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mr_chin · 11-15-2016, 11:28 PM

EDIT #2: Ignore the part about interest applied only to the money you borrow. I just dug out my lease papers from 6 years ago and calculated the interest. You pay interest on the money you borrow for the monthly payments and the residual value. Stupid how they charge you interest on money you didn't borrow. I didn't even know that and I signed the papers... FML.

Either way, lease-to-own is still better because 1) lower monthly payments and 2) if you're self employed and uses the vehicle for work, you can claim tax.

-----------------------

Here is how I see it.

First and foremost, you should determine whether you want to keep the car or sell the car after the lease/finance term. If you are indecisive, or cannot foresee whether you will keep or sell, then don't grudge on what you're about to take up the ass. Because that is the reality on buying a car, you'll never come out "winning", you can only minimize your losses.

Now that you've soaked it into your system, let me explain how I view the differences of lease and finance.

If you don't plan on selling your car during your financing/leasing terms and you're dedicated in reaching to the point where you actually own the car (no more payments), leasing is better. This is known as lease-to-own.

When you lease-to-own, you are dividing the price of the vehicle into 3 parts. First, the down payment, then the portion where it is divided into monthly payments, and finally, the residual value where you pay at the end.

Car price: $15,000
Lease term: 3 years
APR: 0.9%
Down payment: $2000
Residual value (buyout): $6000
Monthly payments: $7000/36 + interest

So why is this better in terms of financing? Well, for one, your monthly payment is cut in half (depending on your residual value which you can negotiate), which means you can put aside the money you would pay monthly if you financed, for the buyout. Second, if you don't get the juicy 0% APR financing deal, essentially you're only paying interest on the $6000 that you borrow, whereas the $13,000 if you financed.

If you choose this route, you have to make sure you're dedicated in buying out the car in full at the end of the term, rather than financing the buy out. This is because at the end of your lease, if you want to finance the buy out, you will not get sweet financing APR deals that the dealer initially offered. They will go with bank rates, usually in the 4%+.

If you think you might sell the car during your lease/finance terms, then financing is better. People have told me that if you lease, you can simply return the car. Well yeah, but you will definitely lose more money if you had finance and resell the car privately on your own.

Given the example above, say you drove the car for a year and you decided you want to return the car. How much will you lose in this case?

$7000 / 36 = $195/month (roughly) * 12 = $2340
Plus your $2000 down payment.
And any damages on the car.
So basically what you did here when you return a lease car is, you bought the car for $15,000 and resold it for $10,660.

This scenario is exactly the same if you had bought the car and sold it to a dealer after a year. Whereas, if you sold privately, after depreciation, your $15,000 vehicle would be worth roughly $13,000.

Black Book Car Values, Find your 2017 Toyota Corolla LE 4D Sedan at Trade-In Value & Your 2017 Toyota Corolla Future Value using the Black Book Value Tools. What's your car worth?
Black Book Car Values, Find your 2017 Kia Forte EX 4D Sedan at Trade-In Value & Your 2017 Kia Forte Future Value using the Black Book Value Tools. What's your car worth?

Simply put, comparing to real estate, leasing is like renting, and financing is like buying. But in the case of vehicles, you're not dealing with $1000 monthly payment vs a $1,000,000 mortgage. The comparison is in a smaller range when you compare leasing to financing, the latter is manageable and a better option. Unless you're determined to own the vehicle, lease-to-own is better.\

EDIT:

Just want to elaborate on the comparison of monthly payments and savings for financing vs lease-to-own.

If you lease-to-own, you're paying $195/month for 36 months on the $7000.

If you finance, you're paying $361/month for 36 months on the $13000.

So what is the advantage here when you choose lease-to-own? If you lease, you're saving $166/month, which you can put aside for the buy out. $166 * 36 = $5976, which is pretty close to the buyout. Keep in mind that you didn't pay interest on this $6000.

11-15-2016, 11:28 PM	#14
mr_chin I contribute to threads in the offtopic forum Join Date: Dec 2003 Location: Vancouver Posts: 2,777 Thanked 1,045 Times in 419 Posts Failed 1,372 Times in 243 Posts	EDIT #2: Ignore the part about interest applied only to the money you borrow. I just dug out my lease papers from 6 years ago and calculated the interest. You pay interest on the money you borrow for the monthly payments and the residual value. Stupid how they charge you interest on money you didn't borrow. I didn't even know that and I signed the papers... FML. Either way, lease-to-own is still better because 1) lower monthly payments and 2) if you're self employed and uses the vehicle for work, you can claim tax. ----------------------- Here is how I see it. First and foremost, you should determine whether you want to keep the car or sell the car after the lease/finance term. If you are indecisive, or cannot foresee whether you will keep or sell, then don't grudge on what you're about to take up the ass. Because that is the reality on buying a car, you'll never come out "winning", you can only minimize your losses. Now that you've soaked it into your system, let me explain how I view the differences of lease and finance. If you don't plan on selling your car during your financing/leasing terms and you're dedicated in reaching to the point where you actually own the car (no more payments), leasing is better. This is known as lease-to-own. When you lease-to-own, you are dividing the price of the vehicle into 3 parts. First, the down payment, then the portion where it is divided into monthly payments, and finally, the residual value where you pay at the end. Car price: $15,000 Lease term: 3 years APR: 0.9% Down payment: $2000 Residual value (buyout): $6000 Monthly payments: $7000/36 + interest So why is this better in terms of financing? Well, for one, your monthly payment is cut in half (depending on your residual value which you can negotiate), which means you can put aside the money you would pay monthly if you financed, for the buyout. Second, if you don't get the juicy 0% APR financing deal, essentially you're only paying interest on the $6000 that you borrow, whereas the $13,000 if you financed. If you choose this route, you have to make sure you're dedicated in buying out the car in full at the end of the term, rather than financing the buy out. This is because at the end of your lease, if you want to finance the buy out, you will not get sweet financing APR deals that the dealer initially offered. They will go with bank rates, usually in the 4%+. If you think you might sell the car during your lease/finance terms, then financing is better. People have told me that if you lease, you can simply return the car. Well yeah, but you will definitely lose more money if you had finance and resell the car privately on your own. Given the example above, say you drove the car for a year and you decided you want to return the car. How much will you lose in this case? $7000 / 36 = $195/month (roughly) * 12 = $2340 Plus your $2000 down payment. And any damages on the car. So basically what you did here when you return a lease car is, you bought the car for $15,000 and resold it for $10,660. This scenario is exactly the same if you had bought the car and sold it to a dealer after a year. Whereas, if you sold privately, after depreciation, your $15,000 vehicle would be worth roughly $13,000. Black Book Car Values, Find your 2017 Toyota Corolla LE 4D Sedan at Trade-In Value & Your 2017 Toyota Corolla Future Value using the Black Book Value Tools. What's your car worth? Black Book Car Values, Find your 2017 Kia Forte EX 4D Sedan at Trade-In Value & Your 2017 Kia Forte Future Value using the Black Book Value Tools. What's your car worth? Simply put, comparing to real estate, leasing is like renting, and financing is like buying. But in the case of vehicles, you're not dealing with $1000 monthly payment vs a $1,000,000 mortgage. The comparison is in a smaller range when you compare leasing to financing, the latter is manageable and a better option. Unless you're determined to own the vehicle, lease-to-own is better.\ EDIT: Just want to elaborate on the comparison of monthly payments and savings for financing vs lease-to-own. If you lease-to-own, you're paying $195/month for 36 months on the $7000. If you finance, you're paying $361/month for 36 months on the $13000. So what is the advantage here when you choose lease-to-own? If you lease, you're saving $166/month, which you can put aside for the buy out. $166 * 36 = $5976, which is pretty close to the buyout. Keep in mind that you didn't pay interest on this $6000. Last edited by mr_chin; 11-16-2016 at 12:38 PM.