Why leasing a new car is always the best option even if you intend to keep it forever

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
alfaspider
Posts: 3555
Joined: Wed Sep 09, 2015 4:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by alfaspider »

Tingting1013 wrote: Thu Apr 15, 2021 3:22 pm
alfaspider wrote: Thu Apr 15, 2021 2:34 pmOn other cars, the manufacturer has very little interest in leasing, and kills you on residuals (often the case with cars that hold their value very well). Example: my Subaru STI cost $36k new. After 3 years, it was still worth $32k. But Subaru only offered residuals in the 60% range. Total cost to lease over 3 years would have been almost $18k, when I actually only suffered $4k of depreciation. Leasing would have been an awful deal.
And you would have gotten an $14k check if you had sold your lease at the end instead of turning it in.
But what if I wanted to keep the car? And a car like that is not one where you want to just swap out with the same model, as they are often abused. If it's not a direct trade, you will in many cases pay sales tax on the second transaction. And then there's the time value of money aspect. I would have been out the $14k for 3 years until the lease was up. No incentive to enter into a deal like that where you can be reasonably certain that the residual is too low.
surfstar
Posts: 2589
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by surfstar »

Tingting1013 wrote: Thu Apr 15, 2021 3:39 pm
sandramjet wrote: Thu Apr 15, 2021 3:33 pm I drive my car about 18-20K miles per year. How does that affect the lease/buy decision?
You should drive less. It’s bad for your health.
Great point and a bike is cheaper than a car. Should I lease the new bike, though?
H-Town
Posts: 3557
Joined: Sun Feb 26, 2017 2:08 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by H-Town »

Tingting1013 wrote: Thu Apr 15, 2021 3:39 pm
sandramjet wrote: Thu Apr 15, 2021 3:33 pm I drive my car about 18-20K miles per year. How does that affect the lease/buy decision?
You should drive less. It’s bad for your health.
How else sandramjet gets to the gym or to the trailhead to hike? Bad for this health than couch potatoes? :mrgreen:
boogiehead
Posts: 223
Joined: Wed Sep 27, 2017 11:45 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by boogiehead »

Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
This seems like the kind of logic a used car salesman would use lol... its way oversimplification of the process. The first case rarely happens once in a blue moon (i.e. last year because of covid) and you don't really "pocket" 3k because if you need a car after you sell guess what another car will cost more too (simply supply and demand), that's the main reason why the car you just sold actually is valued more in the first place (plus you have to pay another processing, registration, and waste time). The second case isn't even applicable if you intend to keep your new car until it dies and every car transaction there is a fee of some sort either dealer or government so why would you want to pay this every 3 years or so.
Jim Baround
Posts: 35
Joined: Tue Feb 12, 2019 10:23 am

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Jim Baround »

[/quote]

I’m not debating the merits of buying new vs used. I’m saying once you’ve decided to buy new, you should always lease instead of buy.

The salesman is selling a car either way. The question is which way is better for you.
[/quote]

If someone is willing to buy a 3 year used car, from a financial perspective I think we can agree a used car is better than a new car.

If someone decides to buy new instead of used, why would they be willing to then buy a used car when their lease is up if (required in the situation where the numbers on keeping the current car aren't favorable)?
User avatar
StevieG72
Posts: 1330
Joined: Wed Feb 05, 2014 9:00 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by StevieG72 »

Sounds like fuzzy math. I have heard some horror stories about leased vehicles.

One lady was not allowed to buy her vehicle when the lease ended, I think she had excessive mileage and had to pay for the additional miles.

Also while we all get bummed out when our new vehicle gets scratches, spills, stains, etc., in a lease it could cost you.
Fools think their own way is right, but the wise listen to others.
Adfmacro
Posts: 211
Joined: Fri May 17, 2019 8:12 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Adfmacro »

If you are planning on owning it forever, why not skip the lease and buy the used car two years from now?
phxjcc
Posts: 847
Joined: Thu Aug 23, 2018 3:47 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by phxjcc »

Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
No, no, no, heck no.

The spread between bid and ask is ~20%.
So, if you "sell the car to Carvana..for 18k", their price will be $21,600.
They have overhead and have to return value to their shareholders.

Ditto, brick and mortar car stores.

I don't know why this is so hard to understand.

Next time you need surgery, ask your surgeon what his costs are and offer to pay him his costs.
Ditto, you plumber, electrician, mortician, and CPA.

OR GROCERY STORE, AD NAUSEITEM.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

phxjcc wrote: Thu Apr 15, 2021 8:07 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
No, no, no, heck no.

The spread between bid and ask is ~20%.
So, if you "sell the car to Carvana..for 18k", their price will be $21,600.
They have overhead and have to return value to their shareholders.

Ditto, brick and mortar car stores.

I don't know why this is so hard to understand.

Next time you need surgery, ask your surgeon what his costs are and offer to pay him his costs.
Ditto, you plumber, electrician, mortician, and CPA.

OR GROCERY STORE, AD NAUSEITEM.
I understand what profit margin is.

I also understand business models with more than one profit stream.

Price any car that you own right now into Carvana, and compare their offer against similar used cars listed nearby.

In any case, as I’ve stated multiple times on this thread, if you don’t believe in selling it to a dealer, just sell it private party.
Ferdinand2014
Posts: 1925
Joined: Mon Dec 17, 2018 6:49 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Ferdinand2014 »

Carguy85 wrote: Thu Apr 15, 2021 12:54 pm I paid cash for my new truck 10 months ago for $5k under msrp...now certain areas of the country they are selling for $5k or more over msrp.....ok maybe a little of an anomaly due to the current chip shortage.
Similar. I bought out my lease on 2018 F150 Lariat for 34,100. Turned around and sold it for 41,000. First and likely only time making a profit on a vehicle. It was actually my last debt. Cash for everything the rest of my life. Good feeling.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

Ferdinand2014 wrote: Thu Apr 15, 2021 8:21 pm
Carguy85 wrote: Thu Apr 15, 2021 12:54 pm I paid cash for my new truck 10 months ago for $5k under msrp...now certain areas of the country they are selling for $5k or more over msrp.....ok maybe a little of an anomaly due to the current chip shortage.
Similar. I bought out my lease on 2018 F150 Lariat for 34,100. Turned around and sold it for 41,000. First and likely only time making a profit on a vehicle.
Carvana offering positive equity for leases as been happening since at least 2018, it’s not just a recent temporary thing.

https://forum.leasehackr.com/t/sold-one ... a/68624/11
stocknoob4111
Posts: 1970
Joined: Sun Jan 07, 2018 12:52 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by stocknoob4111 »

Tingting1013 wrote: Thu Apr 15, 2021 2:20 pm False. You can negotiate the selling price of leased car exactly the way you would “cash bargain” when purchasing.
I think this is the thing that most people don't understand about leasing. The dealership only sells cars, they don't lease. They have to first sell the car to you, then you negotiate a contract with the leasing company based on amortized payments minus an agreed upon residual and the interest rate (aka Money Factor) tacked on. But the fact remains that the car has to be sold first just like a regular sale which means a "sales price".

Of course they just call it different things - sales price == cap cost, down payment == cap cost reduction, interest rate == money factor, residual == prior agreed upon buyback price by the leasing company
sambb
Posts: 2993
Joined: Sun Mar 10, 2013 3:31 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by sambb »

leasing allows one to invest the capital and often make money on that. Leasing allows you to get rid of a car that isnt reliable. buying is nice with a reliable car. Leasing allows upgrades. could go on and on.
JoeJohnson
Posts: 475
Joined: Wed Jun 08, 2011 2:34 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by JoeJohnson »

rakamaka wrote: Thu Apr 15, 2021 1:51 pm Lease calculation is based on MSRP value.
Cash buyer based on whichever negotiated out-of-door price (usually 10-20% less than MSRP?)

Lease always favors dealer/stealer.
Cash Bargaining favours BH type buyer.
False. Lease buyers do not pay MSRP. Price is negotiable just like any cash purchased vehicle
wordsmith11
Posts: 73
Joined: Mon Mar 27, 2017 10:18 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by wordsmith11 »

Thesaints wrote: Thu Apr 15, 2021 2:18 pm 7-year old BMW for 11k from a private party (no sales tax).
I drive it for 10 years and I'm driving a BMW, not a Honda.
This. Except, 3-year-old CPO warrantied BMW for $25k (3 Series/X3) or $35k (5 Series/X5). Rinse, repeat, enjoy.
jackbeagle
Posts: 66
Joined: Sat Mar 06, 2021 5:22 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by jackbeagle »

surfstar wrote: Thu Apr 15, 2021 11:43 am Sure. Now do that for 18k miles per year driven. You would have to buy out the lease b/c of mileage charges, right?
There aren't too many 18k mile leases out there. I think Toyota was the last company I heard of that had one.
jackbeagle
Posts: 66
Joined: Sat Mar 06, 2021 5:22 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by jackbeagle »

JoeJohnson wrote: Thu Apr 15, 2021 9:19 pm
rakamaka wrote: Thu Apr 15, 2021 1:51 pm Lease calculation is based on MSRP value.
Cash buyer based on whichever negotiated out-of-door price (usually 10-20% less than MSRP?)

Lease always favors dealer/stealer.
Cash Bargaining favours BH type buyer.
False. Lease buyers do not pay MSRP. Price is negotiable just like any cash purchased vehicle
Agree with you. Got $7k of discounts off MSRP when calculating lease payment for my last (current) lease. This is genuine and reflected in the fact that despite "owing $12k" I can turn it in early for only a $5k hit due to trade value vs. residual.
jackbeagle
Posts: 66
Joined: Sat Mar 06, 2021 5:22 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by jackbeagle »

StevieG72 wrote: Thu Apr 15, 2021 5:05 pm Sounds like fuzzy math. I have heard some horror stories about leased vehicles.

One lady was not allowed to buy her vehicle when the lease ended, I think she had excessive mileage and had to pay for the additional miles.

Also while we all get bummed out when our new vehicle gets scratches, spills, stains, etc., in a lease it could cost you.
I'm only good for a single anecdote, but I'll share that my Ally (Chevy) lease, JPMC (Land Rover) lease, and wife's VW lease were all "above board" without any funny business or "dings" at turn-in. One dealer advised they would NEVER wish a US Bank lease on ANYONE. I think it had something to do with the terms. Something along the lines of - if you hit hard times and have to surrender the car, they make the LESSEE take it to auction instead of just repossessing the car and owning that process themselves. FWIW this was in 2012.
User avatar
vanbogle59
Posts: 141
Joined: Wed Mar 10, 2021 8:30 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by vanbogle59 »

Every time you buy or lease a car at a dealership, there is a negotiation.
You are on one side of the table.
On the other side is a team of professionals with loads of information you do not have.

With diligence, luck, flexibility, you may even come out ahead (those guys sometimes get caught with their pants down, sales DO happen).
But it's NOT the average. On average they win. Or they go out of business.
So, the more times you play roulette with the house, the more likely you are to guarantee (average) loss.

Buy/sell infrequently. Keep transaction costs low. That's all you can really control.
ThePrince
Posts: 443
Joined: Sun Aug 20, 2017 9:15 pm
Location: U.S.A.

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by ThePrince »

They don’t call it a flease for nothing.
Bshowalter
Posts: 23
Joined: Sat Oct 05, 2013 1:38 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Bshowalter »

In both of the scenarios you posted you end up owning a different car than you originally purchased. The whole point of purchasing a new car and owning it an extended time is that you control the maintenance and care of the car. A car that I maintain from the very beginning is likely to last far longer with far less repair costs than your average owner.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

Bshowalter wrote: Fri Apr 16, 2021 2:07 pm In both of the scenarios you posted you end up owning a different car than you originally purchased. The whole point of purchasing a new car and owning it an extended time is that you control the maintenance and care of the car. A car that I maintain from the very beginning is likely to last far longer with far less repair costs than your average owner.
Or maybe you get one that’s better maintained then yours?
jello_nailer
Posts: 413
Joined: Sun Apr 07, 2019 10:20 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by jello_nailer »

vanbogle59 wrote: Thu Apr 15, 2021 10:05 pm Every time you buy or lease a car at a dealership, there is a negotiation.
You are on one side of the table.
On the other side is a team of professionals with loads of information you do not have.

With diligence, luck, flexibility, you may even come out ahead (those guys sometimes get caught with their pants down, sales DO happen).
But it's NOT the average. On average they win. Or they go out of business.
So, the more times you play roulette with the house, the more likely you are to guarantee (average) loss.

Buy/sell infrequently. Keep transaction costs low. That's all you can really control.
^ I would agree they win more on average, but that's only because most people buy on payments not on total cost of ownership. I think most on here buy lowest cost of ownership (sort of like the dividend/total return argument).

My position on this lease/buy argument, which I am actually having right now with my daughter, is... it depends. It depends on your situation and what you are trying to accomplish and your unique deal. In the end leasing is simply a form of financing. Maybe good, maybe terrible. It depends.
coffeeblack
Posts: 315
Joined: Wed Jun 19, 2019 10:20 am

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by coffeeblack »

Tingting1013 wrote: Thu Apr 15, 2021 3:24 pm
coffeeblack wrote: Thu Apr 15, 2021 3:19 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
Sounds like something a car salesman would say to sell a car.
I’m not debating the merits of buying new vs used. I’m saying once you’ve decided to buy new, you should always lease instead of buy.

The salesman is selling a car either way. The question is which way is better for you.
If you plan on holding the car no more than 3 years and the car is a luxury car that is 100K plus perhaps a lease.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

coffeeblack wrote: Mon Apr 19, 2021 11:23 am
Tingting1013 wrote: Thu Apr 15, 2021 3:24 pm
coffeeblack wrote: Thu Apr 15, 2021 3:19 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
Sounds like something a car salesman would say to sell a car.
I’m not debating the merits of buying new vs used. I’m saying once you’ve decided to buy new, you should always lease instead of buy.

The salesman is selling a car either way. The question is which way is better for you.
If you plan on holding the car no more than 3 years and the car is a luxury car that is 100K plus perhaps a lease.
Exactly the common wisdom I am destroying with this thread
index245
Posts: 141
Joined: Wed Feb 12, 2020 9:28 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by index245 »

sandramjet wrote: Thu Apr 15, 2021 3:33 pm I drive my car about 18-20K miles per year. How does that affect the lease/buy decision?
That's easy. You can't lease in a cost effective manner, I've priced it out. I used to drive that much, always bought new and drove until someone totals my car. You drive enough, someone will hit your car.

For lower mileage, there are some reasonable leasing deals, especially with electric vehicles with the tax credits baked in.
User avatar
vineviz
Posts: 9846
Joined: Tue May 15, 2018 1:55 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by vineviz »

Tingting1013 wrote: Thu Apr 15, 2021 8:13 pm
phxjcc wrote: Thu Apr 15, 2021 8:07 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
No, no, no, heck no.

The spread between bid and ask is ~20%.
So, if you "sell the car to Carvana..for 18k", their price will be $21,600.
They have overhead and have to return value to their shareholders.

Ditto, brick and mortar car stores.

I don't know why this is so hard to understand.

Next time you need surgery, ask your surgeon what his costs are and offer to pay him his costs.
Ditto, you plumber, electrician, mortician, and CPA.

OR GROCERY STORE, AD NAUSEITEM.
I understand what profit margin is.

I also understand business models with more than one profit stream.

Price any car that you own right now into Carvana, and compare their offer against similar used cars listed nearby.

In any case, as I’ve stated multiple times on this thread, if you don’t believe in selling it to a dealer, just sell it private party.
Carvana will not buy a car for the same price at which they sell it.

I just found a 2019 Honda Accord Sport with 16k miles on their website being sold for $25,590. I entered the same details into their sell/trade estimate form and received a trade-in offer of $19,755.

A dealer can do anything you can do, except they can do it cheaper and better. Anyone who thinks they an execute an arbitrage in this market is almost surely missing some key information.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
z91
Posts: 612
Joined: Fri Mar 07, 2014 1:19 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by z91 »

I have a 2005 Honda Pilot I bought for $5000, about 4 years ago. It has 120k on the ODO, and I've put about $500 in repairs the entire time. The car has been pretty much rock solid in reliability, and I have not been left stranded yet (knock on wood). In fact, I've just gotten back from a 1500 mile road trip. Every year that I still own the car, buying used wins exponentially.
H-Town
Posts: 3557
Joined: Sun Feb 26, 2017 2:08 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by H-Town »

Tingting1013 wrote: Mon Apr 19, 2021 11:51 am
coffeeblack wrote: Mon Apr 19, 2021 11:23 am
Tingting1013 wrote: Thu Apr 15, 2021 3:24 pm
coffeeblack wrote: Thu Apr 15, 2021 3:19 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
Sounds like something a car salesman would say to sell a car.
I’m not debating the merits of buying new vs used. I’m saying once you’ve decided to buy new, you should always lease instead of buy.

The salesman is selling a car either way. The question is which way is better for you.
If you plan on holding the car no more than 3 years and the car is a luxury car that is 100K plus perhaps a lease.
Exactly the common wisdom I am destroying with this thread
Or lies we keep telling ourselves to justify leasing a luxury car. How much does it cost (lease payment, finance cost, comprehensive insurance) to rent a S560? About 1.5k per month? That’s 54k to have the privilege to drive an S-Class for 3 years.
sls239
Posts: 1012
Joined: Thu Oct 23, 2008 4:04 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by sls239 »

Nope.

What happens if 1 year into this three year lease you need a different vehicle or are driving a different amount of miles or your vehicle needs change really in any way?

There are lots of major events in my life that could not have been predicted 3 years out.
User avatar
vanbogle59
Posts: 141
Joined: Wed Mar 10, 2021 8:30 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by vanbogle59 »

I have never leased a car. I could imagine doing it in a multi-car family.
But how can you live in a world where you can't use your car beyond a certain number of miles per month?
"Honey, that trip to the beach used up all the miles on the Volvo lease. I guess we can't go visit your mother. Maybe next year."
Northern Flicker
Posts: 7425
Joined: Fri Apr 10, 2015 12:29 am

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Northern Flicker »

The lease gives you an option to sell the car back to the dealer at a predetermined price. How much are the additional lease fees at time of acquisition? The fees don't make sense if you drive light miles as you won't want to turn in a car with low miles and known maintenance record when the lease is up. If you drive enough to make it worth it, you risk going over the mileage limit, as noted above.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
User avatar
8foot7
Posts: 2498
Joined: Mon Jan 05, 2015 7:29 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by 8foot7 »

vanbogle59 wrote: Mon Apr 19, 2021 3:25 pm
"... I guess we can't go visit your mother..."
This is a feature.
lazydavid
Posts: 3697
Joined: Wed Apr 06, 2016 1:37 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by lazydavid »

sls239 wrote: Mon Apr 19, 2021 3:23 pm What happens if 1 year into this three year lease you need a different vehicle or are driving a different amount of miles or your vehicle needs change really in any way?
You do an early turn-in, trade the car, or sell it outright, and get hosed on the value, exactly like you would with a financed car.

OR, you have the additional option of finding someone willing to assume the remainder of the lease, using a service like swaplease. Then you get hosed far FAR less than if you were trading the car in. You are out only your DAS money and one year's worth of lease payments, which is almost certainly less than the actual depreciation that the car has experienced at that point.
crossbow
Posts: 248
Joined: Mon Nov 12, 2018 6:47 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by crossbow »

Thesaints wrote: Thu Apr 15, 2021 2:18 pm 7-year old BMW for 11k from a private party (no sales tax).
I drive it for 10 years and I'm driving a BMW, not a Honda.
Not sure what it's like in your state, but here in CA a private buyer still has to pay taxes when they register the car in their name at the DMV. Some people get around this by stating that the car was a gift or they bought it for $300 instead of $20,000. Which is illegal and literally committing tax fraud.
crossbow
Posts: 248
Joined: Mon Nov 12, 2018 6:47 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by crossbow »

Tingting1013 wrote: Thu Apr 15, 2021 12:30 pm
Jack FFR1846 wrote: Thu Apr 15, 2021 12:19 pm Do leases have an acquisition fee...usually $500ish? And lease return fee...$500? So add $1000 cost.
Bingo!

This is the only true incremental cost to buying new. It’s the cost of the call option of leasing.
There is another upside to leasing. I once leased a car and as luck would have it, got rear-ended 3x during the course of my 30-month lease. None of them were serious enough to total the car and I wasn't out of pocket since I wasn't at fault, and insurance paid for the dealership to fix up the car. All 3 accidents showed up on vehicle history reports. I was able to turn the car in and walk away from the hassle and financial hit of trying to sell a vehicle with a bad history report.
sls239
Posts: 1012
Joined: Thu Oct 23, 2008 4:04 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by sls239 »

lazydavid wrote: Mon Apr 19, 2021 4:21 pm
sls239 wrote: Mon Apr 19, 2021 3:23 pm What happens if 1 year into this three year lease you need a different vehicle or are driving a different amount of miles or your vehicle needs change really in any way?
You do an early turn-in, trade the car, or sell it outright, and get hosed on the value, exactly like you would with a financed car.

OR, you have the additional option of finding someone willing to assume the remainder of the lease, using a service like swaplease. Then you get hosed far FAR less than if you were trading the car in. You are out only your DAS money and one year's worth of lease payments, which is almost certainly less than the actual depreciation that the car has experienced at that point.
So you are going to pretend that leases don't have early termination fees? Just like the original post pretended like leases don't have fees specific to leasing?

Yeah nope.
traveling_salesman
Posts: 52
Joined: Mon Apr 26, 2010 12:13 am

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by traveling_salesman »

Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
Hmm... let’s say you took the lease and put the money you’d have paid for the sale into a riskless asset (3 year treasury?) then, you both have a great and wonderful new car, and you make money vs the chumps who paid for it in cash.

Sounds great..... but as a rational economic actor, why would Honda offer you this deal?
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

vineviz wrote: Mon Apr 19, 2021 1:11 pm
Tingting1013 wrote: Thu Apr 15, 2021 8:13 pm
phxjcc wrote: Thu Apr 15, 2021 8:07 pm
Tingting1013 wrote: Thu Apr 15, 2021 11:29 am You are in the market for a new Honda Accord. You intend to keep it forever.

Let’s say the selling price is $25k, and Honda expects the car to depreciate $10k in the first three years. Your total lease cost is $10k + taxes + interest. At the end of the lease you have the option to buy out the remainder of the car for $15k.

Three years later, the car actually depreciated only $7k, making its market value $18k. You sell the car to Carvana (or a private party) for $18k, then pay off Honda $15k, leaving $3k in your pocket, making your net lease cost $7k (plus taxes and interest). Then you go buy an identical used Honda for $18k. You end up paying only $25k total (plus taxes and interest), just like if you had bought the car new.

Now let’s say the car depreciates $13k instead, putting its market value at $12k. Maybe ICE cars are banned in 2024, who knows. Then you can hand the keys back to Honda, and then go find an identical used car to buy at $12k. You only paid $22k total (plus taxes and interest), compared to the original owner of the used car who bought it new at $25k.
No, no, no, heck no.

The spread between bid and ask is ~20%.
So, if you "sell the car to Carvana..for 18k", their price will be $21,600.
They have overhead and have to return value to their shareholders.

Ditto, brick and mortar car stores.

I don't know why this is so hard to understand.

Next time you need surgery, ask your surgeon what his costs are and offer to pay him his costs.
Ditto, you plumber, electrician, mortician, and CPA.

OR GROCERY STORE, AD NAUSEITEM.
I understand what profit margin is.

I also understand business models with more than one profit stream.

Price any car that you own right now into Carvana, and compare their offer against similar used cars listed nearby.

In any case, as I’ve stated multiple times on this thread, if you don’t believe in selling it to a dealer, just sell it private party.
Carvana will not buy a car for the same price at which they sell it.

I just found a 2019 Honda Accord Sport with 16k miles on their website being sold for $25,590. I entered the same details into their sell/trade estimate form and received a trade-in offer of $19,755.

A dealer can do anything you can do, except they can do it cheaper and better. Anyone who thinks they an execute an arbitrage in this market is almost surely missing some key information.
I’m not suggesting an arbitrage on the user car price.

I’m suggesting a call option on the depreciation.
chipperd
Posts: 1014
Joined: Sat Sep 24, 2011 5:58 am
Location: here and now

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by chipperd »

vitaflo wrote: Thu Apr 15, 2021 1:44 pm Why do all this when you could just skip the middle man (and the depreciation man) and buy a 3 year old car for $15k? If you're planning on buying the 3 year old car when the lease is up anyway, why bother with the lease portion?
Yeah I was wondering the same as when we purchase a car it's typically 3 years old with about 33-35k miles and just coming off a lease (Toyota lease is 12k miles/year). What I am missing here?
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

chipperd wrote: Tue Apr 20, 2021 5:25 am
vitaflo wrote: Thu Apr 15, 2021 1:44 pm Why do all this when you could just skip the middle man (and the depreciation man) and buy a 3 year old car for $15k? If you're planning on buying the 3 year old car when the lease is up anyway, why bother with the lease portion?
Yeah I was wondering the same as when we purchase a car it's typically 3 years old with about 33-35k miles and just coming off a lease (Toyota lease is 12k miles/year). What I am missing here?
If you want to buy a used car, buy a used car.

If you want to buy a new car, lease it first.
User avatar
vineviz
Posts: 9846
Joined: Tue May 15, 2018 1:55 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by vineviz »

Tingting1013 wrote: Tue Apr 20, 2021 4:58 am
vineviz wrote: Mon Apr 19, 2021 1:11 pm A dealer can do anything you can do, except they can do it cheaper and better. Anyone who thinks they an execute an arbitrage in this market is almost surely missing some key information.
I’m not suggesting an arbitrage on the user car price.

I’m suggesting a call option on the depreciation.
You were, in fact, suggesting an arbitrage.

And even if you had framed it as a call option, that’d also be incorrect. Options aren’t free, so there’s no reasonable way to suggest that everyone should always buy the option.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
lazydavid
Posts: 3697
Joined: Wed Apr 06, 2016 1:37 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by lazydavid »

sls239 wrote: Mon Apr 19, 2021 6:54 pm
lazydavid wrote: Mon Apr 19, 2021 4:21 pm
sls239 wrote: Mon Apr 19, 2021 3:23 pm What happens if 1 year into this three year lease you need a different vehicle or are driving a different amount of miles or your vehicle needs change really in any way?
You do an early turn-in, trade the car, or sell it outright, and get hosed on the value, exactly like you would with a financed car.

OR, you have the additional option of finding someone willing to assume the remainder of the lease, using a service like swaplease. Then you get hosed far FAR less than if you were trading the car in. You are out only your DAS money and one year's worth of lease payments, which is almost certainly less than the actual depreciation that the car has experienced at that point.
So you are going to pretend that leases don't have early termination fees? Just like the original post pretended like leases don't have fees specific to leasing?

Yeah nope.
You must have missed the part where I said you get hosed on the value of the car. The early termination fee is essentially the gap between the car's current value and what you've paid on the lease. If you were financing, you'd be upside-down in the amount of the gap between your principal payments and the current value of the car. Exact same thing, although the math of what you actually owe may differ between the two depending on the terms of each. On a long loan you'd owe more than under a typical lease, on a short loan you would owe less.

You also conveniently ignored the other three options I listed, one of which largely or completely avoids this gap, something that is not possible with a purchase of any kind.
sls239
Posts: 1012
Joined: Thu Oct 23, 2008 4:04 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by sls239 »

No it essentially isn't the difference between the value of the car and what you've paid.

It is whatever the terms of the lease says it is. And I will not for one minute believe they are stupid enough to not have a hefty built-in fee to line their pocket with, under the assumption that people will ignore the high fee in the belief that it won't happen to them.

You are implying at every turn that the terms of the leases are based in real objective measurements, but they aren't. They are going to be based on whatever they can get away with charging, they are going to be based on the cognitive foibles that everyone is susceptible too. And there's going to be quite a lot of them.

When you buy a car you negotiate one number - the price out the door.

There is value in minimizing the number of times you subject yourself to negotiations in which the other party has an advantage in setting the terms.
Northern Flicker
Posts: 7425
Joined: Fri Apr 10, 2015 12:29 am

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Northern Flicker »

Relative to an outright purchase, a car lease is a put on the car asset. It has a variable strike price, set by the terms of the contract applied to the state of the car at contract termination. The lease origination fee is the cost of the put.

The car dealer has better information than you do to establish the lease fee. The lease is an imperfect hedge on depreciation, but it provides some protection.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

Northern Flicker wrote: Tue Apr 20, 2021 5:50 pm Relative to an outright purchase, a car lease is a put on the car asset. It has a variable strike price, set by the terms of the contract applied to the state of the car at contract termination. The lease origination fee is the cost of the put.

The car dealer has better information than you do to establish the lease fee. The lease is an imperfect hedge on depreciation, but it provides some protection.
I disagree that the dealer has better information than I do on depreciation. Anyone can look at what 2018 Honda Accords are going for now and compare that against original MSRP.

A lot of people are complaining about the fees. The fees are $500 max. On an asset worth tens of thousands of dollars, with variability in depreciation in the range of thousands of dollars, that fee cannot be described as anything other than nominal.
User avatar
btq96r
Posts: 230
Joined: Thu Dec 26, 2019 3:46 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by btq96r »

18.5 years ago, I bought a 2002 Ford Ranger. Being 20, and it buying my first car, I probably didn't get what most would call a great deal. I can't even remember what benefits I got for taking an '02 off the lot at that time of year. Total cost was $22,100 after once I paid it off after five years. Let's assume I've spent $10k over the years in maintenance on wear and tear maintenance (basically everything not oil or tire changes since leased vehicles have those needs too) because I wasn't a Boglehead spreadsheet geek in my 20s and don't have the exact number.

Not seeing how going from lease to lease over the last 18 years could bet the best option since my admittedly hasty math shows I've paid an average of the $148.61 per month spent given the above conditions, and as time drags on while that unimpressive vehicle keeps rolling, the amount keeps working in my favor so long as the repairs stay reasonable.

I'm also thinking I've enjoyed/benefited from the compound interest not having that car payment lets me throw at investments every month. As it stands, I have a fully loaded short term bond fund with enough to buy my next vehicle in cash (a Tacoma) when the mechanic tells me it's not worth the cost of a repair to fix it.

My first car will be my last car financed. Leasing isn't even in the thought process...but I admit I don't know everything, so I'll keep reading here.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

btq96r wrote: Tue Apr 20, 2021 7:26 pm 18.5 years ago, I bought a 2002 Ford Ranger. Being 20, and it buying my first car, I probably didn't get what most would call a great deal. I can't even remember what benefits I got for taking an '02 off the lot at that time of year. Total cost was $22,100 after once I paid it off after five years. Let's assume I've spent $10k over the years in maintenance on wear and tear maintenance (basically everything not oil or tire changes since leased vehicles have those needs too) because I wasn't a Boglehead spreadsheet geek in my 20s and don't have the exact number.

Not seeing how going from lease to lease over the last 18 years could bet the best option since my admittedly hasty math shows I've paid an average of the $148.61 per month spent given the above conditions, and as time drags on while that unimpressive vehicle keeps rolling, the amount keeps working in my favor so long as the repairs stay reasonable.

I'm also thinking I've enjoyed/benefited from the compound interest not having that car payment lets me throw at investments every month. As it stands, I have a fully loaded short term bond fund with enough to buy my next vehicle in cash (a Tacoma) when the mechanic tells me it's not worth the cost of a repair to fix it.

My first car will be my last car financed. Leasing isn't even in the thought process...but I admit I don't know everything, so I'll keep reading here.
Nowhere am I suggesting you go “lease to lease”. That is not what I’m saying.

I’m saying if you had leased the first three years of that Ford, you would have had an option to save money if the actual depreciation at the end of year 3 turned out to be higher than expected. Then, per option 2 in my OP, you could have paid off the vehicle having paid in only $18k instead of $22k, for example.
User avatar
vanbogle59
Posts: 141
Joined: Wed Mar 10, 2021 8:30 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by vanbogle59 »

Tingting1013 wrote: Tue Apr 20, 2021 8:25 pm I’m saying if you had leased the first three years of that Ford, ...
Your math inquiry is not insane. Full disclosure: I don't buy it on practical grounds. But it's not nuts.

However, here you have gone off the rails.
Are you seriously suggesting your model applies to a 2002 Ford Ranger?
When the model contradicts the real world, it's not the world's fault.
Topic Author
Tingting1013
Posts: 1235
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why leasing a new car is always the best option even if you intend to keep it forever

Post by Tingting1013 »

vanbogle59 wrote: Tue Apr 20, 2021 9:03 pm
Tingting1013 wrote: Tue Apr 20, 2021 8:25 pm I’m saying if you had leased the first three years of that Ford, ...
Your math inquiry is not insane. Full disclosure: I don't buy it on practical grounds. But it's not nuts.

However, here you have gone off the rails.
Are you seriously suggesting your model applies to a 2002 Ford Ranger?
When the model contradicts the real world, it's not the world's fault.
Cars with low expected depreciation have high potential for depreciating more than expected. That’s just simple logic.

That applies to Hondas and pickup trucks.
Post Reply