Is Leasing a Car a Good Alternative?

[SoDesuKa]

I've never even considered leasing as an option, but it looks cheap. I don't need anything significant, just transportation around town and occasionally visiting relatives a couple of hundred miles away. Leasing looks good to me! If you don't own the car, you don't get stuck for calamitous repairs - right?



Leasing looks cheap - is it?

[ProdigalJunkMail]

1. it's a model that works for some but not for most

but you are still on the hook for repairs and the like. you have to be meticulous on the maintenance records as well (though some leases may include that at no extra charge).

the big catch for most is the mileage. if you go over on the miles then you get hammered at the end of the lease and in many cases, you get stuck for a big check to get out of the car or you end up buying it and the amount owed on the car is usually a LOT more than it's worth. the other thing to watch for is the 'unusual wear and tear' at turn in time...if it doesn't look NEW (and I mean NEW) when you turn it in, they are going to nail you for refurbishment costs and the average on that (IIRC) is about $1600...

sP

[HubertHeaver]

2. Depends on the contract. How many miles does the contract

allow, what is the penalty for going over the allowance? My in-laws leased one car. For them, wasn't really a good option. Looked good up front, on the back end, no.

[dipsydoodle]

3. In the USA

if you take out a lease on a car based on an agreed maximum mileage do you have the right to return the car in lieu of the balloon payment at the contract end ?

Just asking so's I can relate to here in the UK. We don't use that expression here, "lease" , for consumer agreements - they would be illegal. Our equivalent is a conditional sale agreement. Leases or contract hire agreements are for companies only. With a lease the balloon has to be paid come what may and with contract hire the finance company holds the bag on the balloon / residual value.

Anyway - the answer to your question is that viewed as "payment for use" rather than ownership then decide how much you can afford and don't exceed that. Let that determine which car you have and don't be sold something more expensive.

btw - this is what I do for a living but only for companies : not consumers.

[melm00se]

5. you hit it on the head

in the USA you essentially are renting the car for a specified period of time for a specific monthly payment. At the end of the lease term there is a residual amount which you can elect to pay and own the car or return it to the dealer.

the calculation works like this:

"cost" of the car minus the balloon payment (what the leasing company thinks the car is worth at the end of the lease term) = X
X divided by the number of months of the lease term which is then multiplied by the "lease factor" (essentially interest) = consumer payment

or IOW (and these are hypothetical numbers):

$20,000 (car price) - $10,000 (balloon payment) = $10,000 divided by 24 months (lease term) = $416 x 3% (lease factor) = $426 (monthly payment

People and businesses who can write off the depreciation of the car on their taxes benefit the most from leases.

The sales pitch on a lease contains things like:

you can get a better car than you could when you purchase
you only pay for the time you are using the car

for the average person leasing is not the best option as you have nothing at the end of the lease term except the need to acquire a new vehicle. It is better, IMO, to purchase a car, have a 48 month loan and then (hopefully) go for several more years without a car payment. I tend to drive cars until they die so I borrow for several years and then drive another 6 or more without a car payment

[dipsydoodle]

7. you can get a better car......

lol

The car salesman at work. Its different when you're just arranging finance - its futile and immoral selling stuff people can't necessarily afford.

Yes - have a long agreement with no balloon and then run it 'till it dies invariably produces the best result.

:hi:

[pipoman]

40. You forgot the interest on the lease amount.

Interest is charged on the 10k, usually higher interest than the going purchase rate.

[Syrinx]

4. I suggest used cars, all the way

Get a used vehicle about three or four years old, from an honest dealer (if you can find one), or a private party via classified ads. Buying a new car is a huge money sink, but I don't like leasing. After paying a considerable amount of money, I'd like to actually own something to show for it. Just my opinion, and as usual, I could be wrong.

[cowcommander]

6. This. Buy a cheap-ass car from Craigslist

My $400 Honda Civic isn't going to win any awards, but it gets me where I need to go with 30+mpg.

[Scuba]

9. +1 Look into "program" cars. Try to get a car with 80% of it's expected milage...

... remaining for 50% of the price of a new car.


on edit: ask a dealer to buy you a car at auction. Give them the make, model, year, mileage cap and tell them what you want to pay.


I've been fairly happy with this approach on six vehicles over 15 years.

[ProfessorGAC]

16. Exactly What I Do

Bought a convertible with 40k on it for 38% of original sticker. That's the fourth time. Bought my wife a program car at Carmax. Paid 60% of sticker for a car with 4800 miles on it. And, it still carried the manufacturer's warranty since it was only originally sold 8 monhts before we bought it.

My winter car is a BMW that i paid $5200 for out the door. Had about half the usable engine and transmission life. Paid cash. Don't regret it.
GAC

[JohnnyRingo]

8. Car salesmen jokingly refer to it as "fleecing" if that's any help

"Creative financing" has made escalating car prices affordable to many people by necessity. Too many shoppers enter a dealership interesting one thing only: "how much will I pay a month". This is why car loans, which used to top out at three years, can now be financed for six. Huge up front initial or closing lump payments and "affordable" monthly installments with severely limited use is just the next desperate tactic for those who don't want to settle for a car they can afford.

When I started at GM in 1972, a new Camaro cost $2500. At the time I earned a comfortable wage of $6.50 an hour which allowed me to start a family. Exactly 30 years later when I retired, I was taking home nearly four times that amount. The cost of that new Camaro increased by a factor of ten.

They didn't do it all at once. An economist major I worked decades ago with explained how they would do it. He said that if a worker earned $20k and a new car cost 10% of their wage the company could pay a 3% raise to it's employees each year and add $500 to the price of the car each year. Who would notice?

According to experts, the best way to buy a car is to either buy a new one every year if you can afford it, or drive it 15 years until it dies. The biggest losers are those who keep it a couple years then sell. That means the winners are those who take advantage of these spendthrift consumers and pay a steep discount for a two or three year old car.

Do the math: If you buy a new car for $25k and keep it for 15 years, it's probably worthless by then. That means it cost $1700 a year to own (plus a somewhat less average for maintenance). If you buy the same car and sell it in one year (like the dealer hopes to do with a leased unit), you'll likely lose 20% or about $5,000 with no maintenance costs. That's just about how much a dealer wants up front on the lease before you make even one monthly payment.

My advice is to swallow some pride and search for a well maintained used vehicle that you can afford without gimmicks like rebates and drive the wheels off it. If it begins to smell like a lemon grove or if you simply tire of it, sell at a small loss and repeat. The bottom line is to figure what a car costs over a one year period during ownership. With a lease, the increasingly high annual payment never stops for the rest of your life.

Like everything in life, doing your own homework pays off handsomely. Letting a dealer tell you what's best for you finacially will cost a premium. That's how he sends his kids to college.

http://news.consumerreports.org/money/2011/04/car-leasings-return-may-not-be-good-thing.html

[SoDesuKa]

11. Car Salesman

A guy I knew sold cars for a living, and he was good at it. The real fun he got out of life was in swindling people. He got more pleasure out of $500 he'd get dishonestly than four times that amount if he had to work to get it. One of his hobbies was going into lesbian chat rooms and pretending to be a lesbian. There's probably a whole subculture of guys who like to do that. The fun is in getting over.

He had the most down home, sincere manner of anyone you'd ever meet. People who didn't trust anybody tursted him. He'd tell them aw-shucks stories about his Golden Retriever and they'd eat it up. He has since passed away but his lasting legacy is that I'd never even think of buying a car from a dealer. I'm sure those guys get together with their buddies and top each other's swindle stories.

[WinkyDink]

15. I can't stand those "down-home" types. I tend to tell them, "Don't kid a kidder."

[JohnnyRingo]

37. I know some people like that as well, though none of them sell cars.

I know two men who do the lesbian chat thing too, but I'm not sure there's a connection with wanting to cheat people. The only common denominator I can see in them is sexual obsession and above average intelligence.

When it comes to buying a used car from a dealer (a private sale is best if one understands mechanics) I send friends and family to a corporate dealer. The reason is that the GM or Ford dealer near your home has probably been there all your life. When a trade in rolls in, the dealer does one of two things. After sending it to their shop for inspection and detailing it they either put it on the lot, or they send it to a local auction.

The true gems usually don't last long because salesmen tip off friends or neighbors, but a tenured dealer doesn't want to known for cheating people in his own community by running a lemonade stand. Some future junk yard queens may indeed be innocently or ineptly overlooked, but the ones technicians identify as clunkers never see the tent sale at the iconic dealership. They send these cars to a state auction (here it's in PA) where the owner of "Joe's Used Cars" and JD Byrider find suitable units. The dealer still sees a slight profit because he made the transaction on the trade-in to his advantage, but they take in so many cars he still keeps a full lot of decent pre-owned cars. The downside is the good cars on the corporate lot are a bit pricey compared to those down at "Honest Al's". Barring mechanical knowledge, good negotiating skills are very helpful in any case.

As an aside, I come from such a depressed area that years ago around election time I began noticing these cars with JD Byrider stickers on the bumper. There were so many I thought he was running as an independent.

[seaglass]

10. I have been leasing cars for most of my life - either 2 or 3 year lease

but I will not say that it is a wise financial decision.

A couple things. Usually the low monthly payment (depending on the vehicle) means a substantial down payment They are going to get the same money either way - pay it up front or pay it monthly. The mileage constraints are usually 12k/year - for one lease I paid a little extra for 15k/year - it wasn't worth it.

The reason I lease is because I absolutely will not deal with a car with problems so do not want a used or old car - yes, I am a spoiled baby when it comes to that. I have owned a car for the car's lifetime before and did not like dealing with one thing breaking down after another and paying for it, getting new tires blah blah blah. A car that has broken down to me is unreliable and I don't want to drive it. With the leases all I need to do is oil changes or whatever the normal maintenance is - the only repairs I have ever been involved with in a lease is damage repair. I lease Nissans because they have proven to be reliable cars for me.

Also note, most leases will have a car inspection at the end and will assess you for damages beyond normal wear and tear. I have never been assessed a substantial amount for this but you could be (if I recall they waive it if you re-lease).

Keep in mind you will pay higher insurance than you would for a used car because of the vehicle value. Leasing works for me - but because of the convenience/reliability issues - not the financial ones.

[ThomWV]

12. No.

[The Wizard]

13. Buy a used car and drive until

the repairs outweigh the value. A well maintained vehicle is good for close to 200,000 miles. Rust is what brings most cars to the scrap heap. Preventative maintenance doesn't cost, it pays.

[Scuba]

18. I endorse all aspects of this post. n/t

[Tesha]

20. Absolutely!

All of current cars were bought used. The Audi was
bought at less than half-price as a "lease turnback"
so it was still very low mileage and in very good
condition.

We'll certainly do that again!

Tesha

[ThomWV]

21. + 1

[JuniperLea]

32. My 2002 Mazda with 175,000 miles looked so good...

The dealership gave me $2000 in trade in! They popped out a couple of door dings, cleaned up the interior, and set it out in front of the showroom door. It was still beautiful, and that sells.

It was starting to require big ticket stuff, like a catalytic converter and such. I had a hard time letting her go! My little beach buggy!

[pipoman]

41. My philosophy

is (especially on reliable Mazda, Toyota, Hondas) is if they are sub 200k, invest in repairs. Take the car to a good mechanic who specializes in the make, tell them to go through the car and give an estimate to fix every problem. The day it comes out of the shop, take it to a detail shop for a complete detail. Usually $1k-2k will fix everything..much cheaper than trading, and it feels like a new car.

[Codeine]

43. Cerritos Auto Square! nt

[Codeine]

42. Drive it 'til the wheels fall off,

then bolt 'em back on and drive it some more. My last car died with over 250,000 miles on the odometer.

[PassingFair]

14. My husband and I sat down and did the math with our salesman...

The numbers for buying or leasing at that time (late 90's)
came out within DOLLARS of each other.

We ended up buying though, I'm in sales and would have put
too many miles on the car.

[biermeister]

17. in addition to all the good advice being offered don't forget-

it's the bank's car so you'll have to keep full coverage insurance on it. You should factor in this cost as well especially if you don't carry full coverage on your car now.

I prefer to own older used cars because they're cheaper to own and I typically maintain & fix them myself.

[Tesha]

19. You're still on the hook for maintenance and repairs.

Of course, the repair bills on a new car covered by the warranty
should be pretty small, but unless your car comes with all of its
routine service included in the purchase price, you *WILL* be
paying for the routine service and "by the book"; no skating by
skipping oil changes and the like.

Tesha

[Tesha]

22. Beware of mileage charges!

Most leases are written on the basis of you driving
12,000 or 15,000 miles/year and will charge you a
high cost per mile if you've exceeded that average at
the end of the lease.

For some folks, that's fine but if you have a serious
commute, that probably won't work for you. Remember
that a 30 mile one-way commute means you'll be driving
12,000 miles/year *BEFORE* we consider any after-work
or weekend use of the vehicle.

Tesha

[Ganja Ninja]

23. It depends on the mileage you intend to put on it.

Most leases have a limit of 12,000 to 18,000 miles a year. If you don't drive much and can't afford to buy it's not a bad deal.

[madinmaryland]

24. Buy a used car for around town, and use a rental when travelling long distance.

[gkhouston]

26. +1. We tend to buy new and drive 'em 'til the wheels come off,

but when the cars get elderly, we rent for the long trips.

[jmg257]

25. For me it is.

It allows me to drive a new car every three years, at substantially less cost then buying new say every 5-7 years (and being upside down in value for most of that time).

The original perk of leasing was, and still is, the lower monthly payments - the notion to take the difference between what you would pay had you bought and the lower lease payment and do something with that money to have it work for you. That is a lot of money over 36months. I constantly check the numbers and haven't seen the advantage of buying. You will have nothing to show once you turn the lease in, but you have saved $$$ all along.

Usually you do not need very much money down to get into a good lease.

You are still responsible for repairs, insurance etc., but on a new car other then changing oil and normal maintenance, there are little repair costs involved for the 1st 36,000 miles - and warranties still apply. There is a LOT less worry about things breaking, or that you and your kids will get stuck broke-down as in a used car.

As for damages, any body damage bigger then a credit card will be susceptable, but if you have no problems then you pay nothing. They are actually pretty forgivable on what you might think is bad. Same with over-milage - 10cents a mile is really not so bad - of course its better not to go over or to keep it close. I have had companies waive such pentalties as perks to release with them.

You do not get stuck with a vehicle you no longer want once the lease is up. I leased a 4WD pick-up last time, but was thrilled to be able to get a smaller 4-wheel drive that does much better on gas, for even less of a monthly payment.


Like any new car purchase, the thing to do is shop to get the lowest price on what you want - that number vs money down is used to determine monthly payments (lease rates are usually typical within brands). Salesman will ALWAYS ask how much you want to pay a month, but have them tell you what is the best THEY can do on the price of the car 1st, THEN work out the payments vs what you can put down. Last time I sat right at the computer with the numbers guy and tweaked the numbers till we got a very agreeable deal.

[SoDesuKa]

27. Underwater Right Away

My understanding is that the biggest price drop a car owner experiences is driving it off the lot. Right away it's worth less than you owe, which in housing terms, is said to be underwater. I also want to avoid catastrophic expenses like a new engine. A friend just bought a used Mercedes and thinks he blew the head gasket. He's getting different compression readings in each cylinder . . . not an encouraging sign.

[jmg257]

28. I see how much money people put into maintaining a used car

and I just don't get it. We did it for years, like everyone else, and it is not a good feeling.

Yes, a new car looses a lot of value driving off the lot. Unless you can afford a hefty payment like with a 3 or 4 year loan, you will be under water for a long time (unless you keep it long after the loan is up).

My current lease is a 2011 Ford Escape I got last December. If I recall, it was less then $2000 down, and costs $299 a month for 39 months. To me that is frigging awesome. I can always buy it at the end (and this is a great vehicle), but never do. Why bother?

[The Wizard]

29. Remove all the spark plugs and

do a wet compression test by squirting oil into the cylinders. If the compression goes up in any of the cylinders it's rings. If no change, remove the head.

[BoWanZi]

36. Don't buy used German/European cars, buy used cars with proven track records

German cars are extremely well engineered and fun as hell to drive but if you can't afford the repairs on them, then don't consider them. Audis, Mercedes, Volkswagans from the '90s and 2000s tend to have HUGE repair bills when they start breaking down.

Buy something reliable and plain like boring as hell Camarys, Accords, or other Japanese cars. Maybe even some domestic cars are reliable these days.

But buying used? I would never consider anything German or European, just too expensive to repair unless you have gobs of reserve cash.

As to leasing? No way. Buy a 2 year old car with 20k miles on it and save tons.

[JohnnyRingo]

38. +100%

I spent 20 minutes typing what you said in three lines.

Having said that, some people are such mechanicalphobes they have to lease for peace of mind. Fear of the intricacies of the internal combustion engine drive them to avoid long term commitments. Some deserve to pay more for a ride to the supermarket.

[pipoman]

46. I agree

Mercedes is a great example. They get high reliability ratings. Why? Look at the requirements for maintenance warranty coverage. Regular maintenance requirements are unbelievable..replace this/change that, thousands per year in required maintenance. If one applied the maintenance requirements put on Mercedes owners to any car, the cost of the maintenance would be way cheaper and the car would rate just as well as Mercedes.

[pipoman]

45. A lease, by definition, puts you upsidedown for the entire term of the lease.

Used car maintenance varies greatly with make/model. If one researches (consumer reports, JD Power, etc.) then buys vehicles with the highest reliability ratings, maintenance and repairs, as well as inconvenience of breakdowns, can be mitigated greatly. There isn't a single economist I have ever read who believes auto leases (or new cars for that matter)are ever a good financial deal for consumers.

[bigwillq]

30. It's worked for me.

I've always leased.

I don't put a lot "down" on the car, and I end up paying a bit more per month, but I haven't really had to put a lot of maintenance into any of the cars I leased.

For me, I would rather pay a bit more a month than have to drop $2,000, 3,000 in one setting for a costly repair when the car got older.

I guess it all depends on your situation.

[JuniperLea]

31. It worked for me...

I ended up with what amounts to a long term zero interest loan. I wanted to buy, I have great credit, but I didn't want a big monthly payment. This gives me three years to save up for the end payment while making really low payments until that time.

[Gin]

33. worked for me....got the car I wanted at the payment I could afford

it was an Accord...as a single woman I wanted a reliable vehicle..and it was...

the lease was for 5 yrs...then I bought the car....had that car for 15 yrs...

leasing may not be for everyone...but it worked for me.

[SoCalDem]

34. If you do not exceed the mileage allowance or incur any damage to it...and

if you have a company car allowance that pays for the lease:)

It's better to buy a well-maintained used car and own it outright in a few years:)

[LWolf]

35. I'm interested in reading through the responses.

For me, no.

It costs way too much to buy a new vehicle; I've bought 3 in my 51 years, and driven a bunch of used clunkers, as well.

When you buy new, though, you are putting the miles on yourself. You are maintaining yourself. If you drive gently and maintain well, that vehicle will last you long beyond the time you are done paying for it.

The first brand-new vehicle? I traded it in after a few years. I didn't like it much. I traded it in for a '94 Toyota pickup.

It took 5 years to pay off that truck. That's okay. I drove it another 5, and then turned it over to my son, who is still driving it. It has about 250K miles, and is still steady and reliable. About 2/3 of those miles were driven after it was paid off.

In 2004, I bought another; a Tacoma. It's 7 years old now, has been paid off for 5, and I expect to drive it for at least another 10 years. I don't know if I'll ever be able to afford another new vehicle, since the paycuts I've taken, but if not, I can probably drive this one for the rest of my life.

I like not having a car payment, whether it's for buying or leasing. At least with the buying, I can expect the payments to end. If I lease, I'm always going to be paying.

[pipoman]

39. New cars, leased or purchased,

are a huge waste of money. So many people fall for the lure of scams to sell new cars 'because the payments were less than a used car'. Not to mention high property tax (if your state charges property tax), and crazy expensive insurance. There is nothing "cheap" about leasing or buying a new car. A good used car can be had for a fraction of he overall cost. Cheaper insurance and property tax. Buying used requires a little more shopping/effort but will more than pay off. I bought a 150k 2003 Toyota Camry 2 years ago for $2k, put $600 into it immediately for a cv joint, muffler, struts and tires. It now has 180k, it rides as nice as my 2008 Avalon (bought used for cash saved by making car payments to myself for 2 years), the Avalon sits and I drive the Camry daily. Leasing is just another way for banks to earn interest on you. A lease is financing projected depreciation. Leasing agents usually base the depreciation on full sticker price of the car, so no, leasing is a scam to steal your money. The only time leasing is a reasonably good deal is if it is for a business which uses the lease as a needed tax writeoff.

Buy older, reliable used and make payments to yourself for incidental repairs and to save for a trade up..it feels good not to have banks on your back..

[Codeine]

44. new cars are a terrible deal.

They're tempting, with their immaculate interiors and new car smell, but from an economic standpoint buying or leasing new is simply not worth it.

Buy a two year old used car that someone else just returned from their own lease -- you'll save a shit-ton of money and have a reliable ride for many years.