Win or Lose (Lease / Rent vs Buy)

[Angel Ariel]

Buying is always going to win versus leasing for me.

I'm right there with you. HOnestly, the idea of switching cars so frequently is just odd to me. I've had a car that was 17 years old when it finally conked out (it was used when my family bought it). That was my first car. The second was 13 years old before we traded it in for my current car 3 years ago - an Odyssey. We just paid off the Odyssey this month, and it feels awesome to no longer have the car payment. The Odyssey will be around for quite a while, just like our previous cars.

 

[contrariwise]

I'm right there with you. HOnestly, the idea of switching cars so frequently is just odd to me. I've had a car that was 17 years old when it finally conked out (it was used when my family bought it). That was my first car. The second was 13 years old before we traded it in for my current car 3 years ago - an Odyssey. We just paid off the Odyssey this month, and it feels awesome to no longer have the car payment. The Odyssey will be around for quite a while, just like our previous cars.

I do feel like leasing proponents often like getting more car for less payment, or like to have a new car every 3 years.

 

[flynnibus]

A lease assumes a fixed value of the car in the future...

A purchase can be a similar payment schedule but the residual value is what you can get at the time. You were also paying interest on a lot more money.

What I don't get in the OPs logic is... where is all that negative equity going when you kept trading up? If you paid the car in full by the time of trade... where are you counting all the depreciation losses vs buying your z06 to start with? You have to add all those depreciation costs to your z06s cost to realize what you really paid for it (minus whatever you count for having a car for those years)

I don't get the logic of trading in a car and taking the biggest hit on depreciation over and over.

 

[RustySpork]

Seriously? I just realized I hadn't even looked at your avatar's name...dude, I just went back and deleted all my posts to you in this thread....they let you use that name? Horrified I didn't notice that.....no need for you to respond...please don't reply to my posts and I'll make it a point never to reply to yours....creepy

Uh, what?

 

[RustySpork]

So here's what his lesson is-
Cars depreciate- BUT if you take a 36 month loan out, then you can have "equity" in your vehicle after 36 months and now you can use that as a downpayment on a more expensive vehicle.

Basically he is using that 36 month loan as a way to deposit money into a forced savings account. But not one that's he's earning interest on, he's paying interest on that savings account.
The same goal could have been reached by taking the monetary savings between the lease and purchase payment, and putting it somewhere that could have been earning money. Or, just buy a cheaper car, longer term..with equal apr, and do the same with the difference saved..and work up to the "expensive" car that way. Putting money somewhere instead of paying it out.

If you have to have a car anyway and the difference after all the math is within a thousand or two when you consider all of the variables, it makes sense. If you buy a cheaper car and keep it longer you'll probably run out of warranty, it'll depreciate significantly more.

Why deal with any of that when you can just keep trading either laterally or up. The difference between that and a lease is a wash at the end and you keep the car.

 

[RustySpork]

I don't get the logic of trading in a car and taking the biggest hit on depreciation over and over.

Do you though, because the whole time you still have a car. It's not like you're throwing the money away. It's just like leasing, only less expensive.

 

[21stamps]

Do you though, because the whole time you still have a car. It's not like you're throwing the money away. It's just like leasing, only less expensive.

You're right. It's a little like leasing. At the end of 3 years both cars are worth the same "$x".
Both cars get replaced with new cars.
Here's where it differs- One person paid a lot more during those 3 years. The other person had the difference in payment earning money elsewhere..not paying interest on it. And paid less in sales tax. One person is protected in case the value is more than or even with the expected depreciation, and can turn it in. Or trade if even. Or apply equity to the next vehicle if it exists.

I said this in my first post here. Other people are telling you the same. You still aren't understanding it..at this point I don't think you will. Your way is your way, and I guess believe whatever you want.

 

[RustySpork]

You're right. It's just like leasing. At the end of 3 years both cars are worth the same "$x".
Both cars get replaced with new cars.
One person paid a lot more during those 3 years.

I said this in my first post here. Other people are telling you the same. You still aren't understanding it..at this point I don't think you will. Your way is your way, and I guess believe whatever you want.

Nobody else is saying the same thing that you're saying. At the end of 3 years both cars are worth the same, but you can keep one if you want or you can use the value you have left in it towards another, but the other you have to either purchase or give back. That keeps going right past you.

 

[21stamps]

Nobody else is saying the same thing that you're saying. At the end of 3 years both cars are worth the same, but you can keep one if you want or you can use the value you have left in it towards another, but the other you have to either purchase or give back. That keeps going right past you.

What "value"???? Yes, this is what flynninbus said..and what Dad2M&M said. The "value" is just you getting back some of the money that you have paid. You have lost your taxes and interest and took a huge hit in depreciation.
Why is that so difficult to understand?
You are using a car loan as a forced monthly savings account payment so you can get a nicer car next time..but you're loosing so much more than if you would have kept that money gaining it's own interest. There's no reason to just throw it away.

If you are keeping the car that's different. But that has never been your conversation or the original post. You said BUY and TRADE in 2-3 years.

I have to give up. My brain hurts.

 

[RustySpork]

What "value"???? Yes, this is what flynninbus said..and what Dad2M&M said. The "value" is just you getting back the money that you have over paid. You have lost your taxes and interest and took a huge hit in depreciation.
Why is that so difficult to understand?
You are using a car loan as a forced monthly savings account payment..but you're loosing so much more than if you would have kept that money gaining it's own interest. There's no reason to just throw it away.

If you are keeping the car that's different. But that has never been your conversation or the original post. You said BUY and TRADE in 2-3 years.

I have to give up. My brain hurts.

Let me see if I can wrap my little brain around this.

I'll start small so I can understand it.

I have $4.

I make two piles, $2 in one pile, $2 in the other.

I light one pile on fire because when I'm done I don't have the $2 anymore.

I take the other $2 and I put it into savings.

After earned interest (5%), I have $2.30.

That's the "lease".

Ok, the other scenario.

I have $4.

I put it all into one pile.

I take $1 and I light it on fire because of depreciation, taxes, and interest.

I still have $3

That's the "purchase".

Am I doing it right?

 

[flynnibus]

Let me see if I can wrap my little brain around this.

I'll start small so I can understand it.

I have $4.

I make two piles, $2 in one pile, $2 in the other.

I light one pile on fire because when I'm done I don't have the $2 anymore.

I take the other $2 and I put it into savings.

After earned interest (5%), I have $2.30.

That's the "lease".

Ok, the other scenario.

I have $4.

I put it all into one pile.

I take $1 and I light it on fire because of depreciation, taxes, and interest.

I still have $3

That's the "purchase".

Am I doing it right?

Not unless you have magically found someone that lets you sell used cars for far more than market value... because your lease vs buy values should be within reason of each other and the whitewashing of all the transactional costs doesn't sit well with me either.

The lease is just a prepaid depreciation instead of letting it ride on the market.

The keep trading up you are talking about is "free energy" - it only works if you ignore your losses. You have less and less equity in each upgrade because you are rolling forward negative equity.

 

[flynnibus]

Do you though, because the whole time you still have a car. It's not like you're throwing the money away. It's just like leasing, only less expensive.

There is a reason the leasing cost is usually much cheaper than the comparable buy price... because you can't get to the same equity position in the same amount of time.

The car is worth the same after 3yrs... but your out of pocket is not.

When you buy and sell... your net is the residuals minus expenses.... not just the residual.

If you buy a car for 40k and after 3yrs it's worth 30k... you don't just have 30k. You probably have a loan balance eating into that plus all the transaction expenses.

No the lease holder doesn't have a car anymore... but they also don't claim to be making money from negative equity

 

[RustySpork]

There is a reason the leasing cost is usually much cheaper than the comparable buy price... because you can't get to the same equity position in the same amount of time.

The car is worth the same after 3yrs... but your out of pocket is not.

When you buy and sell... your net is the residuals minus expenses.... not just the residual.

If you buy a car for 40k and after 3yrs it's worth 30k... you don't just have 30k. You probably have a loan balance eating into that plus all the transaction expenses.

No the lease holder doesn't have a car anymore... but they also don't claim to be making money from negative equity

Nobody said anything about making money, I said you lose less. You don't have negative equity at the end of the first year of a 48 month loan unless you have a really terrible interest rate, or you bought the least expensive vehicle on the lot which won't be worth anything in a year.

 

[networkpro]

IMHO it's all about how you classify this tangible asset "automobile". Is is a consumable or a luxury? My DW and I classify my primary vehicle as a consumable as I drive it around a hundred miles a work day and it will only be around for 3-4 years before it's traded in on its replacement. Her primary vehicle however won't see nearly the same amount of miles and is focused on a different purpose and asset class.

 

[flynnibus]

Nobody said anything about making money, I said you lose less

You put forth the example of trading up year over year to buy something you otherwise wouldn't have been able to. If you could have bought the end car first.. it would have been the cheaper method.

You don't have negative equity at the end of the first year of a 48 month loan unless you have a really terrible interest rate, or you bought the least expensive vehicle on the lot which won't be worth anything in a year.

4 yr loan.. 70k.. end of year one you have a balance of 51,726.76, and have paid $1668 in interest. Cars will typically lose ~20% in year one in depreciation. So for your cayman example... it goes from 70k to to 60k in year one (per Edmunds). Assuming you get that 60k.. you've paid 1668+18000+2900(taxes)+300(fees)+100(dmv) = 17k for one year of ownership.. minus your 9k 'gain' on the sale or 8k for one year of car ownership.

There is no 'free energy here' where trading in your car every 1-3 years moves you forward. That's simply a theory about getting the most residual value because you assume your car is going to become a money pit at year 5+. Reality is... cars go 10+ years for most people. Getting the most residual value for your car isn't a goal if your car continues to function fine.

The argument about what is cheaper.. lease or buy is pretty stupid really because its the same thing but leasing has fees, so of course its always going to be more expensive. The entire concept of a lease is you are paying the depreciation.. so the theory behind the residual/buy/sell is exactly the same as buying and selling at the same interval. The difference is the leasing company isn't in it for goodwill, so there is a money factor involved, fees, and taxes. So leasing will always be dollar for dollar more expensive because the company has to make money on the transaction.

There is no 'burning money' as you insist... you as an owner lost the same exact depreciation that the leasing buyer did. The owner has the option to sell.. the leasee automatically 'sells' the car back. The owner is paying on a schedule based on total cost... the leasee is paying on a schedule against the depreciation. Both cases have the same depreciation (minus market trends). The owner has a car with residual (but an outstanding loan balance)... a leasee has no car, but no loan (net zero for car vs loan)

People like leasing because it streamlines the transaction and gives them a clean break with no uncertainty. It also has tax implications when dealing as a business. Plus, selling a car (or trading in) and getting maximum value can be stress people are willing to pay to avoid.

 

[RustySpork]

You put forth the example of trading up year over year to buy something you otherwise wouldn't have been able to. If you could have bought the end car first.. it would have been the cheaper method.



4 yr loan.. 70k.. end of year one you have a balance of 51,726.76, and have paid $1668 in interest. Cars will typically lose ~20% in year one in depreciation. So for your cayman example... it goes from 70k to to 60k in year one (per Edmunds). Assuming you get that 60k.. you've paid 1668+18000+2900(taxes)+300(fees)+100(dmv) = 17k for one year of ownership.. minus your 9k 'gain' on the sale or 8k for one year of car ownership.

There is no 'free energy here' where trading in your car every 1-3 years moves you forward. That's simply a theory about getting the most residual value because you assume your car is going to become a money pit at year 5+. Reality is... cars go 10+ years for most people. Getting the most residual value for your car isn't a goal if your car continues to function fine.

The argument about what is cheaper.. lease or buy is pretty stupid really because its the same thing but leasing has fees, so of course its always going to be more expensive. The entire concept of a lease is you are paying the depreciation.. so the theory behind the residual/buy/sell is exactly the same as buying and selling at the same interval. The difference is the leasing company isn't in it for goodwill, so there is a money factor involved, fees, and taxes. So leasing will always be dollar for dollar more expensive because the company has to make money on the transaction.

There is no 'burning money' as you insist... you as an owner lost the same exact depreciation that the leasing buyer did. The owner has the option to sell.. the leasee automatically 'sells' the car back. The owner is paying on a schedule based on total cost... the leasee is paying on a schedule against the depreciation. Both cases have the same depreciation (minus market trends). The owner has a car with residual (but an outstanding loan balance)... a leasee has no car, but no loan (net zero for car vs loan)

People like leasing because it streamlines the transaction and gives them a clean break with no uncertainty. It also has tax implications when dealing as a business.

I never said anything about free anything, you're changing the conversation. I said it is an option for someone who wouldn't otherwise be able to do, yes. By the way $70-$60k in a year isn't 20% depreciation, it's 14%. That's also the worst case scenario, for example if you've treated it like you stole it. I'm pretty sure I've said all along that leasing vs buying is practically the same thing. The only change in the outcome is that if you lease you don't keep it, and if you buy you do.

 

[21stamps]

I never said anything about free anything, you're changing the conversation. I said it is an option for someone who wouldn't otherwise be able to do, yes. By the way $70-$60k in a year isn't 20% depreciation, it's 14%. That's also the worst case scenario, for example if you've treated it like you stole it. I'm pretty sure I've said all along that leasing vs buying is practically the same thing. The only change in the outcome is that if you lease you don't keep it, and if you buy you do.

Your entire thread has been about how you are "making money" off of trading in a car in a short amount of time, allowing you to have a big down payment on the next transaction..so now you can afford to move "up" in vehicle.

What you keep ignoring in that $10k depreciation scenario is the taxes, fees, and interest that you have paid as well. Your loss is greater than 10k because you will never recoup those taxes fees and interest. Not unless the car appreciates in value.. which doesn't exist.
Now on the next transaction you are paying all of those fees again..and on the next.

Your goal to get a "nicer car" cost you a heck of a lot more money than just saving for a decent down payment and buying that nice car in the first place.

People who lease don't do it with the goal to move up on car next time..they do it because the want a new car every few years without the risk.

 

[RustySpork]

Your entire thread has been about how you are "making money" off of trading in a car in a short amount of time, allowing you to have a big down payment on the next transaction..so now you can afford to move "up" in vehicle.

What you keep ignoring in that $10k depreciation scenario is the taxes, fees, and interest that you have paid as well. Your loss is greater than 10k because you will never recoup those taxes fees and interest. Not in less the car appreciates in value.. which doesn't exist.

Your goal to get a "nicer car" cost you a heck of a lot more money than just saving for a decent down payment and buying that nice car in the first place.

People who lease don't do it with the goal to move up on car next time..they do it because the want a new car every few years without the risk.

That's nice, but this whole thread hasn't been about that at all.

 

[flynnibus]

I never said anything about free anything, you're changing the conversation. I said it is an option for someone who wouldn't otherwise be able to do, yes

It's burning money... vs buying the end game car.

By the way $70-$60k in a year isn't 20% depreciation, it's 14%. That's also the worst case scenario, for example if you've treated it like you stole it

It was simply the example you suggested earlier.. a porsche cayanne. That's not 'worst case' - that's what the schedule suggests. And is actually pretty good since its a porsche. For comparison.. a Ford Fusion, is scheduled to drop 9400 off it's 32k price - almost 30%.

As I said before (and noted in that post)... when buying there is a variable on your residual. It's beholden to market forces and what you can actually get. The dealer isn't going to give you market value.. because they need to make money too. When buying you are assuming these risks.. when leasing you are pre-paying them and setting a schedule.

I'm pretty sure I've said all along that leasing vs buying is practically the same thing. The only change in the outcome is that if you lease you don't keep it, and if you buy you do.

That is a ridiculous comparison because both sides are not doing the same thing. And if that's your belief.. you never would have made the thread...

In theory it's cheaper to buy... but you assume risks and volatility. For leasing, you pre-pay to avoid the volatility. That's pretty much it if you are talking about individuals (not business and ignore the milage/damage issues)

 

[21stamps]

It's burning money... vs buying the end game car.



It was simply the example you suggested earlier.. a porsche cayanne. That's not 'worst case' - that's what the schedule suggests. And is actually pretty good since its a porsche. For comparison.. a Ford Fusion, is scheduled to drop 9400 off it's 32k price - almost 30%.

As I said before (and noted in that post)... when buying there is a variable on your residual. It's beholden to market forces and what you can actually get. The dealer isn't going to give you market value.. because they need to make money too. When buying you are assuming these risks.. when leasing you are pre-paying them and setting a schedule.



That is a ridiculous comparison because both sides are not doing the same thing. And if that's your belief.. you never would have made the thread...

In theory it's cheaper to buy... but you assume risks and volatility. For leasing, you pre-pay to avoid the volatility. That's pretty much it if you are talking about individuals (not business and ignore the milage/damage issues)

I do want to add to this, So much is dependent on the vehicle in question, in both scenarios. As well as the money factor at the time of the lease.

For example certain BMWs and Lexus vehicles lease very well. Some don't. Same with Honda.
If you lease a Honda Accord when a new body style comes out, chances are the money factor will be very high. If you wait a while then the money factor can be very low.
So, taking that extremely low money factor lease, on a car that has a higher than average resale value, chances are good that 2 things can happen-
1. You have a little equity in your car if you trade in instead of turn in near the end of your lease.
2. You went over mileage but since the average driving is considered at 15k per year, and a standard lease is 12k, then the value of your car held it's worth, and you trade at a break even point with your payoff, instead of turning it in and paying extra mileage.
Most manufactures also include anywhere from $500-$1000 in a normal wear and tear allowance, and as previously mentioned also include GAP at not additional charge.

Now let's say we're talking Audi, Mercedes, or most BMWs..these cars depreciate fast because of the used car market. A lot of people do not want to buy a pre owned German car that is almost out of warranty.. the repair costs are high. For these cars leases are popular because you can walk away before that point, and have all of your service included during the lease.
Typically as far as luxury cars go, Acura and Lexus will hold their value more than any other brand in that class- because the Total Cost of Ownership is lower.

In addition, manufacturers can be wrong. Sometimes the residual value is set high (making the lease cheaper) because that is what the market is showing SHOULD happen in 36 months.. however, the market changes, the amount of available vehicles changes, and sometimes your car is now worth LESS than the residual. In this case you should turn it in. If you buy then you don't have that choice. You have a car that depreciates faster than expected and you eat that depreciation.

Edmunds and KBB are great..for people who sell their cars on Craigslist.. they aren't a true reflection of what a dealer will or even can give you for that car.

Leasing is not a favorable option to buying and keeping your car, it's just less of a risk than buying and trading a car within a 3 year time period.