Win or Lose (Lease / Rent vs Buy)

[RustySpork]

Actually, I never said that. I said I work in finance.

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.

It has nothing to do with the payment itself It's really simple amortization and time. One party pays more and the ownership transfers as the principle is paid down, and the other pays much less but holds no value at all at the end of the term. It really is simple math. For some reason I thought you said in the VISA thread that you owned a car dealership, my mistake.

 

[21stamps]

It has nothing to do with the payment itself It's really simple amortization and time. One party pays more and the ownership transfers as the principle is paid down, and the other pays much less but holds no value at all at the end of the term. It really is simple math. For some reason I thought you said in the VISA thread that you owned a car dealership, my mistake.

The screen shot doesn't work.
You aren't understanding the difference in each one respectively. It isn't someone paying a minimum payment of $300 and someone else paying $300 beyond that- going towards principle. That's not how a lease works.

If you read that I said anything about working at or owning a car dealership then I think our problem is that you aren't reading what I'm typing.lol Again, I give up. I've tried to explain it as simply as possible. It's hopeless at this point.lol

 

[RustySpork]

The screen shot doesn't work.
You aren't understanding the difference in each one respectively. It isn't someone paying a minimum payment of $300 and someone else paying $300 beyond that- going towards principle. That's not how a lease works.

If you read that I said anything about working at or owning a car dealership then I think our problem is that you aren't reading what I'm typing.lol Again, I give up. I've tried to explain it as simply as possible. It's hopeless at this point.lol

Sorry, I just don't see the value in leasing. I did try, I even used a bunch of calculators to see if I could make your math work and it just didn't. I get that you only pay the valuation difference in the lease, but what you're missing is that while you're only paying that small amount of the value of the vehicle, the person paying for the purchase loan is paying for the whole car. At the end of even 36 months on a 48 month loan the person who made the purchase comes out far ahead because they own a very large portion of the car while the leaser doesn't. It's mathematically impossible for any other condition to occur.

 

[21stamps]

Sorry, I just don't see the value in leasing. I did try, I even used a bunch of calculators to see if I could make your math work and it just didn't. I get that you only pay the valuation difference in the lease, but what you're missing is that while you're only paying that small amount of the value of the vehicle, the person paying for the purchase loan is paying for the whole car. At the end of even 36 months on a 48 month loan the person who made the purchase comes out far ahead because they own a very large portion of the car while the leaser doesn't. It's mathematically impossible for any other condition to occur.

No, its mathematically impossible for someone who has a loan to come out ahead of a person with a lease in 36 months. The taxes alone make it impossible. Beyond that, you are taking a selling price and subtracting payments..so I see where you are getting your idea.. the problem with what you're doing is that the lease is not financed on the entire amount. It's only the depreciation. A lease payment is not always lower, but in this case we're assuming that it is..because most are..what it means is the bank is assuming the risk. If in 3 years 2 people go to buy a new car..one loan, one lease- For trade in, one has negative equity, the purchase guy is screwed. The lease guy isn't. He doesn't have negative, he can turn his car in instead of trading it. Let's say they both break even- purchaser is still screwed bc he threw away more money. Let's say there's positive equity- lease guy still comes out ahead because he paid less than purchase guy in taxes and payment over the past 3 years, he trades his car in instead of turning it in. They both get the positive equity back to them.
There's no other way to explain it.

Leasing is not a wise decision unless you are a person who trades in a car in 36 months or less. That is the only time that leasing will "win".

The main thing is in your scenario you think there will be several thousands of dollars in positive equity. There is not a mass produced car in this country that could have that scenario in a 3 year or less time frame with $0 down. You said 2.4% apr.. but it can't even be done if you have a 0% apr.
You said you've done it several times. I'm telling you that someone robbed Peter to pay Paul. That's the only way it can happen.

 

[RustySpork]

No, its mathematically impossible for someone who has a loan to come out ahead of a person with a lease in 36 months. The taxes alone make it impossible. Beyond that, you are taking a selling price and subtracting payments..so I see where you are getting your idea.. the problem with what you're doing is that the lease is not financed on the entire amount. It's only the depreciation. A lease payment is not always lower, but in this case we're assuming that it is..because most are..what it means is the bank is assuming the risk. If in 3 years 2 people go to buy a new car..one loan, one lease- For trade in, one has negative equity, the purchase guy is screwed. The lease guy isn't. He doesn't have negative, he can turn his car in instead of trading it. Let's say they both break even- purchaser is still screwed bc he threw away more money. Let's say there's positive equity- lease guy still comes out ahead because he paid less than purchase guy in taxes and payment over the past 3 years, he trades his car in instead of turning it in. They both get the positive equity back to them.
There's no other way to explain it.

Leasing is not a wise decision unless you are a person who trades in a car in 36 months or less. That is the only time that leasing will "win".

The main thing is in your scenario you think there will be several thousands of dollars in positive equity. There is not a mass produced car in this country that could have that scenario in a 3 year or less time frame with $0 down. Even if you have a 0% apr.

Why is it that every single bit of information indicates you're wrong? At the end of a 36 month lease you can turn in the car, or finance the remaining equity. At the end of a 36 month loan you own the car and can keep it, or trade it towards an equal or greater car.

"The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan." - Consumer Reports

"Another drawback is that when you lease, you’re really just renting the car for a few years and financing the portion of the car’s life that's covered by your lease term. At the end of the lease, you will have no equity in the car, and no value to apply as a down payment on your next car. If you like the car and want to buy it, you’ll have to take out a loan, and that loan will incur a higher interest rate, since you will be financing a used car." - US News and World Report

"Drivers who lease will also have to take very good care of their leased cars. Automakers assume that leased cars will be returned in roughly "new-car" condition, and they can charge you for excess wear and tear if a leased car is returned with scrapes, bumps and dents." - AutoTrader

"You're A Slave To The Dealer." - Jalopnik

"You're Almost Literally Flushing Money In The Toilet." - Jalopnik

The only benefit of leasing is that you can have more car than you can normally afford.

A simple amortization schedule shows that at even with a 60 month loan, at the end of 24 months you will have paid roughly $1300 in interest, and $12k in principle. Deducting taxes and depreciation, you're still up $5K in equity if you decided to trade. That means over $200 of your monthly payment goes through the bank and right back into your pocket when you buy even if you only keep the car for 2 years.

 

[21stamps]

Why is it that every single bit of information indicates you're wrong? At the end of a 36 month lease you can turn in the car, or finance the remaining equity. At the end of a 36 month loan you own the car and can keep it, or trade it towards an equal or greater car.

"The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan." - Consumer Reports

"Another drawback is that when you lease, you’re really just renting the car for a few years and financing the portion of the car’s life that's covered by your lease term. At the end of the lease, you will have no equity in the car, and no value to apply as a down payment on your next car. If you like the car and want to buy it, you’ll have to take out a loan, and that loan will incur a higher interest rate, since you will be financing a used car." - US News and World Report

"Drivers who lease will also have to take very good care of their leased cars. Automakers assume that leased cars will be returned in roughly "new-car" condition, and they can charge you for excess wear and tear if a leased car is returned with scrapes, bumps and dents." - AutoTrader

"You're A Slave To The Dealer." - Jalopnik

"You're Almost Literally Flushing Money In The Toilet." - Jalopnik

The only benefit of leasing is that you can have more car than you can normally afford.

Ummm ok. You take out a 36 month loan but trade in your car in under that time frame? Seriously? Why?

As for the googled clips.. are these talking about leasing vs buying with a 3 year trade cycle? Context matters in this situation. Leasing is bad compared to buying and keeping a car more than 5 years (or depending on if you have a 72-90 month loan..,then it's much longer). On that I will agree. 100%.
BUT- that's not what you are comparing it to. Please find me google quotes that say it's smart to trade in a car in 2-3 years. Even if you are paying cash..taking financing out of it. It is still throwing money away needlessly.

What site/news outlet says it's so people can get a car that they couldn't afford? That's a horrible reason to lease.

Btw- it's more difficult to get approved on a lease vs a purchase. Income and credit score wise.why? Because again, the bank is at assuming a much greater risk than the leasee.

 

[RustySpork]

Ummm ok. You take out a 36 month loan but trade in your car in under that time frame? Seriously? Why?

As for the googled clips.. are these talking about leasing vs buying with a 3 year trade cycle? Context matters in this situation. Leasing is bad compared to buying and keeping a car more than 5 years (or linger depending on if you have a 72-90 month loan..,then it's much longer). On that I will agree. 100%.
BUT- that's not what you are comparing it to. Please find me google quotes that say it's smart to trade in a car in 2-3 years. Even if you are paying cash..taking financing out of it. It is still throwing money away needlessly.

I was showing apples to apples. Even if you stretch to 48 and 60 months there is a sizable net benefit to trading at 24 or 36 over a lease. Your lease vs loan argument would be true if you bought a car that doesn't hold value at all, or if you have terrible credit and can't get a good rate. Even if I did pay off the car in 36 months and wanted to trade it I now have significant equity I can lay down towards my next car that I don't lose (unless I make a bad decision on the purchase). All the while I'm shrinking my loan term or eventually eliminating it altogether. I get that it's not a game everyone can play, but it works for me.

When you stretch the loans out to 72 or 90 months (which is utter nonsense that banks even do this in my opinion) your lease vs buy argument also makes sense.

 

[21stamps]

I was showing apples to apples. Even if you stretch to 48 and 60 months there is a sizable net benefit to trading at 24 or 36 over a lease. Your lease vs loan argument would be true if you bought a car that doesn't hold value at all, or if you have terrible credit and can't get a good rate.

When you stretch the loans out to 72 or 90 months (which is utter nonsense that banks even do this in my opinion) your lease vs buy argument also makes sense.

It's not apples to apples. I'm done. You aren't getting it. I'm not going to beat my head against a wall.
If you think a 2-3 year trade cycle is a smart financial move then I guess keep it up..
It has nothing to do with loan term or interest rate (assuming good credit) or even if you pay cash. It's about depreciation. it's obviously worse if you are paying interest though.
The only people who should ever do that are bad credit people in high interest loans.

If you have been advised that this is wise..Please get rid of your financial advisor. Immediately.

 

[RustySpork]

Ummm ok. You take out a 36 month loan but trade in your car in under that time frame? Seriously? Why?

As for the googled clips.. are these talking about leasing vs buying with a 3 year trade cycle? Context matters in this situation. Leasing is bad compared to buying and keeping a car more than 5 years (or depending on if you have a 72-90 month loan..,then it's much longer). On that I will agree. 100%.
BUT- that's not what you are comparing it to. Please find me google quotes that say it's smart to trade in a car in 2-3 years. Even if you are paying cash..taking financing out of it. It is still throwing money away needlessly.

What site/news outlet says it's so people can get a car that they couldn't afford? That's a horrible reason to lease.

Btw- it's more difficult to get approved on a lease vs a purchase. Income and credit score wise.why? Because again, the bank is at assuming a much greater risk than the leasee.

Lets say I bought a $25k car. I pay off the note in 36 months rather than the simple interest loan's 48 month term. That car is still worth $17 or $18k. I take that $18K in equity and I put it into a $43k car. Same payment, much nicer car. I pay that off in 36 months because it's the same payment. I now have $35k in equity. I trade that car in for a $65k car, and again I have the same payment. 36 months later it's paid off. Rinse repeat. While you're swapping out your CX-9 over and over again, I'm now driving a Z06 and paying marginally more than you're paying for your lease. When that car is paid off in 36 months, I'll have something that will hold its value for years.

 

[21stamps]

Lets say I bought a $25k car. I pay off the note in 36 months rather than the simple interest loan's 48 month term. That car is still worth $17 or $18k. I take that $18K in equity and I put it into a $43k car. Same payment, much nicer car. I pay that off in 36 months because it's the same payment. I now have $35k in equity. I trade that car in for a $65k car, and again I have the same payment. 36 months later it's paid off. Rinse repeat. While you're swapping out your CX-9 over and over again, I'm now driving a Z06 and paying marginally more than you're paying for your lease. When that car is paid off in 36 months, I'll have something that will hold its value for years.

I can't dude. This is not making sense. You're taking out 36-48 month long loans with no intention of keeping the vehicle. I can't rationalize this in any way. It's just odd.

 

[RustySpork]

I can't dude. This is not making sense. You're taking out 36-48 month long abs with no intention of keeping the vehicle. I can't rationalize this in any way. It's just odd.

I'll just be over here in my Z06 while you're leaving work in a CX-9.

 

[21stamps]

I'll just be over here in my Z06 while you're leaving work in a CX-9.

Ummm. Ok. I don't like either one of those cars.lol
I'd say take some time with a calculator. Math is good.

 

[RustySpork]

Ummm. Ok. I don't like either one of those cars.lol
I'd say take some time with a calculator. Math is good.

I can math.

 

[21stamps]

I can math.

But you aren't!!
I'll leave you with this.. if you have $16k in equity..but paid $17-$18k more than me over a 3 year time period factoring in sales tax.
Then how is equity a benefit? My $17-$18k was earning money for me during that 3 year time period. Your's was tied up in a bank loan..and you were paying interest, not gaining it.

Just please think about it the next time you go take a 36month loan out on a brand new car and plan to trade it in within 36months.

 

[RustySpork]

But you aren't!!
I'll leave you with this.. if you have $16k in equity..but paid $17-$18k more than me over a 3 year time period factoring in sales tax.
Then how is true equity a benefit? My $17-$18k was earning money for me during that 3 year time period. Yours was tied up in a bank loan..and you were paying interest, not gaining it.

Just please think about it the next you go take a 36month loan out on a brand new car and plan to trade it in within 36months.

Let me break it down for you.

I drove a new car every 36 months, like someone who leases.
I paid a little more than someone who leases, but I got to keep it when I was done.
I took the value of what I owned, and I re-invested it into another high risk asset before it lost its value.
I paid a little more than someone who leases, but I got to keep the extra this time too
I did this another time or two.
I took all of that value that I had accumulated over time and instead of having to give it all back, I put it into a much lower risk asset that I could possibly enjoy for the rest of my life.

Here's how it's working out for you under your method:
You drove a new car every 36 months, but you paid a little less.
You traded that asset back and got another one just like it, only a little newer
Repeat a few times
When you were finished, you give that asset back too.
You don't have anything more than when you first looked at the first car.

I have something much better than that.

 

[21stamps]

Let me break it down for you.

I drove a new car every 36 months, like someone who leases.
I paid a little more than someone who leases, but I got to keep it when I was done.
I took the value of what I owned, and I re-invested it into another high risk asset.
I paid a little more than someone who leases, but I got to keep the extra there too
I did this another time or two.
I took all of that value that I had accumulated over time and instead of having to give it all back, I put it into a much lower risk asset that I could possibly enjoy for the rest of my life.

Here's how it's working out for you under your method:
You drove a new car every 36 months, but you paid a little less.
You traded that asset back and got another one just like it, only a little newer
Repeat a few times
When you were finished, you give that asset back too.
You don't have anything more than when you first looked at the first car.

I have something much better than that.

No, the money I saved over a buy-trade in 3 years scenario is sitting somewhere making more money for me.
I have a lot more to show than a new car that I just traded in. I have more than I did 3 years ago..your scenario has you just in a new car..still paying more than me..so that (example) $300 per month difference is for my situation being used much better than on a depreciating asset.

If you have a financial advisor please talk to him/her about this on your next meeting.
I'm hoping they would steer you in the right direction.

 

[RustySpork]

No, the money I saved over a buy-trade in 3 years scenario is sitting somewhere making more money for me.
I have a lot more to show than a new car that I just traded in. I have more than I did 3 years ago..your scenario has you just in a new car..still paying more than me..so that (example) $300 per month difference is for my situation being used much better than on a depreciating asset.

No, I'm pretty sure that's money you spent at Disney.

What I have is a new car that became a nicer new car and nicer and nicer until I had an incredibly nice asset that will probably not depreciate and that I can enjoy forever. That and I was able to buy it even if I couldn't normally afford one. You're still not seeing the difference, that is amazing to me. Not to mention that we're talking payment differences that are marginal at best.

 

[RustySpork]

But you aren't!!
I'll leave you with this.. if you have $16k in equity..but paid $17-$18k more than me over a 3 year time period factoring in sales tax.
Then how is equity a benefit? My $17-$18k was earning money for me during that 3 year time period. Your's was tied up in a bank loan..and you were paying interest, not gaining it.

Just please think about it the next time you go take a 36month loan out on a brand new car and plan to trade it in within 36months.

You do realize that sales tax on a $30K car is only about $1,800 right? Also, the interest on a $30k loan at 2.4% is only about $1,300 over 36 months. I spend more than that on dinner every year.

 

[21stamps]

No, I'm pretty sure that's money you spent at Disney.

What I have is a new car that became a nicer new car and nicer and nicer until I had an incredibly nice asset that will probably not depreciate and that I can enjoy forever. That and I was able to buy it even if I couldn't normally afford one. You're still not seeing the difference, that is amazing to me. Not to mention that we're talking payment differences that are marginal at best.

Thousands of dollars isn't marginal to me. Why tie up money that could be earning more elsewhere? I strive not to do that. I don't like wasting money needlessly...I already admit that my way isn't the best (compared to long term owners)...but if I know that I won't keep a car beyond a few years then this is the best way to minimize the damage.

If you are done doing 36 month trade then you can't undo it..and it is what it is. At least you're not doing it now. It's great that you have a car that you love. Moving up in vehicles isn't a goal of mine. I just like something new, under warranty, and the latest safety and tech features. I will probably never own a car for several years. Maybe when I'm old..

You do realize that sales tax on a $30K car is only about $1,800 right? Also, the interest on a $30k loan at 2.4% is only about $1,300 over 36 months. I spend more than that on dinner every year.

You must live in a low tax area. My sales tax is 7.5%. Either way you still have a major difference in sales tax between the 2 options. Anyway, this post shows me that you're still not understanding the combined difference of tax/payment/interest. Leases do have a money factor which is similar to interest so I left that one out of the equation. Doesn't matter. 5 million posts and you still aren't reading what I'm typing. Have a good night.

 

[RustySpork]

Thousands of dollars isn't marginal to me. Why tie up money that could be earning more elsewhere? I strive not to do that. I don't like wasting money needlessly...I already admit that my way isn't the best (compared to long term owners)...but if I know that I won't keep a car beyond a few years then this is the best way to minimize the damage.

That's the thing, I haven't wasted any money. I can't really comprehend how you don't see that. What if you wanted a Bugatti Veyron (I know, bad example since it's out of production) but you could only afford a Ford Fiesta, would you settle for a Fiesta, or would you find a way to leverage the assets you have to build better assets until you were able to achieve your goal of owning a Bugatti? So what if the net cost is a few bucks, the long term benefit grossly outweighs any small amount of change you lose up front.

If you are done doing 36 month trade then you can't undo it..and it is what it is. At least you're not doing it now. It's great that you have a car that you love. Moving up in vehicles isn't a goal of mine. I just like something new, under warranty, and the latest safety and tech features. I will probably never own a car for several years. Maybe when I'm old..

Who says that's my only car, and that I'm not building up my next asset? You'll note that all of my cars were under warranty the whole time.

You must live in a low tax area. My sales tax is 7.5%. Either way you still have a major difference in sales tax between the 2 options. Anyway, this post shows me that you're still not understanding the combined difference of tax/payment/interest. Leases do have a money factor which is similar to interest so I left that one out of the equation. Doesn't matter. 5 million posts and you still aren't reading what I'm typing. Have a good night.

Sales tax is literally minuscule in the grand scheme of things, you spend more in two nights at a Deluxe resort. I'm not sure why you're so focused on that.