Win or Lose (Lease / Rent vs Buy)

[RustySpork]

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

Can you take that car to CarMax or any other dealership where you did not purchase it, and sell it for the equity?

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.

They gave me what I asked for. I saw the invoice on the new vehicle before I signed. If I don't, they don't close the deal. They turned around and re-sold the car for $500 more than they gave me on trade within 7 days.

You still haven't shown me the numbers, or the two year depreciation on the Porsche Cayenne.

 

[21stamps]

Can you take that car to CarMax or any other dealership where you did not purchase it, and sell it for the equity?



They gave me what I asked for. I saw the invoice on the new vehicle before I signed. If I don't, they don't close the deal. They turned around and re-sold the car for $500 more than they gave me on trade within 7 days.

Yes. Of course. It's a payoff. Loan or lease doesn't matter. You have a "payoff amount" at any given time while you own it.

I think you're assuming that people have more power with a dealership than they actually do.lol an invoice doesn't tell you everything.

Just out of curiosity, what brands were you buying new?

 

[RustySpork]

Yes. Of course. It's a payoff. Loan or lease doesn't matter. You have a "payoff amount" at any given time while you own it.

I think you're assuming that people have more power with a dealership than they actually do.lol an invoice doesn't tell you everything.

That doesn't answer my question though. Do you keep or lose the equity. People have plenty of negotiating power with a dealership, most of the time they just don't know. I've never paid close to MSRP.

 

[21stamps]

That doesn't answer my question though. Do you keep or lose the equity. People have plenty of negotiating power with a dealership, most of the time they just don't know. I've never paid close to MSRP.

You don't understand. There is a payoff in either situation. Anything that your car is worth above that payoff is yours..in either situation.

Manufacturers only allow dealers to discount to a certain point. The dealer can not give in to sell you a car. They aren't losing their franchise for one customer that they would be losing money on anyway. That's not how businesses can survive.

 

[RustySpork]

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.

Yep.

 

[21stamps]

Yep.

Finally you see the light!!

Whew. That was exhausting.lol

 

[RustySpork]

You don't understand. There is a payoff in either situation. Anything that your car is worth above that payoff is yours..in either situation.

Manufacturers only allow discounts to a certain point. They can not give in to sell you a car. They aren't losing their franchise for one customer that they would be losing money on anyway. That's not how businesses can survive.

I don't believe I said that they lose money, you're making an assumption there. Negotiation doesn't necessarily mean someone gets the short end of the stick, unless you go into the negotiation not knowing what to expect and unprepared.

Let's use your example. Lets say that you're paying $350 for your lease and I'm paying $650 for my purchase at 2.4% (market rate). Let's also say that we both bought our cars (same model, same price) at the same moment in time from the same place. We both decide to trade the car at another dealership at the same time, the first day after month 24. Who comes out ahead, and why.

 

[21stamps]

I don't believe I said that they lose money, you're making an assumption there. Negotiation doesn't necessarily mean someone gets the short end of the stick, unless you go into the negotiation not knowing what to expect and unprepared.

Let's use your example. Lets say that you're paying $350 for your lease and I'm paying $650 for my purchase at 2.4% (market rate). Let's also say that we both bought our cars (same model, same price) at the same moment in time from the same place. We both decide to trade the car at another dealership at the same time, the first day after month 24. Who comes out ahead, and why.

Omg I've explained it several times. I'll try again.

2 cars- Selling (not MSRP) Price of $30k.
We'll use a 60 month loan vs a 36 month lease for simple comparison. We'll assume both are paying taxes upfront.

Loan- takes bank loan for 60 months. 2.4 apr.
pays $2100 in taxes (7%).
Let's say payment is $600 per month to keep it simple.

Lease - Pays the amount between $30k and the residual value determined by the manufacturer. (Let's use $20k for residual).
Money factor at .002
Taxes due- $700
Payment $300 per month.

Over 2 years the "loan" person paid $16,500

The "lease" person paid $7,900.

Both have no negative equity. Same result. One paid $8,600 more over the course of 2 years.

Oh wait, let's add GAP insurance.
Loan person- paid $800
Lease person - paid $0

Now the difference is $9400.

It's math. There's nothing that could ever make the "loan" person come out ahead of the "lease" person in this scenario.

 

[RustySpork]

Omg I've explained it several times. I'll try again.

2 cars- Selling (not MSRP) Price of $30k.
We'll use a 60 month loan vs a 36 month lease for simple comparison. We'll assume both are paying taxes upfront.

Loan- takes bank loan for 60 months. 2.4 apr.
pays $2100 in taxes (7%).
Let's say payment is $600 per month to keep it simple.

Lease - Pays the amount between $30k and the residual value determined by the manufacturer. (Let's use $20k for residual).
Money factor at .002
Taxes due- $700
Payment $300 per month.

Over 2 years the "loan" person paid $16,500

The "lease" person paid $7,900.

Both have no negative equity. Same result. One paid $8,600 more over the course of 2 years.

It's math. You can't make it magic.

So what you are saying is that the person who paid $8,600 more over those two years no longer has that $8,600? Where did it go? Also, I didn't mention it (though that's been the context this whole time) but lets use a 48 month loan for the purchase.

HAH you ninja edited GAP insurance in there to make it look worse than it really is and fixed your math errors.

Also, what about the 2 year depreciation on the Porsche?

 

[21stamps]

So what you are saying is that the person who paid $8,600 more over those two years no longer has that $8,600? Where did it go? Also, I didn't mention it but lets use a 48 month loan for the purchase.

HAH you ninja edited GAP insurance in there and fixed your math errors.

No I didn't have math errors. I changed the lease from $280 to $300 to make it easier to follow.

I added GAP bc it is included in all leases at no additional charge. It is never included in a purchase. Trying to keep things comparable.

What do you mean where did the money go? It went to the bank. Why a 48 month loan? That's not even close to what the average American does. But, in that case the difference would just be higher for the loan person...Meaning they would throw away even more money. The shorter the loan the higher the payment.

You know what, for arguments sake let's take out the $800 for GAP...You're only paying $7800 more than the lease person that way.lol Does that sound better?

If you can figure out a way to change that math to where the buyer could somehow come out ahead of the lease..then you'll become an overnight world wide celebrity lol. And invented an entire new type of "math" lol

 

[RustySpork]

No I didn't have math errors. I changed the lease from $280 to $300 to make it easier to follow.

I added GAP bc it is included in all leases at no additional charge. It is never included in a purchase. Trying to keep things comparable.

What do you mean where did the money go? It went to the bank. Why a 48 month loan? That's not even close to what the average American does. But, in that case the difference would just be higher for the loan person...Meaning they would throw away even more money. The shorter the loan the higher the payment.

ALL of that money went to the bank? Are you sure about that? I think your math is off by about $6k.

We're not talking about the average American. Higher payment, lower interest means they own the vehicle and any equity that it possesses faster than it depreciates (typically). It's also the loan term that I've been referencing the whole time.

Who cares if the payment is higher, the outcome is that you hold more value in the vehicle before the value tanks. There's a cascading benefit to rolling that equity into the next vehicle before it loses value. If I took the car that I own right now and sold or traded it right now based on the equity I've rolled over the last 10 years, I could walk away from the table with outright ownership of two Mazda 3s and money in my pocket.

 

[RustySpork]

FWIW, the dealer's actual cost for a vehicle is ALWAYS less than invoice. And, they still make a profit selling below invoice - just not as much. That does not mean you will always get a deal below invoice - supply and demand, you know...

You're absolutely right about that. I'm perfectly happy paying invoice knowing that the dealer still makes a profit on the transaction.

 

[21stamps]

ALL of that money went to the bank? Are you sure about that? I think your math is off by about $6k.

We're not talking about the average American. Higher payment, lower interest means they own the vehicle and any equity that it possesses faster than it depreciates (typically). It's also the loan term that I've been referencing the whole time.

Who cares if the payment is higher, the outcome is that you hold more value in the vehicle before the value tanks. There's a cascading benefit to rolling that equity into the next vehicle before it loses value. If I took the car that I own right now and sold or traded it right now based on the equity I've rolled over the last 10 years, I could walk away from the table with outright ownership of two Mazda 3s and money in my pocket.

Where is it off by $6k?

You still aren't understanding. The length of the loan is irrelevant regardless of 48 or 60 months in this scenario. The interest rate is typically the same on both..or within less than a point.

The only difference would be the math would come out worse for the buyer in that scenario.

The problem is.. You're missing the basic point after 2 years BOTH vehicles are worth the exact same amount of money.
SAME AMOUNT.
Regardless of if you paid $300 per month, $600 per month, or $700 per month. It doesn't change the value of the car in this situation.
One person loses more than the other.
Why, because they both have a payoff. The buyer is making payments on $30k and paid taxes on 30k. The lease is ONLY paying the set depreciation amount determined by the manufacturer- in this case $10K AND only paying taxes on that amount so they paid less than you over that 2 year period.

Can you understand that? When you do, that's when you'll "get it".lol.

 

[RustySpork]

Where is it off by $6k?

You still aren't understanding. The length of the loan is irrelevant regardless of 48 or 60 months in this scenario. The interest rate is typically the same on both..or within less than a point.

The only difference would be the math would come out worse for the buyer in that scenario.

The problem is.. You're missing the basic point after 2 years BOTH vehicles are worth the exact same amount of money.
SAME AMOUNT.
Regardless of if you paid $300 per month, $600 per month, or $700 per month. It doesn't change the value of the car in this situation.
One person loses more than the other.
Why, because they both have a payoff. The buyer is making payments on $30k and paid taxes on 30k. The lease is ONLY paying the set depreciation amount determined by the manufacturer- in this case $10 AND only paying taxes on that amount.

Can you understand that? When you do, that's when you'll "get it".lol.

You don't seem to understand loan amortization and the basics of principle vs interest which is surprising for someone who said they work in finance at a car dealership. No offense.

The payoff is the same, however the person who holds the loan owns more of the value of the vehicle than the person holding the lease.

 

[21stamps]

Dealers are not the ones collecting interest. They get only the price you pay for the vehicle in the showroom - nothing in regards to the loan.

The captive or the bank providing the consumer loan gets the interest. In wholesale finance, the dealership is incentivized to move vehicles within a short period of time. Dealers begin to pay interest and other fees usually only after a vehicle has been on the lot for a certain number of days (varies for used/new, and other financial arrangements). Dealers benefit from being able to offer leases or long term loans in that the consumer is convinced they can afford something because of a lower monthly payment.

Bottom line: the net profit is the same to the dealer whether you finance or pay cash - all based on the price you pay.
Profit for a lease is different as there really is no purchase.

Profit is actually similar on a lease for new cars. Everything depends on the selling price..profit of selling price is the same regardless. But a dealer would much rather have someone purchase than lease.. the banks pay a kickback to dealers.. they also allow them to mark the rate up above what the bank was buying the loan for..the dealer gets additional money for that as well. Win for the bank and the dealer with a finance scenario.

 

[RustySpork]

Profit is actually similar on a lease for new cars. Everything depends on the selling price..profit of selling price is the same regardless. But a dealer would much rather have someone purchase than lease.. the banks pay a kickback to dealers.. they also allow them to mark the rate up above what the bank was buying the loan for..the dealer gets additional money for that as well.

They also get the asset back at the end of the lease, unless the leaser decides to buy out the equity.

 

[21stamps]

You don't seem to understand loan amortization and the basics of principle vs interest which is surprising for someone who said they work in finance at a car dealership. No offense.

The payoff is the same, however the person who holds the loan owns more of the value of the vehicle than the person holding the lease.

Actually, I never said that. I said I work in finance. I do know loan scenarios pretty well..and I know how to advise people to make a wise decision- for them

You don't own more because you paid a payment. Not anymore than the lease person does. It's really not this difficult.
2 years. 2 scenarios. 1 pays more. Car value and equity does not change one way or the other.

 

[21stamps]

They also get the asset back at the end of the lease, unless the leaser decides to buy out the equity.

A lease is set by a manufacturer not a dealer. You don't have to return the car to where you bought it. The dealer does not own it. The manufacturer's bank does.

 

[21stamps]

I must not be explaining it correctly or simplistic enough. I'm going to call on @CaptainAmerica .. and if he's not available I suggest research.lol

I give up.

 

[21stamps]

I know about kickbacks but I was not aware that dealers could mark up interest and get some extra $$$ that way... learned something new

I learned something new on here yesterday! Never a bad thing to find out some new info