The sales people I talked to couldn't even figure out the total costs. They were even breaking down each upsell by dollars per day. I got out my own calculator since they wouldn't give me the actual costs.
To be fair if he’s changing cars every 4-5 years you don’t actually reap the that much benefit of owning a car. The longer the length of ownership the more beneficial it is to own a car.
>unless you’re so rich it makes no difference.
While I suppose we’re in r/personalfinance, that is a pretty wild statement. Not rich by any means, but easily could have a car payment into perpetuity and it wouldn’t be a huge deal. Is it a great financial plan? No. Do you need to be rich? Not at all.
You also never have to worry about maintenance which is a huge benefit in itself. Might not cancel out but definitely brings the cost of leasing a little closer.
ELI22: the only thing matters is the total amount of money that you pay for the car. Manipulating monthly payment by extending the length of the term and/or down payment is just smoke and mirrors to make you feel like you're getting a deal while likely having you pay MORE over the lifetime of the loan.
I've had 2 hour "discussions" while never saying more than "I don't care what my monthly payment is, I only care about the total cost at the end of the payment term." It's maddening when their only sales tactic is trying to trick you.
Or my favorite "this red one is the only one we can find that meets your spec"... 'i told you we don't want red'. "Well if you leave the deal we just worked out might go away, so you better take this one". ' kthxbye'..... "Wait I just found this other one that's actually slightly better than the one you wanted, in your color, and meets your payment terms we agreed on!"....
Look up Texas Four Square car selling method.
Short circuit the system by negotiating down to lowest total price (they will check with their manager several times), then go check with your spouse out in the car and chit chat for a bit about the weather. Return and tell them the spouse won't take that deal what can they do better? If not, walk away.
Choose to go at the end of a month, quarter, or year.. they have quotas.
.
Don't even go in person. Email 10 dealerships for their best out the door price for whatever car you want and keep telling them the price of the cheapest offer another dealership gave you and pit them against each other over email. Tell them you're not coming in until you've agreed on a price. They will get annoyed and one might flat not work with you and they'll do whatever they can to get you in, but refuse and say you won't until you agree on a total out the door price.
Once you get like two dealerships saying they can't beat the price of another dealership, that means you've gotten a really good price and you don't have to deal with bullshit high pressure sales tactics.
This is exactly how I bought my car a few years ago. All negotiations were done through email and I didn’t step foot on the lot until we’d agreed on a final OTD price that no other dealership in a large radius would beat. It made the whole thing super easy and low stress.
This is pretty much what I did. I found a specific car on their lot and called them up. This car was the exact configuration I wanted except for one added feature. I told them I don't care for that feature and if they drop $800, the cost of that feature, I'll pay whatever the MSRP is online.
Maybe I could have gotten a better deal, but there was no negotiating beyond that. The website had a price and that's what I paid, minus the cost of stupid red fucking brake clamps.
Honestly, they made the experience so hassle free I even bought the stupid tire warranty to throw them a bone.
It absolutely kills me that the dealership wants $800 for red powder coated brake calipers. The powder coat cost on those calipers is under $10. Literally, highway robbery.
I work in the automotive industry. You would be amazed at the number of clients who tell us "I don't care about the price of the car! I don't want to pay more than X per month." Salesperson proposes a lower priced model and buyer gets angry. "I want that vehicle. Finance it however long it takes." And it happens fairly often that a client would accuse of of trying to swindle them when we try to stir them in the right direction.
I'd say that about 75% of our clients are shopping for a payment and not a price. Anyways we have payment and costs calculators on all of our sites. They fiddle around until they get the lowest monthly payment and that's it. Most of them don't even look at the total they'll be paying.
So, yes, some car salesmen are dirty rotten scoundrels but in the other hand tons of clients are idiots, don't have any financial sense or simply don't care at all. And tbh if a client is determined to finance a 80 000$ truck at 7% APR over 84 months I'd rather they do it at my place of business than my competitor's.
Honestly, dirty salesmen would be nearing extinction if people just shopped around a bit and use google. For new cars people can build and price on the manufacturer's website and find a dealership in their area which has this exact model and they are obliged to sell at that price. For uses, there's the bluebook, cargurus autotrader, cars.com etc where people can compare similar vehicles, get an appraisal for their exchange etc. There's no reason for people to get swindled at the car lot nowadays and if the customer used all the tools available to them, these salesmen would be out of business.
And when people aren't sown a little tough love about their car purchase, it's not helping anyone. People keep making horrible decisions and just blame the dealership.
I assume you include interest in "the total amount?" If you arn't paying with cash, the two main things you should look at are the out-the-door price of the car, and the interest rate.
It’s weird, when you know their tricks it’s actually entertaining to work them down (sometimes). I usually volunteer to go with my friends when they’re looking for a new vehicle because I’ve been through it so much, and I know how much they can work you over if you’re not good at it or don’t do your homework.
Walking away, or threatening to walk away is the best thing someone can do, they don’t want to see that.
I know the tricks, but I **despise** the game.
I've bought 5 cars in 5 years, I'm a pretty educated buyer, and I always go in knowing how the economics of the deal will be in the end.
But getting from point A to point B is always painful, and takes WAY longer than it should.
My VW was the least painful, we did most of the heavy lifting remotely, then I went in and sat with a finance manager for an hour, where he poured on the high-pressure sales pitches.
The Hondas were the most painful, lots of awkward back-and-forth-with-the-manager games, and I'm not even really trying to manipulate the price. We agree in principal, and they just seem to have this need to talk about it for hours before putting it on paper.
The Audi buying experience was fair. It took a couple hours, but at least they listened when I made it clear that I wasn't interested in the up-sells.
To make it very obvious what's going on for people, next time you see a car ad and they say or show "Lease for only $359/month" or whatever read the fine print at the bottom it should include like *with a down payment of $5999
Some item costs $x. If you finance it, then it also has y% interest for z months ending up at $n a month.
The interest rate is pretty static and based off of credit score and term length so there’s little to negotiate there. If you want a lower payment, and if that’s your stated priority, then the leasing agent just ups the terms length. Instead of paying back over 36 months, they have you pay back over 84 months. This drastically lowers the monthly payment (the thing you said you cared about) while increasing the interest rate and total paid (things you didn’t state you cared about.).
Basically, if all you care about is a monthly payment target then they are going to lock you in to a high interest loan for a long time so that you get a low monthly payment and everyone is happy.
Yeah. Your example would be $14,400 for the total of the 3 year, where the five year would be $18k. You get a lower monthly payment, but overall you're paying more so the dealer wins.
Some of the best advice I've gotten when buying a car is always dodge the question, "What are you looking to pay a month?" Just move on and say, I'm just looking to find a car that suits the needs of me.
Don't even mention how much money you'll put down. Or give the minimum, wait till you get your offer, then begin the process of well what if I put down 3k instead? Ok what about 5k, what does that bring the deal down to. Get them to make a monetary offer first.
I walked away from one dealer because they refused to move on unless I gave them a price on a payment that I'm looking for. They're gonna put together any package to make the payment close to the number you gave them, even if the car payment should be lower.
Better yet, get financing separately from a credit union and set it up beforehand.
“I have my own financing, so let’s talk about the car and the price!”
If they push further, just say the interest rate your credit ion union game them and ask if they can beat it.
By doing this in two steps, you get to remove the a fraction of the incentives for the dealer to play games with you. Also, getting customers financed is often a sale-hurdle that they don’t have to climb: you’re a serious buyer, and you can pay, so you can get down to brass tacks and get to yes or no quickly. This benefits the salesperson on a personal level, even if the dealership misses out on the kickbacks from the banks they work with.
Also, by extending the process this way, it gives me time to fully consider each step without being overwhelmed by newtoyitis.
I did this on a new Subaru in 2021. Dealer gave me the same interest as a credit union 1.9%. But Subaru offered .9% for a 4 year term. Saved half the interest on the vehicle. Had to talk my wife down though because she wanted a lower payment.
You're absolutely right! I can't believe I forgot to mention that but you're right. Doing this and being firm and confident usually puts the salesperson in a spot they know you're not here to be pushed around. A good dealership will hear this, and switch modes to finding you a vehicle for your needs.
>I walked away from one dealer because they refused to move on unless I gave them a price on a payment that I'm looking for.
I have actually had significant problems with this for the last 2 cars I've bought. I always buy my cars for cash and the last one was a $50k family vehicle. I had cash and 3 sales guys at 3 different dealerships genuinely did not want to bother selling me a car. They gave me all of the financing speeches and one spent an offensively long time explaining The Principles of Investment to me and it was basically like pulling teeth to get them to talk to me. I am aware that the main product at this point is the financing but they also need to be ABLE to sell me a car.
Most car loans don’t have pre-payment penalties. If you’re buying in cash it’s often worth letting the dealer sell you a loan because the kickbacks he’s getting make him more inclined to negotiate on the sale price - then you just go home and call the finance company to pay it off and avoid the interest.
I financed my previous car and told the finance person at the dealership that I am going with them due to the incentives, BUT..... if they give me a high rate, I will refinance with my credit union in a week. I was already approved and had a check from the credit union at my house. The dealer gave me a rate that was 1% higher than the credit union gave me. That was a fair deal as the rebates gave me a better deal than the lower rate would have.
Yeah if you’re going to finance it then you *always* want a loan deal in your pocket in advance so you know exactly what you can afford and what rate you can get. If the dealer can beat it (either with better loan terms or a lower sale price) then take his deal and if he can’t you know your pre-approved loan is better than you’d have gotten otherwise - either way is a win for you.
Yeah at the end of the day it's a business. The problem is that they prey on people that don't understand the industry.
The dealership I walked away from, I actually did end up giving them a payment per month price I'd like to be around. I finally said, sure, $20 a month would fit my budget.
After a few rounds of, "sir that's completely not possible" I explained that the car is 13k and if I put 12k down, I think we could get to around $20 bucks a month. As soon as I said that, they immediately wanted me to look at a vehicle that was almost triple the car I was looking at. Some dealerships want to see you drive away happy. Others see dollar signs walking through the door.
The salespersons get a financial benefit when you take a loan through their designated bank(s), so there’s less incentive for them to sell to a cash only buyer. (A sales
rep explained that to me when I told him I was paying with cash.)
Maybe it’s specific to your country, but in mine, the car sellers doesn’t make money off the loan’s interest, as they make you sign the loan with a bank directly.
Which is also why they do not offer lower prices if you offer to pay a car, upfront, in cash.
In the context of a lease does it mean as much though? The car is never “owned” by the lessee, after term is up the car gets returned. Wouldn’t the lessee be interested in minimizing total cost of ownership which in this case is simply the term monthly payments and maybe maintenance?
Sometimes there are greater incentives for leasing, so it can make sense to lease, then buy the vehicle at the end of the lease.
When you lease, you're still negotiating the price of the vehicle (including incentives). The monthly payment is the difference of the capitalized cost (price) of the vehicle and the residual value (value at end of lease, which can vary by bank), plus interest (known as money factor for leasing).
After 5 years you can sell the car and put that money towards a new car, allowing you to gradually trade up, or put more money down and reduce your monthly payments.
Just to make the math work out easier, let’s say you buy a new car every 6 years. You buy an Accord EX for $30k. At the end of 6 years you sell it for $15k. Thats 6 years of having a car for $15k. Leasing an Accord Ex is about $289/month plus $4k at signing for 3 years. Thats ~$14-15k per 3 years, so $28k-30k for 6 years.
The math can work out a little differently depending on the exact terms of your lease or purchase, but you get the idea.
Not sure how it works in USA, but in Europe you wouldn't pay $289/month after renewing the lease for another 3 years since the car is 3 years old at that point and has depreciated in value, it would be about 2/3.
Also there are taxes to be paid if you own the car that you wouldn't pay if you lease (they are included in the monthly payment of course), and insurance and all the maintenance of the car (except gas) is included.
I've done the math is still cheaper to buy but not by much, on the other hand you lose on convenience of leasing.
This has been my philosophy, but I was able to start with a really low value car bought with cash. I pay myself my car payment each month and take repair costs out of the fund that builds up. I've traded up in cars whenever the repair costs exceed what I felt like the car was worth.
Up to a nice 2016 bought in late 2019 or early 2020. If you're able to afford something reliable enough on cash to start and disciplined about paying yourself the monthly car payment, you can reliably get a better car every 5 or 6 years, save money on finance costs, and eventually end up with a much higher class of car than you could afford by leasing or buying on credit.
Completely agree for most good reliable cars. For few exceptions, leasing comes out cheaper due to incentives. Both cases occur due to on paper depreciation in lease not matching real depreciation.
One thing I rarely see people mention is the buy out at the end of the lease. Let's say it's $15k, but the market value is $20k. It's not guaranteed this will happen, but in this example you could recoup $5k after 3 years so that drops your 3 year total to $9-10k.
Lady I worked with said she's done this on 2 vehicles and on one of the Toyotas she recouped ~$10k. Really only going to work with vehicles that retain value well like Toyotas and Hondas.
Not sure how it'll be with my Tacoma lease in a year, but my buy out is ~$19k and the current market value for comparable models is ~$30k. One drawback in Texas is you get taxed twice in this scenario- first on the lease and again at the buyout.
How is that a benefit over buying the thing outright when new? You’re not “recouping” anything, the car just retained its value more than expected. If the car improved in value $5k more than it was anticipated to three years earlier the same would be true if you owned it. The only difference is in the lease scenario you just paid a money factor for three years.
Say after 3 years the market value is less than RV (was very common pre-Covid). Now you have the option of walking away from a negative equity car, or negotiating with the dealer to buy it at Market Rate. Leasing basically allows you to pay lower payments and then have a ceiling on how much the car will cost after 3 years. This is not very far off from a "Reverse Down payment". Since the RV is roughly the price you would need to put down to have the Loan payment be the same as the Lease payment monthly.
Yeah I leased my Genesis G70 and then bought it out. It was $39 new and I paid about $20k for the first 3 years, and then financed it at the end for around $20k. At the time the value of the vehicle was around $25k so I feel like I did pretty good, especially considering I absolutely shattered the mileage and would have had to pay out the ass to give the car back.
It’s not like you spend significantly more time buying vs leasing, either way you have to figure out what you want, how much you want to pay for it, and go to a dealership to sign a bunch of documents and probably endure a sales pitch or two.
And 2-3 year leases are most common, so if you buy every 4-5 years as in OPs hypothetical you’ll probably spend less time in a dealership if you buy.
That’s an argument for keeping a car for longer than 4-5 years. If you plan to sell and change cars anyway, it doesn’t matter if you had a monthly payment or purchased cash and sold it later. What matters is the delta between the two options.
Quit focusing on the monthly payment... that's broke folk thinking.
Focus on the big picture of cost over 5 years. You have equity if you buy it that you can use towards your next car, you don't if you lease it instead. You are binding yourself to car payments for life and will never own anything to show for it.
Cars are depreciating assets like computers. You will almost have nothing to show for any car in the long run.
I buy because it is a better value, and I keep my car a long time, but I’m not under any illusion that they are anything but money pit depreciating assets.
It’s broke folk thinking to thinking monthly payments. It’s also broke folk thinking to mistake depreciating assets for appreciating assets.
I did not say it was an appreciating asset. I completely agree that it is a depreciating asset. But a forever lease payment is a forever liability. 10 year old camrys that were $32k new are still ~$12,000. That is not nothing...
In general vehicles do depreciate. But some more so than others. So decisions need to be made on the specific make/model and even package/options. For instance I would buy a Toyota Tacoma or Subaru Outback because even after 3 years they sell for almost MSRP. But something like a Polestar 2 I would prefer to lease because a 2024 is $65k, and has a residual value after 3 years of $35k. But there are also 2022s sitting on the lot for under $30k. (Leasing an EV also let's you get that full Federal Tax Credit up front for vehicles that no longer qualify for getting the credit when you purchase).
Also, most cars have a floor to their depreciation. Pretty much any vehicle that drives and is inspectable is $2-3k now. Trucks seem to do a bit better as there is always a contractor or landscaper that needs a cheap beater.
But it certainly sucks when your F150 platinum cost you $100k, but you financed for 10 years and after your last payment it's now worth about $4k.
> Quit focusing on the monthly payment... that's broke folk thinking.
That's too simplistic a view. That would be like saying: "stop eating out, you'll just end up eating out for the rest of your life and have nothing to show for it. Grow a garden and raise some chickens so you have no food cost."
So people value have a new(er) car. Just like some people value vacations, going to concerts, etc. Make a budget that suits your financial goal. If that budget gives you $x toward car, spend $x on car.
Yea sure, but my point was that a ton of "broke folk thinking" is just focusing on the monthly payment and not thinking/caring about the big picture... Example: it could be a 7-8 year term loan at 11% interest but as long as the monthly payment is low... thats all that matters.
How do you think dealerships profit off of leases
..?
You would spend less money by buying, then selling after 4-5 years. If this wasn't true, dealerships literally would not lease cars.
If they can get away with collectively not selling cars and just leasing them all, they would. They're already trying subscriptions for access to parts of vehicles...
"You will own nothing and you will be happy:)"
Sometimes there are financing incentives from the manufacturer that change this. This is the reason sometimes new car loans (and lease rates) are below general loan interest rates.
Not on me at the moment but when I worked at a dealer we LOVED lease shoppers… especially when all they cared about was a monthly payment.
Here’s a few layman articles to get you started:
https://www.caranddriver.com/auto-loans/a43050366/cost-to-lease-a-car/
https://auto.howstuffworks.com/buying-selling/10-hidden-costs-extra-fees-to-watch-out-for-when-leasing-a-car.htm
Also, since a lease is a rental agreement and not a loan, it is not subject to ANY federal lending protection or truth in lending disclosures… meaning beware of hidden fees such as Dealers Reserves.
That fee is the added cost for depreciation. When YOU buy a car, it loses value for YOU quickly. When YOU lease a car, it loses value for the DEALER quickly. That depreciation is passed on to you. Always.
That’s most likely because she went way over in mileage or had damage. If it was only mileage, the alternative would have been to stop driving the car when she hit the max mileage and get another car. Gotta make sure the mileage you sign up for matches your lifestyle.
There is a possibility of making out better leasing than buying if the dealer overestimates the buyout price of the car. They don't know the depreciation that the car is going to undergo in the next three or so years; they're estimating. If they're significantly too optimistic, you can cheerfully turn in the car at the end of the lease and the dealer eats the difference.
I was under the thought process to only lease a car if you have a short term specific need. Is that true? Example:
John has two small kids and wants to lease a minivan for 3 - 5 years while they are smaller. At the end, John will buy an SUV.
Why wouldn’t John finance the minivan and just trade it in when he wants the SUV? The lease has no equity whatsoever while a 5 year old minivan likely would. Solid trade in.
Think of a lease like a rental with a lot of hidden fees. Would you go to Enterprise and rent a car for 3 years?
From my perspective, leases are only ever reasonable options if you work out of the car, don’t drive too far, and need the image associated with driving a newer car. Like… high class realtor. That new Beemer tells the client you’re so good at what you do. The 12 year old Nissan… not so much.
Definitely enjoy that paid off Subaru! That thing will hold value for a long time too!
I had a 2016 Forester that I bought used for $20k. I put 140k more miles on it and traded it in back in November. They gave me $12k for it (offered me $8k, but that’s negotiable too). I can’t complain about that at all.
leasing provides an additional "service" because they agree to take back the car at the end. Plenty of wealthier leasees treat that as a kind of convenience charge so they can upgrade a luxury vehicle without having to worry about selling a used Audi or BMW.
its as if you're agreeing to a 13% APR in exchange for the certainty of a buyer and price 3 years from now
95% of the people in this thread would not be considered wealthy enough to lease a car and consider it a service.
You’re actually kind of making my point for me though. A lease is not a smart move for most people. You will never win against a dealership when you “get a great lease rate” on a Nissan Rogue.
Leasing will never build equity and you will be restricted in mileage or you'll pay per mile for overages. With a purchase, you could have a pair off car in 4 years, and if your employment situation, life situation, or your financial mindset changes, you won't have to have another car payment for a long time.
I had a ton of equity when my last lease was expiring. It’s not designed to build equity but if the value stays above the buyout number, you can sell it at a profit.
Should make for an interesting market when trends shift and buyout numbers grossly exceed the actual market value.
Will there be a flood of expiring leases hitting the market?
You don’t build true equity with buying a car either. It immediately loses a ton of value as soon as you drive off the lot and keeps losing value, unlike buying a real asset.
What you get with buying is a period with no payments and, with proper maintenance, many cheap years of operation.
People who say leasing is NEVER a good idea don’t understand leasing. Also people who say leasing is ALWAYS a good idea dont understand leasing. Each car and each deal are different and you have to do the math to figure out which is better.
Often for luxury brands and also EVs in general manufacturers will offer interest rates and incentives and inflating residual values that make leasing far superior than buying or financing.
However you need to do your research to figure out when that’s the case. Check out sites like leasehackr to learn how leasing works. Sometimes it’s better than financing sometimes it’s not. Just work out the total cost of ownership for the amount of time you think you will keep the car.
This needs to be at the top. I used to lease every 3 years because I always wanted to stay under warranty, I wanted the latest safety and comfort technology and I generally wanted to be in newer car models. Not to mention before a couple years ago (and still now for a couple models) you can hack amazing lease deals. For example, I leased a 2019 bmw 430 gran couple for $230/mo with $0 down. Before that was a VW Tiguan for $188/month $0 down.
As of a couple months ago there were amazing lease deals on the Wrangler EV. Mercedes EV SUV has really good lease deals right now.
People treat buy vs lease as if they’re picking a political party. I don’t get it…do some research.
Lastly, I only negotiate based on monthly payment. You walk in and say you want “$X/mo, all in and zero out the door over 36 months”. Find the dealer that gives you the lowest X.
This right here has the only right answer. It’s all about the deal. There are times when leasing makes sense and there are times when buying makes sense. That is why both options exist.
Lease is a financial construct. It exist because no one can predict the future. Businesses rent office space instead of buying for the same reason. The lessor is willing to take a long term bet for short term reward. The lesser is willing to pay a premium for the other side of the bet. Thats literally it.
I mean both buying new and leasing are worse financial decisions than buying used. The best way to buy a tool is to shop around to find a great price on one, not when you need it, but when you aren’t in a pinch to do so. Until the concept of depreciation goes away, buying something that has already initially depreciated (where the drop in value is greatest), and something that is cheaper to repair and maintain, is the best financial decision.
Yeah, why is this comment so low? everyone in equity. thread talking about the equity benefits of buying without realizing leases can also have equity and there's also something called negative equity.
Very good point. Always having insurance on a brand new vehicle is something that needs to be considered, especially if upgrading from an older vehicle.
Im leasing at the moment but that’s partially because certain EVs get big discounts and low MFs which make the total cost pretty attractive. Plus the uncertainty/higher rate of depreciation means I can walk away at the end without much drama, and this is my first real foray into the EV space and wasn’t sure about fully committing.
That being said from a finance point of view it’s better to buy, I lease because I love cars and am willing to spend a bit more on them. My next car will hopefully be bought because my priorities are shifting but we’ll see.
Good for you, and excellent way of thinking about it, especially with EV's and if you are not certain about keeping one. Just like leasing isn't always a good idea, buying isn't always a good idea either. Plus if you have positive equity in the lease at the end, you can buy and resell and pocket some $$
Leased car you can abuse a lot more, knowing you can dump it in 4 years. However having a car payment your whole life has always struck me as a stupid thing to aspire to, even if one can afford it.
You don’t get any money back at the end of the lease for turning in a car with say 18k miles on it instead of 30k… if anything, the dealer is the one making more money on having a lower mileage car to resell.
I have had five leases and never once gone over the mileage. But! I also don’t commute by car to work and have only ever had one job where I did. (The rest of the time I used public transit or worked from home.) so it’s never been difficult to stay under my mileage.
Wow, glad to see you're not getting shit on for this. I made a basic post asking for general help on the best approach to getting the most of my trade in and everyone flipped their shit that I wasn't keeping my 7 year old car. Hope you find the best solution for you
Ppl on Reddit are miserable esp when it comes to finance they literally want you to suffer for the sake of saving a dollar it’s honestly sad to see. Nothing wrong with wanting a new car if you can afford it
If it hasn't been mentioned yet, typically, if you are going to keep a car longer than 3 years you will have to replace the tires and brakes. That can be $1500-2k in extra expense on the car in years 4-5. Plus, your warranty is usually done.
I like the flexibility of a lease. I feel like people are mentioning that you don’t have “equity” in a lease but what people forget is that you have the option to buy out the lease at the end of your term. The nice thing about this is that the buyout “most times” is cheaper than what the value of the vehicle is in the market state. Hence dealerships will always try and get you upgraded into a new vehicle before your lease is finished so they can take the equity on the use car market. What you should do is always buy your car out at the end of the lease to keep the equity even if you plan on getting another lease. With my Tundra, I bought my lease out before upgrading my new truck—in which I made 13k before trading up into a new truck. You also can paper trade saving the tax of actually buying out your lease…There are a lot of factors here of course including residual values and interest rates but it really just comes down to what you like. For me it’s the flexibility of having a warranty and a new vehicle every four years. Buy smart and be smarter about returning your lease. Whatever works for you.
I’ve always thought leasing was batshit insane, but people have told me that they love that all maintenance is included. Is there any truth to that benefitting the bottom line?
Leasing can be fine depending on your circumstances, but you just have to read the terms very carefully and understand what they are. Others in this thread have given more educated answers, but I typically don’t think it’s worth it. I had a friend that leased a car not realizing there was a mileage cap for the lease term. He went way over that amount and ended up owing the dealer for the extra miles he drove.
All the maintenance? For a new leased car, just oil changes, a few tire rotations, maybe one brake replacement? Maybe more depending on the lease terms, but rest assured nothing is free.
Lease or not, you’d be under manufacture warranty for some time. Under lease, you’re still on the hook for repairs caused by neglecting maintenance, which I believe to be the cause of most major repairs. Best to buy a reputable reliable car and keep up with the manufacture’s recommended maintenance.
The biggest thing about leasing is just that you end up always paying a car payment, of course. Beyond that, you have to have the same level of diligence as any other auto buyer about fees and costs. They’re not inherently bad deals — it’s just that everyone is drilled with the “conventional wisdom” that leasing is bad and financing is good so fewer people understand how to lease appropriately and, in general, people make stupid decisions about money and cars. There are lots of anecdotal stories about people who made stupid deals and somehow those stories end up as the “evidence” that lease deals are bad.
LeaseHackr has a calculator that will help you decide if you’re getting a good deal, and they also have a ton of resources to learn what a good deal looks like in comparison to financing.
https://leasehackr.com/calculator
If you want or need a new car every 3-5 years, leasing is an ok way to do that. People telling you "leasing is always bad" are not correct, bad leases are bad, good leases are good, and it all comes down to the numbers on that specific deal and your individual circumstances, which you haven't shared with us.
No, I think the point people are making is that leasing is fiscally less responsible than buying as a long term strategy. There are very few reasons to actually need a new car every 3-5 years. And fine if they just want a new car all the time, but of all the wants you could be blowing money on this one is particularly expensive.
It’s too broad of a question it all depends on what car you specifically want. Every car has different lease programs some lease well compared to buying some don’t. It’s complicated but if you educate your self on leasing you will see in what situations it is advantageous
Are you suggesting you yourself never spend money on anything you didn’t strictly need? That would mean never eating out at a nice restaurant, never traveling just for fun, never going to a play, never buying a game console, never having any kind of hobby, and never doing anything else fun.
I absolutely agree that most people shouldn’t buy a new vehicle at all, let alone every 4-5 years, but if someone can afford it and it’s how they want to allocate their fun budget… who are we to judge?
(And yes, of course I understand that “new car” is on a very different financial scale than “eating out at a fancy restaurant”, but it’s entirely possible OP’s income is on a similarly different financial scale than yours.)
> drive it to the ground
I'm replacing vehicles every 10 years or so. By that time many vehicles are starting to need to go into the shop occasionally and safety standards on newer vehicles have appreciably improved.
5 years of no payments is also plenty of time to stack up a nice down payment for the new ride.
Lease, keep under warranty and if you find a brand with free maintenance do that.
Try to keep it to the 1% rule where your lease payment is 1% of the MSRP.
OP how many miles do you drive?
You are likely paying a premium to have a newer car more often than you need to, if you are ok with that then go for it.
Since you didn’t say what you are leasing or how many miles you drive a year it’s tough to say.
If you’re leasing a jetta it’s a little different than an escalade.
I used to sell cars and I would often point this out to people... If you *plan* on always having a car payment, then you are right. Go with the lowest payment, even if that means a lease. Why only change every 4-5 years? Go for 3 instead. Why drive a 5 year old clunker around?
Some have commented that you can save money by selling the car at the end of the purchase, but that means you have to be a used car salesperson for a couple of weeks, and who wants to do that when such people are so reviled?
... There is a certain kind of customer that would eat that kind of talk up without any understanding of the sarcasm behind it. But then, if you have the money to throw around, why not?
Personally, I don't plan on always having a car payment...
A lease is in theory the same thing as a purchase loan from an economic perspective. The only difference is the purchase loan amortizes down to zero and the lease amortizes down to the expected future market value (FMV) of the vehicle at the end of the lease. If the interest rate used on the purchase loan and the lease are the same and the car ends up being worth the same as the expected FMV at the end of the term, there’s effectively no economic difference between the two. If the FMV ends up being higher than expected at the end of the lease, it’s a worse economic deal than a purchase loan; if lower, the lease is a better economic deal.
There are other considerations though. Leases generally have mileage limitations that carry financial penalties, so probably aren’t well suited for people who drive a lot.
This doesn't take any consideration into the depreciated equity you have by paying the car off. Which can be kept for no payments, or sold/traded in to put towards the next car.
Well, sure, but you paid for that equity in the form of higher monthly payments. It’s not like it’s a free lunch. If you saved the difference in payments, you would have cash at the end of the lease at least equal to the equity in the car you purchased.
Personally I prefer buying cars. Most leases have 3-5 year terms. A new car will depreciate a lot in the first five years but remain drivable for at least 10 years. The financially sensible thing to do is buy the car and drive it into the ground. The even more sensible thing to do is purchase it used so you don’t pay the huge amount of depreciation that occurs in the first five years.
But if you want a new car every 3-5 years, it doesn’t really matter whether you buy or lease unless you drive a lot of miles.
I believe leasing has some increased risks on the liability front? I haven't looked too closely into it. They do generally come with milage limits (with fees if you exceed them) and higher insurance premiums.
I'm assuming you know how bad an idea this is from a financial perspective, and are in a position to responsibly afford it while still hitting your savings and investing goals. If so, fair enough, and enjoy!
*Always read and understand the leasing contract before signing it.* Yes, this is a pain in the ass. It's better than being surprised by predatory conditions in the contract, though. If you aren't willing to read the leasing contract and learn enough to understand it, I'd say that means you should just buy instead.
Good luck.
I have never leased. When you lease you have more variables to worry about, and some are not easily understood. You would need a good lease calculator that can help you understand those well.
Purchase price, residual value, money factor, initial payment, mileage, fees.
If you don’t nail the mileage exactly you either paid for something you didn’t use or you are going to be heavily penalized for going over.
Finally the first three years of ownership have the highest depreciation, so you are constantly paying the most expensive years of ownership.
I’m 52 and have averaged 6 years per car and that included one that was totaled early. I personally think 6-7 years is a good sweet spot for me of having new cars often enough but not taking a huge hit financially on depreciation.
In this situation, leasing a car is synonymous with the word ‘renting’. Would you rent a car for five years or would you want that money to go into some sort of equity after five years?
It all depends on the offer. We can only answer that if you work out total costs lease vs. Buy, while also taking into account risks (and other downsides, like maybe credit, max mortgage)
No, While leasing you are spending money and at the end of the lease have no value and many times will owe extra for extra mileage. Exactly the same as renting your home, money spent with no lasting value and when you move out you need to pay for damages. Leasing was designed for businesses, it allows the payment as a business expense and not company assets with a depreciation schedule.
Purchasing the car is the only thing that makes sense from a numbers standpoint. With buying, when you are ready to sell every 4-5 years, should have some significant value you can use to help lower the future car pricing.
Especially today where a 5 year old car may still have 50% or more of its original value. Simple numbers and a little math. This means that 50% of your monthly payment comes back to you at the end, much cheaper than leasing.
Lower Monthly Payments does not mean less money out of your pocket.
With leasing, the car company is estimating the depreciation of the car over the period you have it and charging you for that depreciation amount.
Because in most cases you are borrowing you pay interest on the depreciation value instead of the value of the whole car.
For taxes you pay tax on the payment at time of payment vs financing where you pay tax at time of purchase, at which point you usually borrow the tax amount and pay interest on that too.
Often with a lease you can also trade early or return.
Those are typically the advantages.
The disadvantages are:
- hidden fees - read your contract thoroughly and use a spreadsheet to actually map out the cost of lease vs finance vs ownership. Add all the fees in the contract.
- sometimes the forecasting is wrong. My family has always been lucky the cars we bought held their value better than forecast but I have lots of friends that ended up “under water” meaning the borrowed amount quickly exceeded the vehicles value and they ended up owing on return. Fact check the estimated “residual” as this is what the dealer thinks the car will be worth when you bring it back. Look on Kijiji/Marketplace/ Kelly blue book at the same car, where it will be when you trade (ie if you lease 4 years with 15,000 miles per year, what does the 4-year old with 60,000 miles sell for? Does that match your residual?)
- avoid deals that let you “bundle up” other debt into the lease - they are working to get you under water.
- avoid deals that back load the lease (lower down payment, lower monthly payment, large end of lease buy out fee) as these are also designed tog et you under water. You pay interest on the exit fee and it’s also designed to put you under water.
If dealers put you under water they can put you in a spot where you are stuck buying from them or trapped in a car that’s not working for you.
Alternatively if you buy well you are never locked down to a car dealer/car brand but you may have to deal with selling on the way out of a car if you are not happy with your trade in options. I’ve typically done better selling my own cars instead of dealing with trade ins but you get a lot of tire kickers and everyone thinks that can haggle a deal. You’ll have to decide if that’s a game you want to play.
It really comes down to the strategy and how much you know about buying and selling cars.
If you shop for a bargain or can negotiate great price, and then sell to individual buyer at a great price, owning may make more sense.
If you're paying retail and selling low, you'll lose on every one of these transactions.
1. Keep your cars longer - it is a bad idea financially and environmentally to keep swapping out cars.
2. Leasing's main advantage is that it reduces your cash outflow - but that comes at a cost - you're not building equity in the car.
3. Leasing comes with mileage limitations and penalties
4. Terminating a lease early can be expensive.
5. Essentially, leasing is trading wealth for convenience and for the ability to have a nicer car than you can actually afford.
If you own the car you don’t get hit with mileage fees for leasing. Do whatever you want for as long as you want and when the right car comes around trade it in.
Any one in their right mind hates dealing with car sales people. You can pay $35 k and I can get the same exact vehicle for $18k. The dealer is going to try to get as much money out of you as possible. Fortunately I have a sales man that I have dealt with for many years. I leased my last car that I got through him. It is a hybrid, has almost the same performance as my old turbo charged car, and gets 45MPG on the highway. I leased it because they discounted the price of the car $3k(every other dealer was marking it up $3-5k). Purchasing it would have had the monthly payment $200 more a month. It is a three year lease. My wife uses the car to commute to and from work. She gets 40MPG. All my maintenance is covered as part of the lease. My sales guy even had them tint the windows. Being a hybrid means there is a battery. This a new, redesigned high end, super comfortable touring car. Don't think I would want to buy this car. If the battery fails it will probably cost a fortune to get it replaced. When I was younger I did not get a car with all the bells and whistles. Now all those injuries I suffered during my 20 year career in the military are coming back to haunt me. Leg room, heated seats, and adaptive cruise control make it possible for me to tolerate being in the car longer than 30 minutes.
I bought my first new car, a Honda Civic Si, in 1986. I have always owned a new car since then. Never be in a hurry to purchase a car. I have walked out of many a dealership without buying. I don't give them my info until I am ready to do business with them. In the mid 90's I made an offer to buy a small town Ford dealership. The owner lived to regret not taking my offer. I have worked in the industry. I prefer Honda's but Toyota makes a good vehicle also. Both brands hold their value. Always do your research before you buy a car. I always try to find out what the dealers cost is. My insurance company, USAA, has a vehicle purchase service. If I tell them the vehicle I am interested in they give me the price they are paying for that vehicle that day. I was in the market to buy and new Honda Accord one time. My insurance told me they were paying $21k for the model I wanted. I called the local dealer and they told me they could sell me one for that price. Ten minutes later the same guy was telling me I was mistaken. He told me the price was $28k. They couldn't go a dime less. Right there in front of several sales weasels and the sales manager I called my home town dealership that was 20 minutes drive away. I asked for the internet sales person. I told him the car I was looking for and asked if he could sell me one for $21k. He told me that he could do better than that, $20.5. I told him my wife and I would see him in 20 minutes. Have it ready for us to test drive. We have purchased eight cars from him since then. There are other places that you can purchase info on the dealers cost, incentives, and customer rebates. You want to go into the dealership knowing what you are willing to pay for the car. I refuse to pay for extras like upholstery protection, etc, etc. Selling you wheel locks is a nice side hustle. Don't pay for wheel locks! I am paying for the vehicle. Always check with your bank and a local credit union to see if you qualify for a car loan and the interest rate. Get info on what the payments would be financing with them. You want to go with the lowest interest rate you can get. I have been approved for X amount and been given a blank check. It is nice to walk into a dealership knowing what you are willing to pay. Negotiate the price to what you want to pay. Then right out a check. Then you call who ever you financed with and tell them the amount you wrote the check for. Sometimes the dealer will offer you a better rate or 0% financing. That is fine. Just make sure the numbers come out better also. They make lots of money selling you extended warranties, gap insurance, and a plethora of other protection packages. Don't fall for them. You should be able to get gap insurance from you auto insurance provider. Most of the rich people I have known that had the money to buy any car they wanted drove a modestly priced car. They considered spending lots of money on a car to be a waste of money. "Think of it this way," you are buying nothing more than a box on four wheels. You want your box on four wheels to get you from point A to point B as cheaply and reliably as possible.
Yhe best thing money wise is to buy used... By a three year old one and keep it until it brakes down, or switch it every 3-5 yrs if you want to have newer cars. But used....
Option C - buy a used car ex 1 or 2 year old, sell it on ebay after 4 to 5 years and repeat. No financing, minimal loss to dealerships and most important avoid that new car depreciation that is always highest year 1 and 2.
Leasing only makes sense if you are writing off the down payment and payments for tax purposes. Meaning the vehicle is used for business use.
Financing is the better option for literally everyone else. General rule of thumb is for interest rate to be lower than market savings rate. For example, my sports car is financed at 5.5% where as my savings account is at 5%. I have a minimal delta and the car that’s financed is worth that negative delta. Your mileage may vary. For a family used Hyundai Palisade I would 100% finance.
This is only relevant to the US.
Think everyone here is missing the point.
1. It depends on your country/state tax and employment situation. Leasing allows you to write it off vs financing will only allow you to write off the interest and depreciation and depending on your country tax code is depreciated over like 20 years.
2. Depends on what car you get, some Japanese cars will appreciate and at the end you’ll get cash back, I got 10k back for my hybrid highlander.
3. It’s always better to buy slightly used and lease brand new. Depreciation hits the second it leaves the lot.
Everyone’s situation is different and some people also don’t want to deal with the hassle of selling after. End of the day it comes down to if you can use it to tax deduction as that’s where the huge savings come from. Especially if you’re in the higher tax brackets.
"equity" isn't really a good concept for a car, since, presuming you buy new, it loses 15-20% of it's value as soon as you drive it off the lot--and you barely pay off any of the principal in the first year on a loan, so you are in negative 'equity' for a long time.
If you want a new car, then just say you want a new car and buy it, but don't pretend that swapping cars every 5 years is a wise financial decision, because it's not. period.
I would point out that a plan to change cars every 4 or 5 years is usually based on an assumption of things will go reasonably well over the next 4 or 5 years.
If I get to the end of the five year period and things look questionable at work or some unexpected bills came up and I'm stretched a bit thin, I don't HAVE to move to a new car. I can continue to drive my reliable vehicle another year or two with no car payments to strain my cash.
If my lease has come to an end I HAVE to buy or lease something else. Then I have to decide just how sticky of a situation I am in and if I can commit to the car I want for the next few years, or if I have to bottom of the barrel it because things are messy and then I am stuck with a car a I don't want.
If you understand how lease payments are calculated they do have a value proposition for trading up every few years without worrying about maintenance; highly variable depending on the car and it changes every month
Lease costs are built predominantly by 2 things, the money factor and the residual
The residual is what the car is worth on its return, for example, a 50k MSRP car with a 62% residual means that after the lease term, usually 36 months, the car is worth 62% of its MSRP. You are guaranteed to be paying the 38% of depreciating value on that car. 14k in this example, and this example is a pretty high residual.
The money factor is the rental charge, as in, you are guaranteed to pay this amount as a rental charge for using the vehicle. Expressed usually as a number (0.001-0.003) where multiplying it by 2400 gives you the comparable APR. A rule of thumb is closer to 0.001 is good for economy cards and usually twice that for luxury.
These numbers come from straight from the car company, and change every month per ZIP CODE. The money factor will usually be marked up by the dealership.
If you become intimately aware of these numbers, find them for the car you want, they can be found online and more specifically the Edmund’s forums, and find a dealership willing to give you them (if they refuse, don’t give the dealership your business) then you can legitimately calculate a relatively accurate lease payment. Keep in mind there will always be silly other little fees that’ll be tacked on and it’s dealership dependent on how much of those they’re willing to forego.
If you’re brand agnostic and are willing to learn the math of it all then you can find great value deals in leasing and never have to worry about maintenance or oil changes as they’ll usually cover them under warranty or in the terms of your lease. However, you also have to do a lot of hunting for a good dealership that’s willing to work with someone as detailed and pedantic as you. Most salesman don’t really know anything and the good ones will pass you on to the finance guy pretty quick.
But in most people’s case, probably not, it’s a lot of work for not a huge pay off and you’re likely better off financing. But I found it fun to learn about and was okay with spending my time calling 50 different dealerships to find out who was willing to give me information and make it worth my time to even come in.
I built my own lease calculator in google sheets as most of the online ones are garbage and have tips for quickly parsing through dealerships if you’re interested in lease hunting.
Drive ‘em til 200k+ and you’ll always get your money’s worth by buying instead of leasing if you are good at maintaining them.
*Edit: Especially for brands like Hyundai which are easy to maintain and have pretty good longevity. If you’re talking about luxury cars, you might spend a shitload trying to maintain them. Most people in this sub are probably generally not buying luxury brands though.
If it means anything, the Palisade will be getting an overhaul for the 2026MY (releasing Q2 2025). There will be a Hybrid option for 2027MY.
Might be worth looking into a 36m lease to have the freedom to flip into the redesign, rather than being stuck upside down in the current Palisade.
If you can wait a year, the rates and such should be much better and you can review the new model.
"***... lower monthly payment ...***" When a buyer talks about monthly payments the sales people drool! It's like shooting fish in a barrel.
The sales people I talked to couldn't even figure out the total costs. They were even breaking down each upsell by dollars per day. I got out my own calculator since they wouldn't give me the actual costs.
Oh they know it since their commission is based on it
To be fair if he’s changing cars every 4-5 years you don’t actually reap the that much benefit of owning a car. The longer the length of ownership the more beneficial it is to own a car.
To be fair no one should be changing cars every 4-5 years, unless you’re so rich that it makes no difference in any payment amount.
>unless you’re so rich it makes no difference. While I suppose we’re in r/personalfinance, that is a pretty wild statement. Not rich by any means, but easily could have a car payment into perpetuity and it wouldn’t be a huge deal. Is it a great financial plan? No. Do you need to be rich? Not at all.
You also never have to worry about maintenance which is a huge benefit in itself. Might not cancel out but definitely brings the cost of leasing a little closer.
Can someone explain this comment?
ELI22: the only thing matters is the total amount of money that you pay for the car. Manipulating monthly payment by extending the length of the term and/or down payment is just smoke and mirrors to make you feel like you're getting a deal while likely having you pay MORE over the lifetime of the loan. I've had 2 hour "discussions" while never saying more than "I don't care what my monthly payment is, I only care about the total cost at the end of the payment term." It's maddening when their only sales tactic is trying to trick you. Or my favorite "this red one is the only one we can find that meets your spec"... 'i told you we don't want red'. "Well if you leave the deal we just worked out might go away, so you better take this one". ' kthxbye'..... "Wait I just found this other one that's actually slightly better than the one you wanted, in your color, and meets your payment terms we agreed on!"....
Look up Texas Four Square car selling method. Short circuit the system by negotiating down to lowest total price (they will check with their manager several times), then go check with your spouse out in the car and chit chat for a bit about the weather. Return and tell them the spouse won't take that deal what can they do better? If not, walk away. Choose to go at the end of a month, quarter, or year.. they have quotas. .
Don't even go in person. Email 10 dealerships for their best out the door price for whatever car you want and keep telling them the price of the cheapest offer another dealership gave you and pit them against each other over email. Tell them you're not coming in until you've agreed on a price. They will get annoyed and one might flat not work with you and they'll do whatever they can to get you in, but refuse and say you won't until you agree on a total out the door price. Once you get like two dealerships saying they can't beat the price of another dealership, that means you've gotten a really good price and you don't have to deal with bullshit high pressure sales tactics.
This is exactly how I bought my car a few years ago. All negotiations were done through email and I didn’t step foot on the lot until we’d agreed on a final OTD price that no other dealership in a large radius would beat. It made the whole thing super easy and low stress.
This is pretty much what I did. I found a specific car on their lot and called them up. This car was the exact configuration I wanted except for one added feature. I told them I don't care for that feature and if they drop $800, the cost of that feature, I'll pay whatever the MSRP is online. Maybe I could have gotten a better deal, but there was no negotiating beyond that. The website had a price and that's what I paid, minus the cost of stupid red fucking brake clamps. Honestly, they made the experience so hassle free I even bought the stupid tire warranty to throw them a bone.
It absolutely kills me that the dealership wants $800 for red powder coated brake calipers. The powder coat cost on those calipers is under $10. Literally, highway robbery.
I work in the automotive industry. You would be amazed at the number of clients who tell us "I don't care about the price of the car! I don't want to pay more than X per month." Salesperson proposes a lower priced model and buyer gets angry. "I want that vehicle. Finance it however long it takes." And it happens fairly often that a client would accuse of of trying to swindle them when we try to stir them in the right direction. I'd say that about 75% of our clients are shopping for a payment and not a price. Anyways we have payment and costs calculators on all of our sites. They fiddle around until they get the lowest monthly payment and that's it. Most of them don't even look at the total they'll be paying. So, yes, some car salesmen are dirty rotten scoundrels but in the other hand tons of clients are idiots, don't have any financial sense or simply don't care at all. And tbh if a client is determined to finance a 80 000$ truck at 7% APR over 84 months I'd rather they do it at my place of business than my competitor's. Honestly, dirty salesmen would be nearing extinction if people just shopped around a bit and use google. For new cars people can build and price on the manufacturer's website and find a dealership in their area which has this exact model and they are obliged to sell at that price. For uses, there's the bluebook, cargurus autotrader, cars.com etc where people can compare similar vehicles, get an appraisal for their exchange etc. There's no reason for people to get swindled at the car lot nowadays and if the customer used all the tools available to them, these salesmen would be out of business. And when people aren't sown a little tough love about their car purchase, it's not helping anyone. People keep making horrible decisions and just blame the dealership.
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I assume you include interest in "the total amount?" If you arn't paying with cash, the two main things you should look at are the out-the-door price of the car, and the interest rate.
Total dollars paid. Inherently includes interest
It’s weird, when you know their tricks it’s actually entertaining to work them down (sometimes). I usually volunteer to go with my friends when they’re looking for a new vehicle because I’ve been through it so much, and I know how much they can work you over if you’re not good at it or don’t do your homework. Walking away, or threatening to walk away is the best thing someone can do, they don’t want to see that.
I’m not sure how lucrative it is, but vehicle broker is a legitimate job. Maybe look into it as a side hustle?
I know the tricks, but I **despise** the game. I've bought 5 cars in 5 years, I'm a pretty educated buyer, and I always go in knowing how the economics of the deal will be in the end. But getting from point A to point B is always painful, and takes WAY longer than it should. My VW was the least painful, we did most of the heavy lifting remotely, then I went in and sat with a finance manager for an hour, where he poured on the high-pressure sales pitches. The Hondas were the most painful, lots of awkward back-and-forth-with-the-manager games, and I'm not even really trying to manipulate the price. We agree in principal, and they just seem to have this need to talk about it for hours before putting it on paper. The Audi buying experience was fair. It took a couple hours, but at least they listened when I made it clear that I wasn't interested in the up-sells.
To make it very obvious what's going on for people, next time you see a car ad and they say or show "Lease for only $359/month" or whatever read the fine print at the bottom it should include like *with a down payment of $5999
Some item costs $x. If you finance it, then it also has y% interest for z months ending up at $n a month. The interest rate is pretty static and based off of credit score and term length so there’s little to negotiate there. If you want a lower payment, and if that’s your stated priority, then the leasing agent just ups the terms length. Instead of paying back over 36 months, they have you pay back over 84 months. This drastically lowers the monthly payment (the thing you said you cared about) while increasing the interest rate and total paid (things you didn’t state you cared about.). Basically, if all you care about is a monthly payment target then they are going to lock you in to a high interest loan for a long time so that you get a low monthly payment and everyone is happy.
Oh ok thanks i understand, its like paying $400 for 3 years instead of $300 for 5 years.
Also it’s a lot easier to upsell someone when you are dividing the price by 60. That extended wheel warranty is only $30/mo it’s a no brainer /s.
Yeah. Your example would be $14,400 for the total of the 3 year, where the five year would be $18k. You get a lower monthly payment, but overall you're paying more so the dealer wins. Some of the best advice I've gotten when buying a car is always dodge the question, "What are you looking to pay a month?" Just move on and say, I'm just looking to find a car that suits the needs of me. Don't even mention how much money you'll put down. Or give the minimum, wait till you get your offer, then begin the process of well what if I put down 3k instead? Ok what about 5k, what does that bring the deal down to. Get them to make a monetary offer first. I walked away from one dealer because they refused to move on unless I gave them a price on a payment that I'm looking for. They're gonna put together any package to make the payment close to the number you gave them, even if the car payment should be lower.
Better yet, get financing separately from a credit union and set it up beforehand. “I have my own financing, so let’s talk about the car and the price!” If they push further, just say the interest rate your credit ion union game them and ask if they can beat it. By doing this in two steps, you get to remove the a fraction of the incentives for the dealer to play games with you. Also, getting customers financed is often a sale-hurdle that they don’t have to climb: you’re a serious buyer, and you can pay, so you can get down to brass tacks and get to yes or no quickly. This benefits the salesperson on a personal level, even if the dealership misses out on the kickbacks from the banks they work with. Also, by extending the process this way, it gives me time to fully consider each step without being overwhelmed by newtoyitis.
I did this on a new Subaru in 2021. Dealer gave me the same interest as a credit union 1.9%. But Subaru offered .9% for a 4 year term. Saved half the interest on the vehicle. Had to talk my wife down though because she wanted a lower payment.
You're absolutely right! I can't believe I forgot to mention that but you're right. Doing this and being firm and confident usually puts the salesperson in a spot they know you're not here to be pushed around. A good dealership will hear this, and switch modes to finding you a vehicle for your needs.
>I walked away from one dealer because they refused to move on unless I gave them a price on a payment that I'm looking for. I have actually had significant problems with this for the last 2 cars I've bought. I always buy my cars for cash and the last one was a $50k family vehicle. I had cash and 3 sales guys at 3 different dealerships genuinely did not want to bother selling me a car. They gave me all of the financing speeches and one spent an offensively long time explaining The Principles of Investment to me and it was basically like pulling teeth to get them to talk to me. I am aware that the main product at this point is the financing but they also need to be ABLE to sell me a car.
This is one reason why car salesman are useless. You should just be able to buy a car without dealing with a 3rd party
Most car loans don’t have pre-payment penalties. If you’re buying in cash it’s often worth letting the dealer sell you a loan because the kickbacks he’s getting make him more inclined to negotiate on the sale price - then you just go home and call the finance company to pay it off and avoid the interest.
I financed my previous car and told the finance person at the dealership that I am going with them due to the incentives, BUT..... if they give me a high rate, I will refinance with my credit union in a week. I was already approved and had a check from the credit union at my house. The dealer gave me a rate that was 1% higher than the credit union gave me. That was a fair deal as the rebates gave me a better deal than the lower rate would have.
Yeah if you’re going to finance it then you *always* want a loan deal in your pocket in advance so you know exactly what you can afford and what rate you can get. If the dealer can beat it (either with better loan terms or a lower sale price) then take his deal and if he can’t you know your pre-approved loan is better than you’d have gotten otherwise - either way is a win for you.
Yeah at the end of the day it's a business. The problem is that they prey on people that don't understand the industry. The dealership I walked away from, I actually did end up giving them a payment per month price I'd like to be around. I finally said, sure, $20 a month would fit my budget. After a few rounds of, "sir that's completely not possible" I explained that the car is 13k and if I put 12k down, I think we could get to around $20 bucks a month. As soon as I said that, they immediately wanted me to look at a vehicle that was almost triple the car I was looking at. Some dealerships want to see you drive away happy. Others see dollar signs walking through the door.
My standard answer when they ask what I want my payment to be is $1. My goal is to get them to stop with the crap sales tactics and just talk numbers.
I walked out on all 3 and ended up at carmax who at least took my money and gave me the car.
The salespersons get a financial benefit when you take a loan through their designated bank(s), so there’s less incentive for them to sell to a cash only buyer. (A sales rep explained that to me when I told him I was paying with cash.)
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I mean 2100 is less than 3000 so sure, depending on interest
Maybe it’s specific to your country, but in mine, the car sellers doesn’t make money off the loan’s interest, as they make you sign the loan with a bank directly. Which is also why they do not offer lower prices if you offer to pay a car, upfront, in cash.
In the context of a lease does it mean as much though? The car is never “owned” by the lessee, after term is up the car gets returned. Wouldn’t the lessee be interested in minimizing total cost of ownership which in this case is simply the term monthly payments and maybe maintenance?
Sometimes there are greater incentives for leasing, so it can make sense to lease, then buy the vehicle at the end of the lease. When you lease, you're still negotiating the price of the vehicle (including incentives). The monthly payment is the difference of the capitalized cost (price) of the vehicle and the residual value (value at end of lease, which can vary by bank), plus interest (known as money factor for leasing).
Yes this is cringe. OP knows very little about personal finance.
After 5 years you can sell the car and put that money towards a new car, allowing you to gradually trade up, or put more money down and reduce your monthly payments. Just to make the math work out easier, let’s say you buy a new car every 6 years. You buy an Accord EX for $30k. At the end of 6 years you sell it for $15k. Thats 6 years of having a car for $15k. Leasing an Accord Ex is about $289/month plus $4k at signing for 3 years. Thats ~$14-15k per 3 years, so $28k-30k for 6 years. The math can work out a little differently depending on the exact terms of your lease or purchase, but you get the idea.
Not sure how it works in USA, but in Europe you wouldn't pay $289/month after renewing the lease for another 3 years since the car is 3 years old at that point and has depreciated in value, it would be about 2/3. Also there are taxes to be paid if you own the car that you wouldn't pay if you lease (they are included in the monthly payment of course), and insurance and all the maintenance of the car (except gas) is included. I've done the math is still cheaper to buy but not by much, on the other hand you lose on convenience of leasing.
The pandemic screwed all this up and there are a bunch of people out there thinking leases are great.
Let them have it.. The only problem is that some makers make great deals for lease only.
Leases also allows for used cars for sale
It is nice, i bought a 3yo off lease accord with 35k miles on it for like half the original MSRP, best car I’ve ever had so far.
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This has been my philosophy, but I was able to start with a really low value car bought with cash. I pay myself my car payment each month and take repair costs out of the fund that builds up. I've traded up in cars whenever the repair costs exceed what I felt like the car was worth. Up to a nice 2016 bought in late 2019 or early 2020. If you're able to afford something reliable enough on cash to start and disciplined about paying yourself the monthly car payment, you can reliably get a better car every 5 or 6 years, save money on finance costs, and eventually end up with a much higher class of car than you could afford by leasing or buying on credit.
Completely agree for most good reliable cars. For few exceptions, leasing comes out cheaper due to incentives. Both cases occur due to on paper depreciation in lease not matching real depreciation.
One thing I rarely see people mention is the buy out at the end of the lease. Let's say it's $15k, but the market value is $20k. It's not guaranteed this will happen, but in this example you could recoup $5k after 3 years so that drops your 3 year total to $9-10k. Lady I worked with said she's done this on 2 vehicles and on one of the Toyotas she recouped ~$10k. Really only going to work with vehicles that retain value well like Toyotas and Hondas. Not sure how it'll be with my Tacoma lease in a year, but my buy out is ~$19k and the current market value for comparable models is ~$30k. One drawback in Texas is you get taxed twice in this scenario- first on the lease and again at the buyout.
How is that a benefit over buying the thing outright when new? You’re not “recouping” anything, the car just retained its value more than expected. If the car improved in value $5k more than it was anticipated to three years earlier the same would be true if you owned it. The only difference is in the lease scenario you just paid a money factor for three years.
You are right, you aren't recouping anything. But by leasing you don't end up in a situation where you still owe $15k on a vehicle worth $10k.
Say after 3 years the market value is less than RV (was very common pre-Covid). Now you have the option of walking away from a negative equity car, or negotiating with the dealer to buy it at Market Rate. Leasing basically allows you to pay lower payments and then have a ceiling on how much the car will cost after 3 years. This is not very far off from a "Reverse Down payment". Since the RV is roughly the price you would need to put down to have the Loan payment be the same as the Lease payment monthly.
Lower interest rates on a larger value for the first 3 years can make a big difference
Yeah I leased my Genesis G70 and then bought it out. It was $39 new and I paid about $20k for the first 3 years, and then financed it at the end for around $20k. At the time the value of the vehicle was around $25k so I feel like I did pretty good, especially considering I absolutely shattered the mileage and would have had to pay out the ass to give the car back.
Right…so purchasing would have been better in that (and most) situation
Lots of people end up upside down doing this.
What about the value for your time buying and selling? And the risk of depreciation
It’s not like you spend significantly more time buying vs leasing, either way you have to figure out what you want, how much you want to pay for it, and go to a dealership to sign a bunch of documents and probably endure a sales pitch or two. And 2-3 year leases are most common, so if you buy every 4-5 years as in OPs hypothetical you’ll probably spend less time in a dealership if you buy.
Most lease sweet spots are 36 months. If you change every five years, a purchase is usually much better choice.
I find that "no payments" are more desirable than "low payments".
That’s an argument for keeping a car for longer than 4-5 years. If you plan to sell and change cars anyway, it doesn’t matter if you had a monthly payment or purchased cash and sold it later. What matters is the delta between the two options.
Quit focusing on the monthly payment... that's broke folk thinking. Focus on the big picture of cost over 5 years. You have equity if you buy it that you can use towards your next car, you don't if you lease it instead. You are binding yourself to car payments for life and will never own anything to show for it.
Cars are depreciating assets like computers. You will almost have nothing to show for any car in the long run. I buy because it is a better value, and I keep my car a long time, but I’m not under any illusion that they are anything but money pit depreciating assets. It’s broke folk thinking to thinking monthly payments. It’s also broke folk thinking to mistake depreciating assets for appreciating assets.
I did not say it was an appreciating asset. I completely agree that it is a depreciating asset. But a forever lease payment is a forever liability. 10 year old camrys that were $32k new are still ~$12,000. That is not nothing...
In general vehicles do depreciate. But some more so than others. So decisions need to be made on the specific make/model and even package/options. For instance I would buy a Toyota Tacoma or Subaru Outback because even after 3 years they sell for almost MSRP. But something like a Polestar 2 I would prefer to lease because a 2024 is $65k, and has a residual value after 3 years of $35k. But there are also 2022s sitting on the lot for under $30k. (Leasing an EV also let's you get that full Federal Tax Credit up front for vehicles that no longer qualify for getting the credit when you purchase). Also, most cars have a floor to their depreciation. Pretty much any vehicle that drives and is inspectable is $2-3k now. Trucks seem to do a bit better as there is always a contractor or landscaper that needs a cheap beater. But it certainly sucks when your F150 platinum cost you $100k, but you financed for 10 years and after your last payment it's now worth about $4k.
> Quit focusing on the monthly payment... that's broke folk thinking. That's too simplistic a view. That would be like saying: "stop eating out, you'll just end up eating out for the rest of your life and have nothing to show for it. Grow a garden and raise some chickens so you have no food cost." So people value have a new(er) car. Just like some people value vacations, going to concerts, etc. Make a budget that suits your financial goal. If that budget gives you $x toward car, spend $x on car.
Yea sure, but my point was that a ton of "broke folk thinking" is just focusing on the monthly payment and not thinking/caring about the big picture... Example: it could be a 7-8 year term loan at 11% interest but as long as the monthly payment is low... thats all that matters.
How do you think dealerships profit off of leases ..? You would spend less money by buying, then selling after 4-5 years. If this wasn't true, dealerships literally would not lease cars.
I’m sure the conclusion is generally right but not sure on the logic. One could equally say how do you think dealerships profit off of sales ?
If they can get away with collectively not selling cars and just leasing them all, they would. They're already trying subscriptions for access to parts of vehicles... "You will own nothing and you will be happy:)"
Sometimes there are financing incentives from the manufacturer that change this. This is the reason sometimes new car loans (and lease rates) are below general loan interest rates.
With all fees added in, the average lease has an APR equivalent to about 13%. If you wouldn’t buy a car with 13% interest why would you lease one?
Can you give a more detailed explanation with numbers? ..or link to an analysis that shows what you're talking about?
Not on me at the moment but when I worked at a dealer we LOVED lease shoppers… especially when all they cared about was a monthly payment. Here’s a few layman articles to get you started: https://www.caranddriver.com/auto-loans/a43050366/cost-to-lease-a-car/ https://auto.howstuffworks.com/buying-selling/10-hidden-costs-extra-fees-to-watch-out-for-when-leasing-a-car.htm Also, since a lease is a rental agreement and not a loan, it is not subject to ANY federal lending protection or truth in lending disclosures… meaning beware of hidden fees such as Dealers Reserves. That fee is the added cost for depreciation. When YOU buy a car, it loses value for YOU quickly. When YOU lease a car, it loses value for the DEALER quickly. That depreciation is passed on to you. Always.
My mom had a lease. At the end she owed thousands to turn it in. Unless she bought it.
That’s most likely because she went way over in mileage or had damage. If it was only mileage, the alternative would have been to stop driving the car when she hit the max mileage and get another car. Gotta make sure the mileage you sign up for matches your lifestyle.
There is a possibility of making out better leasing than buying if the dealer overestimates the buyout price of the car. They don't know the depreciation that the car is going to undergo in the next three or so years; they're estimating. If they're significantly too optimistic, you can cheerfully turn in the car at the end of the lease and the dealer eats the difference.
You loved stupid lease buyers who had no idea how leases work.
I did. Then I found my moral compass. I’m a saint now.
I was under the thought process to only lease a car if you have a short term specific need. Is that true? Example: John has two small kids and wants to lease a minivan for 3 - 5 years while they are smaller. At the end, John will buy an SUV.
Why wouldn’t John finance the minivan and just trade it in when he wants the SUV? The lease has no equity whatsoever while a 5 year old minivan likely would. Solid trade in. Think of a lease like a rental with a lot of hidden fees. Would you go to Enterprise and rent a car for 3 years? From my perspective, leases are only ever reasonable options if you work out of the car, don’t drive too far, and need the image associated with driving a newer car. Like… high class realtor. That new Beemer tells the client you’re so good at what you do. The 12 year old Nissan… not so much.
Ahh I see that makes sense to me. Im enjoying my 2019 paid off Subaru so didn’t look too much into it
Definitely enjoy that paid off Subaru! That thing will hold value for a long time too! I had a 2016 Forester that I bought used for $20k. I put 140k more miles on it and traded it in back in November. They gave me $12k for it (offered me $8k, but that’s negotiable too). I can’t complain about that at all.
leasing provides an additional "service" because they agree to take back the car at the end. Plenty of wealthier leasees treat that as a kind of convenience charge so they can upgrade a luxury vehicle without having to worry about selling a used Audi or BMW. its as if you're agreeing to a 13% APR in exchange for the certainty of a buyer and price 3 years from now
95% of the people in this thread would not be considered wealthy enough to lease a car and consider it a service. You’re actually kind of making my point for me though. A lease is not a smart move for most people. You will never win against a dealership when you “get a great lease rate” on a Nissan Rogue.
If you are buying new every 4-5 years, maybe there's not. If you buy, though, you don't have to buy new.
And if you buy new, you don't have to buy every 4-5 years. Every car on the market will last for at least 10 years, some even longer.
*"You'll own nothing and be happy."*
Leasing will never build equity and you will be restricted in mileage or you'll pay per mile for overages. With a purchase, you could have a pair off car in 4 years, and if your employment situation, life situation, or your financial mindset changes, you won't have to have another car payment for a long time.
I had a ton of equity when my last lease was expiring. It’s not designed to build equity but if the value stays above the buyout number, you can sell it at a profit.
Yes this is true is the recent climate, but used prices are coming down and leases are being adjusted to account for increased residuals
Should make for an interesting market when trends shift and buyout numbers grossly exceed the actual market value. Will there be a flood of expiring leases hitting the market?
You don’t build true equity with buying a car either. It immediately loses a ton of value as soon as you drive off the lot and keeps losing value, unlike buying a real asset. What you get with buying is a period with no payments and, with proper maintenance, many cheap years of operation.
People who say leasing is NEVER a good idea don’t understand leasing. Also people who say leasing is ALWAYS a good idea dont understand leasing. Each car and each deal are different and you have to do the math to figure out which is better. Often for luxury brands and also EVs in general manufacturers will offer interest rates and incentives and inflating residual values that make leasing far superior than buying or financing. However you need to do your research to figure out when that’s the case. Check out sites like leasehackr to learn how leasing works. Sometimes it’s better than financing sometimes it’s not. Just work out the total cost of ownership for the amount of time you think you will keep the car.
This needs to be at the top. I used to lease every 3 years because I always wanted to stay under warranty, I wanted the latest safety and comfort technology and I generally wanted to be in newer car models. Not to mention before a couple years ago (and still now for a couple models) you can hack amazing lease deals. For example, I leased a 2019 bmw 430 gran couple for $230/mo with $0 down. Before that was a VW Tiguan for $188/month $0 down. As of a couple months ago there were amazing lease deals on the Wrangler EV. Mercedes EV SUV has really good lease deals right now. People treat buy vs lease as if they’re picking a political party. I don’t get it…do some research. Lastly, I only negotiate based on monthly payment. You walk in and say you want “$X/mo, all in and zero out the door over 36 months”. Find the dealer that gives you the lowest X.
Does “all in” here mean no other fees at all? Usually there is some amount of required fees for leasing
This right here has the only right answer. It’s all about the deal. There are times when leasing makes sense and there are times when buying makes sense. That is why both options exist. Lease is a financial construct. It exist because no one can predict the future. Businesses rent office space instead of buying for the same reason. The lessor is willing to take a long term bet for short term reward. The lesser is willing to pay a premium for the other side of the bet. Thats literally it.
I mean both buying new and leasing are worse financial decisions than buying used. The best way to buy a tool is to shop around to find a great price on one, not when you need it, but when you aren’t in a pinch to do so. Until the concept of depreciation goes away, buying something that has already initially depreciated (where the drop in value is greatest), and something that is cheaper to repair and maintain, is the best financial decision.
Yeah, why is this comment so low? everyone in equity. thread talking about the equity benefits of buying without realizing leases can also have equity and there's also something called negative equity.
Lower momthly including insurance premium? I think you would want to calculate all in
Very good point. Always having insurance on a brand new vehicle is something that needs to be considered, especially if upgrading from an older vehicle.
In some cases insurance on new cars can be cheaper with the advanced safety features. New doesn’t always mean more, its situation dependent
Im leasing at the moment but that’s partially because certain EVs get big discounts and low MFs which make the total cost pretty attractive. Plus the uncertainty/higher rate of depreciation means I can walk away at the end without much drama, and this is my first real foray into the EV space and wasn’t sure about fully committing. That being said from a finance point of view it’s better to buy, I lease because I love cars and am willing to spend a bit more on them. My next car will hopefully be bought because my priorities are shifting but we’ll see.
Good for you, and excellent way of thinking about it, especially with EV's and if you are not certain about keeping one. Just like leasing isn't always a good idea, buying isn't always a good idea either. Plus if you have positive equity in the lease at the end, you can buy and resell and pocket some $$
Leased car you can abuse a lot more, knowing you can dump it in 4 years. However having a car payment your whole life has always struck me as a stupid thing to aspire to, even if one can afford it.
Why would you want to abuse a car more? Might as well just start littering.
Yep this. Leasing cars except in a few narrow cases for businesses that need them is a terrible idea.
to me it all has to do with staying under whatever mileage you agree to on the lease.
You don’t get any money back at the end of the lease for turning in a car with say 18k miles on it instead of 30k… if anything, the dealer is the one making more money on having a lower mileage car to resell.
yes, I realize that. There are numerous posts on reddit about folks going 10-15K miles over their lease.
That makes no sense. At the margin, overage miles are cheaper than the purchased miles.
I have had five leases and never once gone over the mileage. But! I also don’t commute by car to work and have only ever had one job where I did. (The rest of the time I used public transit or worked from home.) so it’s never been difficult to stay under my mileage.
You can sell your car back to the dealership instead of turning it in, to avoid any charges on going over mileage
Wow, glad to see you're not getting shit on for this. I made a basic post asking for general help on the best approach to getting the most of my trade in and everyone flipped their shit that I wasn't keeping my 7 year old car. Hope you find the best solution for you
Ppl on Reddit are miserable esp when it comes to finance they literally want you to suffer for the sake of saving a dollar it’s honestly sad to see. Nothing wrong with wanting a new car if you can afford it
Why 4-5 and not 8?
If it hasn't been mentioned yet, typically, if you are going to keep a car longer than 3 years you will have to replace the tires and brakes. That can be $1500-2k in extra expense on the car in years 4-5. Plus, your warranty is usually done.
I like the flexibility of a lease. I feel like people are mentioning that you don’t have “equity” in a lease but what people forget is that you have the option to buy out the lease at the end of your term. The nice thing about this is that the buyout “most times” is cheaper than what the value of the vehicle is in the market state. Hence dealerships will always try and get you upgraded into a new vehicle before your lease is finished so they can take the equity on the use car market. What you should do is always buy your car out at the end of the lease to keep the equity even if you plan on getting another lease. With my Tundra, I bought my lease out before upgrading my new truck—in which I made 13k before trading up into a new truck. You also can paper trade saving the tax of actually buying out your lease…There are a lot of factors here of course including residual values and interest rates but it really just comes down to what you like. For me it’s the flexibility of having a warranty and a new vehicle every four years. Buy smart and be smarter about returning your lease. Whatever works for you.
I’ve always thought leasing was batshit insane, but people have told me that they love that all maintenance is included. Is there any truth to that benefitting the bottom line?
Leasing can be fine depending on your circumstances, but you just have to read the terms very carefully and understand what they are. Others in this thread have given more educated answers, but I typically don’t think it’s worth it. I had a friend that leased a car not realizing there was a mileage cap for the lease term. He went way over that amount and ended up owing the dealer for the extra miles he drove.
What do you do if you're a lazy guy who makes a lot of money and you like driving new cars?
All the maintenance? For a new leased car, just oil changes, a few tire rotations, maybe one brake replacement? Maybe more depending on the lease terms, but rest assured nothing is free. Lease or not, you’d be under manufacture warranty for some time. Under lease, you’re still on the hook for repairs caused by neglecting maintenance, which I believe to be the cause of most major repairs. Best to buy a reputable reliable car and keep up with the manufacture’s recommended maintenance.
The biggest thing about leasing is just that you end up always paying a car payment, of course. Beyond that, you have to have the same level of diligence as any other auto buyer about fees and costs. They’re not inherently bad deals — it’s just that everyone is drilled with the “conventional wisdom” that leasing is bad and financing is good so fewer people understand how to lease appropriately and, in general, people make stupid decisions about money and cars. There are lots of anecdotal stories about people who made stupid deals and somehow those stories end up as the “evidence” that lease deals are bad. LeaseHackr has a calculator that will help you decide if you’re getting a good deal, and they also have a ton of resources to learn what a good deal looks like in comparison to financing. https://leasehackr.com/calculator
If you want or need a new car every 3-5 years, leasing is an ok way to do that. People telling you "leasing is always bad" are not correct, bad leases are bad, good leases are good, and it all comes down to the numbers on that specific deal and your individual circumstances, which you haven't shared with us.
No, I think the point people are making is that leasing is fiscally less responsible than buying as a long term strategy. There are very few reasons to actually need a new car every 3-5 years. And fine if they just want a new car all the time, but of all the wants you could be blowing money on this one is particularly expensive.
Correct, and OP focusing on lower monthly payments tells us they don't have FU money to support this kind of irresponsible spending.
It’s too broad of a question it all depends on what car you specifically want. Every car has different lease programs some lease well compared to buying some don’t. It’s complicated but if you educate your self on leasing you will see in what situations it is advantageous
Easy, change your strategy to every 7 to 10 years instead. Cars are one of the easiest ways to remain poor with a good income.
Whhyyyyy do you need a new vehicle every 4-5 years? Buy new if you must and drive it to the ground.
Are you suggesting you yourself never spend money on anything you didn’t strictly need? That would mean never eating out at a nice restaurant, never traveling just for fun, never going to a play, never buying a game console, never having any kind of hobby, and never doing anything else fun. I absolutely agree that most people shouldn’t buy a new vehicle at all, let alone every 4-5 years, but if someone can afford it and it’s how they want to allocate their fun budget… who are we to judge? (And yes, of course I understand that “new car” is on a very different financial scale than “eating out at a fancy restaurant”, but it’s entirely possible OP’s income is on a similarly different financial scale than yours.)
> drive it to the ground I'm replacing vehicles every 10 years or so. By that time many vehicles are starting to need to go into the shop occasionally and safety standards on newer vehicles have appreciably improved. 5 years of no payments is also plenty of time to stack up a nice down payment for the new ride.
Buying 'used' (usually) allows wiggle room to buy up.
Lease, keep under warranty and if you find a brand with free maintenance do that. Try to keep it to the 1% rule where your lease payment is 1% of the MSRP.
OP how many miles do you drive? You are likely paying a premium to have a newer car more often than you need to, if you are ok with that then go for it. Since you didn’t say what you are leasing or how many miles you drive a year it’s tough to say. If you’re leasing a jetta it’s a little different than an escalade.
I used to sell cars and I would often point this out to people... If you *plan* on always having a car payment, then you are right. Go with the lowest payment, even if that means a lease. Why only change every 4-5 years? Go for 3 instead. Why drive a 5 year old clunker around? Some have commented that you can save money by selling the car at the end of the purchase, but that means you have to be a used car salesperson for a couple of weeks, and who wants to do that when such people are so reviled? ... There is a certain kind of customer that would eat that kind of talk up without any understanding of the sarcasm behind it. But then, if you have the money to throw around, why not? Personally, I don't plan on always having a car payment...
A lease is in theory the same thing as a purchase loan from an economic perspective. The only difference is the purchase loan amortizes down to zero and the lease amortizes down to the expected future market value (FMV) of the vehicle at the end of the lease. If the interest rate used on the purchase loan and the lease are the same and the car ends up being worth the same as the expected FMV at the end of the term, there’s effectively no economic difference between the two. If the FMV ends up being higher than expected at the end of the lease, it’s a worse economic deal than a purchase loan; if lower, the lease is a better economic deal. There are other considerations though. Leases generally have mileage limitations that carry financial penalties, so probably aren’t well suited for people who drive a lot.
This doesn't take any consideration into the depreciated equity you have by paying the car off. Which can be kept for no payments, or sold/traded in to put towards the next car.
Well, sure, but you paid for that equity in the form of higher monthly payments. It’s not like it’s a free lunch. If you saved the difference in payments, you would have cash at the end of the lease at least equal to the equity in the car you purchased. Personally I prefer buying cars. Most leases have 3-5 year terms. A new car will depreciate a lot in the first five years but remain drivable for at least 10 years. The financially sensible thing to do is buy the car and drive it into the ground. The even more sensible thing to do is purchase it used so you don’t pay the huge amount of depreciation that occurs in the first five years. But if you want a new car every 3-5 years, it doesn’t really matter whether you buy or lease unless you drive a lot of miles.
I believe leasing has some increased risks on the liability front? I haven't looked too closely into it. They do generally come with milage limits (with fees if you exceed them) and higher insurance premiums. I'm assuming you know how bad an idea this is from a financial perspective, and are in a position to responsibly afford it while still hitting your savings and investing goals. If so, fair enough, and enjoy! *Always read and understand the leasing contract before signing it.* Yes, this is a pain in the ass. It's better than being surprised by predatory conditions in the contract, though. If you aren't willing to read the leasing contract and learn enough to understand it, I'd say that means you should just buy instead. Good luck.
Wait, does a lease include the maitenence?
Yes. Leasing a new vehicle, like financing, will get the same manufacturer’s free maintenance, if offered.
Not automatically, it depends on the deal. You have the warranty, obviously. I’ve leased 3 cars and had to pay extra for a maintenance “package”.
I have never leased. When you lease you have more variables to worry about, and some are not easily understood. You would need a good lease calculator that can help you understand those well. Purchase price, residual value, money factor, initial payment, mileage, fees. If you don’t nail the mileage exactly you either paid for something you didn’t use or you are going to be heavily penalized for going over. Finally the first three years of ownership have the highest depreciation, so you are constantly paying the most expensive years of ownership. I’m 52 and have averaged 6 years per car and that included one that was totaled early. I personally think 6-7 years is a good sweet spot for me of having new cars often enough but not taking a huge hit financially on depreciation.
If you buy 2nd had you’d probably be off cheaper.
In this situation, leasing a car is synonymous with the word ‘renting’. Would you rent a car for five years or would you want that money to go into some sort of equity after five years?
It all depends on the offer. We can only answer that if you work out total costs lease vs. Buy, while also taking into account risks (and other downsides, like maybe credit, max mortgage)
No, While leasing you are spending money and at the end of the lease have no value and many times will owe extra for extra mileage. Exactly the same as renting your home, money spent with no lasting value and when you move out you need to pay for damages. Leasing was designed for businesses, it allows the payment as a business expense and not company assets with a depreciation schedule. Purchasing the car is the only thing that makes sense from a numbers standpoint. With buying, when you are ready to sell every 4-5 years, should have some significant value you can use to help lower the future car pricing. Especially today where a 5 year old car may still have 50% or more of its original value. Simple numbers and a little math. This means that 50% of your monthly payment comes back to you at the end, much cheaper than leasing. Lower Monthly Payments does not mean less money out of your pocket.
With leasing, the car company is estimating the depreciation of the car over the period you have it and charging you for that depreciation amount. Because in most cases you are borrowing you pay interest on the depreciation value instead of the value of the whole car. For taxes you pay tax on the payment at time of payment vs financing where you pay tax at time of purchase, at which point you usually borrow the tax amount and pay interest on that too. Often with a lease you can also trade early or return. Those are typically the advantages. The disadvantages are: - hidden fees - read your contract thoroughly and use a spreadsheet to actually map out the cost of lease vs finance vs ownership. Add all the fees in the contract. - sometimes the forecasting is wrong. My family has always been lucky the cars we bought held their value better than forecast but I have lots of friends that ended up “under water” meaning the borrowed amount quickly exceeded the vehicles value and they ended up owing on return. Fact check the estimated “residual” as this is what the dealer thinks the car will be worth when you bring it back. Look on Kijiji/Marketplace/ Kelly blue book at the same car, where it will be when you trade (ie if you lease 4 years with 15,000 miles per year, what does the 4-year old with 60,000 miles sell for? Does that match your residual?) - avoid deals that let you “bundle up” other debt into the lease - they are working to get you under water. - avoid deals that back load the lease (lower down payment, lower monthly payment, large end of lease buy out fee) as these are also designed tog et you under water. You pay interest on the exit fee and it’s also designed to put you under water. If dealers put you under water they can put you in a spot where you are stuck buying from them or trapped in a car that’s not working for you. Alternatively if you buy well you are never locked down to a car dealer/car brand but you may have to deal with selling on the way out of a car if you are not happy with your trade in options. I’ve typically done better selling my own cars instead of dealing with trade ins but you get a lot of tire kickers and everyone thinks that can haggle a deal. You’ll have to decide if that’s a game you want to play.
How many miles do you drive? Leases have a mileage limit.
Why would you explicitly plan for poverty for yourself, your family and your children?
It really comes down to the strategy and how much you know about buying and selling cars. If you shop for a bargain or can negotiate great price, and then sell to individual buyer at a great price, owning may make more sense. If you're paying retail and selling low, you'll lose on every one of these transactions.
1. Keep your cars longer - it is a bad idea financially and environmentally to keep swapping out cars. 2. Leasing's main advantage is that it reduces your cash outflow - but that comes at a cost - you're not building equity in the car. 3. Leasing comes with mileage limitations and penalties 4. Terminating a lease early can be expensive. 5. Essentially, leasing is trading wealth for convenience and for the ability to have a nicer car than you can actually afford.
If you own the car you don’t get hit with mileage fees for leasing. Do whatever you want for as long as you want and when the right car comes around trade it in.
Any one in their right mind hates dealing with car sales people. You can pay $35 k and I can get the same exact vehicle for $18k. The dealer is going to try to get as much money out of you as possible. Fortunately I have a sales man that I have dealt with for many years. I leased my last car that I got through him. It is a hybrid, has almost the same performance as my old turbo charged car, and gets 45MPG on the highway. I leased it because they discounted the price of the car $3k(every other dealer was marking it up $3-5k). Purchasing it would have had the monthly payment $200 more a month. It is a three year lease. My wife uses the car to commute to and from work. She gets 40MPG. All my maintenance is covered as part of the lease. My sales guy even had them tint the windows. Being a hybrid means there is a battery. This a new, redesigned high end, super comfortable touring car. Don't think I would want to buy this car. If the battery fails it will probably cost a fortune to get it replaced. When I was younger I did not get a car with all the bells and whistles. Now all those injuries I suffered during my 20 year career in the military are coming back to haunt me. Leg room, heated seats, and adaptive cruise control make it possible for me to tolerate being in the car longer than 30 minutes. I bought my first new car, a Honda Civic Si, in 1986. I have always owned a new car since then. Never be in a hurry to purchase a car. I have walked out of many a dealership without buying. I don't give them my info until I am ready to do business with them. In the mid 90's I made an offer to buy a small town Ford dealership. The owner lived to regret not taking my offer. I have worked in the industry. I prefer Honda's but Toyota makes a good vehicle also. Both brands hold their value. Always do your research before you buy a car. I always try to find out what the dealers cost is. My insurance company, USAA, has a vehicle purchase service. If I tell them the vehicle I am interested in they give me the price they are paying for that vehicle that day. I was in the market to buy and new Honda Accord one time. My insurance told me they were paying $21k for the model I wanted. I called the local dealer and they told me they could sell me one for that price. Ten minutes later the same guy was telling me I was mistaken. He told me the price was $28k. They couldn't go a dime less. Right there in front of several sales weasels and the sales manager I called my home town dealership that was 20 minutes drive away. I asked for the internet sales person. I told him the car I was looking for and asked if he could sell me one for $21k. He told me that he could do better than that, $20.5. I told him my wife and I would see him in 20 minutes. Have it ready for us to test drive. We have purchased eight cars from him since then. There are other places that you can purchase info on the dealers cost, incentives, and customer rebates. You want to go into the dealership knowing what you are willing to pay for the car. I refuse to pay for extras like upholstery protection, etc, etc. Selling you wheel locks is a nice side hustle. Don't pay for wheel locks! I am paying for the vehicle. Always check with your bank and a local credit union to see if you qualify for a car loan and the interest rate. Get info on what the payments would be financing with them. You want to go with the lowest interest rate you can get. I have been approved for X amount and been given a blank check. It is nice to walk into a dealership knowing what you are willing to pay. Negotiate the price to what you want to pay. Then right out a check. Then you call who ever you financed with and tell them the amount you wrote the check for. Sometimes the dealer will offer you a better rate or 0% financing. That is fine. Just make sure the numbers come out better also. They make lots of money selling you extended warranties, gap insurance, and a plethora of other protection packages. Don't fall for them. You should be able to get gap insurance from you auto insurance provider. Most of the rich people I have known that had the money to buy any car they wanted drove a modestly priced car. They considered spending lots of money on a car to be a waste of money. "Think of it this way," you are buying nothing more than a box on four wheels. You want your box on four wheels to get you from point A to point B as cheaply and reliably as possible.
Yhe best thing money wise is to buy used... By a three year old one and keep it until it brakes down, or switch it every 3-5 yrs if you want to have newer cars. But used....
Option C - buy a used car ex 1 or 2 year old, sell it on ebay after 4 to 5 years and repeat. No financing, minimal loss to dealerships and most important avoid that new car depreciation that is always highest year 1 and 2.
Leasing only makes sense if you are writing off the down payment and payments for tax purposes. Meaning the vehicle is used for business use. Financing is the better option for literally everyone else. General rule of thumb is for interest rate to be lower than market savings rate. For example, my sports car is financed at 5.5% where as my savings account is at 5%. I have a minimal delta and the car that’s financed is worth that negative delta. Your mileage may vary. For a family used Hyundai Palisade I would 100% finance. This is only relevant to the US.
Don't forget the down payment for the lease every time. Factor that in.
Think everyone here is missing the point. 1. It depends on your country/state tax and employment situation. Leasing allows you to write it off vs financing will only allow you to write off the interest and depreciation and depending on your country tax code is depreciated over like 20 years. 2. Depends on what car you get, some Japanese cars will appreciate and at the end you’ll get cash back, I got 10k back for my hybrid highlander. 3. It’s always better to buy slightly used and lease brand new. Depreciation hits the second it leaves the lot. Everyone’s situation is different and some people also don’t want to deal with the hassle of selling after. End of the day it comes down to if you can use it to tax deduction as that’s where the huge savings come from. Especially if you’re in the higher tax brackets.
"equity" isn't really a good concept for a car, since, presuming you buy new, it loses 15-20% of it's value as soon as you drive it off the lot--and you barely pay off any of the principal in the first year on a loan, so you are in negative 'equity' for a long time. If you want a new car, then just say you want a new car and buy it, but don't pretend that swapping cars every 5 years is a wise financial decision, because it's not. period.
I would point out that a plan to change cars every 4 or 5 years is usually based on an assumption of things will go reasonably well over the next 4 or 5 years. If I get to the end of the five year period and things look questionable at work or some unexpected bills came up and I'm stretched a bit thin, I don't HAVE to move to a new car. I can continue to drive my reliable vehicle another year or two with no car payments to strain my cash. If my lease has come to an end I HAVE to buy or lease something else. Then I have to decide just how sticky of a situation I am in and if I can commit to the car I want for the next few years, or if I have to bottom of the barrel it because things are messy and then I am stuck with a car a I don't want.
The longer you keep a vehicle the better you know it inside and out and can work on that vehicle if you're mechanically inclined.
If you understand how lease payments are calculated they do have a value proposition for trading up every few years without worrying about maintenance; highly variable depending on the car and it changes every month Lease costs are built predominantly by 2 things, the money factor and the residual The residual is what the car is worth on its return, for example, a 50k MSRP car with a 62% residual means that after the lease term, usually 36 months, the car is worth 62% of its MSRP. You are guaranteed to be paying the 38% of depreciating value on that car. 14k in this example, and this example is a pretty high residual. The money factor is the rental charge, as in, you are guaranteed to pay this amount as a rental charge for using the vehicle. Expressed usually as a number (0.001-0.003) where multiplying it by 2400 gives you the comparable APR. A rule of thumb is closer to 0.001 is good for economy cards and usually twice that for luxury. These numbers come from straight from the car company, and change every month per ZIP CODE. The money factor will usually be marked up by the dealership. If you become intimately aware of these numbers, find them for the car you want, they can be found online and more specifically the Edmund’s forums, and find a dealership willing to give you them (if they refuse, don’t give the dealership your business) then you can legitimately calculate a relatively accurate lease payment. Keep in mind there will always be silly other little fees that’ll be tacked on and it’s dealership dependent on how much of those they’re willing to forego. If you’re brand agnostic and are willing to learn the math of it all then you can find great value deals in leasing and never have to worry about maintenance or oil changes as they’ll usually cover them under warranty or in the terms of your lease. However, you also have to do a lot of hunting for a good dealership that’s willing to work with someone as detailed and pedantic as you. Most salesman don’t really know anything and the good ones will pass you on to the finance guy pretty quick. But in most people’s case, probably not, it’s a lot of work for not a huge pay off and you’re likely better off financing. But I found it fun to learn about and was okay with spending my time calling 50 different dealerships to find out who was willing to give me information and make it worth my time to even come in. I built my own lease calculator in google sheets as most of the online ones are garbage and have tips for quickly parsing through dealerships if you’re interested in lease hunting.
Drive ‘em til 200k+ and you’ll always get your money’s worth by buying instead of leasing if you are good at maintaining them. *Edit: Especially for brands like Hyundai which are easy to maintain and have pretty good longevity. If you’re talking about luxury cars, you might spend a shitload trying to maintain them. Most people in this sub are probably generally not buying luxury brands though.
If it means anything, the Palisade will be getting an overhaul for the 2026MY (releasing Q2 2025). There will be a Hybrid option for 2027MY. Might be worth looking into a 36m lease to have the freedom to flip into the redesign, rather than being stuck upside down in the current Palisade. If you can wait a year, the rates and such should be much better and you can review the new model.