Please help me out here. I have a question about leasing, if I put down more than the $4000 for down payment and over the course of the 36 month lease, would I actually save a few hundred dollars, am I correct for assuming this? Also I do not plan to buy the car at the end, so residual value is not a concern.
Thanks
This isn't an answer, it's an additional question.
Does anyone know how a (standard Audi) lease functions, and what the difference is between that and buying outright? I'm now officially in the market for a TT 3.2, maybe by March. Wife said okay.
The purpose of lease is to minimize the out-of-pocket dollar (both down and monthly). If you plan to put $4000 down, then you maybe against the "rule." You may save a few bucks by putting more down payment up front. But if you have so much money to spend, why not consider buying the car since interest rate is so low now?
Here is how a lease works:
Car Price - Down Payment = Based Price Based Price - Residual Value = Leased Cost Leased Cost + Rent Charge = Total out of pocket Total out of pocket / Terms = Monthly Payment
Couple things are negotiable:
This is all based >This isn't an answer, it's an additional question.
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"Charles Fox" skrev i melding news:Yv1lb.21309$ snipped-for-privacy@nwrddc01.gnilink.net... Wife said okay.
Well then, just go ahead!!
Gloriously clear explanation, Who . . . Thanks a ton. It gives me a way to work out a couple of scenarios. And explain them to my dear bride.
Wish me luck!
"Charles Fox" skrev i melding news:inblb.23227$ snipped-for-privacy@nwrddc01.gnilink.net... It gives me a way to work out a couple of scenarios. And explain them to my dear bride. Wish me luck!
But will the little dear understand any of them anyway?? Oh well..................
Leases make sense for 3 type of folks:
1) Get to drive a car that you could not afford the payments on to purchase. (You really should buy something you can afford if you are in this group) 2) You want the newest car at all times (for whatever reason) and wouldn't keep your car past 3 years if you bought it anyway. 3) You are writing it off as a business expense or other tax reason (though this usually coolapses down to reason 2 if you think about it)With a lease you are paying to drive the car, at the end of the lease you own nothing (and owe nothing).
You always want to minimize your out-of pocket, as you are better off paying that money over the term of the lease (cost of money is a big factor in leasing).
I generally have 1 car leased and one purchased at any given time. The leased car is always done with near 0 out of pocket, no money down. The purchased car is done with the biggest down payment I can afford and the shortest loan period I can afford. The purchased car is kept for 10+ years, the leased car for 3.
Factoring just the raw costs (lease payments vs. loan payments, depreciatioin vs owning nothing, etc) and not including cost of money, my leased car is the same cost as purchasing the same car and re-selling after 3 years. But, I do not have to re-sell it and I get sales tax breaks when I trade for another lease. After including those factors (and even better with cost of money) I come out well ahead on the lease: GIVEN THAT I DO NOT PLAN ON KEEPING IT PAST 3YRS ANYWAY. The longer you keep the car the better a purchase looks.
Also, if you drive more than about 18kmi/yr the lease can start looking unattractive as well (too low a residual value means too high a lease payment).
Leasing a car at the begining of a new body style helps, as you get a higher residual value.
Scott
Some further comments (UK perspective):
-- Doug Ramage
***Watch Spam Trap***In article , Doug Ramage writes
And also different models with equal retail prices can also have different residuals. During recent research, I found the residual value placed on an A3 Sport to be less than that on an A3 SE, despite both having the same retail price.
Though usually around the 7-8 pence per mile mark.
You mean work by the customer? All lease contracts I've been a part of require that the vehicle be returned in the condition it was supplied.
This means no making holes for car kits and the like, and any accident damage must be repaired.
I rule of thumb I was given by a local bodyshop that does a lot of work on lease cars, prior to return, was that the vehicle should have no obvious blemishes when viewed all round at a distance of one metre.
your forgetting a few things, there's a set value at the end of the lease, so there's an asset. With a lease the interest is lower so are the taxes, and with that savings you can invest it and make your money back. The most important there are no repair cost, to get "money/value" out of a purchase the vehicle must be kept 9 years or 3 leases. I was told a lease is like dating and purchase is a marriage
If that were true, then why would the lease company bother leasing-out the cars..?
The main argument for leases that I've heard (YMMV) is that one can afford a more expensive car for the same payment, or the same car for a lower payment. If you are the type of person who doesn't want an asset, and ditches it as soon as the warranty expires, then all power to your elbow..
OTOH, things like excess mileage can eat any savings, and there may be other impacts - e.g. having to seek permission from the owner before driving abroad.
The set [balloon] value at the end is calculated by the leasing company, and includes their discount, interest on the money they've spent, and profit. You don't get something for nothing. Naturally, you will have to pay for all repairs to the car before handing it back (if you don't then it'll be even more expensive). And, generally, the service costs.
Not sure where taxes come into this..?
...
I try for as high a residual value as possible. If that value is higher than the actual market then there is a liability (on the delar's part), if the value is lower than actual market, it is an asset (on your part if you chose).
When I did my own calcs that number was more like 6 years to break even (assuming a 3 year loan vs a 3 yr lease). That is including the resudual value in the 6yr old car at that point, maybe it is 9yrs if you assume zero residual value, though even 9 yr old cars have significant resale if you are buying a good car.
It is not ballon, baloon means a payment you MUST make at the end of term. You would only make that payment if you chose to keep the car (this only makes sense if the residual is below current market and you do it to turn a profit).
I would be repairing any damage even if it were my car I was purchasing. Here in the US the rule-of-thumb seems to be if the dent is smaller than a quarter (unit of currency here), then you do not have to repair it for lease purposes. Also, most cars sold here (and certainly any worth leasing) have at least a 3yr bumper-to-bumper warranty. The cars I tend to lease also cover all scheduled service for 3 yrs (oil, wipers, XXkmi service, everything but tires and gas).
This may also be specific to the US. There is sales tax here (8.6% in my area). If you sell your own car then buy a new one you immediately pay sales tax on the new one based on it's full cost (and the person that bought your car pays sales tax on the amount they paid). For tax purposes a lease is also a purchase, however, you a little of the sales tax with each payment. You only end up paying taxes on the part of the car you 'use', and you get to pay it over time with no interest as the sales tax is not financed in at the beginning (always better than paying up front).
Er.. yep. (Thought that was what I said? Sorry..)
Interesting. In Europe (and specifically the UK), falling-off-the-road and replacing any part that wears isn't covered by a warrenty.
In the UK, we pay 17.5% Value Added Tax ["VAT"] - sales tax by any other name. It doesn't matter whether you're a private individual or a fleet manager, you still get to pay it. OTOH, fleets get much larger discounts than individuals. OTOOH, a leasing company also has a bigger profit margin..
One argument that I'm surprised hasn't come up is that, when you buy a car, you end up with an asset. This can, of course, be traded-in on your next car - reducing the amount you have to save/borrow. With a lease, you simply pay to /use/ a vehicle..
Just as a comparison, let's take a UK example. Using Google, the first company in the list will lease you a 225TT Roadster for £435 a month; that's over three years, with a maximum mileage of 10k per annum. Total outlay: £15,660.
In my case, I bought my 225 (now 270 - I wouldn't have been able to chip a lease car!) in Holland for £24,616 (excluding custom number plate and, unlike the lease example, fully loaded. If I'd have got the exchange rates just right, I'd have saved an additional £750. C'est la vie!).
Subtract £11k from the sale of my old BMW, and we get an outlay of £13,616, or £378 per month.
It gets even more scary if we ignore the BMW and instead look at the residual value of the TT I own outright - there's one up for sale 14 miles from me (according to AutoTrader) - same year, similar spec, double the mileage, £20.5k asking price. Even if we knock off a grand for mine being an import, that's just £5,116 for three years, or £142 a month.
Note that I'm assuming you have to pay for your own insurance on both vehicles. I /believe/ that's the case..?
Still, makes yer think, dunnit..?
H1K
In article , Hairy One Kenobi writes
Not by a manufacturers warranty, but wear & tear is covered by all maintained lease contracts, although malicious or accident damage must be fixed by the lessee.
All valid points, but much easier is this:
A leasing company buys the car at the beginning, and sells it at the end. They make a profit doing so. If you lease, that profit is coming from you. If you buy, the equivalent of that profit is staying in your pocket.
It really is as simple as that. Individual cases can vary, the residual value can be higher or lower than expected, etc., but overall, leasing is NOT advantageous for individuals (there may be some tax benefits for corporations). With a lease, you're paying to avoid the hassle of selling a used car at the end.
In maintained leases, yes.
Didn't realise that anyone was buying such things on a *personal* basis, these days - can't recall seeing one recently. Weren't they hideously expensive, even when compared with franchised dealer servicing costs?
As I said - not really in the market myself, as it doesn't make particular financial sense, even at my current miniscule mileage.
H1K
Audi for example has a true bumper-to-bumper warranty covering wear items for 3 years on all new cars (purchased or leased). I just had my rotors replaced yesterday under warranty. Why they chose to offer such complete coverage I do not know, as brake rotors and pads are usually excluded on warrantys.
Ok, lets look at this one.
Using the internet wayback machine
LOAN The tax at 8.6% would be $4100, for a total purchase price of $51,680. Auto loan rates at that time were around 8% here, so the payments would have been $1620, a total payment over 3 years of $58300.
LEASE Same price and tax rate, figure an unfavorable interest rate of %8.5 (When I leased my rate was actually closer to loan rates than that). Say they missed the residual value a little in their favor at $23000. That gives you a payment of $931/month for a total payment of $33527.
Figuring it out: Current Kelly Blue Book for that vehicle in Excellent condition with
45kmi (what a lease would allow) is $23,360. Total amount spent if you sell it at market is $58300-$23360 = $34940.In this case the lease came out slightly better than loan, real numbers would probably be even closer but favoring the loan rather than the lease.
Now, let us add in another factor. Take the difference in monthly payments $1620-$931 = $689/month Put it in to something with a return of %2APR and you would have $25,584 in savings as well.
Yes, but you could have taken that same $11k and made your first 11.8 lease payments.
-----------------------
So, how would you beat the lease for a 3yr car? Pay the residual value up front, finance the rest ( $51680 - $23360 = $28320 ), monthly payment $887, total cost for the car $31,968. You could probably get %3 return on the $23360 you paid up front (and got back when you re-sold the car) for an additional $2166 in lost opportunity - total cost $34134.
Scott
OK - that's one major difference. Average mileage in the UK is around 12k per annum. Lease prices tend to be quoted at 10l per annum.
Ha! Sounds like an interesting deal - you don't get /anything/ like that over here. All-in-all, though, this should be neutral in your calculation.
Unfortunately I can't see where this figure came from. Are you saying that a lease company will give you a car for three years, at a profit/cost/finance rate of 0.5% per annum?
Wow.
I can see why you would want to lease a car - with a company operating at such slim margins, why even /consider/ a purchase? That's very different to over here.
First off, the purchase price is considered (heavily discounted, because the lease company takes cars in bulk). He then adds a finance percentage, and a chunk for profit. He then subtracts the expected Trade auction residual (he's not going to offer you "book" price - after all, if you don't take the car off of his hands, that's his only recourse). I don't know the US market, but over here that would tend to be 15-25% less than book (in your example, call it $4600 rather than $360). Feed /that/ into the calculation, and that's quite a percentage..
Ah. That's GBP 11k - call it a rate of 1.62 (back then) for $18k. Now remove that from the purchase price and adjust interest payments (that's 37% of the price that you suddenly don't have to finance. Over here, you (like the lease company) would still have to pay the full 17.5% of VAT on that.
Sounds like, where you are, you don't (in other words, it's not as neutral as over here - in the UK, the lease company would gain a little, courtesy of its larger discount). So let's take that directly off the price and (being brutal), simply multiply-down the monthly cost to $1020 per month.
Let's now up the rate on the lease vehicle to reflect the sort of difference you would see in the UK (assuming the same 0.5% return rate for the company) - and, at the same time, assume that they get a large fleet discount (thereby making my life easier by cancelling them out ;o)
Well, in the example above, you are now comparing remarkably similar amounts of money; using a similarly brutal approach to rates, that savings account now drops to $3300, against ownership of a car worth $23360.
So why the big difference?
Well, as you point out, the first time that you buy a car outright, you lose-out. You finance the depreciation up-front, rather than monthly (as you do with a lease).
Given that the BMW was most definitely the worst-depreciating car that I have ever owned, let's take my losses and spread them over six years (again, assuming three years per car)
At a total outlay or GBP 20550 and a residual of GBP11k (53.5% - arrrggghhh!), we get $15,500. I'm not going to attempt to work out the potential ROI on that, as there are too many variables (particularly if you invested in technology companies at the time, and kept the shares! ;o)
So let's simply take half of that figure off of the value of the asset at the end - $3300 vs. $15600.
That's narrowed the margin, but is assuming that I won't buy another car.. you can effectively spread the initial cost of the initial asset ad infinitum. (I actually paid it off in two years, rather than three, but let's not go there!)
The most important thing to come from this is, I think, "YMMV".
Lease vs. purchase is very much a personal thing, depending upon a lot of factors. As a rabid car nut in a decent job, I probably (no, let's make that
*definitely*) spend a higher proportion of my take-home on a car than would Mr & Mrs 2.4 Children.For, say, a more typical young chap trying to drive a car that he can't afford to buy, the story is different - a lease makes the car /attainable/. He doesn't get anything out of it - excepting the experience of driving said car for three years - but considers it a worthwhile use of his money.
We all make choices on how to spend our money. Probably quite similar ones, given where we're talking :o)
H1K
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