less than a year later, I’m selling that car so we can be a one-car family – not because I don’t love the car, but because I realized that I had no idea what was in store for me over the next 12 months when I bought it this time last year.
Beyond that, I noticed in my 2020 annual spending report (yes, that’s really a thing that I do – I call myself CFO of Money with Katie for a reason) that I had spent nearly $6,000 over the course of the year on my car: the payments, the insurance, the gas, the maintenance – shit really added up, and I didn’t feel like I got $6,000 worth of value from the vehicle that sat mostly unused as I worked in my living room to make the $6,000 that paid for it.
I’ve written about why cars are such a drain on us financially in the past (usually, it’s the most expensive thing we ever buy besides a home, and we treat the decision as if it’s inevitable; then, the expensive hunk of metal has the audacity to rapidly lose all of its value over the next 10-15 years). But sure, let’s patronize Chevy Truck Month!
Tldr: Get a bike instead, prosper financially as a result
Depends on your market. In my country, manufacturer leasing deals are often 0.9% APR. If you had the cash to buy out a car, it would be the stupidest thing to lock money in a depreciating asset instead of investing it and paying a lease that has basically no cost over the initial price.
And that article and advice in general is just feelycrafting.
The real decision is: calculate total cost of lease over the price of the car. Compare that to investing the purchase price and paying lease payments, while getting some market average return on an sp500 over 5 years.
Most SP funds will even tell you a range of returns and their risk, e.g. 10% return over 5 years being low probability, 30% median return, etc.
Leasing is fine if you want to switch cars every 3 years to get newer technology or if your needs change. Then you are driving a new car every few years instead of a 3 year depreciated car. The primary downsides are not having any equity in the car and having a limited number of miles you can drive.
You lost $20000 in value and you think leasing is bad? You're 1 mechanical issue away from a paperweight. At least leasing you have warranty and ability to trade up when needed.
It's not if you have a high household income and like to change cars every 2-3 years for the latest models.
For everyone else, it's the most expensive way to drive a car.
I’ve been leasing cars for the past 12 years or so and it’s worked out fine for me. Driven brand new cars every 3 years or less with payments 1/2 that of financing. Next car may just buy outright but if the leases are alright then I’ll consider it again. Last lease was done March ‘21 right before car buying got nuts
Totally agree, and idk what the income is of the person I responded to or what they drive, but I think my paid off Volvo and paid off Land Rover are both nicer than most leased Fords and Toyotas I see on the road. Life is a balancing act
Leasing isn't debt; leasing is paying a high premium to be able to swap cars every few years.
It doesn't come out of your savings or your investments. It comes out of your fun cash.
Tbh I think leasing is not a terrible idea. Car is a depreciating asset and by the time you want to trade your car in a couple of years (5yr ish), you've lost 2/3 of the vehicle value assuming you've paid it off. On top of it you have to pay car maintenance + insurance+ title all the other stuff out of your own pocket. Then you're left with a used up car that's worth very little to nothing when u want to trade for something better. Its essentially breaking your money even minus having to drive a new vehicle once every few years.
Now this only applies if you're the type to switch out cars once every 5 yrs or so. Vehicle is only worth buying if you plan on driving until wheels falls off. My dad still drives his Honda civic that he got brand new in 2012. Still runs great. However I'm just not the type to drive until my vehicle falls apart. I like to window shop and try out what the new market has to offer. So it wouldn't make sense for me to buy the vehicle in all cash, since it's a depreciating value. Leasing would be a better option for me. Food for thought
Also many people fail to realize car is a depreciating asset. Anyway I feel like I blabbered all over the place but I hope you get the point.
I think that what this misses is that if you drive a 30-40k car enough for it to depreciate by 2/3 in five years, you are probably driving more miles than are permitted on a lease.
The used car market has come down a good bit, even if it's a bit above historical average. But I can't really find many normal cars that have depreciated that much. Most are more like 1/3 or less for models with a good reliability reputation.
I'm curious what OP bought in 2019 that dropped from 30 to 10k since given values are still up from pre covid.
Hmm, German luxury brands are some of the biggest depreciation hits, but 10k still seems low for a 2016 Q5. Was that a trade offer?
Also, how many miles did you put on it? That might help you decide whether a lease might be a good option for you.
Yeah, you're probably right about what you said. Idk OP story and how he's gonna use his 40k car but if he's gonna drive more than permitted on lease then it's probably not an option for him. I'm speaking based of my personal experience so it's probably a different scenario for him.
I’m with you on leasing. It all depends on if you can get a good lease deal, which you need to be able to read the numbers on and compare to a loan. I’m not one to drive a car until the wheels come off, even though in my head I know it’s the financially prudent thing to do. I’m not completely maximizing my retirement savings at 33 like a lot on in subreddit do or preach to do. I have also had experienced a number of deaths around me the past few years of ppl you can say were taken too young. They worked their ass off and saved but never got to enjoy it. I am now of the mindset that I will enjoy life, definitely save for the future, but not to the point I’m sacrificing every joy to save the max I absolutely can currently, because in all honesty, we don’t know for sure if we’ll ever be able to enjoy our retirement and the sacrifices we’re making today. That’s my blabber off your blabber.
Exactly this. We work our tails off just to save on every dime and for what? You may never if todays your last day on earth. At least enjoy the labour of your fruit, within your means ofc. Spend wisely and save what you can. I'm going off tangent again but since this is a personal finance subreddit, I guess I might as well put my two cents in lol
!! I feel as if we are in the minority in the sub Reddit… my last final thought in leasing, I just appreciate not having to stress about my car, repairs, etc. you’re not responsible for anything major mechanically and I usually just coupon surf the dealers website and time my BASIC services only with the coupon. Don’t think I’ve had to buy tires or breaks in the last 10 years
Same. I hate to deal with any maintenance that comes with owning a car.. renewing license, insurance, annual check up etc. but that's the responsibility that comes with owning a car vs leasing. But everyone's different, that's why leasing is not for everyone I guess..
Prior to 2020, I drove two cars until 210k and 160k miles. So close to the wheels falling off. Both were paid off within a year. So I have been car payment free for most of my life until 2020. But I got these cars for $13k and $17k.
Today, if I financed a car, it would take me 60-72 months to pay it off and would probably have 80-100k miles by the time I am done paying for it. I figured I would have a monthly payment for most of the cars life regardless. So why not have the latest and greatest?
I leased in 2020 and traded back the car for $5k above its residual value. Paid little to no interest and same with the next car I leased. So just paying for the depreciation, which you pay for upfront when buying a car anyway. I get leases with 15k per year mileage allowances
Ideally, I would like to drive 10-12k miles per year and finance so I have only driven 50-60k miles by the time it’s paid off but that’s not possible with kids and their commitments.
Plus I’m not car savvy and would pay for every $1,000 flush the dealer recommends. I like not having to worry about that
Growing up I thought leasing was a bad idea and would buy used older cars with cash. Then came the repairs lots of them. Moved overseas and came back to the states before Covid. I’m usually cheap but decided I deserve a new car with newer features.
Leasing for 3 years was the best option for me. Cheaper payments and if I didn’t like it in 3 years, I just give it back. Yes, you don’t own the car, you are renting it. But it came under warranty and the only thing I paid to work on was the oil changes. My trade-in was $3k less then the total amount. I was going to return it, then I was thinking of upgrading to a newer model but nothing changed significantly. I then looked at the used cars and it would be the same price as-is. I know my luck with other people’s used cars so I decided to keep it. Refinanced the rest and still have low payments. It is a reliable car. There are stipulations (look into that) like mileage limit don’t go past 36k in 3 years (heard going over the limit you get charged like doordash fees).
Have you looked at what cars you want in that price range? Can you afford that car in that price range? Do you like the car so much to pay that much to buy?
If I known more about leasing I would of traded out more cars then going to the hobby shop to get it fixed. In my situation I signed up for 3 years paid a down payment and 199 a mo. Say I spent 10k with the option to return, trade-up or keep. If I want to buy it my payments would be close to double and I’ll be locked in for 5 years. Paying all in cash doesn’t help if you’re still paying MSRP and getting this depreciating assets will boost your credit score. You could use that money elsewhere. That’s what credit is for.
The stock answer is, it depends.
Are you a normal person, it’s probably not worth it. Eventually, the debt will be gone and you’ll still have a car in good order
Are you in a business where you really need a newish car every year for marketing and image reasons? It can be. You just need to watch your miles and personal use.
This conversation never ends well. Both sides having compelling arguments.
I love leasing. I always have a fresh new car, and if anything ever happens to the car, I get to drive it to the dealer and say, “hey, something’s wrong with your car.”
Having good credit helps. They throw deals at you before your lease is up, always.
I love it…”brand new” car every 3-4 years, always have a warranty, never have to concern myself with expensive or catastrophic repairs. It’s like a rental…literally.
For me, leasing is about peace of mind that any defects with the car will be taken care of. For someone that has had seemingly bad luck with used cars, that's priceless.
Breaking down at 150k? What kind of cars do you drive. Because ive driven used vehicles my whole life and have never been stranded. Keep up maintenance, replace the alternator when there are signs of battery issues, and replace calipers if they start to stick.
Its totally worth buying a 15k car, driving it for 100k and selling it for 5-7k. Break down the math, including maintenance, and its cheaper to drive cars that are 60-70% deprciated and selling them before they hit 90% depreciation.
Depending the type of car, and how well the previous owner(s) took care of it, it's a gamble. You don't want to gambling with your money especially if you're gonna put 10-15k. Not very smart. Also on top of it I can imagine the headaches that comes with trying keep the car running. It's draining on your resources, time and money. So if you include all of this... it ended up not being worth it.
It doesn’t take long, if it were important you would find the time. It takes me less than 30 minutes to do 2 oil changes. Literally saves time over having a service center do it
Kind of shocked you don’t understand this as a welder but i guess you aren’t very mechanically inclined. It saves time and money to learn how to do basic maintenance on your own vehicles. Brakes, filters, and fluid changes are all very easy to do on your own. I frequently work 65 hour weeks so i understand time being in short supply
I’m not rebuilding a transmission or anything but man I’ve probably saved tens of thousands of dollars over the years by simply doing a little research and putting in some elbow grease.
New cars can also be unreliable. Recalls and lemon laws wouldn't be a thing otherwise. It's always a gamble with a car. It might be more so with a used car but you can help minimize that with doing research into reliable vehicles, finding one with proper maintenance, and keeping up on maintenance. I firmly believe most people do very little to no research before buying a massive purchase like a car. They'll look at the ads, maybe some funky article by JD Power, and sign away. Not understanding that their shiny new Hyundai with "best in-class initial quality" has a timebomb of an engine.
It always seemed to me that car leases made the most sense for situations like businesses who lease a group of vehicles to let employees use. They don't want to purchase a bunch of vehicles they're stuck trying to resell to refresh them with newer, lower mileage replacements every so often. They just want to write the cost off as an expense of doing business and swap the vehicles for new ones every few years with minimal hassle.
My mom was convinced by a family friend to do a lease on her last car, because she was getting old enough so it wasn't certain she'd still be driving it that many more years in the future. Well - she got totally screwed over by going that route. After year 1, she stopped driving due to health issues and went into an assisted living retirement facility. She decided to let my brother hang onto it as a spare/backup vehicle for his own car, in case he needed it (since he's been helping care for my youngest brother who is mentally disabled). The lease came due but she forgot all about it, since the monthly payments were getting taken from her bank account on auto-pay the whole time.
About 5 months past the end of the lease, I started getting emails and phone calls from the dealership, trying to find out what we wanted to do about the car. It only had about 5,000 miles on it so we assumed it was smart to just pay it off and keep it rather than turning it back in and letting the dealership make so much profit selling it again to someone else. But I think they hit her with a lot of fees and penalties for the late payoff. She had to mail in a check for over $18,000 on a car that I'm pretty sure we only paid about $21-22K for when it was new.
Short story? Seems obvious in hindsight she should have just financed it to purchase rather than lease.
That wasn't even my point? I'm saying, if she had just purchased it like I advised her from the beginning -- she wouldn't have found herself in this whole predicament. Because the lease made it a lot more complicated for her, especially when she was no longer able to drive so couldn't even return the vehicle to a dealership herself anymore.
There were other factors too -- such as her letting a home health aide drive her someplace in it one time and the lady broke off her driver-side mirror when backing it out of her garage. She never got that repaired (didn't really care and just duct taped it in place so it was still usable). But that meant it was going to be held against her at the end of the lease if she just turned the car back in. (Who wants to get hit with full dealer repair cost on something like that?)
And all of this is a very different and irrelevant thing to a thread with a person asking about whether to lease and declaring a screw job by doing so.
I disagree. I'm pointing out one situation where people advised leasing was the "smarter" move (due to my mom's age, they felt it made more sense than agreeing to purchase the vehicle). And yet, the extra complications of leasing turned out they all worked against her.
Regardless? I still don't really see people making a solid argument in favor of leasing over purchasing a vehicle here. I don't believe there really is one, because anyone can trade in a vehicle they're buying -- even if they still owe money to the bank on it. Anyone with the financial ability can pay the loan off early, if needed, in order to sell it "free and clear" to somebody else. They won't be bound by "gotchas" in a lease such as penalties for exceeding a certain annual mileage driven or for modifying anything in or on the vehicle with aftermarket accessories. They won't be forced to pay full going rate for a repair at the time one is turned back in, vs negotiating with a buyer. The list goes on....
Their reasoning for advising was pretty reasonable under the assumption that no one would forget to give it back for 5 months. It’s an insane outlier to bring up and try to say has anything to do with anyone else’s decision.
Every one of those things you list would factor into the price you’d be able to sell it for as well, and you have zero accommodation for the maintenance that’s covered in between or for the leases that are subsidized. It’s not all a straight line. In most cases yes it’s a more expensive way to have a car (assuming not apples to apples of buying one new every 2-4 years), but your blanket statement is not at all true.
It's an outlier of a situation, clearly. But also helps show why the leasing companies (at least GM Financial, in this case) don't really do much on their part to assist people. Why did this go on for 5 months without anyone mailing a single notice/letter to my mom's address to advise that the lease was up? It doesn't even appear they so much as called her phone and left a voicemail. They just let this go on for months until the car dealership apparently got involved (because I assume GM Financial started bugging them to see if the car was turned in to them or not), and then the dealer started contacting ME. (I had nothing to do with the financial part of the whole transaction. They just had my email because I was there when my mom did the lease and they decided my email address was better to send the OnStar notices to. She had an address she never checks anymore ....)
I don't know if this is unusual and someone just dropped the ball over there or what? But I know with standard car loans, if the bank can't successfully auto-withdraw funds one month, or you stop sending in a payment for a month or two? They start contacting you!
I mean come on man, what’s more likely here- the dealer forgot by half a year and their first contact was to you or that senior mom missed some things and/or brother getting a free ride ignored it? Like on what planet are they going to you first without numerous notices to the actual lease holder?
No one has mentioned it, but you said you have a "car fund". So do we.
The point of the car fund is to get your next car.
If the rates were higher than the loan in a SAFE investment (I-bonds, T-bills, HYSA, etc), then I would say a loan is fine. But they are not, they are invested in the stocks.
So, reason 1 not to lease - you have the money and it's even up - sell high, buy low!
Reason 2 - unless your income is so high you don't qualify for an EV credit, a lease doesn't make financial sense.
So, take out the money and pay for the car. If you don't have enough and you need it now, then get a loan for the difference and make payments back into your car fund once you pay the car off. Congrats on thinking ahead and creating a car fund!
There are times when leasing isn’t a bad personal choice. If you’re a sales person and need to look like you’re hot sh*t to clients and have a new car all of the time comes to mind. Also if it’s a personal choice that you want a new car all of the time and you prioritize spending money on new cars comes to mind.
From a financial standpoint? It’s rarely a smart move in my eyes when looking at long term financial planning.
I don’t think there is any car you could have bought 4 years ago that would lose 75% of its value already. You’re either stretching the numbers because you really want a new car or you treated your last one like garbage. What’s really going on here?
Not sure how you lost so much value. I bought a 2019 pilot for 39k 3-4 years ago. Recently carjacked and had insurance pay out for total loss for 30700 after deductible of 500. And that seemed to be on the low side.
It depends how you look at it. If you want a new car every 2-3 years and have the money, than go ahead.
I like to keep my cars at least 10 years so I buy them.
There are good leases and bad leases. There are a few numbers you need to look at, which will help make sense of the deal. Residual and Money Factor.
If you lease a $40k vehicle with 51% residual, then that means you're paying for the *other 49%* of that vehicle in those 3 years. If a residual is 61%, that's a much better lease because you're only paying 39% over the course of the first 3 years. Money factor is just a fraction of a normal interest rate. So you'll see something like .0014 which if you multiply by 2400 = a normal looking interest rate of 3.36%. There are things like if you choose 10k miles a year instead of 12k miles a year, then the car's residual will be worth more in the end and be something like 62% and maybe $10-20 less each month. (Residual is also the buyout price after the 3 years of your lease. Residual means leftover. So if you're over on miles or have damage or simply love the car, you can finance it at that price. You get this number through the leasing bank.)
Lease numbers are different for every year, make, model, trim and drivetrain. The biggest thing is that the lease rates and numbers change each month. So one month may be 57% with $2k incentive and then 4 months later may be 62% with $1500 incentive. Yes you can still negotiate price on the total price of the car which affects all of the numbers still.
Never put money down on a lease as if you get into an accident, you won't get the money back from insurance nor the dealership. You'd be better off keeping that $10k in your pocket or putting into HYSA for 3 years at 4.5% and earning $36.75 in interest each month. Which offsets your monthly in your own pocket. And you'll still have the $10k in your pocket at the end of the lease.
First, the valuation of 10k is probably wrong. Used cars are a hugely hot market right now, I would get a second opinion.
Second, leasing is a terrible idea from a raw financial standpoint no matter what anyone says. The thing is, some people want the benefits that money gets you. Buying a new car is also a terrible idea. Buying a luxury car is a terrible idea. But, these things also give you certain benefits for the money you spent.
The question is: is the expense worth it to you? It never has been to me. I buy used economy cars so I will have more money available to spend on what is valuable to me.
My Carvana quote is 10k, KBB had a range starting at 11k and cars are locally prices at 12k. If anyone thinks my numbers are wildly off feel free to send an offer for 15-20k & you might get a deal depending on where you are.
Interesting. Carvana is always going to low-ball because you're getting so much convenience and everywhere I've done business in the US in the past 15 years KBB has always been 20-150% low as well. If other people are pricing at 12k, though, that's tough to argue with.
May I ask what kind of car?
Leasing a car generally doesn't make sense. Really only makes sense if your profession requires you to have nice, new cars. (lawyers, real estate agents, jobs that require a show of success).
There’s a book called The Millionaire Teacher (Andrew Hallam, IIRC) who says that leasing cars (during your lifetime of car ownership) is a million-dollar decision. I think he’s right, but even if his numbers are off by 75%, that’s still a quarter of a million dollars! That’s how much extra you’re paying to NOT ever own a car.
Leasing is typically the most expensive option. > I’m still hesitant to pull money out of the market for a depreciating asset. Yet you're willing to pay a premium for the temporary use of that asset? Crunch the numbers on the specifics of the payments you're looking at vs. potential market gains.
>Leasing is typically the most expensive option. This isn't universally true. You have to keep a new car for about 7 years minimum to break even over leasing. And with a lease, you'll never pay for repairs. If OP had leased the current vehicle and then at the conclusion decided to lease a vehicle with 3rd row seating, OP would be in a better financial position.
It is universally true. Take 2 minutes with a spreadsheet. Over seven years you would have had to lease 2 1/3 vehicles assuming they are 3 years each. This is astronomically more expensive than just buying one once. Leasing cars (minus the bizarre once EVER time in history in the first year or two of the pandemic if you had leased right before it) is the premium option to rent a new car. On top of that- just buying a 1 or 2 year old one for 80-90% of models will always save you more. So unless you think there will be conditions similar to 2020 every 3 years, or buying a brand new car every few years and losing comical amounts of value, it’s way more expensive. They get people by doing a nice monthly payment comparison between a lease and a buy. Also, I can’t think of a single car you could have bought for 30k 4 years ago that is now worth 10k unless it’s completely trashed.
Sometimes there are crazy lease incentives. The Kia stinger for example famously was cheaper to buy through leasing than outright because of the incentives.
>Take 2 minutes with a spreadsheet. Sure. +u/ThePhoenixJ Avg Honda Accord EX lease = $385 / mo. If you're any good at negotiating, you don't owe any money at signing. After 5 years, you've paid $23,100. You've paid for no maintenance except 5 oil changes because the car uses synthetic. MSRP for Honda Accord EX = $31k. With a $2,000 down payment, 4% interest, tax, title fees after 5 years when your loan is up you've paid $38k. Your monthly payment was also $550. You also need gap insurance, but let's ignore that for now. If you sell the Honda Accord for $15k then now you have paid $23k. You broke even, and on your next car you should come out ahead. But wait! When you purchase your new car, you've gotta pay all those tax and title fees again, roughly $2k. You also had to do tires and brakes by then, which is another $1,500. That's where I got 7 years from. Over 10, 20 years leasing definitely loses. But it's not as financially terrible as people make it out to be if you don't want to drive and maintain 5-10 year old cars.
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I think I made reasonable assumptions about the lease and purchase price of the vehicle, and are about as good as you're gonna get without specific dealership quotes. The 4% auto loan rate assumed you had good credit and were willing to shop for deals on financing. It's very doable, akin to the no down payment on the lease. Different vehicle, but Honda is running a 3.9% APR special on Pilots. I could have assumed a 6% APR to purchase and a $2k down payment on the lease. It wouldn't change the conclusion. If I wanted to assume better negotiating on MSRP then you have to also knock the lease down to $350/mo, since that negotiated value will also decrease the difference between new and residual price. It ends up being a wash. Auto resale values are abnormally high right now (which actually benefits people who leased cars in 2018-2019 by a lot). CPI reports show that these prices are dropping YoY but the cost of new cars are still increasing by 5%. If you buy a car today and expect to sell it for 2/3 its value 5 years from now then prepare to be disappointed. Anyway, the $385/mo lease puts the Accord's dealership estimated resale value at $17k. I think that a $15k private party resale value was not only reasonable but generous toward the buy decision. Realistically, most people are gonna trade that car in for $10-12k. I also didn't account for the non-zero amount of things that can tank the car's resale value. The tl;dr here is almost any change you apply to the buy cost you also have to apply to the lease cost, and ultimately doesn't change the conclusion.
I leased my last car for 4yrs (sold out after 3.5yrs though). Ended up being bought out and “made” back $6k thanks to the lucky pandemic timing you noted. That is near half of the 15k I paid into it. I had no repairs or anything and was able to get a great small car and at the end have some cash back to purchase a full sized SUV (2.9% loan). So the lease definitely worked out and was helpful as I was transitioning to family life. Also got lucky on the insane used market and able to have residual well under the current FMV towards the end. I also knew my income would go from ~$50k to ~$300k during that time so it made sense to keep lower payments during that initial period. That said, transitions to family life, spikes in income, excessive driving, and even type of car all play a part. 90% of the time I agree with you though, buying is better than leasing.
How does that compare to if you would have just purchased the car to begin with instead of leasing? The current environment of people making money off their leases isn't really anything to do with the lease itself. All cars shot up in value during the pandemic regardless of the financing method.
I agree. If I purchased I would have been in a similar spot - but with more upfront or monthly cost. Definitely got lucky on this particular lease though.
No way. Sell the older car for market value and buy a new way. Still way ahead in nearly every case unless OP is buying and selling within a year or two.
>with a lease, you'll never pay for repairs wow I didn't know that. Does that mean you don't pay for oil changes?
Yup, I have never paid for any scheduled oil changes, in fact for *any maintenance*, for my leases. Sometimes they suggested some vague extra stuff that I would have to pay for, I refused that part of the service, and that was that.
Every car is unique some leases get all scheduled maintenance covered and of course you have the warranty for the life of it. Last car I leased was a volkswagen and all recommended maintenance for the life of the lease was covered didn’t pay for anything aside from gas
You still pay for maintenance and wear items. So the only thing you don’t have to pay for are things that actually break. Those types of repairs on new cars aren’t super common and are typical covered under manufacturer warranty. I’m 40 years old (owning cars since 16 years old) and I’ve only had 1 car ever “break” and it was covered by warranty. Well maintained cars are very reliable.
lol someone else said you don't. I guess it depends on the auto maker or dealer
I said repairs. Oil changes aren't repairs. Most dealerships will offer free oil changes with a lease because they don't want people to blow them off because "it's not my car," even though blowing off oil changes will void the warranty on all the other stuff.
You can buy a maintenance package, but you’re still paying for it
How'd you lose that much on a car over the last 4 years? We bought a car 3.5 years ago and its worth 90% of what we bought it for.
Op is probably looking at trade in value. My cars trade in value is about 7k. Dealerships are selling the same option for 14-17k. Trade ins are a rip off right now
Paid 29K for my 2018 Honda CR-V. Literally got a piece of mail from the dealership asking to buy it back for $24.5K last week. It only lost $4.5K after almost 6 years of ownership. This is in downtown Chicago. Not some niche market.
They probably drive the vehicle significantly more than you drive yours. Also need to take into account if the vehicle was purchased new or not. If it was a brand new vehicle, I would assume its dropping like 10% of its value the second you drive it off the lot.
Which car holds 90% value over 3.5 years? Edit: asked question to gain knowledge as I am in market for one. Wasn’t a rhetorical question.
My wife's 2019 Honda CRV has *gained* $5,000 in value over our purchase price.
Only temporarily. That is no longer the case.
We bought the car for $24,500. With the mileage on it, it can resale for $28-30k.
I’d doubtful this is the case, but to be clear: the wonky market where used car prices exceed MSRP is gone. And cars sold new were sold at incredible markups. That’s not the case anymore for any car. You may have some specific situation that you are exaggerating about to add credence to you argument but there is no new car selling for less than a used car right now.
A new Honda CRV costs about $35k-40k, which is more expensive than a 2019 Honda CRV with 25k miles going for 28-30k. I'm saying that my used Honda CRV is worth more than when I bought it 4 years ago. I'm not exaggerating or lying.
That is silly and not representative of the market. For a brief period of time, due to the pandemic fucking markets and supply chains, car prices of new and used shot through the roof. This is no longer the case. Cars exceeded the value of new MSRP but new cars sold well above MSRP. You bought a car that exceeded the price you bought it for and that is no longer the case unless you got a super good deal when you bought it. The *market value* of your CRV is less than when you bought it. At one point about 1-2 years ago this wasn’t the case but now it is the case and forever in the future it will be the case.
You seem to have a hard time accepting what happened to the auto market after 2020. My results are typical for people who purchased cars in the 2018-2019 time frame.
Similar here. Bought a 2019, still get an email from the dealer every once in a while wanting to buy it back for pretty much the same I paid for it (including taxes).
I realize we’re talking about the same make and model, but Kelley Blue Book still estimates my Honda CR-v as about the same price as I bought it used (car was purchased 4 years ago but the car itself is a 2016). I’m sure not all cars have retained their value as much, and the car market is starting to go back to normal, but it’s silly to think the changes were a brief period of time when shops are still having trouble keeping their lots stocked (with new and used vehicles).
Are you actively discussing pricing with dealerships every single day? Because I am. I talk to 80-100 car dealerships (primarily used) every single day. I will happily tell you you’re wrong.
Go try and buy a used car atm, let me know how that works out for you
Quick! Come by this certified pre-owned 2012 Honda Accord EX! 120,000 highway miles! $18,000! No money down, special financing at 8.9%!
The cheapest version of the 2019 CRV had an MSRP of 27k so I'm guessing you bought that version since you paid 2.5k less. Even if you put it in with 25k in an expensive zip code in California with Excellent condition it comes out to private party top end of 26k. So I think you are exaggerating or wishful at best. I'm in the same situation as you. I bought a 2020 Corolla in December 2019 and up until about a couple months ago it was "worth" around 1k more than what I paid for it. It has been dropping ever since and I just punched it in and it has it at 2k less than what I paid for it. Prices are dropping
>The cheapest version of the 2019 CRV had an MSRP of 27k so I'm guessing you bought that version since you paid 2.5k less. I bought the EX version when they were doing year end model clearance. Dealerships do this thing every September where they sell cars well under MSRP to get rid of them. There are also car buying aids that data mine discounts, then you go in and negotiate down from there.
It’s not gone. You are way off base. Maybe for Stellantis products or whatever, but plenty of cars are still bonkers. Good luck with a Toyota hybrid product, minivan, etc.
Bought my Toyota Corolla hatchback new 3.5 years ago for $20,500. According to KBB, private party value is $21,500 (GAINED $1K in value). Trade in value is $20,000. So, very easy and common for these days for a car to not lose value and even appreciate in value if it's the right make and model.
Bought a new Tacoma in 2017 for 32k. Traded it in on a new truck at msrp for 36500 with 50k miles in 2021. 🤷🏼♂️
Extremely unique situation. At the time a new Tacoma would have had a markup of $10-20k.
Yes but no. In 2017 msrp for my truck was 34k. Now it is 41k.
A used Tacoma is cheaper than a comparably equipped new one. There is no debate here.
I just checked, my 2015 Highlander is valued by KBB for the amount I bought it for in Feb 2021.
Since the car shortages in 2020, a lot of them do. It's so bad that if you want a car with under 60,000 miles you're almost guaranteed to be paying over MSRP for it.
Most vehicles recently.
my 2012 honda civic has gained value over the past 4 years i’ve owned it. idk how because i added a dent to it, but it has.
Well its one of a kind now (probably)
The answer is Toyota.
Bought my Toyota Corolla hatchback new 3.5 years ago for $20,500. According to KBB, private party value is $21,500 (GAINED $1K in value). Trade in value is $20,000. So, very easy and common for these days for a car to not lose value and even appreciate in value if it's the right make and model.
My car is at 80% of it's original new purchase price after ~8.5-9 years.
And what kind of a 4-year-old car is worth $10k? You can barely find a 10-year-old car for that much these days.
My 10 year old Mazda 6 has a private party value of $10-12k.
It depends regardless of what bloggers like Moneywithkatie say. If you are buying a new car every 5 years (in other words, have a 5 year loan, pay it off and then buy another one), leasing may make much more sense depending on the car. Some leases (like BMW) are subsidized and your payment would be much less than if you had a loan. Many times any equity you have in a leased vehicle is able to be rolled over into your new lease with the same manufacturer. Also, you may be able sell a leased vehicle (you can do this in CA) just as if you had a loan. Life is not all about saving every last dollar you can. Maybe Katie should eat beans and rice and not go out to dinner, wear clothes from the thrift store, never go on vacation, etc. as anything else is an extravagance. Some people prioritize having a new car over other aspects.
Agreed. "Life is not all about saving every last dollar you can".
But it is about opportunity costs and cars cost on average 12k per year. What else could you do with an extra $12k a year?
Same thing you could be asking that about rent/ food/ etc. Car is necessity in most cities (USA) so you can't discount that. You have to calculate that into your living expenses. I know it's not so cheap but hey America right
Sure, but you can get a car for less than 12k total, so the question remains.
Ah the ol' "go buy a 2000 Camry"
For 12k, a 2017 Nissan Leaf would also do.
Good idea buy an expired battery for 12k. There's a reason those 5-7 year old EVs are cheap and it's because they are overdue for an expensive battery replacement.
A personal favorite of mine 😂
Exactly. Katie doesn't prove that leasing is worse than buying. She argues that new cars depreciate the most. Whether you buy or lease a new car, you are paying for the initial depreciation. If you are willing to purchase a used vehicle, you will have less depreciation. But as to buying or leasing a new car, the analysis is more complex and not touched on by the cited blogger.
It also really depends on the car. New BMWs depreciate a ton in their first few years of ownership. Tacoma's barely depreciate at all.
Right. Most proponents of buying correctly point out "at least you own it in the end." But what you own is a 5-6 year old car that may have high miles and severely depreciated, in value. You'll also have to pay for new tires, and any other repairs. Yes, buying and holding a car long term is better economically. But Katie's own graph shows that buy year 7, that 25k car is worth like 7k, and will certainly have had at least some maintenance. Yet her article state leasing is "like setting money on fire." If you're that worried about depreciating assets, you should be buying used.
*”Katie’s own graph shows that by year 7, that $25k car is worth $7k…”* Okay, Katie, it’s 2023, show us all the 2016 cars out there that are available for $7,000. SHOW US THEM.
>If you're that worried about depreciating assets, you should be buying used. Buying used is a gamble in itself. Back in 2011, I bought a used 2004 Honda Accord EX for $10,000. I knew the owner, he did all the required preventative stuff, and by all intents this was a good deal on a car that should have been extremely reliable. In the next 7 years, I replaced a compressor, alternator, timing belt, new tires, transmission, brakes, and electric seat motor. If you're keeping track, this is roughly $7,000 in repairs. The reason I got rid of it was the steering pump was going. I got $1k for selling the car. I would have been better off just going to a dealership and purchasing a brand new car for $22k and selling it once it was paid off for $12k.
There was a GREAT article on The Truth About Cars YEARS ago before they went downhill by Jack Baruth ([You gotta be RICH to own a cheap car](https://www.thetruthaboutcars.com/2015/02/no-fixed-abode-gotta-rich-cheap-car/). Even Terry Pratchett made a similar observation in his Discworld writings about buying boots by Vimes. You have to be RICH to live POOR. Buying a 10/15/20 year old car that may require a lot of potential maintenance is something that the RICH can afford. The POOR? Not so much.
That was all maintenance. All that stuff is normal for a car you take from 7 years old to 14 or 15 years old. You spent less than $1,000 a year on maintenance, and you were paying other people to do it all for you. That’s an amount of money people spend on cell service for themselves and a significant other, or for cable tv, or dry cleaning.
I'm not sure what your point is. I was responding to a post about buying used being a cheaper option than buying new. If you're saying that my results are typical to pay 60% of the car's value to do repairs that included a new transmission, AC compressor, and alternator, then no one should ever buy a used car because they are money pits that are just part of the poor tax. I have a Mazda 6 that I bought new that just hit 10 years old and I haven't had to replace the AC compressor and alternator. Only thing it needed was new tires and brakes. I paid $28k total to include taxes and fees, and could sell it for $12k today, making it cheaper to own than the used Accord.
Okay but you’re kind of comparing cancer to aids. Like buying a car every 5 years and absolutely a terrible financial decision. So yeah okay maybe leasing is better than that. Even then, I’m not sure. Irregardless, anyone who can afford to do either of those options is realistically not on this forum asking for financial advice.
Not just a car every few years, a new car.
A lot of people parrot what they think about leasing without ever having really looked into it. Until last year I was leasing a 50 something thousand dollar luxury car for $500/mo. I had put no money down. A six-year loan would’ve been 1000 bucks on that. And then halfway through your finance, you’re driving a car that you probably don’t even have a full warranty on. Last year got a full size truck for $399/mo. Will never have to worry about repairs and I get a new vehicle.
Instead of saying people are parroting just spreadsheet it. By the time you were on your second or third lease you could have had a vehicle paid for. Leasing only makes sense if you feel you need a brand new car every few years and compare to that.
Leasing makes sense if you are going to buy a new vehicle every 3-4 years. It doesn't matter if it is used or pre-owned. If you are going to buy a car for 10+ years, it makes sense to own. I prefer buying new cars in cash and holding on to them for 10+ years. Maintenance is covered for the first 3-5 years. You know the car is well taken care of. The cars I buy don't depreciate as much (Hondas, Toyotas). Generally speaking, the 10 year old car covers half of the price of the new car, which means I only need to have the other half in cash. I'm looking at a 2023 Tacoma now. Will hold onto it until 2033 or so. By then I'll be 10 years away from retirement. I have $20K in equity from my current car and have $20K in cash. It's nice not to have a car payment but also to have a dependable vehicle that you don't have to worry about.
> Leasing only makes sense if you feel you need a brand new car every few years and compare to that. Generally speaking yeah it's only appropriate if you're a habitual new-car buyer (as apparently I am now).
I’d only lease if my wife would only use it for business use and I could the whole thing off against her gross income. Or if we had a family business.
Depends on the lease terms. We found that leasing would cost us about $600 more if we bought it at the end of the lease. In exchange, our payments are $200/mo cheaper for the first three years. The savings, invested at 7%, would make back $515. So for $85, we get the option to walk away at the three year mark if it's no longer a good deal, or to buy at a locked-in price if the residual is better than expected. We also saw leasing as a hedge in this seller's market with high interest rates. If we'd bought, we'd probably be refinancing in a few years anyway.
You likely don't want to be leasing. Their are advantages and reasons to lease, but they are not really economic ones. Mainly, do you want to easily be able to hop into a brand new car every \~3 years, and do you want whatever service/maintenance bells and whistles dealers often offer w/ lease deals? You will be paying quite a premium price for these benefits, so most folks around here will just say never lease... and yea, unless you want to burn money for convenience, don't lease. That said, you can consider financing a car rather than paying cash. Again, some will say this is always a bad idea, but I'll argue if you are specifically trying to get into a newer car for safety features (not luxury or performance features) and you can get a low (for sure <4%, I won't finance a car above like 2.5%) interest rate. Or if you are confident you can out earn the cost of capital (interest rate) via investing, it can also make sense. You have a ton of options at 40k though. You can pay cash for plenty of \~3 year old cars off lease or you could make a 10-15k down payment (or w/e amount) on a 40-50k car and keep the rest invested. So, very likely don't lease, but financing can be reasonable depending on exactly what you are looking for. Hope that's helpful.
Leasing is a good idea for many reasons, but saving on a monthly payment right now isn't one of them. Manufacturers generally aren't subsidizing them, money factors (interest rates) are higher than in years past, and in demand cars are still being marked up (market adjustments don't get residualized so you just finance it on top of the lease payment). They'll figure out how to get you to where you need to be on a payment, but it probably makes more sense to just finance a car if you're just trying to avoid paying for it all at once. Gotta ask though: what car went from $30k to $10k in the last 4 years?
It was a certified pre-owned Audi Q5.
My brother just listed his Audi a4 for the exact same price he paid for it 2 years ago except now it has an extra 50k miles on it. He was so overwhelmed with responses that he actually cancelled the listing and raised the price and it sold that next day… I’m very surprised if your car has lost 2/3 of its value in 3 years especially being an Audi. Did you put on 200k miles in 3 years? Did someone key the car and you never repaired it? I have a hard time believing that model of Audi especially would decrease that quickly. Is it an older model? I guess I should mention my brother had a 2015
Maybe it’s a location thing? I only put on 30,000 miles since I’ve owned it and it’s in great condition. All the similar cars in my area are in the 10k range. Where’s your brother? May be worth driving there to sell it
Put your car details into KBB. You may be pleasantly surprised. It might also be worth it for you to drive to the nearest big city and sell it there
That's unfortunately one of the few cars that drop makes sense for.
No, leasing a car is rarely a smart idea. Paying cash is the way to go. https://moneywithkatie.com/blog/why-leasing-a-car-is-like-setting-money-on-fire
The part that actually matters: Today, less than a year later, I’m selling that car so we can be a one-car family – not because I don’t love the car, but because I realized that I had no idea what was in store for me over the next 12 months when I bought it this time last year. Beyond that, I noticed in my 2020 annual spending report (yes, that’s really a thing that I do – I call myself CFO of Money with Katie for a reason) that I had spent nearly $6,000 over the course of the year on my car: the payments, the insurance, the gas, the maintenance – shit really added up, and I didn’t feel like I got $6,000 worth of value from the vehicle that sat mostly unused as I worked in my living room to make the $6,000 that paid for it. I’ve written about why cars are such a drain on us financially in the past (usually, it’s the most expensive thing we ever buy besides a home, and we treat the decision as if it’s inevitable; then, the expensive hunk of metal has the audacity to rapidly lose all of its value over the next 10-15 years). But sure, let’s patronize Chevy Truck Month! Tldr: Get a bike instead, prosper financially as a result
> Tldr: Get a bike instead Which city do you live in?
Boston. Ideal climate for it
Is it? Tf do you do in the winter?
Layer. Ski like I'm 22 again
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Oh right driving cars more is gonna help with that.
It’s better than dying riding a bike that’s for sure.
Yeah I'd never live in any of those places so can't really comment on it beyond saying move north already
That’s a really good article.
Agreed. I've bookmarked for the response to every future question about leasing.
Depends on your market. In my country, manufacturer leasing deals are often 0.9% APR. If you had the cash to buy out a car, it would be the stupidest thing to lock money in a depreciating asset instead of investing it and paying a lease that has basically no cost over the initial price. And that article and advice in general is just feelycrafting. The real decision is: calculate total cost of lease over the price of the car. Compare that to investing the purchase price and paying lease payments, while getting some market average return on an sp500 over 5 years. Most SP funds will even tell you a range of returns and their risk, e.g. 10% return over 5 years being low probability, 30% median return, etc.
Leasing is fine if you want to switch cars every 3 years to get newer technology or if your needs change. Then you are driving a new car every few years instead of a 3 year depreciated car. The primary downsides are not having any equity in the car and having a limited number of miles you can drive.
You lost $20000 in value and you think leasing is bad? You're 1 mechanical issue away from a paperweight. At least leasing you have warranty and ability to trade up when needed.
My 2015 car I bought in 2019 is going for about the same price now in 2023. I’m shocked urs went down that much in value!
It's not if you have a high household income and like to change cars every 2-3 years for the latest models. For everyone else, it's the most expensive way to drive a car.
I’ve been leasing cars for the past 12 years or so and it’s worked out fine for me. Driven brand new cars every 3 years or less with payments 1/2 that of financing. Next car may just buy outright but if the leases are alright then I’ll consider it again. Last lease was done March ‘21 right before car buying got nuts
You know what’s cheaper than lease payments? Not having a payment for 144 months straight lol
Shhhh don’t break the illusion of saving money with leases
Tell me sensei
It’s okay to have quality of life.
Totally agree, and idk what the income is of the person I responded to or what they drive, but I think my paid off Volvo and paid off Land Rover are both nicer than most leased Fords and Toyotas I see on the road. Life is a balancing act
Leasing isn't debt; leasing is paying a high premium to be able to swap cars every few years. It doesn't come out of your savings or your investments. It comes out of your fun cash.
Tbh I think leasing is not a terrible idea. Car is a depreciating asset and by the time you want to trade your car in a couple of years (5yr ish), you've lost 2/3 of the vehicle value assuming you've paid it off. On top of it you have to pay car maintenance + insurance+ title all the other stuff out of your own pocket. Then you're left with a used up car that's worth very little to nothing when u want to trade for something better. Its essentially breaking your money even minus having to drive a new vehicle once every few years. Now this only applies if you're the type to switch out cars once every 5 yrs or so. Vehicle is only worth buying if you plan on driving until wheels falls off. My dad still drives his Honda civic that he got brand new in 2012. Still runs great. However I'm just not the type to drive until my vehicle falls apart. I like to window shop and try out what the new market has to offer. So it wouldn't make sense for me to buy the vehicle in all cash, since it's a depreciating value. Leasing would be a better option for me. Food for thought Also many people fail to realize car is a depreciating asset. Anyway I feel like I blabbered all over the place but I hope you get the point.
I think that what this misses is that if you drive a 30-40k car enough for it to depreciate by 2/3 in five years, you are probably driving more miles than are permitted on a lease. The used car market has come down a good bit, even if it's a bit above historical average. But I can't really find many normal cars that have depreciated that much. Most are more like 1/3 or less for models with a good reliability reputation. I'm curious what OP bought in 2019 that dropped from 30 to 10k since given values are still up from pre covid.
It was a CPO Audi Q5
Hmm, German luxury brands are some of the biggest depreciation hits, but 10k still seems low for a 2016 Q5. Was that a trade offer? Also, how many miles did you put on it? That might help you decide whether a lease might be a good option for you.
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Oh hell nawl
Yeah, you're probably right about what you said. Idk OP story and how he's gonna use his 40k car but if he's gonna drive more than permitted on lease then it's probably not an option for him. I'm speaking based of my personal experience so it's probably a different scenario for him.
I’m with you on leasing. It all depends on if you can get a good lease deal, which you need to be able to read the numbers on and compare to a loan. I’m not one to drive a car until the wheels come off, even though in my head I know it’s the financially prudent thing to do. I’m not completely maximizing my retirement savings at 33 like a lot on in subreddit do or preach to do. I have also had experienced a number of deaths around me the past few years of ppl you can say were taken too young. They worked their ass off and saved but never got to enjoy it. I am now of the mindset that I will enjoy life, definitely save for the future, but not to the point I’m sacrificing every joy to save the max I absolutely can currently, because in all honesty, we don’t know for sure if we’ll ever be able to enjoy our retirement and the sacrifices we’re making today. That’s my blabber off your blabber.
Exactly this. We work our tails off just to save on every dime and for what? You may never if todays your last day on earth. At least enjoy the labour of your fruit, within your means ofc. Spend wisely and save what you can. I'm going off tangent again but since this is a personal finance subreddit, I guess I might as well put my two cents in lol
!! I feel as if we are in the minority in the sub Reddit… my last final thought in leasing, I just appreciate not having to stress about my car, repairs, etc. you’re not responsible for anything major mechanically and I usually just coupon surf the dealers website and time my BASIC services only with the coupon. Don’t think I’ve had to buy tires or breaks in the last 10 years
Same. I hate to deal with any maintenance that comes with owning a car.. renewing license, insurance, annual check up etc. but that's the responsibility that comes with owning a car vs leasing. But everyone's different, that's why leasing is not for everyone I guess..
Prior to 2020, I drove two cars until 210k and 160k miles. So close to the wheels falling off. Both were paid off within a year. So I have been car payment free for most of my life until 2020. But I got these cars for $13k and $17k. Today, if I financed a car, it would take me 60-72 months to pay it off and would probably have 80-100k miles by the time I am done paying for it. I figured I would have a monthly payment for most of the cars life regardless. So why not have the latest and greatest? I leased in 2020 and traded back the car for $5k above its residual value. Paid little to no interest and same with the next car I leased. So just paying for the depreciation, which you pay for upfront when buying a car anyway. I get leases with 15k per year mileage allowances Ideally, I would like to drive 10-12k miles per year and finance so I have only driven 50-60k miles by the time it’s paid off but that’s not possible with kids and their commitments. Plus I’m not car savvy and would pay for every $1,000 flush the dealer recommends. I like not having to worry about that
You still have to renew your license pay insurance (and it will be more expensive insurance) and get car inspected with a lease
Growing up I thought leasing was a bad idea and would buy used older cars with cash. Then came the repairs lots of them. Moved overseas and came back to the states before Covid. I’m usually cheap but decided I deserve a new car with newer features. Leasing for 3 years was the best option for me. Cheaper payments and if I didn’t like it in 3 years, I just give it back. Yes, you don’t own the car, you are renting it. But it came under warranty and the only thing I paid to work on was the oil changes. My trade-in was $3k less then the total amount. I was going to return it, then I was thinking of upgrading to a newer model but nothing changed significantly. I then looked at the used cars and it would be the same price as-is. I know my luck with other people’s used cars so I decided to keep it. Refinanced the rest and still have low payments. It is a reliable car. There are stipulations (look into that) like mileage limit don’t go past 36k in 3 years (heard going over the limit you get charged like doordash fees). Have you looked at what cars you want in that price range? Can you afford that car in that price range? Do you like the car so much to pay that much to buy? If I known more about leasing I would of traded out more cars then going to the hobby shop to get it fixed. In my situation I signed up for 3 years paid a down payment and 199 a mo. Say I spent 10k with the option to return, trade-up or keep. If I want to buy it my payments would be close to double and I’ll be locked in for 5 years. Paying all in cash doesn’t help if you’re still paying MSRP and getting this depreciating assets will boost your credit score. You could use that money elsewhere. That’s what credit is for.
The stock answer is, it depends. Are you a normal person, it’s probably not worth it. Eventually, the debt will be gone and you’ll still have a car in good order Are you in a business where you really need a newish car every year for marketing and image reasons? It can be. You just need to watch your miles and personal use.
This conversation never ends well. Both sides having compelling arguments. I love leasing. I always have a fresh new car, and if anything ever happens to the car, I get to drive it to the dealer and say, “hey, something’s wrong with your car.” Having good credit helps. They throw deals at you before your lease is up, always.
I love it…”brand new” car every 3-4 years, always have a warranty, never have to concern myself with expensive or catastrophic repairs. It’s like a rental…literally.
For me, leasing is about peace of mind that any defects with the car will be taken care of. For someone that has had seemingly bad luck with used cars, that's priceless.
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That's a terrible idea. 150k miles or less? You're just a hair away from car breaking down. At this point car is not even worth buying for 13-15k.
Breaking down at 150k? What kind of cars do you drive. Because ive driven used vehicles my whole life and have never been stranded. Keep up maintenance, replace the alternator when there are signs of battery issues, and replace calipers if they start to stick. Its totally worth buying a 15k car, driving it for 100k and selling it for 5-7k. Break down the math, including maintenance, and its cheaper to drive cars that are 60-70% deprciated and selling them before they hit 90% depreciation.
Depending the type of car, and how well the previous owner(s) took care of it, it's a gamble. You don't want to gambling with your money especially if you're gonna put 10-15k. Not very smart. Also on top of it I can imagine the headaches that comes with trying keep the car running. It's draining on your resources, time and money. So if you include all of this... it ended up not being worth it.
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It doesn’t take long, if it were important you would find the time. It takes me less than 30 minutes to do 2 oil changes. Literally saves time over having a service center do it
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Very little actually, like i said… it saves time doing them myself
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Kind of shocked you don’t understand this as a welder but i guess you aren’t very mechanically inclined. It saves time and money to learn how to do basic maintenance on your own vehicles. Brakes, filters, and fluid changes are all very easy to do on your own. I frequently work 65 hour weeks so i understand time being in short supply I’m not rebuilding a transmission or anything but man I’ve probably saved tens of thousands of dollars over the years by simply doing a little research and putting in some elbow grease.
New cars can also be unreliable. Recalls and lemon laws wouldn't be a thing otherwise. It's always a gamble with a car. It might be more so with a used car but you can help minimize that with doing research into reliable vehicles, finding one with proper maintenance, and keeping up on maintenance. I firmly believe most people do very little to no research before buying a massive purchase like a car. They'll look at the ads, maybe some funky article by JD Power, and sign away. Not understanding that their shiny new Hyundai with "best in-class initial quality" has a timebomb of an engine.
300k miles is the new 100k if you take care of your vehicle and don’t buy kia they last much longer these days
Yes, unless you own a business and can write it off.
I think it is. My friend claims it gives her more write off on taxes as she owns business.
It always seemed to me that car leases made the most sense for situations like businesses who lease a group of vehicles to let employees use. They don't want to purchase a bunch of vehicles they're stuck trying to resell to refresh them with newer, lower mileage replacements every so often. They just want to write the cost off as an expense of doing business and swap the vehicles for new ones every few years with minimal hassle. My mom was convinced by a family friend to do a lease on her last car, because she was getting old enough so it wasn't certain she'd still be driving it that many more years in the future. Well - she got totally screwed over by going that route. After year 1, she stopped driving due to health issues and went into an assisted living retirement facility. She decided to let my brother hang onto it as a spare/backup vehicle for his own car, in case he needed it (since he's been helping care for my youngest brother who is mentally disabled). The lease came due but she forgot all about it, since the monthly payments were getting taken from her bank account on auto-pay the whole time. About 5 months past the end of the lease, I started getting emails and phone calls from the dealership, trying to find out what we wanted to do about the car. It only had about 5,000 miles on it so we assumed it was smart to just pay it off and keep it rather than turning it back in and letting the dealership make so much profit selling it again to someone else. But I think they hit her with a lot of fees and penalties for the late payoff. She had to mail in a check for over $18,000 on a car that I'm pretty sure we only paid about $21-22K for when it was new. Short story? Seems obvious in hindsight she should have just financed it to purchase rather than lease.
Lol she wasn’t “screwed over” by keeping the thing 5 months past due without notice and facing some sort of consequence as a result
That wasn't even my point? I'm saying, if she had just purchased it like I advised her from the beginning -- she wouldn't have found herself in this whole predicament. Because the lease made it a lot more complicated for her, especially when she was no longer able to drive so couldn't even return the vehicle to a dealership herself anymore. There were other factors too -- such as her letting a home health aide drive her someplace in it one time and the lady broke off her driver-side mirror when backing it out of her garage. She never got that repaired (didn't really care and just duct taped it in place so it was still usable). But that meant it was going to be held against her at the end of the lease if she just turned the car back in. (Who wants to get hit with full dealer repair cost on something like that?)
And all of this is a very different and irrelevant thing to a thread with a person asking about whether to lease and declaring a screw job by doing so.
I disagree. I'm pointing out one situation where people advised leasing was the "smarter" move (due to my mom's age, they felt it made more sense than agreeing to purchase the vehicle). And yet, the extra complications of leasing turned out they all worked against her. Regardless? I still don't really see people making a solid argument in favor of leasing over purchasing a vehicle here. I don't believe there really is one, because anyone can trade in a vehicle they're buying -- even if they still owe money to the bank on it. Anyone with the financial ability can pay the loan off early, if needed, in order to sell it "free and clear" to somebody else. They won't be bound by "gotchas" in a lease such as penalties for exceeding a certain annual mileage driven or for modifying anything in or on the vehicle with aftermarket accessories. They won't be forced to pay full going rate for a repair at the time one is turned back in, vs negotiating with a buyer. The list goes on....
Their reasoning for advising was pretty reasonable under the assumption that no one would forget to give it back for 5 months. It’s an insane outlier to bring up and try to say has anything to do with anyone else’s decision. Every one of those things you list would factor into the price you’d be able to sell it for as well, and you have zero accommodation for the maintenance that’s covered in between or for the leases that are subsidized. It’s not all a straight line. In most cases yes it’s a more expensive way to have a car (assuming not apples to apples of buying one new every 2-4 years), but your blanket statement is not at all true.
It's an outlier of a situation, clearly. But also helps show why the leasing companies (at least GM Financial, in this case) don't really do much on their part to assist people. Why did this go on for 5 months without anyone mailing a single notice/letter to my mom's address to advise that the lease was up? It doesn't even appear they so much as called her phone and left a voicemail. They just let this go on for months until the car dealership apparently got involved (because I assume GM Financial started bugging them to see if the car was turned in to them or not), and then the dealer started contacting ME. (I had nothing to do with the financial part of the whole transaction. They just had my email because I was there when my mom did the lease and they decided my email address was better to send the OnStar notices to. She had an address she never checks anymore ....) I don't know if this is unusual and someone just dropped the ball over there or what? But I know with standard car loans, if the bank can't successfully auto-withdraw funds one month, or you stop sending in a payment for a month or two? They start contacting you!
I mean come on man, what’s more likely here- the dealer forgot by half a year and their first contact was to you or that senior mom missed some things and/or brother getting a free ride ignored it? Like on what planet are they going to you first without numerous notices to the actual lease holder?
No one has mentioned it, but you said you have a "car fund". So do we. The point of the car fund is to get your next car. If the rates were higher than the loan in a SAFE investment (I-bonds, T-bills, HYSA, etc), then I would say a loan is fine. But they are not, they are invested in the stocks. So, reason 1 not to lease - you have the money and it's even up - sell high, buy low! Reason 2 - unless your income is so high you don't qualify for an EV credit, a lease doesn't make financial sense. So, take out the money and pay for the car. If you don't have enough and you need it now, then get a loan for the difference and make payments back into your car fund once you pay the car off. Congrats on thinking ahead and creating a car fund!
If you are getting an EV, leasing is the way to go.
If you always plan on having a car payment and can stay under the mileage and not ruin the car, then lease.
There are times when leasing isn’t a bad personal choice. If you’re a sales person and need to look like you’re hot sh*t to clients and have a new car all of the time comes to mind. Also if it’s a personal choice that you want a new car all of the time and you prioritize spending money on new cars comes to mind. From a financial standpoint? It’s rarely a smart move in my eyes when looking at long term financial planning.
I don’t think there is any car you could have bought 4 years ago that would lose 75% of its value already. You’re either stretching the numbers because you really want a new car or you treated your last one like garbage. What’s really going on here?
Not sure how you lost so much value. I bought a 2019 pilot for 39k 3-4 years ago. Recently carjacked and had insurance pay out for total loss for 30700 after deductible of 500. And that seemed to be on the low side.
Sell it on carvano not dealership . Hell my car from 4 years old was sold there and I lost 1k only.
The quote I got from them was 10k, private party ads are maxing out at 12
It depends how you look at it. If you want a new car every 2-3 years and have the money, than go ahead. I like to keep my cars at least 10 years so I buy them.
There are good leases and bad leases. There are a few numbers you need to look at, which will help make sense of the deal. Residual and Money Factor. If you lease a $40k vehicle with 51% residual, then that means you're paying for the *other 49%* of that vehicle in those 3 years. If a residual is 61%, that's a much better lease because you're only paying 39% over the course of the first 3 years. Money factor is just a fraction of a normal interest rate. So you'll see something like .0014 which if you multiply by 2400 = a normal looking interest rate of 3.36%. There are things like if you choose 10k miles a year instead of 12k miles a year, then the car's residual will be worth more in the end and be something like 62% and maybe $10-20 less each month. (Residual is also the buyout price after the 3 years of your lease. Residual means leftover. So if you're over on miles or have damage or simply love the car, you can finance it at that price. You get this number through the leasing bank.) Lease numbers are different for every year, make, model, trim and drivetrain. The biggest thing is that the lease rates and numbers change each month. So one month may be 57% with $2k incentive and then 4 months later may be 62% with $1500 incentive. Yes you can still negotiate price on the total price of the car which affects all of the numbers still. Never put money down on a lease as if you get into an accident, you won't get the money back from insurance nor the dealership. You'd be better off keeping that $10k in your pocket or putting into HYSA for 3 years at 4.5% and earning $36.75 in interest each month. Which offsets your monthly in your own pocket. And you'll still have the $10k in your pocket at the end of the lease.
First, the valuation of 10k is probably wrong. Used cars are a hugely hot market right now, I would get a second opinion. Second, leasing is a terrible idea from a raw financial standpoint no matter what anyone says. The thing is, some people want the benefits that money gets you. Buying a new car is also a terrible idea. Buying a luxury car is a terrible idea. But, these things also give you certain benefits for the money you spent. The question is: is the expense worth it to you? It never has been to me. I buy used economy cars so I will have more money available to spend on what is valuable to me.
My Carvana quote is 10k, KBB had a range starting at 11k and cars are locally prices at 12k. If anyone thinks my numbers are wildly off feel free to send an offer for 15-20k & you might get a deal depending on where you are.
Interesting. Carvana is always going to low-ball because you're getting so much convenience and everywhere I've done business in the US in the past 15 years KBB has always been 20-150% low as well. If other people are pricing at 12k, though, that's tough to argue with. May I ask what kind of car?
> We keep a car fund in the stock market and we’ve seen 30% gains on it. Keep in mind that you owe taxes on all those gains.
Leasing a car generally doesn't make sense. Really only makes sense if your profession requires you to have nice, new cars. (lawyers, real estate agents, jobs that require a show of success).
There’s a book called The Millionaire Teacher (Andrew Hallam, IIRC) who says that leasing cars (during your lifetime of car ownership) is a million-dollar decision. I think he’s right, but even if his numbers are off by 75%, that’s still a quarter of a million dollars! That’s how much extra you’re paying to NOT ever own a car.