Buying vs. Leasing Guide for Dummies

[hchang]

Just thought I'd explain a bit and break down leasing vs buying out a car, maybe to help out some new and old revsceners as at first I was completely confused about the concept.

So, when is it best to buy out a car?
1. When you are literally buying out the car, and not borrowing money.
2. When you will drive over the allotted kms from leases
3. You rarely trade in your cars.

When is it best to lease?
Pretty much all the time, unless the previous 3 apply. Unless you own your own company.

So what is a lease?
Consider a lease as going to your local Budget, Dollar or Thrifty car rental dealership, and renting it for 3 or 4 years. That's pretty much leasing, minus the oil changes, maintenance and etc in between that is your responsibility, unless all that is covered under your warranty.

A predetermined percentage of the car is rented to you for a certain amount of years, which is usually 3 to 4. If you are pretty expereicned with this car buying gig you'd probably know that it usually ends up "upside down", meaning that you owe more on the car than it is worth.

If you are one that "needs" to always be driving the newest cars, or just "wants" to be always driving the newest cars on the market, then this negative amount of money would have to be dealt with. Cars depreciate faster than they get paid off

Let's say you are $3000 upside down. You are looking at a $15000 car. Well now you have to pay $18000 for it.

But wait, hchang, the dealership I went to showed me that they were paying it off and it's all good.

In reality, there isn't usually $3000 markup on new cars unless it's something $40,000 or more. There are many numbers the dealer can show you as a trade allowance of your pay off. Take a look at how much you are financing, subtract the interest, and do the math. You paid for it and it was hidden in your payments. While

With that being said, its just illusionary that the dealer is esperate to sell a car. But obviously, they aren't. It'd be like them losing roughly $3000 just to sell a car. Dealers don't "pay" somebody to take a car off their hands, or how else do they make money? Most numbers they present to you are fake.

Now, lets say I go into a dealership to lease a car. I turn in my lease, and looks at a new $15000 car. I start out on an even keel, and leases a car again and only pays the 50% of the car I am using.

Difference in payment:
Buyer - Financing $18000 - Monthly payment: $360
Leasee - Financing $8000 - Monthly payment: $160

Difference in amount financed/ car value as soon as you drive off the lot:
Buyer - Financing $18000. Drives off the lot in a car worth $12000 - Equity situation after 30 seconds of ownership: Negative $6000
Leasee - Financing $8000. Drives off in a car worth $12000

So what can I do with my lease after the term expires?
1. Trade it in and get a new car to lease.
2. If it is worth more than what the buyout is they can use it as money down when trading.
3. Sell it outright and make a profit.
4. Buy the buyout amount and keep the car. Spending less money than the example we used as the original buyer.

If the car depreciates in value, lease it.
But if the car will appreciate in value, then buy it.

Hope this is helpful and useful.

[Blinky]

I failed you because you say it's "almost always best to lease". And what you say is straight out of a dealer's sales handbook.

Originally Posted by hchang

3. You rarely trade in your cars.

Problem no. 1. Cars = flushing money down the toilet.
More new cars, more often = financial diarrhea.

First thing is to get off the want or need to always have the latest and greatest.

A predetermined percentage of the car is rented to you for a certain amount of years, which is usually 3 to 4. If you are pretty expereicned with this car buying gig you'd probably know that it usually ends up "upside down", meaning that you owe more on the car than it is worth.

If you are one that "needs" to always be driving the newest cars, or just "wants" to be always driving the newest cars on the market, then this negative amount of money would have to be dealt with. Cars depreciate faster than they get paid off

You're actually paying off the depreciation... and you're only "upside down" if you're financially retarTed. In other words, you've bitten off more than you can handle financially.

Depreciation is always highest in newest cars, so the more often you turn over cars on lease, the more you actually end up paying.

I'm quoting the stuff below for the WTF factor. Half of it makes no sense!

Difference in payment:
Buyer - Financing $18000 - Monthly payment: $360
Leasee - Financing $8000 - Monthly payment: $160

Difference in amount financed/ car value as soon as you drive off the lot:
Buyer - Financing $18000. Drives off the lot in a car worth $12000 - Equity situation after 30 seconds of ownership: Negative $6000
Leasee - Financing $8000. Drives off in a car worth $12000

So what can I do with my lease after the term expires?
1. Trade it in and get a new car to lease.
2. If it is worth more than what the buyout is they can use it as money down when trading.
3. Sell it outright and make a profit.
4. Buy the buyout amount and keep the car. Spending less money than the example we used as the original buyer.

Re no 1 and 2, no. If the car is worth more than the buyout, the lessor will have to purchase the car and resell it to realize the profit (as per No. 3). The lessor cannot trade a leased car as it is not theirs to trade.

If the car is returned, one walks away (after paying possible charges such as excess milage or wear 'n tear).

Re No. 4... um, WTF. You generally will end up spending more money on lease + buyout than on financing a car from the get-go:
- lease rates are usually higher
- the buyout, if financed, stretches out the payments beyond the period if the car was financed initially


If the car depreciates in value, lease it.
But if the car will appreciate in value, then buy it.

Hope this is helpful and useful.[/QUOTE]

[rawr]

thanks for taking your time to write that. a quick lil search on google gives me all the information i need.

[1exotic]

"I want lease superman car lol"


"lol now I have superman car I drive fast. Mexicano wash for me before I drive"


"... i fucked up lol"

[JiggaZed]

Originally Posted by 1exotic

"I want lease superman car lol"


"lol now I have superman car I drive fast. Mexicano wash for me before I drive"


"... i fucked up lol"

[sleazyho]

I thought most of us would buy used cars anyways

[Domani]

good intention... thanks anyways.

[fishing666]

i got a better idea. do not finance cars and do not lease cars

buy a car that's between 2005-2007 and resell it after 2-3yrs because the depreciation in that time frame would be around 1000-5000$ dollars which is much less than leasing or financing a new car

[DuhDang]

[gearshifter]

I didn't fail you for being a nice guy,

but...

If the car depreciates in value, lease it.
But if the car will appreciate in value, then buy it.

So the advice is to pretty much NEVER buy a car huh?

[flagella]

Buy an F40.

[no_clue]

Originally Posted by gearshifter

I didn't fail you for being a nice guy,

but...

If the car depreciates in value, lease it.
But if the car will appreciate in value, then buy it.

So the advice is to pretty much NEVER buy a car huh?

lol there are almost NO cars that appreciates in value. The only car I can buy following his advice is a lamborghini reventon.

Oh and the best reason to lease a car is when you have a business. Leasing is better than financing in the event that you lost your job and have to downsize, but I can't think of why leasing is better, having an asset is always #1

[Amaru]

Originally Posted by hchang

When is it best to lease?
Pretty much all the time, unless the previous 3 apply. Unless you own your own company.

You have this completely backwards. If you own a small business, leasing makes more sense, because you can write off the majority of car cost as a business expense, and thus decrease your taxable income.

Your comments about only buying a car that appreciates in value indicate that your general ignorance on the topic, imo... the only cars that actively appreciate are rare collector's cars, ie. McLaren F1, etc. No new car worth less than $100k that you can drive off a dealer's lot will appreciate. Ever.

[EmperorIS]

[jackal]

leasing makes no sense to me??? why would anyone want to pay out their ass for 4-5 years only to be right back where they started in the end? leasing works as mentioned for fleets and businesses and for people who want to drive a car that would otherwise be out of their price range. but for anyone else buying outright or financing is the best way to go. or in a perfect world if you were to buy a 60k car and had the cash up front and the car was offered at 0-0.9% financing then i would finance and throw the rest of the cash in a savings acount earning like 2% or more and make money off the interest in the end bringing the total price of the car much lower then any of the other options.

[Qmx323]

Yeah I always thought leasing was bad?

Pay money for a car that you don't even keep after?

[Blinky]

Originally Posted by Qmx323

Yeah I always thought leasing was bad?

Pay money for a car that you don't even keep after?

Saying that leasing is always bad is as wrong as saying that one should "always lease". That said, for the demographic of this board, leasing a car is usually a bad thing: there are people who are probably playing the "how low can I get the monthly payment game". In other words, living nearer the margins of their means.

Nothing really wrong with that, but it's often the same crowd that ends up having to sell a bunch of toys at loss to cover an unexpected emergency.

There are many situations, particularly business situations, where leasing makes the most sense due to capital, cash flow and tax implications.

[benwang]

no matter what you do, financing, leasing or buying, you always get rip off by stealerships. we make up the name "stealership" for a reason

[benwang]

Originally Posted by 1exotic

"I want lease superman car lol"


"lol now I have superman car I drive fast. Mexicano wash for me before I drive"


"... i fucked up lol"

looks like its different cars to me

[benwang]

btw leasing cost more than financing

[simsimi1004]

Originally Posted by jackal

leasing makes no sense to me??? why would anyone want to pay out their ass for 4-5 years only to be right back where they started in the end? leasing works as mentioned for fleets and businesses and for people who want to drive a car that would otherwise be out of their price range. but for anyone else buying outright or financing is the best way to go. or in a perfect world if you were to buy a 60k car and had the cash up front and the car was offered at 0-0.9% financing then i would finance and throw the rest of the cash in a savings acount earning like 2% or more and make money off the interest in the end bringing the total price of the car much lower then any of the other options.

with lease, after 4 years if the car has depreciated alot, u have the choice not to buy it.

ex. 2008 g35x
finance. = spend 45k.
lease = spend total of 33k to lease for 4 years.
4 years later.
Assuming that the car is only worth 25k
finance = you lost "20k" to have the car for 4 years
lease = you lost 33k$ to use the car for 4 years. IF i return.
buyout turns out to be 17k. making money spent on the car 50k$.
so if i
buy out the car, then i spent total of 50k to have a 25k value car. i spent 5k more than financing.
if i dont buy out the car ive lost 13k compared to finance.

However, some factors compensate for the potential loss.
1. After 4 years, I will know the true market value of the car before i purchase it. .
2. I will have the choice of buying it based on 1.
3. Other factors such as ICBC claims, known car problems, can be taken into factor before i buy the car.
4. no hassle of selling the car if i need the money. mind you selling cars cost more now with HST.

but i guess it really depends on potential and type of car.
luxury cars depreciate alot more then eco cars, certain brands, etc.

[Pt20]

[Mugen EvOlutioN]

^

you just saved the thread

[RabidRat]

I do appreciate the effort hchang. And even if you're off on a couple things I think it's a great topic to bring up.

So I had a question for those of you who've had some experience in writing off lease payments. If I've purchased my vehicle outright, is there a provision for me to write off *depreciation* of the vehicle as a business expense? How about the interest on financing - could this be written off as a business expense?

Does the CRA care what kind of vehicle you're claiming for business use (within reason) as long as you have a good explanation, or are they very strict about it?

[q0192837465]

Apart from business owners, commission based employees can also write off leases. That's why real estate agents generally lease cars.

If u'r not a business owner or a commission based employee, leasing car does not make financial sense. The predominant reason to lease is to get something that u can't otherwise afford. The interest rate on the lease is generally higher than the rate of return of the money u "saved" by not financing. So at the end u lose out both ways, higher interest charges & negative return. Don't get suckered by the sales guy into getting a higher end car with lower payment.