Win or Lose (Lease / Rent vs Buy)

[RustySpork]

Moving the topic from the Disney VISA thread.

Like I aid above, there are major differences between being a home owner with a mortgage and being a car owner with a bank holding the title. They are apples and oranges. This is one area that I do know a lot about.lol I'm in finance, and I would never recommend someone to take a loan on a car and keep it for 2 years. It's crazy.

Finance, eh? Are you seriously going to tell me that holding a loan at 2% and building small amounts of equity in a higher end product that's good for roughly 4-5 years and can be rolled into the next purchase is not as smart as lighting money on fire (I mean leasing)?

If you have a note on a car or a home, the bank owns it.

No. It has nothing to do with the interest rate. It's about the depreciation, and the taxes. And the other things that you should buy when financing a vehicle.
It's mathematical not magical

Let's say we're talking about a Porsche Cayenne. Tell me how I would lose money on trade after two years of ownership when buying vs leasing.

 

[CaptainAmerica]

Let's say we're talking about a Porsche Cayenne.

 

[RustySpork]

A home is not (hopefully) a rapidly depreciating asset. And if you didn't own a home then you would be renting. It's apples to oranges comparison.

Unless you're buying the bottom of the line vehicle it won't rapidly depreciate. If you're limiting yourself to a Mazda 3 or a Ford Fiesta, you're not wrong.

That's a myth. Everyone pays the market interest rate, they just don't know it because it gets masked in an inflated principal. You might think you're getting a $30,000 car at 0% interest rate, but you could probably get the same car for $27,000 at a 5% interest rate. If you're getting a "great interest rate," it means you're paying more than the FMV of the vehicle. Dealers don't take on the risk of your credit without compensation.

Uhh, what? Maybe if you weren't haggling. Who pays MSRP?

 

[RustySpork]

Hey, we agree on something! I picked a random car, not the one I drive.

 

[21stamps]

Moving the topic from the Disney VISA thread.



Finance, eh? Are you seriously going to tell me that holding a loan at 2% and building small amounts of equity in a higher end product that's good for roughly 4-5 years and can be rolled into the next purchase is not as smart as lighting money on fire (I mean leasing)?

If you have a note on a car or a home, the bank owns it.



Let's say we're talking about a Porsche Cayenne. Tell me how I would lose money on trade after two years of ownership when buying vs leasing.

Yes. 100% you would lose to the person who leased.
The math is there. You can't change that. A lease is ONLY paying the depreciation of a vehicle. That's all it is, and that's all your paying taxes on...you're paying for the time you use it. A 2 year loan is financed on the ENTIRE vehicle. Taxes are on the entire vehicle.
To trade in after 2 years is a HORRIBLE decision.

 

[CaptainAmerica]

Are you seriously going to tell me that holding a loan at 2% and building small amounts of equity in a higher end product that's good for roughly 4-5 years and can be rolled into the next purchase is not as smart as lighting money on fire (I mean leasing)?

Okay first of all, you're not building equity in that time. Interest plus depreciation outpaces principle in the first few years of a car's life.

Separately, you're comparing apples and oranges if you change the time frame to 4-5 years. Most leases are 36 months. Yes, in years 4 and 5, financing begins to catch up with and possibly surpass leasing because the leaser will be into his or her second vehicle, likely with an additional down payment, while the purchaser's depreciation will have slowed down at that point.

If you have a note on a car or a home, the bank owns it.

No, neither is true. You own both.

 

[RustySpork]

Yes. 100% you would lose a the person who leased.
The math is there. You can't change that. A lease is ONLY paying the depreciation of a vehicle. That's all it is, and that's all your paying taxes on...you're paying for the time you use it. A 2 year loan is financed on the ENTIRE vehicle. Taxes are on the entire vehicle.
To trade in after 2 years is a HORRIBLE decision.

You're not explaining the math though, you're just stating that it exists. Clouds exist too, but that doesn't mean they're made of cotton candy.

Even if you deduct taxes from the positive equity you gain (provided you trade before it dives), you're still ahead.

 

[CaptainAmerica]

Uhh, what? Maybe if you weren't haggling. Who pays MSRP?

I'm not talking about MSRP, I'm talking about market value. A dealer is going to get the net present value of the vehicle no matter what. He doesn't care if he gets a high purchase price and zero percent interest or a high interest rate and low negotiated price.

One thing about leases is that you can sometimes get lucky with the vehicle purchase at the end. I originally leased my Fusion in 2012. At the time of signing, the purchase price at the lease's conclusion is predetermined. I ended up paying cash for the car at the end of the lease for less than I would have had to pay for a comparable car. Of course, this could just as easily go the other direction.

Unless you're buying the bottom of the line vehicle it won't rapidly depreciate. If you're limiting yourself to a Mazda 3 or a Ford Fiesta, you're not wrong.

That's funny. I drive a Ford Fiesta. It was my wife's car and then we had a baby and the Fiesta is obviously the size of a go cart. So now it's my car.

*Hangs head in shame.*

 

[21stamps]

Unless you're buying the bottom of the line vehicle it won't rapidly depreciate. If you're limiting yourself to a Mazda 3 or a Ford Fiesta, you're not wrong.



Uhh, what? Maybe if you weren't haggling. Who pays MSRP?

I'm sorry, you're wrong. It doesn't matter what car you buy...and actually the higher trim levels depreciate faster bc the same cost for extra features doesn't translate into a pre owned market price.

You will lose every single time if you are buying a car and have a 2-3 year trade cycle. Normally cost of ownership is figured over a 5 year time period. That's when cars start to depreciate less. But they still depreciate. Most by at least 50% at that point.
IF you keep the car AFTER your loan is paid off, then "buying" was the correct decision.

 

[21stamps]

You're not explaining the math though, you're just stating that it exists. Clouds exist too, but that doesn't mean they're made of cotton candy.

Even if you deduct taxes from the positive equity you gain (provided you trade before it dives), you're still ahead.

That statement was explaining the math.lol.

I'm not talking about MSRP, I'm talking about market value. A dealer is going to get the net present value of the vehicle no matter what. He doesn't care if he gets a high purchase price and zero percent interest or a high interest rate and low negotiated price.

One thing about leases is that you can sometimes get lucky with the vehicle purchase at the end. I originally leased my Fusion in 2012. At the time of signing, the purchase price at the lease's conclusion is predetermined. I ended up paying cash for the car at the end of the lease for less than I would have had to pay for a comparable car. Of course, this could just as easily go the other direction.

Right. You lease a new car and you know that in 3 years the car can be bought for $X amount. You are paying the depreciation.
At the end..or before.. you can trade the vehicle, sell the vehicle, buy the vehicle, or turn in the vehicle. Same choices as a purchase except for the "turn in".

 

[RustySpork]

Okay first of all, you're not building equity in that time. Interest plus depreciation outpaces principle in the first few years of a car's life.

Separately, you're comparing apples and oranges if you change the time frame to 4-5 years. Most leases are 36 months. Yes, in years 4 and 5, financing begins to catch up with and possibly surpass leasing because the leaser will be into his or her second vehicle, likely with an additional down payment, while the purchaser's depreciation will have slowed down at that point.

The leaser still gains nothing.

No, neither is true. You own both.

Kind of. Unless you have the title/deed in your possession you don't own it.

 

[CaptainAmerica]

The leaser still gains nothing.

The leaser gains nothing but the financer loses something. Both the leaser and the financer are paying deprecation. The financer has interest on top of that.

 

[21stamps]

The leaser still gains nothing.



Kind of. Unless you have the title/deed in your possession you don't own it.

You gain nothing if you purchased.

Nothing. The end result is the same. Both scenarios paid on a car for 2 years. Both have the same "value" for traded in car. One person paid a heck of a lot more than the other during that 2 years.

That's the most simple way to explain it.

 

[RustySpork]

I'm sorry, you're wrong. It doesn't matter what car you buy...and actually the higher trim levels depreciate faster bc the same cost for extra features doesn't translate into a pre owned market price.

You will lose every single time if you are buying a car and have a 2-3 year trade cycle. Normally cost of ownership is figured over a 5 year time period. That's when cars start to depreciate less. But they still depreciate. Most by at least 50% at that point.
IF you keep the car AFTER your loan is paid off, then "buying" was the correct decision.

So, what you're saying is that I'm wrong that in the 10 years that I've made 8 trades that I haven't taken the gobs of positive equity that I've had and rolled that equity into higher price models every time. Except that I did exactly that.

 

[21stamps]

The leaser gains nothing but the financer loses something. Both the leaser and the financer are paying deprecation. The financer has interest on top of that.

...and taxes.

 

[21stamps]

So, what you're saying is that I'm wrong that in the 10 years that I've made 8 trades that I haven't taken the gobs of positive equity that I've had and rolled that equity into higher price models every time. Except that I did exactly that.

How much money did you put down on the first one?

 

[RustySpork]

You gain nothing if you purchased.

Nothing. The end result is the same. Both scenarios paid on a car for 2 years. Both have the same "value" for traded in car. One person paid a heck of a lot more than the other during that 2 years.

That's the most simple way to explain it.

That's nonsense though, if you lease you can't sell the car for the equity if any that you have in the vehicle. You lose it.

 

[RustySpork]

How much money did you put down on the first one?

$0, at 4% interest. When I traded it (year 3) I had $20K in equity. If you deduct taxes and interest, I was still ahead. In the interest of full disclosure, we're talking 8 trades across 3 purchases.

 

[21stamps]

That's nonsense though, if you lease you can't sell the car for the equity if any that you have in the vehicle. You lose it.

Huh? No you don't. You have a payoff amount. The same as someone who financed.

 

[21stamps]

$0, at 4% interest. When I traded it (year 3) I had $20K in equity. If you deduct taxes and interest, I was still ahead.

So, what you're saying is that I'm wrong that in the 10 years that I've made 8 trades that I haven't taken the gobs of positive equity that I've had and rolled that equity into higher price models every time. Except that I did exactly that.

I think the dealers lied to you. They showed you more for your car than what it was worth. It's just moving money around. Bottom line is the same.