Quote:
Originally Posted by mikemhg
Can you expound on this in terms of leasing?
I've heard so many arguments about financing vs. leasing. I lease my vehicle myself, but it's not written off for business purposes.
I'm legitimately curious your thoughts on how leasing is a bad idea, financing is preferred?
I figured I've always preferred leasing since I tend to get bored of my vehicles after 3 years, and like the idea of simply walking away once the term is over. Enlighten me please, I need it  |
Some of it bcrdrukes said, but it should be considered a luxury purchase... and you provided the main of 2 reasons I can think of, 1 being you just like to switch cars every 3 years and the 2nd being in the case of most German cars, only keeping it as long as it has a warranty lol
The thing is, you are continually keeping a car during the period of time when it depreciates the most, and you are paying the manufacturer (or their financial / investment arm) for it. Plus interest. When a company leases you a vehicle, the residual value is calculated based on what they predict they can sell the vehicle for 3 years from now... a very very conservative figure I'm sure you can appreciate, and far lower than you would actually be able to sell that car for, with a maximum of your agreed upon mileage. They take out a loan on said vehicle from the bank, and then set about collecting payments from you which offset that loan. Then, when they get the car back in 3 years, they sell it for quite a bit more than the residual value actually is for as per plan.
In addition, you pay for any damages to the vehicle to put it in tip-top shape, you're not allowed to modify it so there's no risk of that messing anything up AND, in keeping in line with this discussion thread, you're paying pretty much the most expensive version of insurance at all times that you could possibly pay.
All in all, you're paying a vastly inflated monthly rate, protecting the dealer from depreciation, guaranteeing them a quality vehicle to resell for good profit at conclusion of your lease and covering any damages against your name or out of your pocket during that time. So, financially, its a pretty poor move... but if your prerogative is to own a different and new vehicle every few years and never worry about maintenance or out of warranty work... then yes it might work for you.
Financing is only a good idea if you actually have the cash to purchase the vehicle but instead you invest it and the interest rate on the money borrowed is less than your investment interest. Ie: a 0% or 0.9% promotion. Or you want to build credit. Often manufacturers don't allow cash back incentives on financed vehicles, only on cash purchases... so you give that opportunity away.
At the end of the day, no matter how you do it, buying any brand new car is an absolute waste of money. Buying used, even if it's only a couple years old in most cases, is immeasurably smarter financially by comparison... but again, it's what you want in your life and are willing to personally pay for that.