Does leasing a car ever make more sense than paying cash?

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yosh99
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Does leasing a car ever make more sense than paying cash?

Post by yosh99 »

Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
RobLyons
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Re: Does leasing a car ever make more sense than paying cash?

Post by RobLyons »

Sure. If the lease terms + all fees/taxes are less than the depreciation + taxes on purchasing new.
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yog
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Re: Does leasing a car ever make more sense than paying cash?

Post by yog »

When you are in early retirement building a Roth conversion ladder and don't want to sell ~100k of stock and pay LTCG of 15% + 3.8% + state.
exodusNH
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Re: Does leasing a car ever make more sense than paying cash?

Post by exodusNH »

It's tough to say. Getting a new car every two years means that you're paying for most of the depreciation. If you can, you really should buy used or plan on driving the new car until the wheels fall off.

If you're committed to doing this, you need to find out the money factor on the lease. You can use that to figure out the effective interest rate that you're paying. When negotiating, don't tell them whether you plan to buy or lease. Negotiate the price first and don't tell them what you're putting down or what you want for a monthly payment. Walk away if they push back.

Arrange financing separate from the dealer. (It doesn't mean you can't wind up financing through the dealer, since sometimes they have great promotions running, but if you walk in there with a preapproved loan, you won't have to make a decision under duress and after your brain has already decided it's "your" car.)

If you think you might buy the car after leasing it, remember at that point, it'll be a used car and have a higher interest rate.

If you don't drive much, leasing is not a great idea, since when you turn it in, you give the dealer a late-model car with low mileage. But if you might go over the mileage, you will be on the hook for a big payment.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Jack FFR1846 »

Especially if the manufacturer has offered a way to make it advantageous to lease. The luxury brands most often do this with either unrealistic residual values built into leases or some number of payments made for you. In both cases, your monthly cost is lower and can be significantly lower. There are quite often lease incentives and no purchase incentives.
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Luckywon
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Re: Does leasing a car ever make more sense than paying cash?

Post by Luckywon »

The depreciation plus lease/finance fees of a two year lease will very likely be less than the depreciation from buying new and selling two years later.
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Re: Does leasing a car ever make more sense than paying cash?

Post by MikeG62 »

yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
IMHO, you would likely be better financially leasing for the two years. Reasons being, with a lease you only pay sales tax on the lease payments, whereas with a purchase you are paying sales tax on the full negotiated price of the vehicle. Also, with a trade-in, you'll get wholesale value for the vehicle. Naturally, that is typically considerably less than retail.
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Impatience
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Re: Does leasing a car ever make more sense than paying cash?

Post by Impatience »

If your income is so high that the convenience is worth the cost. It will still cost you more in dollars but less in time (shopping around, maintenance, etc).

If you are price sensitive enough that you’re considering negotiating hard with the dealer and calculating relative values of buying vs leasing then that probably isn’t you.
Goal33
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Re: Does leasing a car ever make more sense than paying cash?

Post by Goal33 »

Impatience wrote: Fri Jan 08, 2021 5:57 pm less in time
Feels like it's all the time that my friends that lease both their cars are in the dealership.
Goldwater85
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Re: Does leasing a car ever make more sense than paying cash?

Post by Goldwater85 »

As noted above. Luxury brands are reluctant to have big sales advertising significantly reduced sticker prices (cheapens the brand). Instead, they’ll obfuscate with bargain leases. Always check lease rates if buying a new BMW/Mercedes/Land Rover/etc.

Otherwise, unless you just hyperactively turn over low mileage cars, it’s hard to see much benefit.
Lexx
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Re: Does leasing a car ever make more sense than paying cash?

Post by Lexx »

It's worth it if you can write off the cost of the lease as a business expense.

What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax. Automotive lease guide (ALG) is what most manufacturers base their estimated depreciation on. ALG is rarely far off. Let's say you're leasing a $50k vehicle for 3 years. ALG will typically depreciate the vehicle by 50% at the end of 36 months. So you're paying for $25k of depreciation over 36 months, the interest on that, and the sales tax.

The advantage of leasing is you're only paying for what you're using. If you purchase a vehicle, you're paying sales tax on the whole purchase price. On a lease you're only paying for the portion of the term of the lease. Furthermore when you lease, at the end of the lease you don't have the hassle of trying to sell a car yourself.

Look at it this way. Whether you purchase a car or lease a car, at the end of 36 or 48 months, the car will be worth the same. On a lease you're only paying for that depreciation and sales tax plus interest. If you can write off the lease, your savings is equivalent to your marginal tax rate. If you purchase it, you can only depreciate a small amount each year.

The other consideration is how often you like to change vehicles and how many miles you drive. If you drive 50k miles a year, the leasing is likely not for you. If you like to keep cars for more than the typical lease term, then leasing isn't for you. But if you're in a profession where you can write off the cost of a lease, and you're likely to swap out cars every few years, then leasing certainly makes sense.

BTW, never negotiate a lease payment before you've agreed to the capital cost of the vehicle i.e. it's sales price. Often times dealers will base a lease on the MSRP. Don't let them do that. Negotiate it just as if you were buying the car. Get it down to dealer's invoice price and then negotiate the lease terms. They'll quote you money factor. To convert that to your interest rate, just multiply that MF by 2700. As in all financing, the better your credit score the lower the MF will be. Some leases are subvented, i.e. the factory pays or discounts the lease below what a dealer would normally offer you.

Hope that helps.
bogledogle
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Re: Does leasing a car ever make more sense than paying cash?

Post by bogledogle »

yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
If you want a car only for two years, leasing would probably work out better than buying unless you are buying a very inexpensive car with high resale value and you get tax credit when you trade it in.
JoeJohnson
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Re: Does leasing a car ever make more sense than paying cash?

Post by JoeJohnson »

yog wrote: Fri Jan 08, 2021 5:38 pm When you are in early retirement building a Roth conversion ladder and don't want to sell ~100k of stock and pay LTCG of 15% + 3.8% + state.
Taking out a loan for a purchased vehicle instead of a loan for a leased vehicle will likely be better, all else equal. The loan payment might be slightly larger per month, but unlikely to break the bank on cash flow

edit: This wasn't really OPs question. OP specifically asked about a 2 yr window, which is slam dunk scenario for leasing due to the guaranteed residual vs trade-in value
momvesting
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Re: Does leasing a car ever make more sense than paying cash?

Post by momvesting »

It might work if you had a situation where the car or the type of car was only needed for about the lease term and keeping it beyond that would not help. For example, I have heard of people who lease one of those cheap economy cars with those $99 or $129/mo leases for their kid who turns 16 and turns in the car and does not replace it when the kid heads off to college without a car. Although this isn't cheaper than buying used, this *may* work out better than buying a new one (to get a warranty and the reliability of a new car) and selling the new one 2-3 years later after all the initial depreciation took place.
student5
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Re: Does leasing a car ever make more sense than paying cash?

Post by student5 »

Leasing may also be advantageous if a desired auto does not have a great reliability factor. You make sure that the lease ends before the warranty period is up.
acegolfer
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Re: Does leasing a car ever make more sense than paying cash?

Post by acegolfer »

Lexx wrote: Fri Jan 08, 2021 6:22 pm
What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax.
When leasing, do I pay the sales tax of the full price?
JoeJohnson
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Re: Does leasing a car ever make more sense than paying cash?

Post by JoeJohnson »

acegolfer wrote: Fri Jan 08, 2021 8:06 pm
Lexx wrote: Fri Jan 08, 2021 6:22 pm
What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax.
When leasing, do I pay the sales tax of the full price?
Not in my state. May vary by location
acegolfer
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Re: Does leasing a car ever make more sense than paying cash?

Post by acegolfer »

JoeJohnson wrote: Fri Jan 08, 2021 8:10 pm
acegolfer wrote: Fri Jan 08, 2021 8:06 pm
Lexx wrote: Fri Jan 08, 2021 6:22 pm
What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax.
When leasing, do I pay the sales tax of the full price?
Not in my state. May vary by location
Not in my state either. So the total sales tax will be smaller with leasing.
Lexx
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Re: Does leasing a car ever make more sense than paying cash?

Post by Lexx »

No, you only pay tax on the leased amount. That can be quite a bit of savings right there.

For most folks, the difference between leasing a car and buying it, assuming a buyer sells the car at the end of the same period the lease ends, is about the same amount of money. ALG is very accurate in predicting residual values. So the savings primarily goes to those with an ability to write off the lease expense.
acegolfer wrote: Fri Jan 08, 2021 8:06 pm
Lexx wrote: Fri Jan 08, 2021 6:22 pm
What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax.
When leasing, do I pay the sales tax of the full price?
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yosh99
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Re: Does leasing a car ever make more sense than paying cash?

Post by yosh99 »

OP here. Thanks everyone for the great advice.

I bought used cheap cars my whole life, but at my age now I figure I only have a few years of driving left and I want to spend it with cars I want do drive whether practical or not.

Based on the advice given it's obvious that I need to learn about leasing.

Thanks again.
Monsterflockster
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Re: Does leasing a car ever make more sense than paying cash?

Post by Monsterflockster »

yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
It does if you’re my brother-in-law. He comes home every couple years with a new car. He purchases and trades in though. He even has a “car guy” at the local dealership. :oops: I’m sure they love him.
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HMSVictory
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Re: Does leasing a car ever make more sense than paying cash?

Post by HMSVictory »

Nope.

You are taking the railroading of the biggest depreciation year 1-3 every 3 years plus cost of capital. The car companies love it though, see you every 36 months! Most lease or finance because they can't really afford the car or are in denial about how much they are spending.

Pay cash, buy Toyota (or Lexus) and keep for 10+ years. You come out way ahead.

:D
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acegolfer
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Re: Does leasing a car ever make more sense than paying cash?

Post by acegolfer »

yosh99 wrote: Fri Jan 08, 2021 11:37 pm OP here. Thanks everyone for the great advice.

I bought used cheap cars my whole life, but at my age now I figure I only have a few years of driving left and I want to spend it with cars I want do drive whether practical or not.

Based on the advice given it's obvious that I need to learn about leasing.

Thanks again.
Same here. We never leased before and always drove the car to the ground. But our current car is a lease, which is not financially practical but has many benefits, which we are willing to pay. One mistake we made was we didn't know all the details of a lease. So I encourage you to learn about leasing.

We just avoided a rookie mistake by luck. If you have automatic lease payment set up, the final payment may not be automatic. Lots of ppl make this mistake and get a hit on credit history.
59Gibson
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Re: Does leasing a car ever make more sense than paying cash?

Post by 59Gibson »

Extremely difficult to answer without knowing the details, specifically what make and model. As a generalization- German/Italian/British Manuf.- Lease
Japanese- buy except for Mitsub and maybe Nissan/Infin. US/SKorean- could go either way depends.
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Re: Does leasing a car ever make more sense than paying cash?

Post by MikeG62 »

Goal33 wrote: Fri Jan 08, 2021 5:59 pm
Feels like it's all the time that my friends that lease both their cars are in the dealership.
While true, they are also driving a brand new car with all the latest technology and safety features that is covered by a bumper to bumper warranty. There should be an incremental cost for that benefit.

yosh99 wrote: Fri Jan 08, 2021 11:37 pm OP here. Thanks everyone for the great advice.

I bought used cheap cars my whole life, but at my age now I figure I only have a few years of driving left and I want to spend it with cars I want do drive whether practical or not.

Based on the advice given it's obvious that I need to learn about leasing.

Thanks again.
OP, in this thread I detail my secret sauce for negotiating an auto lease.

viewtopic.php?f=2&t=276126&p=4453319&hi ... e#p4453319

I agree with your intent. My Dad (who turned 86 last year) asked me to help him negotiate a lease. He has always bought cars and drove them into the ground, but came to the realization that this would likely be the last car he'd ever drive. After we spoke, he agreed that at this point in his life leasing was the way to go. I negotiated for him an excellent deal on a new Lexus ES350 (low mileage lease). He is paying $420 a month (plus sales tax) for a vehicle with an MSRP > $47K (and no capital cost reduction). Rule of thumb is a well negotiated lease is one where the monthly payment is no more than 1% of the MSRP.
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n0v0w3ls
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Re: Does leasing a car ever make more sense than paying cash?

Post by n0v0w3ls »

Disclaimer: I work for a dealer group in a high level accounting/finance role.

It absolutely can make more sense to lease that pay cash. There are a lot of factors that go into it. The make and model you're interested in, your geographic location, the current lease programs, and your personal financial situation.

My own example, I leased a Silverado back in 2017. MSRP on the truck was $48,500 and my payment for 36mo/10k miles per year was $281 with no money out of my pocket. Being a dealer employee I qualified for the same discount as a GM employee. Beyond that, it was the last couple days of the month and the dealership was chasing an objective that would earn them some decent money from the manufacturer so there was additional discount on top of that bringing the selling price down to $42,000.

On top of that, our market is quite competitive as there are GM and Ford plants locally so GM had additional incentives specific to our market so total rebates on the deal were $7,500. I don't recall what the exact difference was, but a large amount of those incentives were lease specific. If i was purchasing the truck the total rebates would have only been around $2,500 or so in this situation alone, the manufacturer was creating a huge incentive to lease.

In my case the lease cost me $10,116 over the 36 months. Had I purchased the truck I would have financed about $40,000 (due to incentive differences). So based on the lease payment I was able to get, I'd have a total of 12 years of lease payments before I would have paid out the equivalent of the loan for a purchase. I was able to keep more money in my pocket and invest in a strong market. All without worrying about owning a vehicle that was outside of the factory warranty.

A valid counter argument to this is that after a loan is paid off you still own something that has value, with a lease you do not. The downside is that the value of that asset is (almost) always decreasing. I also live in the rust belt, so the idea of buying a new car and driving it for 15-20 years is typically not feasible. The engines typically have a long life, but every other piece of maintenance gets more expensive as bolts, brakes, and suspension pieces rust to where it becomes more expensive to maintain than it's worth.

The lease above actually ended in May of 2020 in the middle of the pandemic. At that time the plants were shut down and dealer inventories were very low. The manufacturers did not have objective programs in place, and had no reason to offer large incentives or attractive lease programs. A comparable vehicle would have cost double what I was paying and would require money out of pocket regardless. So in that situation I decided not to lease. The truck was actually a second/winter vehicle for me, but I ultimately traded in my fun car on a used truck since I had kid number 2 on the way and it just made more sense given the market as a whole.

As I write this we're just starting to see of the lease programs return but generally only in the brands that have managed to build their dealer inventory back up.
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Re: Does leasing a car ever make more sense than paying cash?

Post by JackoC »

yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?
For the various reasons given in other responses, I think you could almost turn this question around and ask if there's a situation where buying a car and selling it in two years makes more sense than leasing. Obviously it depends the deals on offer primarily and secondary stuff like sales tax treatment in your state, whether you can take any business deduction (more favorable to lease), insurance (you don't need collision/comprehensive on a car you bought for cash, though have to be willing to take the risk of an uninsured loss), etc. But there's also the risk reduction of a lease, it's their car in case of persistent problems, you're not estimating the 2yr depreciation but rather it's incorporated in the lease payments, you're not risking getting outmaneuvered on the trade-in negotiation two years hence even if you did OK on the buying negotiation. A miscellaneous factors in favor of buy, probably not relevant to most BH's but some cars I've had, you're more constrained in modifying the car (engine tuning software, etc) if you don't own it; even mods which don't void the warranty might not be allowed on a leased vehicle, or you'd be required to remove them at lease end.

Most times the discussion of lease goes off eventually on tangent of leasing for 2 yrs v buying the car new and keeping it for 10 yrs, buying 5 yr old used cars and keeping them till they are 15 or 20 yrs old, etc. The less car you have (whether a cheaper model or older on average) the less you're going to pay, generally. But for the relatively expensive choice of having a new car of a given model every 2 yrs, you have to at least look at a lease.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Carguy85 »

With regard to the original question, apparently 90% of millionaires don’t think so. I guess I’m glad that not everyone subscribes doing the smartest things with money... makes the world less boring. Took me years to figure out that the more you stay away from the dealer the better off you are. They are awesome at making you feel like you are doing something smart financially....that’s essentially their job.
Last edited by Carguy85 on Sat Jan 09, 2021 12:14 pm, edited 1 time in total.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Wanderingwheelz »

Once it has in my case. That’s only one out of the 12 or 15 new cars I’ve bought over the last 30 years. So in my experience it’s quite rare.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Cruise »

yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
Leasing ended up being the best decision a relative made, as it turned out the relative had a short post-lease initiation lifespan. One never knows what the future holds.
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Re: Does leasing a car ever make more sense than paying cash?

Post by jtdavid »

I've leased a BMW in the past. Purchased it for 90% of MSRP and put it back to the dealership at 63% of original MSRP after three years. So 9% depreciation per year. I think it was a pretty good deal as the car booked out at 50% of original MSRP at the time. I think it's pretty hard to get a lease to pencil after only 2 years though.
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Re: Does leasing a car ever make more sense than paying cash?

Post by gasman »

If you like driving a new car every 2-3 years, knowing that it is not the most economical way to drive, leasing is probably the way to go.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Luckywon »

Cruise wrote: Sat Jan 09, 2021 12:43 pm
yosh99 wrote: Fri Jan 08, 2021 5:30 pm Is there ever a situation where leasing a car for two years makes more sense than paying cash and trading it in after two years?

Thanks.
Leasing ended up being the best decision a relative made, as it turned out the relative had a short post-lease initiation lifespan. One never knows what the future holds.
Similar if the car is in a major accident. Drives down the resale value if you own it, and it is a struggle at best to get an insurance company to compensate for this. But a lease owner gets to return the vehicle at lease end and let the finance company take the excess depreciation hit.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Lexx »

Yeah but that means I have to drive a boring car for the next 10+ yrs. No thanks. Life's too short not to have fun.

If you're worried about depreciation, but something like a Jeep Wrangler, full sized diesel pickup truck, or a used Porsche 911. Those have been proven to depreciate very little.
HMSVictory wrote: Sat Jan 09, 2021 6:33 am Nope.

You are taking the railroading of the biggest depreciation year 1-3 every 3 years plus cost of capital. The car companies love it though, see you every 36 months! Most lease or finance because they can't really afford the car or are in denial about how much they are spending.

Pay cash, buy Toyota (or Lexus) and keep for 10+ years. You come out way ahead.

:D
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Re: Does leasing a car ever make more sense than paying cash?

Post by HMSVictory »

Lexx wrote: Sat Jan 09, 2021 4:15 pm Yeah but that means I have to drive a boring car for the next 10+ yrs. No thanks. Life's too short not to have fun.

If you're worried about depreciation, but something like a Jeep Wrangler, full sized diesel pickup truck, or a used Porsche 911. Those have been proven to depreciate very little.
He asked what makes sense not whats the most fun! Yes a new 911-GT3 is going to be more fun but you better be paying cash and not leasing like 90% of the Porsche buyers are!
Stay the course!
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Re: Does leasing a car ever make more sense than paying cash?

Post by TheGreyingDuke »

exodusNH wrote: Fri Jan 08, 2021 5:43 pm

If you're committed to doing this, you need to find out the money factor on the lease. You can use that to figure out the effective interest rate that you're paying. When negotiating, don't tell them whether you plan to buy or lease. Negotiate the price first and don't tell them what you're putting down or what you want for a monthly payment. Walk away if they push back.
This is a well-circulated piece of advice; since there can be different incentives for leasing and buying you want to know the pre-incentive price, that is what MSRP discount is on offer?
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Re: Does leasing a car ever make more sense than paying cash?

Post by TheGreyingDuke »

jtdavid wrote: Sat Jan 09, 2021 12:44 pm I've leased a BMW in the past. Purchased it for 90% of MSRP and put it back to the dealership at 63% of original MSRP after three years. So 9% depreciation per year. I think it was a pretty good deal as the car booked out at 50% of original MSRP at the time. I think it's pretty hard to get a lease to pencil after only 2 years though.
BMWs are often great lease deals, the residual value is often higher than the actual at the end of the lease.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Lexx »

Agree. I bought a used 997 Carrera GTS about 6 yrs ago and it's still worth about the same today as what I paid for it. If you're going to buy, buy something that doesn't depreciate much after the first 2-3 years. Don't buy brand spanking new unless you can get a screaming deal on it and it's a model that historically low depreciation i.e. don't go buying a new Mercedes S500 for $160k only to have it lose $80k of value in 4 years!
HMSVictory wrote: Sat Jan 09, 2021 7:35 pm
Lexx wrote: Sat Jan 09, 2021 4:15 pm Yeah but that means I have to drive a boring car for the next 10+ yrs. No thanks. Life's too short not to have fun.

If you're worried about depreciation, but something like a Jeep Wrangler, full sized diesel pickup truck, or a used Porsche 911. Those have been proven to depreciate very little.
He asked what makes sense not whats the most fun! Yes a new 911-GT3 is going to be more fun but you better be paying cash and not leasing like 90% of the Porsche buyers are!
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HMSVictory
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Re: Does leasing a car ever make more sense than paying cash?

Post by HMSVictory »

Lexx wrote: Sat Jan 09, 2021 10:21 pm Agree. I bought a used 997 Carrera GTS about 6 yrs ago and it's still worth about the same today as what I paid for it.
Beautiful car.... love the 911! :D
Stay the course!
Linkin06
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Re: Does leasing a car ever make more sense than paying cash?

Post by Linkin06 »

i'd check out https://leasehackr.com

i recently did a one pay lease on a MSRP vehicle 41,000+ for $7000 prior to $2500 state rebate (which they're gonna report as income...) for a 3 year 30k miles.

all in all, i'm paying around $150/month for a nice car, fully electric even, and i am willing to pay that for 3 years foray into EV.
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Re: Does leasing a car ever make more sense than paying cash?

Post by Aged Maduro »

Yes. If you are a business owner or real estate investor who can write off a significant part of your car lease then it may make more sense to lease. It also makes more sense to lease if you want to drive an expensive and unreliable luxury vehicle such as a BMW or Range Rover. Of course, the most financially prudent thing is to never drive such vehicles in the first place, but if you must you are probably better off leasing.
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Re: Does leasing a car ever make more sense than paying cash?

Post by stocknoob4111 »

Yes, it depends on which car it is. German cars for instance lease really well because they depreciate like a meteor entering the upper atmosphere and the leases have artificially high residuals. Plus German cars are extremely unreliable past their warranties and have exceptionally high repair costs so it make sense to lease. Same does not apply to say a Toyota or Honda.
Jags4186
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Re: Does leasing a car ever make more sense than paying cash?

Post by Jags4186 »

acegolfer wrote: Fri Jan 08, 2021 8:06 pm
Lexx wrote: Fri Jan 08, 2021 6:22 pm
What you're paying for on a leased car is the depreciation, the interest on the lease, and the sales tax.
When leasing, do I pay the sales tax of the full price?
It’s my understand that you pay the tax on the % value of car you use. If your sales tax is 10%, the sell price of the car is $50k, and the manufacturers prescribed depreciation for the lease term is 50%, then you’d pay $2500 divided by number of months in the lease.
jhsu802701
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Re: Does leasing a car ever make more sense than paying cash?

Post by jhsu802701 »

YouTuber Scotty Kilmer recommends leasing if you want a European car, because that makes your cost of ownership predictable.

The Consumer Reports frequency of repair records show that European cars fare poorly and aren't really better than Ford or GM. At the same time, parts, maintenance, and repairs are FAR more expensive for European cars than for American and Japanese cars. Thus, European cars are infamous for becoming expensive money pits as they age.

As a result, European cars depreciate rapidly. If you buy a European car and try to keep it as long as possible (as if it were a Toyota or Honda), there will come a time when it requires several thousand dollars in repairs before it can move under its own power again. Thus, you're forced to either pony up all that money for repairs or get rid of the car for a pittance. If you lease a European car instead, you're forced to move on before that day arrives.

That said, if money or reliability is an object, you have no business buying or leasing European cars at all. European cars are for the wealthy, not the masses.
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TheGreyingDuke
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Re: Does leasing a car ever make more sense than paying cash?

Post by TheGreyingDuke »

stocknoob4111 wrote: Sun Jan 10, 2021 10:51 am Yes, it depends on which car it is. German cars for instance lease really well because they depreciate like a meteor entering the upper atmosphere and the leases have artificially high residuals. Plus German cars are extremely unreliable past their warranties and have exceptionally high repair costs so it make sense to lease. Same does not apply to say a Toyota or Honda.
True for BMWs, not so for Audis (although the E-tron has some great deals right now)
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illumination
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Re: Does leasing a car ever make more sense than paying cash?

Post by illumination »

I would recommend leasing if you insist on owning certain types of cars like European luxury cars.

I don't really have a big problem with the concept of leasing as some do, but it's not for me. Some people want a new car every few years, even if leasing is slightly more expensive, I can see the merit in it. Especially since these same people likely trade in their car at the dealership and probably get shafted on that part of the transaction.

Also, you can lease a "decent" new car for like $200-$300 a month. When I get to the age where I can't work on my cars, I can see the utility in a car payment that's less than my electricity bill with all the modern safety features and tech with a warranty where I never have to make an out of pocket repair.

Buying a new car every few years is "dumb" financially, a new lease every few years is maybe only slight more "dumb" but is way more convenient and on certain makes is good insurance on not getting stuck with a lemon nobody wants and has terrible resale. Not every decision is supposed to be frugal, otherwise we'd all be buying 10 year old Priuses.
JackoC
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Re: Does leasing a car ever make more sense than paying cash?

Post by JackoC »

stocknoob4111 wrote: Sun Jan 10, 2021 10:51 am Yes, it depends on which car it is. German cars for instance lease really well because they depreciate like a meteor entering the upper atmosphere and the leases have artificially high residuals. Plus German cars are extremely unreliable past their warranties and have exceptionally high repair costs so it make sense to lease. Same does not apply to say a Toyota or Honda.
Leases are often relatively good deals on BMW's (again in the apples to apples comparison of buying the same BMW and trading it in in 2-3 yrs). Although it's not directly because 'they depreciate like a meteor'. BMW is quite aware of the after market value of their cars, it's not like you walk in there knowing something they don't. They've made a business decision to make the lease terms favorable wrt to expected depreciation. That way dealers have a steady supply of lightly used cars to resell as CPO in a few years, the idea being that's a more likely profit source than trying to make big margins on new cars in today's market. This is a factor in various manufacturers' approach to leasing but BMW particularly it seems.

The 'extreme unreliability' of BMW's is often exaggerated on this forum IMO. Consumer Reports doesn't especially agree (BMW usually ends up average-ish as a brand, some particular models have excellent reliability records). But in any case this gets back to apples and oranges of leasing cars for 2-3 yrs v owning them *for much longer*. Reliability is not a big factor in whether to lease a car for 2-3 yrs or buy it and trade in *after 2-3yrs*: it's still under warranty either way.

The answer to the actual question "Is there ever a situation where leasing a car for two [or 3] years makes more sense than paying cash and trading it in after two [or 3] years?" is clearly 'yes'. Whether it makes sense in a particular case depends on the specific numbers, besides other factors about the buyer. I've had two BMW's (2015 328i with no problems in 6 yrs/50k miles as its CR record would say is likely, 2018 M2 no problems but not many miles). I bought both for cash for two main reasons, anticipation I'd have the cars for more than 3 yrs, and it's just simpler to pay cash; secondary reasons I'm somewhat of a car guy and OTOH if there's a multi-$k repair far beyond my capabilities just after warranty, I'll just pay for it and it won't affect my financial situation. As long as it's unlikely, which I believe it is; although eventually somewhere down the road there are expensive repairs. One of my grown kids (who now has the 328) wants to get a new 5 series. Given what I've read about 5 series lease v buy numbers, him being a busy non-car person who also uses the car for business (lease gives a better deduction), he'll probably be better off with a lease. Given that he's decided he likes pretty new luxury cars, which is his decision but doesn't bother me either because I know he can afford it.
TheGreyingDuke
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Re: Does leasing a car ever make more sense than paying cash?

Post by TheGreyingDuke »

One other case where leasing can come out ahead is if you are buying an electric vehicle and cannot fully utilize any available Federal tax credit. Often times the leasing entity, which will get the credit, will factor that into the selling price, allowing you to benefit.
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fyre4ce
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Re: Does leasing a car ever make more sense than paying cash?

Post by fyre4ce »

Driving a new car every 1-3 years is usually a really bad financial decision. I'm convinced that overpaying on cars is the #1 obstacle for most Americans to reach financial success. That said, if you're already committed to this behavior, leasing is likely easier and possibly cheaper than buying and selling.
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