sonicblue6

Those were the two different STRUCTURES that told us what the cash flows were, but notice that I compared the buyers to each other at the same point in time.

sonicblue6

EXACTLY! People need to stop thinking of a car like they do a stock. I get USE out of a car, I don't put it in a safe and hope it earns money.

Think of just the first three years, lease vs. buyer. In this case, the lessee was out about $17.5K in payments. The buyer was out about $22.5K in payments, but did so in order to "own" the car. But he does NOT own the car! He still has a loan on it, offset with the value of the car, gives him about $3500 in equity. That puts him almost dead even with the lessee. But then, remember, the lessee was able to take the money he wasn't paying toward the car, and accumulate savings.

Even after ANOTHER three years, my example shows that the two buyers are still pretty much equal, financially speaking. Then, at the start of year 7, the lessee will start up with a new car, while the buyer starts with a 6-year-old car. I can't believe that people on a car enthusiast forum are talking as if that's equal! Not to mention, the buyer is now (or very soon will be) maintaing and repairing a car that's nearing 100K miles. Even if nothing goes horribly wrong, there's a lot of expense there. In contrast, a lessee rarely has to buy tires or even brake pads!

Note, I have never said "leasing is how everyone should buy," but have gotten several "leasing is dumb/stupid/rip-off," etc.... Recall I said, that anyone who tells you EITHER of these options is ALWASY right or ALWAYS wrong.... is wrong! It's specific to resources, needs and desires. In the end, either can - IN FACT - be the right decision for that person.

This thread was to detail the leasing arrangement because the math is much different than straight loans, and knowing the details could lead to better decisions and negotiating power.

mac11

iTrader: (1)

i only used 10% because thats what you wrote. wow, flashy math degree to do simple algebra. good job.

Rems31

No, I noticed that. But from your previous posts, you're making it seem like leasing is always the best way to go because you're out less money during the earlier years of the term.

Also if you're assuming that you're not purchasing the car at the end of the lease, why don't you discount future payments on the next lease that you would take on if you got another car.

Basically if you financed you're saying you have the car for (at least) 5 yrs. But yet you don't factor in your calculations the fact that you have no car for the last two yrs of the comparison. Now if you wanted to truly compare, you would add 2 more years of lease payments.

(PS I too have BMath :-P)

mac11

iTrader: (1)

+1

sonicblue6

Correct, I could PV it all back, but then you get into interest rate sensitivity, so I left it nominal.

My final comparison did keep everyone even, at the 6-year mark, namely:

* A lessee goes through two 3-year lease terms.
* A buyer finances the car for five years, then saves his monthly payment during the sixth year (while keeping that same car, repair-free)

Where I stopped was the start of that 7th year, where the lessee is faced with acquiring a car, and the buyer is keeping his car until...?? I think it's inarguable that, at that point, should that car keep running without significant breakdown, the buyer is going to be financially much better off than the lessee. However, that asset is still depreciating, and I believe the utility for that buyer is decreasing rapidly as well. In just a few more years, that car will be worth "beater" value only, in dollar terms and utility. When the buyer does decide to get a new car - which is inevitable, at some point - he's back to financing/high payment, and being worse off than the lessee for some period.

Ultimately, I think it basically comes down to years 6-10, let's say. If that car can continue providing utility, and have minimal repairs, you can save a lot of money, which can offset your next purchase if/when that car finally goes. If you can find that, and are fine driving a 6-10 year old car, and the car lasts, more power to you, but I think those are hard to find.

At one point, I bought an older, first-gen TL, low miles for its age (8 yrs old) when I got it, carfax'd, supposed to be a "smart" buy (reliable brand, etc...). It was dull as dogshit to drive, but I put up with it. Ended up needing new tires and full brakes (did myself, about $800 or so) at one point, and then - gearing up for its 100K service/timing belt/etc..., they found a leaking torque converter seal, on top of everything else. I was looking at $2K worth of work. Goodbye saved money....

Yes, I'm clearly in favor of leasing, given that you know all the parts, given an AFFORDABLE car for you (criteria fuzzy, but I think we all know what cars are within our reach and which aren't) AND given that the buyer considers some "utility" to a newer car. Personally, I love the feel of a new car, I love new technology and I really hate worrying about older cars. For others who don't, buy away!

Just a quick FYI - cash buyers are only mildly farther ahead, as they're not paying interest charges, but they've lost the ability to earn their own interest on that money, so that doesn't really tip the scales. Like I said before, cash flows <> cost. It's really just a matter of deprecation vs. maintenance/repairs, along with lost opportunity cost. Leasing is good because your cash flow is tied much more closely to the depreciation, whereas with financing you pay ahead of the depreciation (gaining equity, but losing opportunity). Depreciation is high on new cars, so that's why I recommend really looking for cars you can negotiate price on very well OR leasing CPO cars (depreciation is flatter, still warrantied). But, this is all just my $0.02 (ok, maybe it's like a dollar by now...)!

Rems31

yea I have a friend who bought a car previously then within 3 yrs wanted a new car cuz he got bored with the car. So he traded that car in and instead of buying a new one he leased it. Which for him, is probably the smarter choice since he'll most likely want a different car in a yr or two.