Welcome to our new feature, Ask Jack! I’ll be answering your questions on pretty much any topic that has a vague relationship to cars. Send me your questions and make sure you let us know if you want to be identified!
Our very first question comes from a fellow who wants to know what he should do about lease mileage on his Camry. As fate would have it, I was a Red Carpet Leasing Professional(tm) in another life and I am ready to help!
“Mathew” writes that
I read TTAC every day and am one of those who dream of buying the latest Corvette. Back to reality! I just leased a 2014 Toyota Camry in late June 2014. I am looking for some creative ideas to minimize the cost of this car.
Note: Minimizing cost to me equals the lowest cost per mile; not a $500 beater. I’ve done the fly across the country and drive a $500 beater home stunt so I know how to play that game. I’m too old to play that anymore. If you are wondering I’m an ’81 baby.
Previously I owned (outright) a 2003 Trailblazer with 175k miles. It ran like a top even though I drove it like a POS. Just prior to driving to Seattle an oil change was made. No leaks were had with my car. When I selling it (after leasing a Camry) a gentleman who was looking at it found it was out of oil. I told him I was going to put oil in it and hope for the best. He made a cash offer right there and I took it! I didn’t even have to put oil in it!
At that time I bought this car I was in the middle of moving to Seattle from SLC. I was in no mood to find a used car much less pay for one. Four months later I have burned through half of the 24k miles allotted in my two year lease. The first person to lecture me on leasing a new car only to drive without regard to mileage can go buy my old Trailblazer from that gentleman and tell me how that goes. Here’s the kicker –the overage charge is $0.15 per mile. The lease comes out to about $0.20 per mile (payments + down payment + taxes). So those with some sense of math understanding can see the more I drive it the less (per mile) it costs me to drive this particular car. And like some of you I am still working on getting a second or third or fourth car sitting in the driveway to the home I don’t have yet.
Finally, here is my question:
Would it cost me less to:
(a) Drive it at my current rate until the lease is over and pay the overage costs?
(b) Drive it at my current rate and sell it privately when the lease is over and pay the difference between the buyout ($15,000) and market value?
Alright, this takes me back — way back to 1994, when I leased a new Ford Contour to a friend on a two year/90,000-mile program. He was paying $475 a month to drive a Contour and all his friends laughed at him! But when he walked away from an 87,000-mile car free and clear after two years, he had the last laugh.
You’d be surprised how often lease mileage is cheaper than buy mileage — and even when it’s not cheaper, it’s absolutely predictable. The exceptions to that rule occur when you’re in possession of something that doesn’t become worthless with mileage the way my friend’s Contour did.
Let’s start by figuring out how much you’re going to drive. You say you’ve done 12k in four months, which is 36k a year, which is 72k total, right? 24k of those will be covered in the lease, which leaves you with 48,000 miles at .015 which is… drum roll… $7,200. Another way to look at it is that your payment for the next 20 months just went up by $350 a month or so.
The alternative would be to pay the buyout of $15,000 then sell the car. So let’s take a look at what a two-year-old Camry with 72,000 miles is worth in a private sale, shall we? A quick check of AutoTrader shows 72,000-mile Camrys that are between three and four years old (I couldn’t find any two-year-old ones) selling for between $12,000 and $16,000. The Black Book Retail Calculator thinks a 2012 Camry with 72,000 miles is worth $13,150.
It looks like pricing your car at $13,000 or so in a private sale would ensure a pretty quick turn. Which means that your actual cost will be your state sales tax at your buyout price of $15,000 — let’s say a grand — plus $2,000 worth of depreciation. Which means that you’re looking at a $3000 hit overall. That’s $150 a month, and more importantly it’s about eight cents a mile.
Even if you could sell out of your Camry for what you owe right now, I think you would have a hard time finding a car that was as reliable, safe, and comfortable as a nearly-new Camry for eight cents a mile. The only potentially cheaper scenario would be if you could make your Camry just disappear then buy a decade-old Civic with 100,000 miles on it for $7000 and sell it with 148,000 miles on it for $5000. But will your maintenance costs be as low? Probably not.
The good news is that you don’t have to make the choice now in any event. You can start trying to sell your car as long as 90 days out. If your lease company is feeling exceptionally helpful, they may agree to transfer the title DIRECTLY to the new owner, saving you sales tax. In most states that should be perfectly legal.
The good news in all of this is that you have a Camry — a car that has a devoted high-mileage buyer base. Had you chosen a Malibu, or a Sonata, or a Maserati, you’d be hurtin’ for certain. But I think you’re probably good to go. Just make sure you clean the thing up pretty well. And don’t forget to tell people, “They’re all HIGHWAY miles!”
Dear Jack,
When I look back upon my life when I am 80 or 90 (assuming I live that long), will I regret that I spent as much/many time, resources & anguish as I did trying to find interesting, stimulating vehicles to drive, or will I wish that I had simply bought one automotive appliance after another, using them purely as transportation devices, and that I had taken that saved time,energy, money & other resources and devoted these resources to another matter altogether, such as learning to play guitar as well as Stevie Ray Vaughan?
Are these two objectives even mutually exclusive?
Sincerely,
DeadWeight
We get it. You’re too much of a swashbuckler to drive a Camry. Do we have to hear it again every thread?
Maybe you’re just jaded.
Because if you can’t be stimulated by driving a Camry, I say you ain’t driving it right.
I was going to say this. I love flogging my BILs ’98 4 cyl Camry. It’s competent, solid, and the low-power keeps me out of trouble despite my impression I’m hooning.
Really?
You both missed the sarcasm?
I’ve driven everything from Honda Civics, to 12 year old Pontiacs, to a 1992 Ford Mustang, and everything in between.
I never load my cars up with options.
I place literally no importance on how others do/do not perceive me based on my vehicle.
Sheesh.
Thanks Jack! I have a related Phaeton/GM Question
Now, to what email do I send the questions or how to send you questions? Thx!
The most important thing to do now is keep your car as clean and well maintained as possible. Get a clear bra or even regular bra to protect from chips, keep the car waxed, don’t let it get dinged and scratched up, don’t trash the interior with food and drinks or smoke in it. That will be the difference between nearly breaking even on it and losing big time.
And there is another option: trade it in. A good clean Camry even with those miles will bring top dollar on trade and then you don’t have the sales tax cost to deal with. If your getting another car anyway then just use it in your negotiation.
Another option:
What about airplanes? I don’t know what this guy does to rack up so many miles, but maybe he’s going back and forth between Seattle and Salt Lake City all the time. The map says 841 miles (if by car) and the Southwest price of a one-way ticket appears to be around $120 all day long any time you want – that’s 14 cents per automobile mile. But wait! If he’s got a professional-level job in Seattle (why else would you move there?) then the time saved by flying multiplied by the monetary value of his time means that the flight is a negative cost to him, by an awful lot of pennies per mile.
And note that the cents per mile for purposes of this article doesn’t include gas (and any other incidental costs not covered by the lease), so the advantage of flying could be even greater. Interesting thought.
Jack you are the best! I hope people ask you a lot of interesting questions, because if they do this new section will be awesome!
Well, I’m glad that Jack is putting something entertaining and educational out there, however it would be more interesting if it weren’t about a Camry. I’m hoping the next one will be about a brown manual diesel RWD station wagon.
At any rate it’s a welcome change from the cornmeal-dry content that’s been around lately. Between DK’s comment slapping and Cain’s boring segments, I was thinking that this place had hit the skids for the last time. Industry news is fine and dandy, but when it’s the majority of what’s on this site it gets tiresome mighty fast. I’ve even resorted to reading the dreaded Jalopnik to make up the difference. I feel a little dirty admitting that, but hopefully I can stop my bad habits.
The first step on the road to recovery is admitting you have a problem.
Nice assessment! One minor quibble, though: the title should read “None Of the Miles *Is* Free” since none is short for “not one”.
I am a big proponent of “none is” but most people find it jarring.
+1, Jack, on “none is”.
Orwell Rule #6
I dunno; “miles” is still plural.
“Not one of the miles are free” reads better to me than “not one of the miles is free”.
(Is “not one” singular? I don’t even know, honestly, how to case that.
I tend to agree with MrGreenMan in any case, on this one.)
“One” is singular, and “not” merely negates it, so “Not one of the miles is free” is better than “Not one of the miles are free”.
“Miles” is the noun to which the adjective “free” refers, therefore “are” is appropriate.
The subject of the sentence is “none”, which is singular. “Free” is the subject complement, linked to the subject by the verb “is”. “of the miles” is a preposition phrase, modifying “none”, and functioning as an adjective. Because the subject of the sentence (“none”) is singular, the verb must also be singular, i.e., “is”. “None of the miles is free” is correct.
So then why do folks on this board say that it is a good idea to jump on the lease treadmill with high ownership cost cars as opposed to just buying. Resale value absolutely effects the bottom line on lease payments. Vehicles with high repair/maint costs are a bad idea, whether you buy or lease is the way I see it.
As for the original question, why not just buy and keep at the end of the lease?
Cars with high ownership costs are going to be expensive whether you buy or lease.
Cars with low ownership costs are going to be cheap whether you buy or lease.
The reason it’s better to lease a car that has high ownership costs is that the manufacturer usually gives you a subsidized lease where the estimated residual is way higher than what the actual price of the car will be.
Why not keep it at the end of the lease?
Mostly due to the fact that in two years the writer will have to pay, or the article, 15k + tax for a 2 year old 80k or better Camry is not a good idea.
Trade the car now.mmthis problem only worsens with time.
+1. There’s a transaction cost in trading cars frequently. If you’re driving 36K per year, hang on to it for six years or so, then sell it cheap. It will be the least expensive way to cover all that distance.
“15k + tax for a 2 year old 80k or better Camry is not a good idea.”
well, he’s going to have to *something*.
Say he sells it like Jack suggests. Then what?
Buy a base prius c?
The Camry should hold up fine for another 4-5 years, even with all those miles being put on it.
Without buying a cheaper car somewhere along the way, this is the best option from where I sit.
He’s gonna haveta pay more every month with all them miles, no way around it.
Trade and *buy* the same model if he wants. The writer is paying a deflated rent payment for a car that could potentially lead to financiL hardship later.
IMHO they are better off taking the higher payment sooner to avoid a significantly higher payment at the end of the lease rolling multiple thousands of negative equity into the next purchase.
I agree the best option is to pay cash, it does not feel as though that is an option for the writer at this point, but a lease is certainly the wrong path for someine who drives this type of mileage.
The main reason not to keep it at the end of the lease is that for roughly the same price, he could get a 3-year-old Camry with half the miles and a CPO warranty.
sure, but that 3 year old camry has an unknown history, and the warranty will not last @ 36k per year anyway.
better the devil he knows I say.
“better the devil he knows I say.”
+1 Take excellent care of the Camry, buy it at the end of lease, and keep it for another few years. This will minimize long term costs and maximize reliability. A well cared for Camry should run reliably for a very long time, even at 36,000 miles per year.
The OP will know he is getting and keeping a good car. That has a lot of value. Why trade it for a different 3 year old Camry that may have been thrashed as a rental or abused by an indifferent owner, CPO & lower miles or not.
Were talking about an OP who started a car sale inspection/test drive with “no oil in the car” low oil. The devil HE knows is a big ugly one.
I tried to put a longer comment, but it told me I wasn’t logged in, after I had just logged in. So one more try, but condensed:
Buy a new base model Camry or equiv.
Pay cash.
Drive with reasonable maintenance to min. 150k, try for 200k. (A base model Camry with reasonable maintenance and mostly HW miles ought to make that no sweat.)
Put equiv. of lease payments in bank.
When car is used up, buy another one, pay cash, etc.
I think an honest analysis on dollars and cents basis only will tell you this is the lowest total cost way to go. And all decisions about the car are yours, not some lease company dedicated to getting the highest possible profit margin out of your lease contract.
With today’s interest rates on auto loans, paying cash is rarely the cheapest way to do anything. Keep that money and let it earn more than your interest rate on the loan.
Personally, I don’t like the idea of being underwater, so I’ll pay just enough down payment to ensure there’s no way I’ll be underwater over the course of the loan. But that’s sort of an irrational preference when you can get interest rates from 0% to 1.9% on most cars if you time your purchase right.
This is really important, there is no shame in financing a car and is often good business sense, however being “under water” in any financial situation is bad. I have owned many cars that were financed, at no time was I ever upside down on any of them. Should you need to get rid of the car for any reason you won’t be stuck with a loss you can’t pay for
I had a nice comment that went here…
.
.
.
…and ended here, it got eaten.
So, @dal20402, I agree completely
Now, it has reappeared, it’s a miracle!
People who get a commission on your loan tell you that borrowing is cheaper.
It probably isn’t if you’ve got the money. Banks pay almost 0 interest, and the stock market is down 10% in the past few months. On top of that, 0% offers usually don’t coincide with low purchase prices: you get either the low rate or the better price.
The stock market is down from an all-time high. Take a longer view and it has performed quite well. For me, index funds have been the gift that keep on giving, because I’m a long-term investor.
I have two cars. Both were bought on 0% loans at prices well under MSRP ($4000 under, in the Forester’s case). One of them had a cash incentive which I passed up for the 0%, because the 0% was a dramatically better deal. It wasn’t even close.
If you understand the car market, you can time your purchases so they are super-cheap. The G8 was bought at a time when Pontiac dealers were desperate for customers and deals were everywhere. The Forester was bought in the middle of winter right after its replacement was announced.
+100000
If you have decent credit, interest rates are in the “pay you to take it” range right now. My CU offers <2.5% on up to *7 year* loans. Less than that from the automakers is easy to come by.
If I were the OP, I would buy the car, and drive it into the ground, assuming he likes it, of course.
Dal wrote “With today’s interest rates on auto loans, paying cash is rarely the cheapest way to do anything. Keep that money and let it earn more than your interest rate on the loan.”
Pray tell where can I invest the money (low risk) where it will earn even more than 1.9%??? Five year T-bills are at 1.5%. Cash the bonds buy the car take the manufacturer’s cash rebate (currently $2000 on a Camry) and drive it until its used up.
Dal: Bank deposit interest rates are low, too. Unless you are talking about putting funds in the stock market, why bother? If you’ve got the cash to buy outright, I don’t see the point of complicating your life with applying for and maintaining the loan.
So that I can make the 6% that my investments have averaged over the last decade or so, minus the 0% (in my case) that I’m paying on the loan.
Why turn down free money? 6% on $12,000 cash (which will be the average balance of my Forester loan over the whole loan term) is $720/year. I think that’s worth filling out a form and setting up an automatic withdrawal from my checking account.
Dal: If that works for you, great. But for someone who has a near seven figure 401K, sweet pension coming soon, and perhaps other assets and investments, that’s a tough sell. Especially for under 30k.
As a result of getting that loan I will probably be around $3500 richer at the end of the term (depending on market fluctuations) than I would have been had I paid cash. If it’s worth that much to you to avoid a loan, that’s great. But the claim was that buying in cash is *cheaper*. For me, that’s emphatically not true.
Ultimately, buying a brand new car IS financially foolish in a lot of ways. So I think minimizing the foolishness is the way to go. If you have the cash to buy a car, let the cash work for you and use someone else’s money when you can.
The very best time to borrow money is when you don’t have to.
First, 0% financing isn’t, no one is really loaning you money for free, they are making it back somewhere else.
Second, the current monetary policy of asset inflation is forcing an all time high in the stock market, which is bound to pop sometime. So if you decide to take a loan, assuming you will make so much more in the stock market that it will overcome the cost of servicing the debt, you are betting that it will be so. It is just as likely that it won’t be so.
Third, if something goes wrong in your personal finances, a debt service obligation does not go away.
Fourth, I think taking a loan to buy a depreciating asset is less beneficial than owning outright, if you’re talking about your personal finances (as opposed to a business, where the business can go bankrupt without affecting the personal assets of any employee). For cars, I am convinced leasing is even worse than borrowing, though it can make sense for business assets. Unless you have a sizeable business and your car is a business asset and treated as such in the accounting, I think buying outright is the way to go.
Remember that every month you are not making a payment, you are recovering that money you spent, and you can invest it any way you choose. So the money you spend when paying cash is not lost for the entire term of ownership, you’re gradually making it back as you go.
It’s a fundamental conceptual difference. I would rather take the pain up front, and make it back later, with less risk should things go bad, than hope that I can outperform the people at the finance company who set rates and terms.
Like I said, I have two cars both bought with 0% loans (one is paid off). I passed up an incentive to get the 0% on the G8, because the 0% was going to make more money for me over time than financing the lower price at their standard rate. There was no cost to taking the 0% on the Forester. The maker was trying to blow out excess inventory in advance of a new model.
If you think the stock market is a bubble, then maybe it makes sense for you to stay away. Personally, I don’t. Handwringing about monetary policy makes no sense in an environment where we still don’t have full employment (although we’re starting to get close). If there is a surplus of available labor in the market, wage pressure prevents inflation. Historically, it really is that simple, absent something like a total breakdown in social order.
Everyone has their own feelings on what makes sense for themselves financially. There is a need to make sure you sleep well at night, whatever you do. However you work the math, there are other factors. For one thing, I just like walking into the garage and seeing two cars I own outright. Gives me pleasure, math be damned!
In many cases, the payback for 0% is increased sales. They need to move the metal. The car makers I have bought from don’t play the “low rate or incentives” game. Plus my CUs rate is below the rate of inflation, never mind what I am making on my investments. And then there is the cost of pulling money out to pay for the car – 15% capital gains + any brokerage fees.
“So that I can make the 6% that my investments have averaged over the last decade or so, minus the 0% (in my case) that I’m paying on the loan.”
If just buying Vanguard funds were a sure 6%, why on earth would a lender give it to you at 2% instead?
The last decade of market behavior was unprecedented in a lot of ways. Gambling on a repeat on the outcome may make you $3500. I hope it does. I wouldn’t be shocked if it didn’t, and neither would your lender.
He said it better than I could.
You call yourself a long-haul investor. You know that over the long haul (not just the last few years of low interest rates) consumer interest will always on average be higher than average market returns. That’s how lenders make money. If you are so confident that you can out-negotiate most buyers at the dealer (to get better than average prices so you’re not compensating for “0% financing” there), and you can out-invest most investors in the market, so your money will earn you more than the overall cost of money, and that you can time when consumer interest rates will be lower than general market returns (which, by the way, is inherently a transient condition, because the way lenders make money is by loaning it to you for more than they would make on other investments)… go ahead and go for it. You may very well be right, and in truth if you’re not, the amount of money either way isn’t all that much.
But, the OP wanted advice. My advice – buy new cars for cash, drive ’em till the wheels fall off, save the payment/lease money, rinse, repeat – is my advice. Your advice is different. That’s OK. You may come out ahead in the end, although I think I will come out ahead in the end. There’s a place for either strategy.
I fully expect interest rates to rise. But car loans are fixed rate loans. Locking in when the getting is good only makes sense.
5% is actually a low estimate of market returns over the long haul, say 25+ years. S&P 500 has done 8% adjusted for inflation 1980-2013. If you go back to the early 1900s, it is more like 10%+. So it is a pretty darn safe bet that it will beat 2% over this 3-5 year span, and even if it doesn’t, the money is still there waiting to grow again. If you take it out and spend it on a car, you lose. I’m pretty comfortable, but not so comfortable that I will write off several thousand dollars just so I can say I paid cash for this car.
As I said previously, it is best to do a financially foolish thing in the most fiscally responsible way possible. If interest rates are higher and returns the same or lower, then the calculation may be different. It certainly was in the ’80s and ’90s when car interest rates were more like 10% plus.
For many reasons, rational or not, I’m with banker43 and prefer to own outright. Acknowledging all the excellent arguments for putting someone else’s money to work, are there any insurance savings from owning outright vs. financed vs. leased?
No insurance difference in my experience, between leasing and financing. For me, in my area. I carry full coverage until the car is worth less than $3-4K anyway, so that is not an incentive for me. If you live in an area where insurance is very expensive, YMMV. Full coverage on my four cars in Maine with low deductibles and high policy limits is <$1000/yr for me, for all four.
I prefer to own outright as well. The trick is to take the cheap money, but have the resources to pay off the note any time you might need to. Most people do not have that luxury, of course.
Leases generally require you to carry split liability limits of 100/300/50 with full coverage; depending on the lease terms you may be limited to a $500 deductible for comprehensive and collision.
If you already carry that kind of coverage then there’s no difference. Otherwise you would have to adjust your coverage.
What about after the current lease is up, finding one of those mythical 99 per month accord lease deals I see advertised every so often. It seems to me that would be the cheapest per mile way to go, of course you have to read the fine print!
Because that come-on offer will probably be built around something like 8-10k miles a year, with a per-mile overage of 25-30 cents.
And a huge payment up front, which should always be avoided in a lease.
When the object of the game is always driving something newer for 36K miles annually, why not just buy a new car every year? Take your lumps at trade-in, but at least all you did was add fuel. And no oil changes. Ever.
“I’m too old to play that anymore. If you are wondering I’m an ’81 baby.”
’81 Babies are old? That’s news to me. December ’81 here.
MY81 as well, I think he just doesn’t feel like playing the beater game as nobody is too old for it.
When Geo Metro values riss I will sell! Then who has the last laugh – the answer is “me”!!!!
First off, if you are driving that many miles and don’t care about handling or joy of driving, you bought or lease the wrong car to begin with. The fuel cost saving of going into a Prius would be much better than figuring out the least vs buyout cost of a Camry.
Now, as Jack’s math points out, you pay regardless of lease or buy the rest of the miles. What you can do is decide whether it is time to switch to a different car if you are going to drive the same amount of miles from now on. IMO if you are driving the same miles later, move out of the Camry and switch into a Prius. If you are going to stick to Camry, then buy it out at the end of the lease and keep it or sell it.
Leasing is useful if you don’t know what you need a few years from now, and if your state charge sales tax regardless of new or used vehicle transactions and you can’t bear to drive an old car. In your case, you drive too much to be leasing (except maybe an EV or any car with questionable or uncertain reliability reputation).
When I was driving 30-40k/year, I very quickly lost the “joy and excitement” of driving and I wanted a comfortable ride that got me there reliably. Camry does that quite well. Haven’t driven a Prius so can’t comment on its comfort over long commutes.
In that case you can now decide whether to try out a different car better fit your need (i.e. a Camry Hybrid or Prius), or stick to what you have.
Having driven my parents Prius I can say that it is a very quiet, comfortable, and dull ride. When driving it I felt isolated and disconnected from the road. Their car has also drive well over 100k miles in 4 years with no hiccups at all. I think over 150k, but I am not certain. They said it once lately and I promptly forgot it. I just remember that it’s higher than I expected.
I prefer something more sporty myself, but if you simply want to a comfortable ride to get you to where you are going I would highly recommend the Prius.
There is an added bonus that nobody considers: brakes. If you only gently apply the brakes the traditional friction pads don’t engage. Instead it uses regenerative braking alone to slow you down. So if you do what you were taught in driver’s ed years ago and give yourself plenty of distance to stop, don’t drive like an idiot, don’t stomp on the brakes, don’t floor it until the last second before a stop sign, and don’t pretend you are Sebastien Vettel the brakes will last far longer than you are used to. I remember my dad mentioned that on his he had over 50% pad left on all four corners at 100,000 miles.
As someone who used to drive in excess of 36,000 miles per year, and who presently owns a Prius, the Camry is the preferred vehicle….by far
> Alright, this takes me back — way back to 1994, when I leased
> a new Ford Contour to a friend on a two year/90,000-mile program.
> He was paying $475 a month to drive a Contour and all his friends
> laughed at him! But when he walked away from an 87,000-mile car
> free and clear after two years, he had the last laugh.
I don’t understand the point of this.
$475 x 24 = $11,400. That is pretty much the price of a Contour in 1994. So how is “walking away” advantageous to simply buying the car new in this case? In fact, lease return on a 90k mile Ford could have been brutal, since it is out of warranty and may have things wrong with it that the lease owner would be responsible for. One would have to potentially spend thousands of dollars to bring the car to as new condition.
Plus the sales tax on a lease is substantially higher, at least where I live.
I don’t really understand the rest of this article, either. Most used cars I have bought and sold in the last 20 years I have either broke even on, or made money. I think the point of this article is to show that new cars have reasonable cost per mile when leased. I could be wrong, though.
I am leasing a 2012 Passat. The lease is exceedingly cheap. However, it is my first lease and will probably be the last. Throughout the lease I have felt trapped, which is made worse by a recent law in my state that prohibits lease holders to resell their cars without paying sales tax on the buyout. At no point during the lease I could have gotten out without losing money. I am not used to that.
It’s not close to the price of a new Contour in 1994.
A Contour GL with a few options was $16,100 with very little dealer markup. Add sales tax and you’re looking at $17,000. Plus the cost of money for financing one for two years.
Not to mention the tax advantages of leasing.
Yes, I know you pay cash, everybody pays cash for cars except 95% of the customers at every dealership I’ve ever visited.
As for this:
“Most used cars I have bought and sold in the last 20 years I have either broke even on, or made money”
I’m from Missouri where that’s concerned, as Patrick Bedard used to say.
Let’s just say I have a different recollection :-)
I was actually shopping for one in 1994 or 95, test drove it and liked it. I did not buy it because of some refueling issue I read about on the Internet (USENET at the time.) I remember the one I looked at was around $13k out the door. I also remember thinking that Ford has a problem because Taurus was discounted like crazy, selling for $13-14k next to the much smaller Contour.
My close friend later bought a 2000 SE with the V-6 and 5-speed. That was an excellent car. Felt very different from my 2.5RS, which had more traction but way less power and refinement. I would say, the 2.5 Contour felt similar to the E46 325i I bought a few years later.
Should I buy a functioning 1990 Bonneville SSE with 151K for $1000?
If I buy it that means I’ve owned every version of the ’87-’91 generation and it would mean that I’ve owned more Bonnevilles than Grand Ams.
Leasing would make sense if you’re lowballed on your trade unexpectedly, as I was last time — should have done this.
When I bought my 2013 Accord Touring, I figured my broker could get at least five figures, so I was shocked when he got me only $8.5K despite his best efforts. Even with putting a nice chunk of my own $$$ into the deal, I still ended up with ~$420/month car payment (1.9% through AHM — 0% wasn’t as prevalent in early 2013 as now); my comfort zone is a base payment ~$375 or so, then be able to write larger payments for principal paydown in a month without extra expenses. (Worse, in a “panic,” I wrote a couple of checks that were a little large, in retrospect, to pay the principal down, so now, my savings is just a touch less than I’d prefer!)
Lesson learned is this: Being OCD to the point of anal-retentive about maintenance and upkeep ($1,500 worth of paint-protection film prior to delivery, if that’s an indication), plus only driving around 10,000 miles per year makes me a perfect lease candidate. Next time I’m faced with these circumstances on a car I want, I’ll have a three-year lease written up, then put the trade-in proceeds into ANY sort of investment vehicle together with the difference between the lease and finance payment, then use those funds buy the car outright at the end or trade the car for a new one. (In my case, had I done this, I’d be giving myself the option of keeping my current car or upgrading to a 2016 Accord Touring which will surely, given the CR-V Touring’s level of equipment after its mid-cycle model change, will certainly get goodies like Collision-Mitigation Braking and active Lane-Keep Assist.)
Yes 5% is low for long term and 8% is more realistic. However this is not a good reason to expect to beat 2% over any 3-5 year period, just the opposite. 3-5 years is way too short to use long term averages. Over the 11 years from 2000 to 2010 compounded annual growth in the S&P500 (dividends reinvested) was only .57%. Of course you’re going to cry foul in that the time period includes the meltdown of 2008. Going from 2000 to 2007 gives a return of only 2.09%. These are from
http://dqydj.net/sp-500-return-calculator/
krhodes1:
“5% is actually a low estimate of market returns over the long haul, say 25+ years. S&P 500 has done 8% adjusted for inflation 1980-2013. If you go back to the early 1900s, it is more like 10%+. So it is a pretty darn safe bet that it will beat 2% over this 3-5 year span”
I really think you are looking at this the wrong way. If you take the money out of the market, or never put it in, you lose. You are spending the money on something that will be worthless in the long run. You put it in or leave it in, and any short term loses don’t matter, because over the long run, you will most likely make money. Guaranteed loss vs. probable win doesn’t seem like a hard choice. The term of the loan to buy the car doesn’t matter – you are locking in at a very low interest rate.
Really, there are any number of things you could do with the cash that is better than using it to buy a car in a time of 2% interest rates. Do you have a mortgage? Put the $40K towards the principal balance. Put it in your retirement account. Pay off any other higher interest debt. Almost ANY debt you have will be higher than 2%. If you have absolutely NO debt *at all*, well good for you! But that is not 95% of the population.
I have never said it ALWAYS makes sense to take the loan, it didn’t in the past and it likely won’t in the future, but it certainly makes sense to do it NOW, and now includes the past 4-5 years. But to my mind, any time you can borrow at less than the rate of inflation, you probably should anyway. I have very little doubt that interest rates will be back to something close to historical norms within the next 10 years.
Jack: I am in a similar boat as the original poster. We have a 2013 Prius persona model. It’s a 3 year lease, 36k miles. We are 16 months in and my wife has already amassed 23,000 miles +. At 0.25 cents per mile on top of what we already pay 296 month for the lease, is it worth trying to get out of the lease early into a more traditional car? i.e. Honda accord sport (would be my choice). Never loved the hybird complexities- despite the exceptional reliability that they garner from the auto press. Or we can buy the Prius now outright for 22,000 and change or wait until the end of lease and pay 15,200. By the end of the lease I am anticipating her being well over 50,000 miles (unless something changes with her work schedule). She does get incredible gas mileage. Usually in mid 50’s without even changing her driving habits. Mid 40’s in the winter (which in Minneapolis is awesome with heat on all the time). No car, accord or the like will come close to those numbers, unless we go even more complex and get a Volt or Tesla (both out of my price point). So far Prius has been perfect, though it is brand new. Haven’t had any issues with winter driving either- only one day it was a problem and she got stuck. I have a 2014 honda crv awd. It’s really nice. Love the interior. Was great last Winter. Would love your thoughts on what to do with my wife’s Prius. Anyone is more than welcome to “chime in” too. Thanks!
I don’t understand the big confusion over the lease vs. purchase debate. Its basically the same cost either way… pay now, pay later, whatever. If you finish out the lease at $300/mo you will pay out about $6k more in payments and then buy the car for $15k… total of $21k. Or you can buy the car now for $22k outright. Or you can try to trade it in or sell it and get $22k for the buyout. Or you can try to trade it in at the end of the lease and try to get $15k. Or keep it and pay cash or finance the rest. Either way its a grand either way, plus whatever interest you can work out, which is cheap right now.
My guess is you bought the car for about $27k, right? You could have financed $27k for about $450/mo so by leasing you “saved” yourself $5500 over 36 months, but if you keep the car you will end up paying for it over a longer period. What really sucks is right now you can get 0% financing for up to 72 months on the 2014 Prius, thanks to Toyota blowing them out.
If I were you, what I would do is try to trade your Prius in now and work a deal to get it paid off in exchange for buying a new one. Then take the 0% financing and plan to keep it as a long term commuter for your wife.
It may look the same on a car with expected reliability and resell. It is like hedge funds expect the investments they are hedging to be certain and can make money off between the investments they hedge.
Except in some cases they are not. Leasing if you drive short distance gives you a chance to dump a car if you got a lemon at a predetermined cost, and it won’t affect you financially. It probably won’t make any difference on a Camry, however.