Mark Solheim over on Kiplinger thinks leasing cars has a bad rap, and that more people should be doing it. “If you know what you’re looking for and negotiate smart—and get over the five myths below—leasing can be a good deal.”
- Myth 1: Buying is cheaper than leasing — as a rule, this is usually true only if you “keep a car well past the day the loan is paid off (or you paid cash to begin with).” If you trade in the car before the loan is paid off, leasing may be a cheaper route.
- Myth 2: It’s nearly impossible to negotiate a good buy — in fact, you can negotiate a better deal if you learn some of the basic terminology (like capitalized cost, money factor and residual value) and ask the dealer to show you several deals from different banks.
- Myth 3: Only businesses get tax breaks — Solheim says individuals can get them, too: “In most states, you pay sales tax only on the monthly payments, not the sale price of the vehicle.” The exceptions: Arkansas, Maryland, Minnesota, Texas, and Virginia.
- Myth 4: You may have to pay hefty fees when turning in the car — Solheim just says that you can negotiate a higher monthly fee for a larger mileage limit if you need it “and still save money.”
- Myth 5: If you want out early, you’re stuck — there are now websites where people who want out of leases early meet up with people who want short term lease, so everybody wins!
Read the full article at Kiplinger.
“Five Myths on Leasing a Car” [Kiplinger]
(Photo: Getty)
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Do you know how much money you aren’t spending keeping a paid off car? First of all, no payments, second you can drop to pure liability insurance. Your regular expenses after that are gas, tires, and oil changes.
Changing cars as often as one changes wardrobes is for those lazy bastards that can’t be bothered to pop the hood, let alone check the oil and fluid levels.
My current daily beater is my ’98 Ford Crown Victoria Police package. I bought it at auction for $1449. Costs like $15 a month extra on my insurance. It’s still got under 100,000 miles on it. If I make sure its happy with plenty of oil, regular oil and filter changes, good coolant, and transmission fluid. I could probably get 300k out of the thing. Yeah sure, one major thing goes wrong on the car and I’ll probably spend more in mechanics’ bills than I paid up front for the car. However, any repair bill from a reputable shop will be less than the interest on a new car.
@bbbici: Of all the newer EFI cars I’ve owned with complicated ECUs and all that jazz, the electronics seem to be the most reliable parts on the car. The parts that end up having to be replaced are the typical mechanical parts. My ’92 Ford Explorer has 220k on it and probably the worst problem I’ve had to worry about on it was an over-fueling issue that took no more than $200 in parts and a Saturday to replace my fuel pressure regulator, plugs and wires, and thermostat. I’ve never ONCE had to touch the ECU on that truck. In fact I’d say that these modern engines are a slight bit better at telling you what’s wrong through their ECUs. And O’RLY and Auto Zone will read codes off any OBDII car for free.
My 7 year old, 66,000 miles, classic American brand car is running quite well. Wanna bet I make it to 100,000 miles?
Why trade it in every 2-3 years? Hells Bells at that point the new car smell is hardly gone.
@darkjedi26: I’d be willing to bet you that LOTS of people who redecorate frequenty (new drapes, dinnerware, etc) “finance” their purchases indirectly (e.g. by not accelerating the pay-off of their car, credit cards, house, student loans.) It’s all connected.
I leased a car back in 1996 with a three year term. The car was worth about $13,500 when the lease began. I paid about $214 a month for the duration of the lease. I then negotiated a $5,600 purchase of the vehicle. The end result was that the total cost of ownership ended up to be significantly less than had I paid cash for it in 1996. I then drove the car for another five years, before selling it for $2,000. It is still on the road today.
The lease for consumers is a way for people to always have a new car without having to THINK about how much they’re spending on it. They become numb to the monthly car payment, and probably increase it a little every new-lease cycle. They pay the “lease inception” costs with that “free money” they think they’re getting from the IRS and always have something shiny and new.
I’m hoping to keep my Legacy GT Wagon for 8 or 9 years, since they’re not selling any more in the US.
@MrEvil: the problem is even working on newer cars. tried to do a tune-up on an ’06 grand am for a friend last weekend after she was quoted ~$200 by a mechanic. now i know why he was charging so much…3 of the plugs were on the backside of the engine waaaaaay down w/o any room for a standard socket wrench. seriously, pontiac put them about 4 inches from the bottom of the engine block. plugs/wires on my 99 toyota? 20 minutes tops. this job took me 3 hours (& i popped a half-bottle motrin that night for my back).
i always look for early 90′s vehicles in good shape…it seems most of the manufacturers shifted their designs in the mid-90′s making it virtually impossible for your shade-tree mechanic to do his/her work.
@GearheadGeek:
Yes, and we all know how smart that is…
@bbbici: they look for superficial wear and tear, they don’t look at the fact that i act like every red light is a 0-60mph test
@whirlybird: Texas has no state/local wage taxes. That means that if you itemize your deductions come tax time you can deduct the sales tax on EVERYTHING you bought during the year provided you keep your receipts
@mac-phisto: that pontiac engine has been around since the early 90′s. It’s never made sense to me. you basically have to tilt the engine back to get those other 3 plugs out…on certain models like early ninties grand prixs
Leases are a way for people to drive a car they couldn’t afford to buy any other way.
Kind of the subprime part of the auto world.
I don’t really like car loans, if you don’t have the money saved for a vehicle you can always get by with an older car and save up until you do — drive a beater and pay yourself the car payment each month and you will be amazed how fast you can save up and pay cash for a nicer car…. That being said, I hate the idea of leasing even more. Unless I am renting a car (which i do frequently for business) I don’t like to drive something which I do not own. For one thing, if you like to beef up the audio system you will have to revert it to OEM prior to returning the lease. I usually install one or two ham radios in my cars and that sometimes involves drilling holes and adding wiring, another no-no for leases.
My truck, which I own outright, hardly gets driven 6000 miles a year (being as I travel so much) so I would never get my mileage out of a lease… and my wife drives so much for her job (she does home health care) that she puts 20-30K on her car in a year easy (it’s nice that she gets reimbursed for mileage). So leasing would be way out of her league as well.
I really enjoy the video at this link: [www.daveramsey.com] it’s from Dave Ramsey and it outlines how well you can do buying cheap used cars and saving the payments for yourself… it’s worth a look!
@WV.Hillbilly: A great analogy!
@JustAGuy2: My thoughts exactly. Enough with the “you are an idiot if you [lease | buy new | buy used]” arguments.
@privatejoker75: That only matters if you’re the type that’s trading in a vehicle every few years. If you keep them till the wheels fall off, resale value doesn’t matter.
If your primary concern is the initial depreciation, buy a vehicle that is a year or two old and pay cash. Save those $300 a month car payments for the next car or to repair the one you’ve got. 100k miles is just breaking a car in today, you’re not likely to run into any expensive repairs for another 60-70k miles if you maintain your vehicle properly.
@snoop-blog:
Yes, the warranty covers electrics on a new car. That is my point. If you BUY a car, you will be responsible for repairing annoying, mysterious, and hard to fix electronic issues when the warranty expires. If you LEASE a car while it is under warranty, then you never worry.
@snoop-blog:
actually, people do lease furnishings. even carpet.
@barty: that’s what i do. had an 89 toyota camry that finally retired at 480K. bought an 85 toyota corolla for $400 & ran that to 175K before “extensive brake work” made me junk it. bought a 93 honda accord with 148K on it & ran it to 288K before i parked it into the back of a pickup truck. wish i hadn’t – i loved that car. now i’m running a 99 toyota solara that i bought at 88K…i’ve got 150K on it now & it’s still purring. still tear up every time i see an accord though.
@mac-phisto:
My “prediction” about many consumer items being leased in the future is not a prediction, it is already happening. Interface leases office carpeting, telephones are leased, Germany is mandating home appliance leasing, etc.
@mac-phisto: My favorite was my 89 Ford Festiva. I abused that car — I moved back and forth to school four times a year and loaded it until it couldn’t clear speed bumps. Bought it for $3000 in 1994, it had 30K miles on it. Paid off the loan early and just after that I hit a deer. A big one.
Deer: 1. Festiva: 0.
But boy I loved that car.
@WV.Hillbilly:
I disagree with that sentiment. I leased a BMW 3 series for 36 months a few years ago. I could have afforded to buy it, but I went with the lease for the simplicity. They called me whenever it needed service and at the end of the period, I got to walk away. My monthly payments were reasonable and I knew that I had a promotion coming in the next 30-36 months and would want a new car. The 3 Series was not a car I saw myself keeping for an extended period even if I had purchased it, so I went for what made sense.
When I bought my A8L, I decided to buy it because I’m pretty sure i’d like to be buried in the damn thing.
Arkanasa.
Thanks for the advice. I’m trying to figure out what to do about my current car situation and need all the options and help I need. My car is a ’00 but is definitely showing the signs of imminent failure; just last week I was turning on the dome light and the whole assembly basically exploded, spraying parts all over the car and leaving me completely bewildered as to what had happened for about 10 seconds while I sat there in shock. 1 day later, the entire inside lighting goes out. Probably just a fuse, but still. That, combined with what a mechanic described as “6 months before it dies” leads me to believe that I’d better figure something out soon.
I want a 2008 Dodge Challenger… guess I can always dream.
@bbbici: people who lease furnishings?! not practical people. maybe rich, or very stupid……probably both.
I’d never buy a car…I get bored too quick. Give me a 36 or even a 24 month lease anytime.
One reason I felt leasing might have been a option (I ended up buying) Is we are on the cusp of a automotive revolution. For those of us driving a long distance, the next 10 years of automotive fuel development will be crucial. If a plugin Hybrid becomes available that would save me a lot in commute cost, it would be nice to be able to purchase that and 3 years from now seems the right timeframe for that to happen. Being stuck in a 10 year purchase is less desirable in this situation
@privatejoker75: “Back in the day I leased a 2002 Subaru WRX for 0 down and $300 a month for 36 months. 3 months before my lease was up I found a buyer.”
I bought a 2002 Subaru WRX with 3000 miles on it for $19k. With $3000 down I paid $446/month.
“My buyout was $12,000. He bought it from me for $14,500 (only had 25,000 miles on it).”
$12k? Edmunds.com says my WRX (with 42k miles on it) is now worth $11k.
“I recouped about 8 months of those 36 months of payments. Not bad for having NADA, ZILCH, NADA etc.”
I still have my car and if my calculations are correct I’ve had it roughly three years after you cashed yours in. If I sold it today for $10k I’d recoup about 22 payments.
Bunk.
Heres why :
Without using ‘special math’, or weird financial calculations,heres a comparison of lease vs buy using IDENTICAL interest rates and loan terms:
When you finance a car,at the end of the loan term, you keep the car.
When you lease,to keep the car, you must finance it again. Needless to say you pay more by financing twice than just once.
Not to mention the inherent risk of financing something that technically doesn’t belong to you.
@SuperJdynamite: the difference is my total cash outlay was about $10,000 and i got $2,000 back. $8,000 over 3 years
@burninator: hybrids aren’t the answer. they are just a scratch in the surface. if you went out and bought a hybrid today, in another 3-5 years there would be something even better than that. what they don’t tell you about the hybrids is what you need to be worried about. sure you hear the gas milage and think, wow that would save a lot of money, but those 6 or more batteries in the thing, are about $1000 a piece, and batteries aren’t ever lasting, they can only be charged “x” amount of times before they are useless. also, who is going to work on your hybrid? not your local shop (unless its minor work). screw the hybrid. hold out for the hydrogen powered car.
@ad8bc: really any deer compared to a festiva is a big deer, no? lol.
@privatejoker75: You lucked out… Most people I know of don’t have the same “luck” but end up upside-down on their cars when the lease is up… Also, don’t forget the charges per mile over 10,000 per year… Talk about rip offs!
@mac-phisto: Why are you putting spark plugs in a 2006 car? The plugs in it would have lasted a good 100,000 miles.
My curiosity about leasing is, what’s in it for the dealers? Why would the car makers do it if it was less profitable for them?
@Silversmok3:
Bunk.
Gotta compare apples to apples. To do this, you need to assume that, if you buy the car, you’ll sell it after the same period as the lease runs (i.e. if you’re comparing to a 36 month lease, you need to assume you’ll sell a purchased car after three years).
In this apples-to-apples comparison, the only real difference between leasing and buying is that, with leasing, you get to turn in the car and walk away, while with buying, you take the risk that the car is worth less than had been anticipated when the lease was started, in which case you’d be in the hole.
Basically, a lease is just like buying, except that, after three years (or 2, or 4, or whatever), the car company is agreeing to buy back the car from you for a predetermined price, if you choose to do so.
@DeltaPurser: most leases i’ve seen are 15,000 miles per year. I average less than 1,000 miles per month.
About 2½ years ago I bought a 1996 Honda Civic EX Coupe with 130,000 miles on it – for $1500. At 160,000 miles now, it still runs like a charm and Blue Book value is $3K. You leasers can keep your fancy new cars.
@bbbici: People lease furnishings, even carpet? I know of some businesses that do because it was easy on their startup capital and the costs are taken off of their taxes. (Some people in politics do this but they know how to move the burden of payment.) But people who lease furniture are the ones going to Rent-A-Center. Definitely not cost effective.
@justaguy2
While your reasoning is correct, it implies that youre getting rid of the car after the term’s over.
If youre planning on driving a car into the dirt, my original comment still stands.
Besides, why would you dispose of a perfectly good car after 3,or even 5 years?It makes little financial sense to finance a perfectly functional car, discard it ,and finance again for a shinier,replacement.
And you don’t need advanced mathematics to understand THAT.
@snoop-blog: You pick the technology, May it be Hydrogen, Plugin, full Electric, CNG, LNG, etc… Things are changing from just petrol based automotives (the point of my post) And that consumers might find cost savings for being in the right position. Also plugin Hybrid could be very valuable to those making many short trips. Batteries will come down in price as they are mass produce. And a mechanic shop that fails to keep up with current automotive technologies will soon be out of business. (
Oh Kiplinger – the meca of truth in money advice.
Let’s get one thing straight – Leasing is a fool’s game for people without money that want to pay the most they can to operate a car. Anyway you slice it I would really like to find out why this website finds it necessary to publish such bad financial advice as “how many credit cards do I need” and “why it is better to lease a car”///
Oh Kiplinger – the mecca of truth in money advice.
Let’s get one thing straight – Leasing is a fool’s game for people without money that want to pay the most they can to operate a car. Anyway you slice it costs more.
About the terminology – ask the dealer how you actually SAVE any money renting (and it really is renting) a car?
Myth 1: Buying is cheaper than leasing – BULLSHIT – run the numbers anyway you want – mile for mile it cost MORE.
Myth 2: It’s nearly impossible to negotiate a good buy – On a lease you are the customer with the lease amount of money. That is the setting for a bad deal. The person with cash gets the best deal.
Myth 3: Only businesses get tax breaks – I know idiots that depreciate their leases like assets, it is by far one of the worst tax ideas in the American tax code.
Myth 4: You may have to pay hefty fees when turning in the car – Well you are screwed when you turn it in – because it’s a rental.
Myth 5: If you want out early, you’re stuck – Like you are really going to “win win” when you find that guy across country that wants your crap car.
Get lied to more by reading the full article at Kiplinger.
@swalve: it wasn’t my idea to do the tune up – i just offered to help her with it, but i don’t think it was a bad idea. she has about 70k on the car already & was noticing a reduction in performance.
i don’t think plugs, wires & a fuel filter are gonna help – her engine was immaculate – but what does <$50 in parts hurt?
with my experience with pontiacs (& grand ams in particular), i think she has some computer issues on the horizon that are starting to manifest themselves.
@snoop-blog: Hydrogen? Meh. I think pure-electric (think Tesla Motors) has much more of a future, particularly after ultracapacitators get to a point where they’re in use for production vehicles.
That said, for pure electric cars, I think leasing the batteries (like the business model used for the Think) makes a great deal of sense — that way, it’s not the customer with the financial interest in having the best bang for the buck in terms of battery life — even if it’s in the customer’s interest to own the vehicle itself.
@mac-phisto: They say if you buy a 2 year old car and keep it for 10 years your entire life – you will save 500,000 over the average joe!
Congrats on being .5M richer than everyone else!
I can’t lease, as I drive too many miles. I spend 2-3 hours per day in my car, on average. Sorry, but I’d rather be comfy than spartan. I didn’t splurge on my car (I drive a Hyundai) but I’m also not going to feel guilty for only driving my previous car for 6 years.
And yes, I could move closer to work, but what I’d save on gas and car payments would more than be eaten up by increased housing costs. There’s a reason so many people live in the suburbs and commute, and the desire for a McMansion isn’t always it.
@trujunglist: Wow, you’re ready to trash a car because of a dome light? And who says 6 months? Maybe you should get a second opinion on that. I really feel that we spend as much as we do on cars because of the intrinsic sense of vulnerability, both mechanically and financially.
Leasing works for dealers because it is far too complicated for most consumers to comprehend. Ever hear about selling a car for over sticker? It happens every day when people lease.
@bdslack: if only. then maybe i could afford having a car worthy of a garage.
$100 worth of detailing is cheap way to get rid of the “I need a new car” itch.
@DeltaPurser:
What you own, DeltaPurser, is the $2000-3000 a year you didn’t make in payments.
I’d much rather have the money than a car with a loan payoff that exceeds the cars value.
But then, this mindset only works if the consumer has the discipline to lease the car he/she can afford to buy instead of upgrading to a nicer leased car for the cheaper car’s purchase payment.
Myth #5 is just plain stupid. If you buy a car and “want out early” you’re just as stuck, no?
@bbbici: “it is predicted” by whom? I read an article on some web site? I predict that most people will continue to do stupid things regardless of what anyone else predicts.
@ad8bc: A Festiva? And you miss it??
I’ve leased all of my cars except for my first two. I personally prefer leasing to buying because by the time the warranty runs out, the lease is done and I’m in a new car with a new warranty. I’ve leased 4 BMW’s and now that we live in the ‘burbs, my wife has one too. I’ve never felt like I was being shafted financially. Granted it’s not for everyone. If you drive 100 miles to work each day, it’s not for you. If you have a sense of “pride in ownership”, it’s also not for you.
The way I see it, cars are a consumable. They don’t last forever (unless you’re a collector or crazy cat lady). Even if you drive a car for 15 years and put 200k miles on it, it still wears out. A car that’s been driven into the ground is going to have nearly zero residual value. So, for all those years that you’ve been denying yourself a new car, you’ll need to have been socking away that money so that when you buy your next car you’re not financing the bulk of the cost.
Also, even on a car that’s been paid off for 10 years, you still have to pay for maintenance and repairs. You have to factor that in to the annual cost of ownership. Older cars have a tendency to have higher emmissions and lower gas mileage, as well. Also needs to be factored in.
I also don’t put anything down on the lease when I start it. The monthly payments are higher, but if the car gets stolen or totalled, I don’t lose out on the advance rent I’d have paid on the car ahead of time.
For someone that enjoys driving new cars and not having to worry about fixing them and who’s driving pattern fits within the mileage and wear and tear limitations on a lease, leasing can be a great fit. I’m not even a year into the lease on my Z4 3.0si and I’m already looking forward to the next one when they drop the twin turbo engine from the 335 into it.
Like spandex pants, leases aren’t right for everyone. But they can be really right for some.