Are you leasing or buying?

[KadeS]

tl;dr..

30k - Car price = leftover = for mods & new laptop

[Swancoat]

Originally Posted by Tainen

Residual sale price doesn't change the calculations at all. could be 10k, could be 20k-

Did you just make this up? The residual absolutely matters because along with depreciation, you pay interest on the remaining value (i.e. residual). So, not only does it matter, but it is a KEY figure.

This calculator is great because it includes the actual equations required to solve this.

http://www.efunda.com/formulae/finan...calculator.cfm

Consider this: Punch in 0 for the residual and see what you get. Compare it to what a conventional financing (for purchasing) calculator gives you.

Originally Posted by Tainen

what matters is what the difference between leasing and buying would be at the end of that period. slightly higher for the leased car, of course, due to potentially less miles/mods.

You can't compare leasing to purchasing and say leasing is a worse deal when both deals are done under different terms. If you just want to compare leasing and financing, assume that under each scenario the car is unmodded and they have the same miles. (This is a lot like the last post where you said leasing was a way worse deal, because you handicapped it with a huge rate).

Originally Posted by Tainen

I pulled the math from amortization calculators and used common lease terms, downpyaments, and figures. The illustration was chalkboard style for sure, but it gets the point across.

Uh, no it doesn't. It's like you're not paying attention. You can't just use 'common' lease terms and down payments. They are all specific to the car, residual term, interest rate, etc...

Originally Posted by Tainen

If you want to show math to back up your claims then cool- but dealerships don't work that way.

LOLOLOL. Dealerships don't use math?!!? Sounds to me at least one purchaser on this board doesn't use math.

Originally Posted by Tainen

They just ask how much you can pay a month, for a lease, they don't get into interest rates, it's all invisible to you the buyer. (you ignored the vast majority of my math and attacked the single most worthless number to the value proposition,

No. It's all invisible to YOU the buyer. You can calculate the interest your paying (I calculated it on the lease you were offering above), and if the interest rate is that crappy, then you should shop for a better rate.

Originally Posted by Tainen

because if residual is so crazy low, you can still sell the car compared to lease buyout cost with a favorable outcome, pretty much guaranteed.

Well, if the residual turns out to be much less than what it's worth at the end of the lease and you pick up the option, and sell the car with a favorable outcome, the outcome is less favorable than you think. Sure you sold the car for more than the residual and pocketed some money, BUT because the residual was low, you overpaid in depreciation over the term of the lease. So basically, you were just banking your own end-'profit' over the entire lease term.

Originally Posted by Tainen

Anyways- no need to get angry. If you can't debate respectfully, don't debate at all.

I wasn't really debating disrespectfully, but it's pretty disheartening to see someone come talk about a complex subject like the difference between leasing and buying and get it all wrong. Especially when there's a lot of people here looking for answers.

Here's a better example with REAL figures:

Purchase:
Car: 23000
Down Payment:2300
Loan: 20700
Interest Rate: 5%
Term 36 mo.
Payment: 620.40

Lease:
Car: 23000
Down Payment: 2300
Residual: 14000
Interest Rate: 5%
Term 36 Mo.
Payment: 259.14

Now: Where are we in 3 years:

Purchase: You paid a total of 24,634.40 and you own a car.
Lease: You paid a total of 11,629.04 and if you want the car you can pay 14,000 more to have it. So if you want to own at this point, you're in for 25,629.04

So, the purchase gets you to the same place for 994.64 less, so purchasing appears to be better (but still not the much, much worse deal you had intimated earlier). HOWEVER, the reason it costs you more is only because of the residual balloon. You're effectively paying not paying down 'principal' fast enough (principal in ' marks because it's a lease, so it's not REALLY principal, but I digress....) I shouldn't even say it 'costs you more' It doesn't really. You pay more in total because you choose to make much smaller payments. (259.14 every month instead of 620.40 for 3 years. That's worth 994.64 to a lot of people - but that's what the time-value of money is all about).

Your extra 994.64 STILL buys you the option to walk away. That option is valuable. What if market value for that car is now 19000? Well, buy it out for 14000, flip it and take your 5000 (which will pay you back for some of your overpaid depreciation). Purchaser can sell it too (and he'll be 994.64 ahead of you). But what if market value for that car is 10000? You can walk away. You paid depreciation down to 14000 and didn't get hurt on the rest (for the price of 994.64). The purchaser eats it all. He's effectively paid depreciation down to 10000.

Here's a book you can read: http://www.amazon.com/Stephen-Kellis...4093819&sr=8-2

[tranzformer]

That is a crappy rate for the purchase price at 5% for 36 moths. You can get under 2% from a credit union.

[rio7]

Just want to throw this out there. For tax reasons, you might want to go for leasing rather than straight purchasing because if you have a small business, and the lease payment can be deducted from your business income, but the payment to purchase car is not considered an expense, but rather - the capital expenditure which should be considered as an asset and taken as depreciation expenses.

[Longhorn248]

This thread is awesome. We have some people that were unaware that you can finance a car and then on the opposite side of the spectrum we have someone providing info for fancy accounting tricks to deduct your lease payments.

[Want.FR-S]

Originally Posted by Swancoat

Did you just make this up? The residual absolutely matters because along with depreciation, you pay interest on the remaining value (i.e. residual). So, not only does it matter, but it is a KEY figure.

This calculator is great because it includes the actual equations required to solve this.

http://www.efunda.com/formulae/finan...calculator.cfm

Consider this: Punch in 0 for the residual and see what you get. Compare it to what a conventional financing (for purchasing) calculator gives you.

You can't compare leasing to purchasing and say leasing is a worse deal when both deals are done under different terms. If you just want to compare leasing and financing, assume that under each scenario the car is unmodded and they have the same miles. (This is a lot like the last post where you said leasing was a way worse deal, because you handicapped it with a huge rate).

Uh, no it doesn't. It's like you're not paying attention. You can't just use 'common' lease terms and down payments. They are all specific to the car, residual term, interest rate, etc...

LOLOLOL. Dealerships don't use math?!!? Sounds to me at least one purchaser on this board doesn't use math.

No. It's all invisible to YOU the buyer. You can calculate the interest your paying (I calculated it on the lease you were offering above), and if the interest rate is that crappy, then you should shop for a better rate.

Well, if the residual turns out to be much less than what it's worth at the end of the lease and you pick up the option, and sell the car with a favorable outcome, the outcome is less favorable than you think. Sure you sold the car for more than the residual and pocketed some money, BUT because the residual was low, you overpaid in depreciation over the term of the lease. So basically, you were just banking your own end-'profit' over the entire lease term.

I wasn't really debating disrespectfully, but it's pretty disheartening to see someone come talk about a complex subject like the difference between leasing and buying and get it all wrong. Especially when there's a lot of people here looking for answers.

Here's a better example with REAL figures:

Purchase:
Car: 23000
Down Payment:2300
Loan: 20700
Interest Rate: 5%
Term 36 mo.
Payment: 620.40

Lease:
Car: 23000
Down Payment: 2300
Residual: 14000
Interest Rate: 5%
Term 36 Mo.
Payment: 259.14

Now: Where are we in 3 years:

Purchase: You paid a total of 24,634.40 and you own a car.
Lease: You paid a total of 11,629.04 and if you want the car you can pay 14,000 more to have it. So if you want to own at this point, you're in for 25,629.04

So, the purchase gets you to the same place for 994.64 less, so purchasing appears to be better (but still not the much, much worse deal you had intimated earlier). HOWEVER, the reason it costs you more is only because of the residual balloon. You're effectively paying not paying down 'principal' fast enough (principal in ' marks because it's a lease, so it's not REALLY principal, but I digress....) I shouldn't even say it 'costs you more' It doesn't really. You pay more in total because you choose to make much smaller payments. (259.14 every month instead of 620.40 for 3 years. That's worth 994.64 to a lot of people - but that's what the time-value of money is all about).

Your extra 994.64 STILL buys you the option to walk away. That option is valuable. What if market value for that car is now 19000? Well, buy it out for 14000, flip it and take your 5000 (which will pay you back for some of your overpaid depreciation). Purchaser can sell it too (and he'll be 994.64 ahead of you). But what if market value for that car is 10000? You can walk away. You paid depreciation down to 14000 and didn't get hurt on the rest (for the price of 994.64). The purchaser eats it all. He's effectively paid depreciation down to 10000.

Here's a book you can read: http://www.amazon.com/Stephen-Kellis...4093819&sr=8-2

+1 You just save me from typing all of these. This is very true as I have gone through the lease/purchase options and it is exactly what you say. The calculation from Tainen was way off.

If you play around with some online calculator from the manufacturer's website about leasing, check with their residual value on any given car. You can see that typically for 3 year it is about 50% to 60% (BMW is 54%, I think?). For 2 years, probably at 60% to 75%. The KEY here is that dealer uses this residual value to determine the initial lease payment on common terms. Then they play around with interest rate and conditions (for example, less mileage to bump up residual value or longer terms with higher interest rate) to *LOWER* the monthly payment behind the scene. That is how they get your business.

Basically, just do a simple calculation to determine the cost of borrowing: (without considering tax and fees)

[Leasing]
A = multiple the monthly payment by number of period
B = down payment and trade in value
C = residual value of the car on the contract

Sum of Leasing = A + B + C

[Buying with financing]
X = multiple the monthly payment by number of period
Y = down payment and trade in value

Sum of Financing = X + Y

* Cost of borrowing for leasing = Sum of Leasing - Cash purchase
* Cost of borrowing for financing = Sum of Financing - Cash purchase

Then you can see how much more the leasing can be compared with financing.

Originally Posted by tranzformer

That is a crappy rate for the purchase price at 5% for 36 moths. You can get under 2% from a credit union.

I believe 5% was used as an illustration purpose. 1.9, 2.9 or whatever rates can be used in real life but the idea is the same.

As this topic has been discussed before, I believe someone actually got a deal with 0% leasing option (not with Toyota, I think). If that is the case, leasing *is* better that financing especially if the residual value used on the contract is higher than the market value of that car at that term period. You can walk away from that car and not paying depreciation and long-term ownership of a POS.

[Want.FR-S]

Originally Posted by rio7

Just want to throw this out there. For tax reasons, you might want to go for leasing rather than straight purchasing because if you have a small business, and the lease payment can be deducted from your business income, but the payment to purchase car is not considered an expense, but rather - the capital expenditure which should be considered as an asset and taken as depreciation expenses.

Indeed true. That is the reason why business owners or corporation prefer leasing over buying because of tax and depreciation purposes. You would think leasing a $599 computer over 3 years is outright stupid for paying interests, but that is the way big or small companies are doing that for tax reasons.

[tripjammer]

How to Use Car Lease Payments as a Tax Deduction

http://www.ehow.com/how_2175726_use-...yments-as.html

[Litokun]

I will be buying mine!!!!! Cant Wait until June at least thats when my scion dealer said they would receive them.

[CoryUyede]

Ill be financing. Have to figure out what to do with the wrx before then

[switchlanez]

I was saving to buy this car outright but decided its wiser to lock my cash into retirement investments instead of letting it sit. I don't plan to buy the car immediately upon release so I should have cash saved again for a downpayment and bank loan the rest if necessary.

[86'd]

Most likely buying.

I'd want to keep the car and not have any more payments.

As for leasing; I don't need a brand new car every few years so it doesn't make sense.

If you want to keep the car do not lease. You'll be paying the same payment for 7+ years. I'd rather pay a little more a month and have the car be mine within 3-5 years.

Plus if you put a decent down payment, you'll almost never be underwater with your car financially.

[CoryUyede]

Originally Posted by 86'd

Most likely buying.

I'd want to keep the car and not have any more payments.

As for leasing; I don't need a brand new car every few years so it doesn't make sense.

If you want to keep the car do not lease. You'll be paying the same payment for 7+ years. I'd rather pay a little more a month and have the car be mine within 3-5 years.

Plus if you put a decent down payment, you'll almost never be underwater with your car financially.

Yea, With enough Down, it's always nice to have positive equity from the get go!

[mike2100]

Originally Posted by NikostC

Leasing is stupid. You pay all that money and the car isn't even yours.

Same is true if you finance it. The bank owns it till you pay it off.