Tate

Okay, first, I must admit that I haven't bought a new car in 10+ years and I've always been against the idea of leasing. My problem is that I want an RX-8 but don't want to pay a lot of interest on the loan.

So here goes... I have about $10,000 to put down on the vehicle ($25,000 + taxes and fees -- MT, Sport pkg) but would rather invest this money in hopes of earning a better return than what I'd be paying in the APR (4 to 5%). I believe it's called leveraging. Let's just assume that I'll earn 10-15% annually (keep my fingers crossed) on the 10G for the 39 months of the lease; I like Intel right now, but that's a whole different thread. So now the money that I would have originally put down on the vehicle has appreciated (minus capital gains taxes) and I use it to pay the residual (about $16,000 including taxes) at the end of the lease term. In the meantime, I will have paid $1500 down and about $300/month for 39 months = $13,200 + my original $10,000 = about $23-24,000. I could be shy a thousand or 2, but still be under $26,000 (TOP).

If I finance the vehicle, I'm looking at 10G down then about $325/month (give or take) for 5 years = $29,500 (TOP).

Granted, the appeal to this whole idea hinges on the market, but I can stomach the risk. What am I missing here? Are there any salepeople who are very familiar with leasing that can point out something I've overlooked? I can't be the only one who's thought of this.

Thanks,
Kevin

mngpao

Leasing would be better for you if you can honestly earn that much interest annually.

If you can't earn that much interest in three years, there are other factors that you should consider when deciding to buy or lease. I won't go into all the monetary details, but whatever your decision, make sure you shop around for the best deal.

As you probably know, sales prices, interest rates, money factors, and residuals vary considerably from one dealer to another. If you lease with the intention of buying the car at the end of the lease, a well negotiated lease can sometimes cost less than just buying it.

One advantage to a lease is that you can walk away from the car after 2 or 3 years if you don't like it anymore. The downside to that is you have nothing to show for years of payments (unless the residual is much, much lower than the market value of the car at the end of the lease).

Good luck with your decision.

Sue Esponte

If you know how or where you can assume to earn 10-15% annually on a minimal investment of $15-20K then count me in!

An excellent savings account will yield ~2% if you're lucky. An aggressive profile in a 401K may get you 3-5%, again, if you're lucky. And, as with any investment in the market, the downside to aggressive investment is a potential loss.

There are a handful of ways leasing will work for someone over financing:

1) If there is a high (60%ish) residual on the car over a 36-39 mo term. This means that over the course of the lease the lessee would be responsible for paying for much less of the car. A 50% residual would be a low residual value as most cars depreciate to about 1/2 of their "drive off" cost over a 3 year period; and
2) The lessee is the type of person who is in the market for a new car every 3-4 years; and
3) The term of the lease does not exceed warranty periods (even better if the car offers free maintenance during that period); and
4) Even better if you own your own business and lease the car through the business (at least in the US).

If you're researching leases, first look at the residual, then the money factor (interest rate) offered by the leasing company. And, if you're negotiating a lease, most people go wrong by not first negotiating the sales price (net cap cost) of the car. This is key to getting value out of a lease, assuming you meet the criteria above. I haven't researched the RX8 for leasing (I'm looking to buy) but I have a hunch financing options may be better.

Good luck!!

-Eric

nate109

Tate, I think you've got the idea about leasing that lots of people still don't understand. When you lease a car, you let the bank take most of the cash burden, and you only pay interest on the portion of the car that you use. It's really a great system for a lot of people.

You're absolutely right that if your "cost of capital" (that's the finance term for rate you could earn on your money in a market investment) is greater than the interest you are paying on the loan/lease, you are better off keeping your $10k and invest it, and let the bank front the money for the car. When you lease, your payments are less than they would be if you buy, so you have more free cash available to earn a return on.

Be careful if you are planning to buy at the end of the lease ... the residual value can sometimes screw you if it's artificially high (over 50%) ... they calculate the residual off of MSRP -- not off of the cap cost of the lease. Also, some lease contracts include a surcharge (usually $250 or $500) if you buy the car at the end. Make sure you see all the fine print before you sign.

Sue Esponte

Agreed....which is why a car with a low residual is typically a better "buy" and a bad lease option. A vehicle with a 50% residual over 36-39 months, in my opinion, is a poor leasing value.

As an aside, although the buyout price at the end of the lease is not negotiable, some manufacturers' finance companies (e.g. BMW FS) offer a credit to their leasing customers (depending upon mileage, condition of car, etc.) as an incentive to buy. They don't, however, typically do this for an early buy-out and not all banks/finance compaies do this.

-Eric

ByeByeSaturn

Is that by any chance a Black RX-8 with about 500mi on it?