To Buy or To Lease

That is the question

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24 Replies - 1118 Views - Last Post: 22 January 2009 - 10:38 AM

#16 Amadeus  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 05:17 AM

It depends on the type pf person you are. I actually lease, for the simple reason that I like to change cars about every two years, and by leasing the vehicles, I don;t have to worry about depreciation. Most leases are for longer than 2 years, but if you go back to the same manufacturer and tell you want out early and will lease another from them, they're pretty good about it.
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#17 MarkoDaGeek  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 07:50 AM

I bought my first new car this past spring. It really does depend on your needs, I decided to buy because the low mileage restrictions on a lease wouldn't work for me, a "High-Milage" lease is like 15,000 miles a year, I just bought my car brand new in May and I already have 30,000 miles on it.

When you buy a car you do own it, but a lease might have lower monthly payments. I just seen an ad for a Honda Civic lease offer for $188 a month. Also, a lease normally requires very good credit. When you buy a car you have more options for financing and if you try hard enough you can get a reasonable interest rate regardless of your credit.
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#18 Nykc  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 07:51 AM

hey there we go.... Some leasers. I live a pretty consistent lifestyle - if I travel I usually rent or drive the other car anyway - so I would pretty much just go to work and back. As for the deprecation - see that bothers me - investing 18 - 25k in a car that won't be worth half of that when it is paid off. Either way I am burning money - (Hence the reason I always bought used). Both new and lease come with warranties and leasing is usually cheaper than buying.

Well I need to decide sooner than later because my car stalled on the way to work - i took it in for diagnosis and had to miss a day of work. It is something electrical I think and I am not going to cough up any more money for it. I just want them to try and pinpoint the issue and then I can list it on eBay. Besides the current problem this car has a lot of new parts and has always run great.

edit- just seen Marko beat me to the post. Those are good points Marko and I would need a high mileage lease as well - even though I only drive typically to work and back that is 55 miles a day round trip. if I go anywhere in Columbus (this city is so spread out) that is another 50 miles a day easy. Well I guess when I get back in town on Monday I will have to visit the lots and see what they are willing to do. There are some huge dealerships here with lots of options so I will check them out.

Thanks for all your help.

This post has been edited by Nykc: 22 January 2009 - 07:55 AM

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#19 KYA  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 08:33 AM

Remember a car is not an asset. It loses 30% of its value as soon as you drive it off the lot.

A car is a tool to get from point A to point B.
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#20 Nykc  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 09:03 AM

Which is why I haven't ruled out leasing... :)
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#21 ayman_mastermind  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 09:44 AM

Quote

Remember a car is not an asset. It loses 30% of its value as soon as you drive it off the lot.

A car is a tool to get from point A to point B.

Even though it loses 30% of it's value once used, a car can be considered as an asset if used for business purposes and belongs to a certain business even for getting from point A to B, it can be used for transporting employees and according to the theory, any product that is used in producing anything or making a revenue for the business is considered as an asset, so business wise, a car can be an asset, for example, a car is an asset for a taxi driver who owns it and runs his business based on it.... anyways, that's what i learned in one accounting course ;)
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#22 mikeblas  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 10:03 AM

View PostKYA, on 22 Jan, 2009 - 07:33 AM, said:

Remember a car is not an asset.
A car is only an asset if you buy it. If you lease it, it's not your asset.

Leased vehicles don't give you any equity for your payments. You're just buying the limited right to use the car for a certain period of time.

If it bothers you that a new car depreciates, then you're probably better off buying a used car, or selling the car before it depreciates too much. If the car is expected to be worth less than what you owe on it, it is obvious that you're paying too much or financing for too long of a period.
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#23 Nykc  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 10:10 AM

The typical life span of ownership on a new car is 36 months. If I bought a car new for $15,000 and drove it for 3 years traded it in I would still owe about 12-13,000 on it and its value is going to be around $9,000. so it really has nothing to do with paying too much or financing for a long period of time, it is the value of cars deprecate way too fast.

The original intent of my post is to make an informed decision whether to buy or lease a car. That is my whole MO. I am trying to weigh the benefits of purchasing vs leasing. I can always buy used off the streets and then when the car breaks down again I am screwed by paying out the ass in mechanical fees. So right now I do not want to go that route.
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#24 KYA  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 10:19 AM

I'm not going to argue this point again, but unless an item generates wealth it is not an asset. Cars do not generate wealth, they are a liability.

That accountant is example on how to make a deduction on your taxes, the car is not an asset, the same as a factory, building, etc...
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#25 mikeblas  Icon User is offline

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Re: To Buy or To Lease

Posted 22 January 2009 - 10:38 AM

View PostNykc, on 22 Jan, 2009 - 09:10 AM, said:

The typical life span of ownership on a new car is 36 months.
Typical for who? You?

View PostNykc, on 22 Jan, 2009 - 09:10 AM, said:

If I bought a car new for $15,000 and drove it for 3 years traded it in I would still owe about 12-13,000 on it and its value is going to be around $9,000. so it really has nothing to do with paying too much or financing for a long period of time, it is the value of cars deprecate way too fast.

Of course it does. I guess I'm not making myself clear.

If you finance $15,000 at 6% for 72 months, your monthly payment is about $250. After three years, you'll have paid 36 * 250 == $9000. $2100 of that, or so, is interest. You've still got $6900 of equity in the car, but you still owe 15000 - 6900 == $8100.

Let's say you pay $1500 down, though. And finance for 36 months instead of 72. Your monthly payment is $455, even assuming the same 6% interest rate. With this arrangement, you're in far better shape. At the end of three years, the car is paid off completely. You've only paid $1285 in interest--half of what you would have paid over the 36 months you kept the other loan.

The interest payments are front-loaded in the amortization, so by selling the car you're giving away your opportunity to buy equity in your asset and resetting the schedule for the next car you finance.

The problems with your plan is that you've paid zero down and that you've financed for too long of a duration.

If you can't afford the shorter loan term, you really should put as much money down as possible to minimize the interest on the money you borrow. If you put anything down, you'll pay less in interest, and pay your principal down faster. Shortening the loan term helps, too, without increasing the payment substantially. $15000 at 6% for 72 months is $250 per month and $2900 over the life of the loan. The same loan with a 60 month term is only $40 more per month -- $290, and only pays $2400 in interest over the life of the loan.

View PostNykc, on 22 Jan, 2009 - 09:10 AM, said:

The original intent of my post is to make an informed decision whether to buy or lease a car. That is my whole MO. I am trying to weigh the benefits of purchasing vs leasing. I can always buy used off the streets and then when the car breaks down again I am screwed by paying out the ass in mechanical fees. So right now I do not want to go that route.

And that's a smart thing to do; I hope I'm helping. It seems like the most important thing for you to learn towards making a valid comparison is the the way loans work and how to choose the numbers to fit your situation best.

You can mitigate the risk of buying used by having a good mechanical inspection, doing some research, and getting a warranty. If you think through some of the repair scenarios, I think you'll realize that you end up saving money above the interest and depreciation problems even if you budget 10% of the used car's price in repair costs.


View PostKYA, on 22 Jan, 2009 - 09:19 AM, said:

I'm not going to argue this point again, but unless an item generates wealth it is not an asset.
Good! That'll help us increase the signal to noise ratio in this thread.
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