Lease vs Pwn

LondonBridge

Original title I know!

Anyways, getting tired of my Mustand and looking at getting a new car and heard some good things about leasing, especially since no specific car that is out really excites me. What are some of the pros & cons in leasing and please share your experiences on what I should look out for. Thanks!

SoulStalker

One thing that's always bothered me about leasing is the fact that you're paying money to drive a car for a certain period of time. After all that time and all that money you put into the lease, you have nothing to show for it. Sure, you can buy the car after the lease expires at a reduced rate, but in my opinion it's not worth it. Also, most leases limit the number of kilometers you can drive per year, so they're basically telling you what you can/can't do with the car.

On the other hand, lease payments are substantially less than own payments. For people who like to have a new (even new to you) car every 3-5 years, leasing is definitely the way to go. If you're leasing new cars, they'll always be covered under warranty, so repairs and whatnot usually don't end up costing you.

I would liken it to renting an apartment vs. getting a mortgage and buying a house. Your mortgage payments will most likely be higher than rent for an apartment, but you have the feeling of "ownership" with the house. Of course, with that ownership comes responsibility - if anything happens to your house, you can't just call your landlord and have him come over and fix it.

Wezoin

We generally lease, just because it's cheaper and we like to have new cars. The thing about it though is, generally, the longer you lease for the less your payments on the actual car will be, but you could end up in a lease thats longer than the warranty.

I would never recommend buying out your lease though, as in the end the car is almost always worth less than the buyout price (My friend ended up having a windstar buyout of $30,000 and went for it, since back when she started the lease they were alot more expensive, but windstars had dropped in value alot since then, and hers was only estimated to be worth about 8 - 10,000)

Also, although I've never rented (or owned, for that matter) a house, from what I understand the landlord is pretty much required to cover EVERYTHING that needs repairs, whereas in a lease they are not. You're still only covered for whatever your warranty would cover anyway.

BlochWave

My dad always leased. Google it and make sure you understand what you're paying for, it's not as trivial as just "renting" a car, like it seems like you're doing

There are obvious advantages and obvious disadvantages which you probably don't need explained to you, sometimes for some people it's the preferable thing to do

Septus

SoulStalker wrote: »

I would liken it to renting an apartment vs. getting a mortgage and buying a house. Your mortgage payments will most likely be higher than rent for an apartment, but you have the feeling of "ownership" with the house. Of course, with that ownership comes responsibility - if anything happens to your house, you can't just call your landlord and have him come over and fix it.

I don't know how well the numbers work out on owning versus leasing, but I would definitely never compare it to renting vs owning a house. A car is not a valuable asset like a house. Owning it is only good in that you no longer have to make payments, which is only good if you want to keep that car for a sizeable length of time.

BlochWave

Not only that, by the time the car is paid for it's lost far more value than a house would.

SoulStalker

Septus wrote: »

SoulStalker wrote: »

I would liken it to renting an apartment vs. getting a mortgage and buying a house. Your mortgage payments will most likely be higher than rent for an apartment, but you have the feeling of "ownership" with the house. Of course, with that ownership comes responsibility - if anything happens to your house, you can't just call your landlord and have him come over and fix it.

I don't know how well the numbers work out on owning versus leasing, but I would definitely never compare it to renting vs owning a house. A car is not a valuable asset like a house. Owning it is only good in that you no longer have to make payments, which is only good if you want to keep that car for a sizeable length of time.

Good point Septus; my analogy was flawed. Real estate tends to appreciate, whereas cars tend to depreciate. I hadn't thought of it that way.

Depending on the car, there's still a chance that you can sell it and get a decent amount of money, which you can put towards a new car. Of course, 'decent' doesn't imply 'near the purchase price' - let's face it, as soon as you drive a new car off the lot it's value decreases by at least 1/3...

Ganluan

The thing is, cars are not an investment, they're a money sink. Lease rates are calculated based partially on how much the car will depreciate, so getting a lease on a car that maintains its value well will be cheaper than you might think.

One big drawback to leases is that they usually have a set mileage limit per year. If you go over that limit, prepare to pay out the ass. It's normally 10-15k a year which is enough for regular commuting and such, but if you plan to take a trip or anything like that, you'll need to be careful.

Personally I think a lease for the term of your manufacturer's warranty can be a good deal, as you're making lower monthly payments than buying, and by the time the car isn't covered anymore, you dump it.

Basically, the way I think it about is this - if you want a new(er) car that you plan to get rid of in 2-3 years and hate paying for repairs, lease. If you want a car you can own for a long time (as in, significantly past the payment completion date) then buy.

flatlinegraphics

one thing to note is that if you lease the car, it is still owned by the car company for tax purposes. if you are buying/financing YOU pay taxes on it. while you can claim your car taxes on your income taxes at the end of the year, its still a chunk of money that you have to pay.

also, remember the milage limits. you could end up HAVING to buy it out, as the over milage charges would be a significant amount of the buyout. and you could end up owing more than it's worth.

plus side, if anything goes wrong during the lease, its the car company's problem.

Carl

The argument that the car is 'worth' less than the payoff amount is somewhat screwy. If you think about it in pure financial terms, it's crazy. But, considering that you're payments are less than purchasing the car from the beginning, it's almost like you are making up the difference. Also, if you like the car and are buying it out intending to keep it for the long term, it doesn't really matter.

EggyToast

There is a tradeoff but, as has been mentioned above, there are advantages to both systems.

Leasing isn't as popular nowadays as it was during the 90s, where it seemed like everyone leased. The thing is, leases can be advantageous if you think through how you normally drive cars. Many people will buy a car, drive it for a few years, and then sell it, pay off the balance, and buy a new car. In other words, have a perpetual car payment. A lease payment is usually less than the monthly payment for purchasing a car, it's "under warranty" in the same way a new car is, and by the time things start to go bad, you ditch it and lease a new car.

The mistake with leasing a car is to buy it at the end. Why? Because if you're interested in owning a car... buy one. Buy a used one, actually. More importantly, you will almost 95% of the time get a better deal if you were to lease a car for 2 years, and then when the lease is up go out on the lot (of a different place) and buy the same car. Most people who lease (and then buy) get attached to their car, and then just get roped into a poor purchase option.

Since a car is a money sink, you don't want to think about it depreciating or losing value, because it's inevitable and something you should only worry about when it comes time to buy or sell. My personal philosophy? Buy used, pay in cash. I dislike paying interest on anything that inherently loses value. I'll pay interest on a mortgage, on a college education, things like that.

However, if you like having a new car, and accept the fact that you will simply be paying a car payment for a while, leasing (with good terms) is a good idea. Just don't get suckered into buying the car at the end of the lease, unless the terms are very favorable.

Hewn

Eggy is spot on.

I, too, would recommend buying used. Something you can pay off immediately or quickly.

SoulStalker

I must agree with both Hewn and Eggy. If you want to buy a car, buy it used. If you're looking for the security of a warranty and 'trading up' for a new model every 2-3 years (or simply can't afford to buy), lease.

Pheezer

Leasing is fucking retarded. Don't do it.

If you finance to own, at least you're building equity and you have something that the banks will recognize as an asset. If you lease, you get none of that. Sure your credit rating goes up a bit if you don't miss your payments, BUT, it doesn't help if the banks see that you're pretty much already at the limit of what you're eligible to borrow anyhow because oh look a $20,000 lease agreement hanging over your head.

supabeast

Car leases are a tax gimmick for businesses. Depending on how a company handles it’s assets in regards to taxation, it can make a lot of financial sense to lease corporate cars. If you own a small business you can do fun things like lease the car and give it to yourself as part of your compensation. But for your average Joe, leases are pretty awful.

tsmvengy

Personally, I think leasing is completely stupid. EggyToast pointed out the only good thing about leasing. The reality is that if you're the person who HAS to have a new car ALL THE TIME, then you should lease. But if you're planning on driving a car for longer than the lease, then you should be buying it.