Why do people lease?

[Eastwood]

I've always wondered this, as I could never figure it out.

After all you're paying monthly installments to rent a car, that eventually you will have to give back.

Why not just buy a car? Then you can re-sell, and at least you have something under your name.

When you lease a car it doesn't even belong too, if anything happens the stealership can take it back, and you're left with nothing.


So basically I ask, why did you choose to lease? And what advantages, if any, are there to leasing?

EDIT: Can this be moved to Off-Topic?

[dachinesedude]

This basically sums it up:

Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment and there are no upfront sales tax payments. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years.

With a lease, you are essentially renting the car for a fixed number of months (typically 36-48 months). Therefore, you pay only for the use (depreciation) of the car for that period, and you are not forced to absorb the full depreciation cost of the vehicle. Leasing a car will never put you in an upside-down position.

Leasing also provides an alternative when buying a car is not an option. Most banks will not lend more than $30,000 for a car loan. If you are planning to acquire a car worth more than that, leasing may be your only option.

Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes.

[LowTEC]

Some people probably have 6 grand in the pocket now, and they want a brand new 30k car. So what's the other way around for them?

[TRDood]

maybe they don't want to keep the car for long

for me, even if i had the money, i would not pay 50k straight cash for a BMW all at once.
i'd rather lease it because 1. i will have more choices in a few years when my lease is over, 2. i can spend that other 40k elsewhere investing, 3. if i ever sell the car within 5 years, i am going to get a big dep hit

[Harvey Specter]

Pros;


- Cheaper payments compared to financing
- It's easier, in most cases, to get approved for a lease compared to financing
- Don't have to worry about getting stuck with a lemon or trying to sell a car that's been in an accident or has a big ass ICBC claim
- You can drive a new car every 2-3 years
- You can drive the crap out of the car and walk away from it at lease ends.


Cons;

- You don't own the car
- Might have to put a big down payment
- You might end up paying extra if you drive in excessive of the allowed km's
- Very hard to get out of a lease unless you find someone to take over it.
- Can't pay off a lease so this might be an issue for someone trying to secure another loan (e.g for a house or business)
- Some buyouts are higher compared to the actual market value of the car when your lease is up
- You might get raped with fees for damages

[thumper]

leasing seems to be a popular choice if you are a gangster. get it shot full of bullet holes and return the car without a damage deposit?

[hotjoint]

Originally Posted by thumper

leasing seems to be a popular choice if you are a gangster. get it shot full of bullet holes and return the car without a damage deposit?

[Blinky]

Originally Posted by LowTEC

Some people probably have 6 grand in the pocket now, and they want a brand new 30k car. So what's the other way around for them?

Maybe my sarcasm detector isn't working. Finance the purchase.

Other cons:
- Long-term, leasing a car is more expensive than buying. This assumes that the purchased car is kept for at least 5 or so years. The longer the purchased car is kept, the greater the difference paid.
- interest rates for leasing programs are usually higher than comparable finance
- IMO, leasing is often a form of living beyond one's means

[Presto]

I'd like to be able to pay off the car after 5 years through financing and then not have any car payments until the vehicle runs into the ground. 1 more year to go!

[heleu]

A lot of people (at least in my industry) have a car allowance. The allowance usually only covers a lease because I believe it's considered a tax writeoff for the company.

Of course, it's still a taxable benefit, but you definitely still come out ahead.

[cococly]

THe most obvious benifit is you DO NOT need to care about the unexpected deperciations on your new car, since you have already sign a contract with a fixed rate.

And, if your leased car has minor problem, you do not need to bother about fixing them, you just return it to the dealer and off you go. You can lease another new car after that.

I am having an Interest Rate of 0.9% for my lease at the moment. Much lower than most Imports. Much lower than financing the car.

[unit]

if you have a lot of money, and find it convenient to own a new car for 4 years, dont have to bother selling it, and can just lease a new car 4 years later again and again. also your car is always always going to be under warranty so you never have to stress over unexpected breakdowns, etc..

[thumper]

Originally Posted by cococly

I am having an Interest Rate of 0.9% for my lease at the moment. Much lower than most Imports. Much lower than financing the car.

whoa. when i bought my car vw credit had 0.9%APR financing last year but that's since long gone

[L-S-D]

good read , ive always wonderd my self about this

[kyo]

finance % are usually lower than lease %. (or the same)

for example, go to honda.ca and look up on like the super common civic coupe or something:

finance for 36mth = 0.9%
lease for 36mth = 1.9%

but yeah, i do agree on all the other benefits of leasing. just not the interest rate as financing do usually give u a better rate i think?. (correct me if i'm wrong)

[freakshow]

Generally, there are only 2 reasons why you choose to lease over finance.

1. It's a business expense. This allows you to write off the amount of the car for tax purposes.

2. It's cheaper. Generally, IF you'll be changing cars every ~3 years or less, the total amount you pay in your lease will end up being less than the amount that you will lose in the depreciation of your car when you sell it.

[Blinky]

You can write off part of the car (if it's a business expense) when financing/cash purchasing too. However amount allowed to be written off for a lease is "greater". It's been a while since I've looked carefully, but there's effectively a lower cap on how much of the amount can be written off on a purchase vs. lease, so that's another plus for leasing.

[Mwing]

i lease cars becoz i can write off my income tax since im self employed

another reason is you pay tax on the car only if you use it, if you finance a car, you pay the entire tax of the car, while you lease it, you pay only when you drive the car, after the lease term ends, whatever remaing (the buy out) isnt taxed and you jsut return the car.

also, i dont consider lease is a like renting a car, the lease payment is kinda like the depreciation of the car, think of this way:

you buy a 2009 tsx for 40k including pdi and all charges now, with tax, 44.8k
after 4 years, the tsx may worth 18k
so you paying 26800 including tax over 4 years

say you lease the same 09 tsx now, with 0 dwon payment, 3.9%, i got a quote of $580 tax in for 48 months, buy out is 16k something, you are paying 27840 over 4 years with interest.

if you finance the same car, you pay say 3k more for interest (maybe more i dunno), so add 3k to 26800 = 29800, over 4 years, with higher monthly payments, and the hassle to sell the car when you want to change

the buyout price is basically what dealer predicts the market price of the car after your lease is over, say you lease a car with a high resale value = lower lease monthly payments, so the lease monthly payments is basically the depreciation of the car, since most cars depreciate anyway

if you want to own the car for a very long time, then buy the car or finance it, if not lease is a good option if you can write off your income tax or you own a company.

[SuperSlowSS]

Also if the market value drops like what happened with the usd not too long ago. Your lease is protected, since they set the residual value when you buy the car.

Basically if you plan to own the car for a long time, you are better off buying it. But for short ownership, like 3-4 years... you should look into leasing if the rates + residual value are good.

[kc1337]

Some people like to drive new cars every 3-4 years.

[!LittleDragon]

Leasing is basically paying the depreciation. If you buy a car and sell it 3-4 years later, you'll suffer a loss anyways. With leasing, the loss is set and negotiated with the dealer... Just give the car back after and walk away.

Say you lease a $60,000 car for 3 years at $1000/month, you'll pay $36,000 during the lease period and you have the option to buy it out for another $24,000 at the end of the lease. That means the dealer expects the car to be still worth $24,000 after 3 years. If you don't want to buy it out, the dealer can take that car and sell it for $24,000. If the market value after the lease is higher than $24,000, let's say $30,000, you can buy it out for $24,000 and flip it for more. If the market value after 3 years is lower than the buyout price, give it back to the dealer and let them take the hit.

This is why GM doesn't lease anymore, they were expecting all these SUV's to have a decent value after the lease but when gas prices soared, everyone was walking away at the end of the lease and the demand and value for gas guzzlers wasn't there anymore so market values tanked and GM was taking a huge hit for every lease return.

If you plan to drive the car to the ground before dumping it then take whatever route you want.

[Rich Sandor]

Pros;
- Cheaper payments compared to financing

Not always. Some vehicles do not lease out well due to rates & residuals.

Cons;
- Some buyouts are higher compared to the actual market value of the car when your lease is up

If the market value after the lease is higher than $24,000, let's say $30,000, you can buy it out for $24,000 and flip it for more. If the market value after 3 years is lower than the buyout price, give it back to the dealer and let them take the hit.

Having equity in a lease is a BAD thing. I'm absolutely amazed at how the import manufacturers have been able to sucker people into thinking that it's a GOOD thing to have to buy out your lease and sell it to get your money back. Think about it.. all that means is that you've paid too much every month on your lease payment. Leasing is a better deal if the manufacters take a hit on the lease end value instead, which means your monthly payment is lower, and you don't have to try to get your money back at the end of the lease.

Some people think that leasing is like renting and that it's always better to buy. Well yeah, it is like renting, except you're not renting a HOUSE that increases in value, you're renting a CAR that is constantly DECREASING in value. A lot of old people can't seem to wrap their stupid traditional heads around this concept. (These are usually the same people who think their old junker trade is worth stupid money)

Now, some people don't like the COMMITMENT that leasing demands - and that's a very valid point, especially if you might be moving around or needing to change vehicles before your lease is up. It's better to finance in that case.

Basically if you change vehicles every 2-3-4 years, leasing is great. If you tend to keep your cars for 10+ years, and/or tend to modify them, go with a purchase instead.

If you do go into a dealership thinking about leasing, don't expect to get a really nice car for ~$300 a month. It's basic math - $300 x 36 = $10,800. That's about what a $16,000 MSRP car leases out to, depending on rates & residuals. Also, calculated residuals drop every quarter. So, if you're leasing, you want to get the current model year, as soon as possible, unless the lease rates are still really high.

[b-dub]

Originally Posted by Rich Sandor

So, if you're leasing, you want to get the current model year, as soon as possible, unless the lease rates are still really high.

Isn't it the opposite?

For ex. I was looking at a M3 sedan. There was an 08 on the lot that could be had for something like 1.9% lease rate + 10k discount where as the 09 model was (i think) 5.9% and smaller discount.

Wouldn't it make sense to lease the 08 instead of getting the 09?

Whereas if I were to buy the car, it would be (can't say better) but acceptable to buy the 09 because it's a newer car, thus you can sell it for more later on down the road?


*sigh*
Almost all the car companies are taking away leasing and moving towards financing and balloon payments. Before the whole US $ drop, BMW had the best lease deals. They would have 57-58% residual (which means you only paid 43% of the car in the first 36 years and you could give the car back to them) and free maintenance. Now their residuals are closer to 50-52%, I guess this works better if you are buying out the car but why not just finance?

edit: I talked to my CA last month and he was telling me that each lease return that was coming back, BMW would take a hit of 5-30k on each of those vehicles. Cars like 7-series/M5/M6 were the worst because they depreciated alot + the price adjustment that BMW made to be on par with American vehicles = big hit.

[Rich Sandor]

If you can get a low lease rate AND a big discount on an '08 than it would far overshadow the lower residual and make it a smoking deal.

BMW is doing some creative stuff with their incentives right now. They will feel the pain in 3 years.

[Blinky]

Rich, just out of curiousity, does a salesperson make more on a lease or a purchase? Equal? PM is ok if you don't want to discuss publicly.

PS - a house depreciates (unless it's a character home - whose "appreciation" will probably be destroyed by maintenance and renovations) - it's the land that appreciates, which really makes me question condoinsanity - but that's a different topic.