The best thing about writing the Ask Bark series since the beginning of the year has been the feedback that you, the Best and Brightest, have given to our questioners. I might have a few good answers, but I’m only one man, and there are literally thousands of people who read each Ask Bark column. Collectively, you have wonderful ideas.
However, individually, you have some real clunkers. Today, we’re going to talk about the often given advice I’ve seen in the comments. Some of it isn’t just wrong, it’s flat-out harmful.
“You should negotiate your trade separately.”
I see people say this all the time, to the point where it’s almost become some sort of commonly held truth, like saying “water is wet.” This might have made some sort of sense in the pre-Internet age, but in 2016, it makes absolutely zero sense.
The idea is this: you spend all damn day in a dealership hammering out the price of the new or used car you’re buying, and then after you’ve done all that, you say at the end, “Oh, I also have a trade.” In addition to making everybody in the dealership hate you, you’ve also made a foolish financial decision.
Why? Because you have failed to understand how a dealership works. If you’re buying a new car, you’ve now completely lost any leverage that you had on the trade value of your used car. Had you told them upfront that you had a trade, they could have rolled some extra value into it (or what a dealer calls “overallowing”) to help reduce the price of the new car. As a consumer, it doesn’t matter at all to you where the money comes from — you should just be worried about the net transaction price. However, to a dealership, it matters a lot. Sometimes the used department needs to underallow, and sometimes they are able to overallow, depending on what the financial statement looks like that month. Allow me to elaborate.
When I bought my Mazda RX-8 back in ’05, I was upside down a bit on my trade, a 2001 Hyundai Santa Fe GLX. In order to make the deal work, the dealer took all of my negative equity and rolled it into the trade value of my car. The new car manager was happy because he didn’t have to discount his car as much. The used car manager was pissed, but he accepted that he was going to eat the deal in order to make the new car deal happen. If I had done the transaction as two separate deals, the Used Car manager would have hosed me on my trade, and there would have been no incentive for him to overallow, because the new car price was already been negotiated.
You might say to yourself, “What difference does it make? The money all comes from the same dealership.” The answer lies in the way that the managers of the various departments are compensated. Most department managers are compensated through some combination of gross sales and net profitability. So if you’re buying a new car, the new car manager might not be able to move on his car as much as you’d like, but he might be able to convince the used car manager to overallow a bit on your trade, providing that the used car manager has the room in his budget and if he feels like he can move your trade quickly. So, as a result, they might tell you that you got a great price on your new car, but they might be putting it into their accounting system as an MSRP new car deal with a huge overvalue on the trade — or vice versa.
At the end of the day, it doesn’t matter to you. You’re just paying the net transaction price. But if you try to insert the trade at the end of the deal, you’re taking away any chance that your trade might be actually helping to lower the price of your new car.
“Always buy CPO or late-model used over new.”
In 2016, this is just stupid. Let me tell you why.
There’s a leasing bubble happening as we speak. The lease deals that are available on most C- and D-segment cars are maybe the best that we’ve ever seen. It’s common to see $200 or lower monthly payments over 36 month leases with zero dollars down. And these aren’t just loss leader deals, either — the Chevrolet Cruze has been leasing so low that most Detroit dealers have been out of Cruze inventory for months.
Conversely, the used car market is completely bonkers today. Used car values at the auction have never quite recovered from Hurricane Sandy. It’s not completely uncommon to see low-mileage used cars going close to or even above new car invoice price at auction. Why, you might ask? Simple. Independent dealers can’t sell new cars, but many of them specialize in late-model inventory.
This lease bubble can’t last forever. Ally won’t subsidize these deals for long. And maybe auction prices will eventually go down. But, while they are, you’d be absolutely foolish to buy a late-model or CPO car over leasing a new car. “But I drive a lot of miles,” you might say. Even better! Prepay for your lease miles and wash your hands of your high-mileage late-model car instead of being massively upside-down on your loan.
“You should always buy instead of lease.”
I can’t even with this nonsense. Seriously. Stop with your Dave Ramsey bullshit.
You’re seriously telling me that you’re not better off paying $189/month to lease your Accord than paying $583/month to buy it? That’s exactly what the difference would be if you financed a base Accord over 36 months at 1.9% versus a 36 month lease.
“Yeah, but at the end, I own it, dude.” Congrats! You own something that is absolutely, positively going to continue to depreciate, and you paid $20,000 to do it. Alternatively, you could have paid less than $7,000 to enjoy the same car for the same amount of time, and at the end, you can walk away from it, scot-free, into another new car with updated technology. So what if you don’t own it? Do you really want to own a three-year old car with 36,ooo miles on it? Or would you rather bank that $400/month and get another new car?
Here’s another truth that we never discuss because all TTAC readers have 800 beacon scores and can afford to buy a new F-Type for cash (they just choose not to): If your beacon is in the 580-660 range, you can probably still qualify for the best lease deal in most cases. You’re definitely not going to qualify for the best financing rates. So if you’re slightly sub-prime (like a lot of people are), and calculating a money factor on a lease doesn’t make you wet your pants in fear, you can probably figure out that you’d pay less money to lease a car than you are to finance it.
Listen, if you absolutely hate driving newer cars, or if you just don’t like cars at all, by all means, don’t ever lease anything. If you’d like to get a better car for your money, and if you’d like to drive a new car every three years, then explore leasing. It’s not just for people who can’t really afford a BMW 3 Series any more.
Come back next week for Volume II, where we discuss other crazy shit like “It’s always better to privately sell your car instead of trading it in” and “Japanese cars are always of higher quality than domestics.”
If the adage “Balloons Sell Cars” is true, then a giant blue inflatable gorilla ought to sell a whole mess o’ cars!
That gorilla is cool. I dont know if it would generate more sales though.
That would be a great “decoration” for the roof of one’s house. Especially if they live in a stuffy HOA.
Why choose to purchase into an HOA if you don’t like what it’s for?
I dont live in an HOA now, and many people often dont have a choice. But I did… once… and man, do I wish I had that gorilla!
“But Mr. so-called HOA president, an inflatable giant gorilla is NOT covered by the aforementioned HOA agreement”
Break out that gorilla! But please, no trash cans out before 6PM. living in an association where half the folks are retired and monitoring your behavior. Gosh it sounds like such a nice place to live!! Quite the price to pay to avoid the slob who does not cut their grass.
“Always buy CPO or late-model used over new.”
In 2016, this is just stupid. Let me tell you why.
I disagree here. I paid 35% of MSRP when I bought my used 328i from the original owner who paid $36k.
My next car will be a 2015 Genesis, V8 when it hits 50% of it $50k MSRP. Now, they are in the mid $30k’s and falling fast. CPO Hyundais carry the remainder of the 10 year, 100k warranty. Buying new is just stupid.
Three years ago I bought a CPO BMW 335d with only 34000 miles on it for just 28K. With 260 hp and 425 ft lbs all in by 1700 rpm it is the most amazing road trip car you can imagine. Last week I drove it 1200 miles from Parker CO to Thousand Oaks CA in just 13 1/2 hrs…..lots of triple digit cruising. First fuel stop 35.6 mpg. Second fuel stop 31.4. Amazing vehicle as long as it is used for long high speed trips. For short in town running around we use a 16 Golf Sportwagen tsi
@twotone
*Always* is the key word.
More specifically, it depends on the class/make/model as you’ve pointed out with your Genesis example. With gas prices way down, everybody is rushing back into bigger cars so there’s a ton of deals on small cars.
I’m always fascinated by the herd’s obsession with gas prices and watching them make stupid financial decisions when gas prices spike. People will give up thousands in asset (vehicle) value to save hundreds on gas. In the spring of 2007 gas was in the low $4 per gallon range and I was interested in the Chrysler 300c with the V8 engine. So that’s when I decided to strike, row upon row of unsold 300c inventory populated dealers everywhere and deals where incredible.
I love Fowlerville Ford’s balloons. They have had a gorilla on the roof for decades. It reminds me of what Livingston County, MI was twenty years ago or more.
Speaking of car dealership advertising, I’m still disgruntled that my wife wouldn’t let me mark the wedding venue with a wacky wavy inflatable arm flailing tube man.
I paid a total of $27k for my ’04 Passat wagon that will turn 12 at the end of next month. 99k miles. No significant age-related costs. Monthly cost to date is $187.50. Passats have only gotten less fun to drive since then, nobody else makes a comparable car (except the Volvo I can’t afford regardless), and I really, really don’t want/need infotainment.
So yeah, I really wish I’d leased.
I also have a ’04 passat wagon, bought used in 2010 with 38,000 miles for $10,400. GLX V6 4motion.
In the last 5 years, this is what’s gone wrong with it:
– Water pump leak (timing belt also replaced b/c of access) ($1200)
– alternator replacement ($1000)
– fuel pump replacement ($850)
– engine seals replacement ($1000)
That’s pretty much it. Haven’t had window regulator or suspension issues, haven’t had the ABS controller fixed, haven’t had the modules on the floor get wet (thanks to preventive maintenance). Everything still works. I replaced the headlights myself a year ago. It was built in Ingolstadt.
It seems really solid, at least compared to later VWs and to most American cars I’ve driven. Interior is still quiet and no rattles, etc.
What’s your experience been like?
Did any of those leave you stranded? Late for work?
Man, if I had put $4050 in unscheduled repairs into a $10,000 used car, I would be seriously p!ssed!!
Yeah, that dollar amount is ridiculous. I have never put that much into used car repairs. Hopefully the 4Motion holds up.
Yeah, it’s aggravating. Bear in mind this is unscheduled maintenance over almost 6 years. The fuel pump and alternator were especially aggravating.
The engine oil seals were more like a maintenance thing. I could live with it but I was getting tired of the slow drip.
My other cars have been insanely more reliable and I’m not buying a VW again. I recently bought a beater so the next time the Passat craps out, I can fix it myself.
Worse, it was a six-year-old car at the outset. If ever there was an argument for leasing a new car, this is certainly it.
I still have a hard time wrapping my head around leasing, but that’s likely just a personal hang up of mine. I like the idea of actually owning my car. And yet, I can see the appeal. I’m sure for what I bought the 2014 Escape for a few weeks ago, I could have leased something likely a little nicer, and probably wouldn’t have felt as inclined to put down the $4500 down payment I did on it. My wife tried to steer me to a lease for a truck, but couldn’t get myself to that point (and not sure I could have leased any truck for $200/month).
As for negotiating the trade upfront, that’s another mind game that I have a hard time coming to grips with. I’ve always felt that it’s too easy for a dealer to manipulate the numbers by knowing the trade is coming along for the ride. Call it ignorance, I suppose.
I’ll vouch ahead of the curve that our “nearly* all-American built vehicles are on par with the foreign stuff. 15 years ago, maybe not so much (my son’s still-running 1997 Tercel with 220k on it is rolling proof), but we collectively as a family (mother and sister included in that) own three Fords (our *new* 2014 Escape, my sister’s 2011 Explorer and my son’s 2011 F-150) and two GMs (our 2013 Cruze and my mom’s 2012 Verano). Not that long ago, the roster didn’t have a single American nameplate in it.
“I still have a hard time wrapping my head around leasing, but that’s likely just a personal hang up of mine.”
No, threeer, it’s not just you, it’s me too. Beyond the fact that I’m one of those propeller-heads who keeps his cars 500 years, I just viscerally break out into hives at the very idea of leasing. A big part of the reason is that even as a former A student in math, I’ll confess that I simply have a really hard time comprehending the math of lease transactions.
And, DON’T REPLY BY HELPFULLY EXPLAINING THE MATH TO ME. I’ve read it many times, very well and “simply” presented, I’m sure. It’s simply complex enough that to my little pea brain, it has so many moving parts that it makes it even easier than the old Four Squares, et al, to hide all manner of skullduggery. I don’t feel confident that I could walk into the showroom, do the deal, and walk out with any real idea of whether I paid a fair price or an extortionary one. For that reason, I simply can’t and won’t do it.
I can’t imagine I’m the only person who feels this way. But even if I am, so be it.
I have leased exactly one car since I started driving. Admittedly, it was a 2000 VW Golf that decided to exhibit all the traits that made VW reliability the oxymoron it has become (for better or worse today, history has a way of lingering) and my bitterness might have as much to do with the poor experience of the vehicle as opposed to the lease, but still. I drive. A lot. And I don’t want to have to sit at home and calculate how far I can and cannot drive or how much more it’ll cost me to do one more puppy rescue run due to mileage and condition issues. That, and I don’t like the feeling that I am simply renting the car. It’s in my driveway, I’d like to think I own it and can do pretty much whatever I want with it. Sure, I’m a gearhead, and would love something newer/sexier/faster every three years, but I don’t want to be perpetually paying to rent a car. For some, leasing makes sense and those folks are the happier for it. It doesn’t for me and I’m okay with that.
The thought of milage limits and their overage charges keep me away from leasing. Although I do maintain it’s the best way to own a Range Rover or Exotic.
I dream of leasing a vette or Cayman, never taking a wrench to it, and giving it back…auto porn
I agree as well – sure there’s some crazy low leases on very specific models, but is it the one with the trim level you want?
Ultimately, since I keep my cars 10-12 years, with the exception of maintenance items (which you are responsible for on a lease car), buying makes more sense financially.
Don’t get too hung up on your hang up about leasing (pun intended), lots of people struggle with it. I think it can best be boiled down into whether you want a new car every few years, like to hold, etc..
As for the age-old argument of American vs. foreign cars, the lines are blurred on exactly what is an American car. A Chrysler built in Canada with an engine built in Mexico? A Ford built in Mexico? A Honda built in Ohio? A Mercedes built in Alabama? A Nissan built in Texas? I owned American-based manufactuers’ cars from the time I graduated from college in 1987 until last year when I bought an Infiniti. Started with a Chevy, then had three Chryslers. In my opinion the quality got progressively better (mostly in fit/finish and decreasing rattles, wind noise, the little stuff that foreign makes cared about but Big 3 manufacturers didn’t) My last Chrysler, a 300c, was a nice car with a ton of features at a great price relative to its competition. Where it fell short was on the quality of interior materials (plastic vs. aluminum, etc.), which was fine with me. I love my Infiniti, and it in large part was me moving into my 50s and deciding to reward myself by being a little less practical (hey, I’m a CPA!). The fit/finish and quality of materials is outstanding and a clear upgrade over anything I had driven previously.
I agree with Bark’s assertions.
In Canada the price of ‘good’ used cars, particularly Hondas, Toyotas and Subarus is astronomical. If you finance a used car the payments would often be more than buying a new one with manufacturer’s financing.
As for lease versus buy. I leased for decades because it was beneficial for business/taxation reasons. When things changed I purchased. Now when contemplating a return to the new car market, I have compared the costs of leasing to buying. When calculating the ongoing maintenance costs of a purchased vehicle such as annual Krowning, replacing tires, battery replacement, coolant changes, timing belt replacement, brake ‘jobs’ (rotors/calipers), plugs,etc and other maintenance that becomes necessary after 80,000 to 100,000kms (the normal lease limits) I am quickly becoming convinced that the price difference is a ‘wash’. On a leased vehicle basically the only maintenance performed is to change the oil, filters and perhaps the ATF and for nearly all manufacturers the power train on a leased vehicle will always be under warranty. And by leasing I get to drive a newer vehicle more often and not have to worry about giving my family members an ‘older’ and higher mileage car on long out of town winter trips.
If however you don’t put many miles on your car, don’t car about what it looks like or are willing/able to do most mechanical diagnosis/replacements yourself, then buying is advantageous.
You still need to pay for tires and brakes on a lease if they are past a certain wear limit when you return it.
That’s why a lot of off-lease used cars have the cheapest off-brand tires you can imagine (and probably the cheapest brake pads and rotors).
Yes but living in Canada, I have a set of winter tires. So the wear on the factory tires one a returned lease would be negligible. Probably around 40,000 to 50,000kms.
Brake pads would have to be changed but at lease mileage not rotors, so another minor expense.
My employer extended my car’s lease for three months. When it first expired, the dealer sent an inspector to assess the car’s condition. He found nothing that he didn’t like, and we were looking at $150 in reconditioning costs for a lost key. Three months later, the initial inspection had expired and a different inspector was sent. He went hog wild finding faults. There was nothing wrong with the car that wouldn’t be wrong with any other 40,000 mile commuter car. The new assessment was well over $2,000. Wasn’t it enough that we’d just paid over $700 a month to extend the lease of a car that was only worth $24,000 when the 36 month lease expired? I wouldn’t be surprised if they were feeling the burn of having leased the car for less than its depreciation amounted to.
“You should negotiate your trade separately.”
I just file this away in the “everyone wants to believe they’re a hard-@ssed negotiator” bin. They don’t want to admit (or even realize) that if the salesman/dealer OK’ed the transaction, they got what they wanted.
you are on to something there, the dealer always wins. the only things that matters is that you convinced yourself that you somehow obtained a good deal.
Dealers need to make money in order to turn on the lights and employ people. I get that. But walking into a dealership is a lot like walking into a casino. Knowing how to play the game will limit your losses. Playing skilled craps instead of roulette or slots will limit your average loss to 1.5% instead of 16%. The only difference is that you will never win going into a dealer. You can win in a casino.
Like thermonuclear war insofar the winning move is not to play.
It just seems like every part of the dealer is a rip-off. They game the finance, they charge a lot for service that’s usually pretty poor quality and rushed, they sell you used cars at retail prices, and buy used cars at wholesale prices.
You guys greatly overestimate the rationality of business transactions. Dealers will take a loss if it means hitting a volume goal, or if it means denying a rival your business, or if he’s part of a large dealer group with Ivy League MBAs who issue directives without ever considering the input of anyone who has so much as driven past the business in question, or if he’s worried about his Covey score and thinks someone who treats him as a contemptuous adversary will tell his manufacturer rep that he’s a peach who goes the extra mile for every sale. The deck is stacked in your favor if you’re not stupid or timid.
ToddAtlas totally gets it. Dealers hire expensive Ivy League MBAs to price their vehicles below cost. Right. Because that’s how business works. Which is why Todd has decided to stay in his mom’s basement and issue the truth to those of us smart enough to receive it.
I’d rather light a candle than curse your darkness, but there doesn’t seem to be any point.
There’s a great This American Life show about how manufacturer’s incentives to dealers can make it worthwhile to sell some vehicles below cost in order to hit desired dealership sales goals.
Worth a listen and still available online: DEC 13, 2013 episode “129 Cars”
http://www.thisamericanlife.org/radio-archives/episode/513/129-cars
I feel like this was a technique espoused by Consumer Reports or some similar outfit. I can remember when buyers started coming in with this and generally pissing everyone off. Not their problem, mind you, but it did happen.
The best deal I was ever on the OTHER side of was in a situation where a customer had included his trade with the initial negotiations of some regular used car. He pushed and hammered his trade price and we crept up and up until we arrived at a price he would agree to (well overvalued, pulling profit from the purchased car.) When he stuck out his hand and genially asked so you’re willing to give me $xxxx for my car, and the salesman took it and said yes, he said “Good, because I want to buy that car for that price” and pointed to the loss leader used car with the big mark down price on the windshield.
We talked it over and decided we were already losing money on the loss leader car, move the metal, and that he got us. Good for him. Win some, lose some.
tl;dr: sometimes including your trade in the initial negotiations can be used to score a better deal all the way around.
Your last point has been festering in the back of my mind. I’ve put 40,000 miles on a vehicle in a little more than 2 years. Ford and Dodge are offering lease deals on sedans even with 19,500 miles per year permitted that are pretty cheap.
Use it up, turn it in. Lather rinse repeat.
“Do you really want to own a three-year old car with 36,ooo miles on it?”
Yes. I would *definitely* want to own that car.
It’s paid for and easily has 5 years of reliable, comfortable, safe life left in it.
At 3 years if you’ve taken decent care of it it should still look and feel essentially like a new car.
Drive that car for another 5 years, bank the lease payment, and then sell/trade it and get another new car with cash straight-up (or tactical financing) and repeat the process.
I like cars a lot and have no issue with operating or “being seen in” one that is 3-8 years old. Just pick a good one to begin with and take care of it.
I don’t think this is an internet car guy hairshirt situation, either. Does anybody disagree that a MY2010 vehicle is still a perfectly satisfactory machine today ? My current primary car is a 2011 with 90k miles, I bet I could convince non-car-people that it’s a year old.
Except the repair costs, unless you do them yourself might equal the difference between the monthly payments and the cost of a lease.
Don’t amortize your payments on a purchased car over the 36 months or whatever. Amortize them over the time that you own the vehicle (minus whatever you might sell it for). Then add in all maintenance and repair costs. Plus the cost of renting a car if yours is unavailable. Plus the cost of aggravation if it does unexpectedly stop running. Plus the worry about unexpected repair costs, when with a leased vehicle your monthly costs should remain relatively constant.
There is a cost associated with ‘peace of mind’ which is why we purchase insurance that we hope will never be used.
Once you have factored in all of those, then compare them to the monthly lease payments.
Good point. I do all my own repair and maintenance, so that shifts the equation towards “own” pretty significantly.
I’ve not encountered many mission-critical failures on cars that are <8 years old with <150k miles. I'm willing to take the risk, and just take my motorcycle or roadster if my primary car is down for a few days.
Meh. I own four cars. In the unlikely event that one of the newer ones has an issue that keeps it from being driven, no big deal.
I also think that the equation differs considerably as cars get more expensive to a point. BMW leases are not nearly as cheap as the B&B think they are. My M235i would have been well over $500/mo to lease for three years. I’d rather pay for it and have an asset, even a depreciating one, down the road than nothing but a continuous payment. I paid off my ’11 328i a year ago and the only out of pocket has been a $50 oil change. Conservatively, that is $6000 in my pocket on that car. Though since I paid it off in less than four years, more like $12,000.
Now cheap cars – I think my gal-pal did just fine leasing a Jetta with no money up front for ~$220/mo for three years. But there is a BIG difference between $220 and $1000. We are in VERY different places financially.
Ultimately, there are no absolutes. What is best is completely situation dependent. Leasing is unlikely to work for me, but it worked out perfectly for my friends needs.
“Meh. I own four cars. In the unlikely event that one of the newer ones has an issue that keeps it from being driven, no big deal.”
Not all of us are willing to burden our neighbors by letting our gardens look like junkyards.
My four cars fit nicely in my garage. And all of them are perfectly presentable.
When I had my fourth-gen Trans Am, people STILL thought it was a new car in 2011 even though the car was nearing its fifteenth birthday and my paint care was average, at best.
At least, as long as they didn’t look at the interior. No amount of babying by yours truly could keep GM Quality™ holding up well over that time.
Do the math, for a surprising amount of vehicles on the road, especially ones where you can get 200 or under a month lease and no money down, it makes absolutely no sense to buy a new car anymore. You’ll end up paying the same amount per month to drive a new car for 8 vs leasing a new one every 3 years. You’ll be on the same car after 8 years, and I’ll be on my 3rd new car. We’re not even getting into risk factors that might make your purchase cost even more that a lease simply doesn’t have.
If you buy a car that needs excessive repairs at 3-years/36k miles, it’s time to put down whatever hallucinogenic convinced you to travel back in time and buy a 1992 Hyundai. Seriously, nothing should be going wrong at this point if you did your homework.
People around here seem to think most cars are still 1980’s GM products. Or they are putting huge mileages on, or they just beat their cars like rented mules, or something. Even for my notoriously unreliable (yeah, whatever) ’11 BMW, I don’t expect more than minor issues and maintenance before it has 100K on it. Which will be about 10 years from now. In the meantime, it basically costs me nothing. $500-600/yr in excise tax, insurance, and scheduled maintenance.
In my state, the excise tax and sales tax savings alone on NOT leasing a new car every three years will pay for many, many, many thousands of miles of maintenance and repairs. Then there are those nice fat lease inception and return fees. For a BMW 328i, you are looking at ~$3500 JUST in excise tax for those three lease years, vs. <$1000 for the next three years, and $~$200/yr forever after that.
Really, the only differences are for the in car electronics, and you can just plug a bluetooth button into the “Aux” and let your smartphone do all the work. Built in solutions are also available for most cars that had a remote CD player option. A friend has a 2002 Acura TL with fully integrated bluetooth running this way.
I had a very high-end Kenwood unit installed in my 2003 Town Car. The car is my garage-queen infrequent highway car and has only amassed 54k on the odometer. Rather than trade up for more technology, I bought an in-dash unit with navigation, bluetooth, internet hotspot, backup camera, Sirius XM and a bunch of internet related apps like iheart radio. I had already installed aftermarket headrests with integrated DVD player and wireless headsets to keep the grandkids busy on trips. Now my wife can play Candy Crush for hours. Happy wife, happy life. It’s a great car, and best of all, it’s been paid for since 2004. All of that technology cost three grand and I sure couldn’t trade up to a luxury car with all that technology on it for 3k. Excluding tires and the expected quarterly maintenance, it’s been trouble free. I replaced the serpentine belt and all the hoses three years ago and I had a brake job done on it at 50k. That’s it. Unexpected maintenance cost – zip.
“As a consumer, it doesn’t matter at all to you where the money comes from — you should just be worried about the net transaction price.”
Exactly right! I don’t care whether the dealer loses money on the new car or my trade; all I’m interested in is the out-the-door price. This means I need to have a reasonable understanding of the value of both cars beforehand.
One time I paid $500 MORE for a used car than they were asking, just so I could break even on my upside-down trade, which I was desperate to escape. It was one of the happiest car buying experiences I ever had.
I don’t have any issues with leasing as I have leased at least 4 vehicles since 1996 and have enjoyed getting into a new car every 3-4 years. The challenge I have with leasing, however, is the stress I put myself under near the end of the lease – especially when it comes time for the inspection of the car…. and what things may be uncovered during this inspection. I try my best to treat lease cars the same as if I purchased them… but sometimes the inevitable scratch or ding occurs, or even an accident…. The inspection can sometimes reveal more than you bargain for which could cost you $$$$ at the end.
I can’t tell you how many times I have been dinged for Tires at lease end. Most factory tires DO NOT last longer than 40 to 50000 KM with normal wear… so they will need to be replaced at lease end. Smart shoppers though will buy a used set with decent tread on them just before the return date and save a couple hundred dollars. And up here in Canada it is almost mandatory to have a set of summer and winter tires and rims… so where does that cost come into play when the lease is due?
I have decided that buying makes more sense to me. Sure you got depreciation and such, but when the car is paid off (especially if you can swing a sweet deal and have it paid off in 3 years), I feel you are further ahead. That car is still worth something… so at trade in time you have something to help drop the price of the new vehicle – which can make your payments more affordable.
With a lease, chances are the price is the price. Sometimes you can get a great interest rate deal, but unless you are willing to put cash down (something I would never recommend when leasing), the monthly rates may not be much better than financing. Up here in Canada we don’t seem get the Screaming Awesome lease deals that you folks seem to get in the US.
What I find interesting though is that some dealers up here try to encourage you into the lease. Toyota is one of them… Mainly because of the high resale value, and also because there might be some equity in the car at lease end – I made $1500 at the end of my Prius lease for example, because the dealer wanted my car for his lot rather than it going to auction. The margin on a lot of imports seems quite low too so it is almost impossible to get a “good finance” deal…. making a lower monthly lease rate that much more attractive. The buy out at the end is typically low too compared to what the car value is at by the time the lease expires.
Depends on the dealer – some will absolutely rake you over the coals with nonsense, especially if you arent leasing another car with them. Others are very fair. Check online reviews and forums, people who are fleeced at the end of a lease tend to complain loudly.
As a fellow Canadian I too can become irate when I see the lease deals advertised on American TV stations.
In Canada we do not get the same deals and pay much more for used cars.
Regarding paying a purchased car off in 36 months. Your calculations should be total cost of ownership per mile and/or per month of ownership. So except for any costs associated with financing paying off early would not be a positive. Unless you plan on trading in/selling early. And if you pay your car off early and keep it long term you have lost the opportunity costs of the extra money that you paid each month.
This annoys me too. I’m currently looking at a Jeep GC. To compare lease to buy, I’m looking at a 48 month term. Both are being offered a 0%. The monthly lease is $657 and the monthly finance payment is $1,133. If I assume I would keep the Jeep for 8 years if I buy, I have to compare buying to leasing the same vehicle for 48 months twice. My lease payments over 48 months would equal $63.072. My finance payments would be $54,384 for the same ownership term. There would also be residual value I could get from selling. Based on current prices of 8 year old GCs, I’d be looking at getting about $18,000. Now, the extra four years of ownership are likely going to come with repair costs since the vehicle would be out of warranty. Let’s assume I’d pay an extra $5,000 in repairs over what I would leasing. My total cost of ownership for leasing over 8 years would be $63,072, while my total cost of ownership for purchasing over the same period would be $41,384. I don’t see how leasing makes any sense.
I decided to buy my car just about 4 years ago because the price was worth it to me. Right now, my car has 91,000 on it! That’s averaging 450 miles per week commuting alone.
Don’t know if I did the right thing, as it won’t be paid off for a year, and I’m not sure what I’ll do when I retire in 10 months. Might as well keep it until the wheels fall off, I guess.
Wifey’s car is a 2002 and has 130,000 miles, so I guess we’ll see what car dies first then decide. She could lease, I suppose.
If you’re buying a long-term keeper from a Japanese company with renowned high-reliability and it’s “affordable”, get it however you can: lease, finance, cash – whatever.
As for luxury cars, German cars and new-to-market niche vehicles (Tesla), I recommend buying new with warranties- preferably on lease if possible.
I refuse to buy used.
There’s a weird correlation between people who buy FCA and people who refuse to own a car outside its warranty period.
Well, Volkswagen owners often feel the same way – I did.
He has the right idea. Used cars will rake you over the coals and leave you with nothing but a $1000 trade in and no credit.
Care to elaborate? If I buy a 2014 CPO Honda Accord Sport with 25k miles for $18k and drive it for 10 years – I’ll be more raked over the coals and deprived of credit than if I had bought the same car new for $25k?
Will the extra 2 years and 25k miles at years 9 and 10 cost me more than $7-8k in repairs?
+1
Math and logic prevail.
I respectfully disagree with Bark on some points.
First, if your trade-in has not been wrecked and does not have a shady history, take it to CarMax and get an offer. One thing CarMax tends to do well is make good offers on clean cars. Then, take the CarMax offer to the dealer and have them beat the trade-in offer if they want your vehicle. If they refuse, you have a second party that will buy the car immediately for seven days. Always look at the trade separately – dealers make a TON of money on used cars, and they need your car to keep the cash coming in.
Second, leasing is good and bad. There are some cars that should always be leased – anything European should be leased, anything that depreciates quickly should be leased, and a car kept for 3 years or less should be leased. But leasing does put one in an endless cycle of payments, and not all lease terms are created equal. The buyer is responsible for taxes on the lease in addition to the payments, which could equal over $100.00/month of budget. I have both leased and bought vehicles, and I am still inclined to buy if I will have the vehicle for a longer period of time (and it is reliable).
Carmax isn’t in every state, you know.
No Carmax in my state, but it was worth the 150 mile drive to the nearest one anyway to sell my 500 Abarth to them. The only car I have not sold myself out of the 25+ I have sold over the years, and I was perfectly happy with the transaction. Factoring in the timing of it meaning I did not have to spend $500 registering it for another year, I basically got from them what I would have asked for private sale, and thousands more than the BMW dealer offered me.
My time is valuable, but I figure that trip paid me $500/hr+ vs. trading in my car. MAYBE I could have gotten BMW to get the bottom line price with trade better, but I doubt it given the whopping discount I got off the new car.
Just one thing to remember if you’re getting your initial offer on your trade from carmax (depending on your state laws). Trade ins often cut the transaction price and therefore sales taxable amount down by the amount of the trade. In general this is about $70 per $1000 of value on the trade.
If carmax offers $10k but your dealer offers $9500, the dealer offered you a better deal in real numbers, even though it looks like they screwed you out of $500 on paper. All that said, it is nice to have the carmax number as a bottom line though.
I turned in a lease about 15 years ago, and was billed for a headliner because my then-wife had smoked in it and they could not safely clean it?!? No burns, just the alleged smell. That turned me off of leasing, but we have turned in 3 lease cars in recent years and haven’t gotten dinged for anything. Honda puts an allowance in the lease for $750 worth of reconditioning as I recall. The last Civic had 3 skinned-up wheelcovers 2 nickel-sized dents in the roof and curb scuffs low on the front bumper cover. It was also 500 miles over-mileage and nothing was ever said about it.
The advertising I’ve seen in the mail from local Honda stores has had less lease deals and more purchase deals the last couple of months…not sure if that’s a sign that they are trying to get away from the cheap leases…they advertised a $300/mo Accord LX for 72 months in the last ad I saw…
Your wife smokes, but leasing turns you off (not kissing an ashtray)?
She is a previous spouse, and smoking was one of myriad bad habits she picked up during our marriage, including picking up cops and firefighters she met online…she is still married to one of the cops she met.
Wow. Good riddance!
Charming!
Where there’s smoke there’s firefighters, huh?
You win the internet today!
She sounds like a west side resident. Delhi, Dent?
Too classy – that’s Cheviot behavior.
LOL I forgot you were from here as well.
$30000 cars don’t have low lease rates when new. However, year old CPOs are thousands less and typically have longer powertrain warranties than if you were to buy it new. So I’ll take my chances with buying a CPO car.
Bark, you’re leaving a couple things out. That $189 lease comes with a $2000 down, +taxes and other one time fees for 36 months.
That $189 comes to more like $289 per month, and you’re probably going to want a vehicle with a higher MSRP (and capitalized cost) than the car the lease terms are based on.
http://automobiles.honda.com/current-offers.aspx
Not where I live. It’s dependent on zip code.
the deal is the same in 43219 – 189 + 2000 down + taxes and fees. All those one time up front fees need to be spread across the lease term to get a real idea of how much you are paying per month.
That 2000 up front equates (simple math) to $56 per month if you smear it over the life of the lease.
“you’re probably going to want a vehicle with a higher MSRP (and capitalized cost) than the car the lease terms are based on.”
Funny you say that. I just looked into that deal the other day after seeing it on TV. I have to say – those LX wheels are a different side of ugly I’ve never seen before. It’s so obvious that they might as well put a sign on the car that says “We make the LX ugly so you bump up to the Sport.”
It is interesting that when I put in my zip the Honda site says $1999 down for that $189 lease but my local dealer says they need $2750 for the $189 lease. Of course if you look at the fine print on the Honda site says dealer contribution may vary and will affect lease price. So my local dealer apparently isn’t contributing $750 of the money that Honda expects them to. So the reality is that a lot of those lease deals really don’t exist in real life because the dealer isn’t offering up the full contribution noted in the fine print of the offer.
Here is what I see with my zip.
$23840 MSRP
$1999 down
$19934 Cap cost which includes $595 acquisition fee.
Doing that math shows that there is a $2502 discount at the front end of the deal. The question is what is the split in that in the offer’s calculations. 50/50, 25% dealer 75% Honda, 75% dealer 25% Honda? Can you get all of that out of the dealer and/or Honda if you buy? Is some of that $500 worth of college grad/military/police/teacher rebate that you won’t qualify for purchase or lease?
You still need to negotiate the price of the car when leasing. Just went through this with a friend for a 2016 Jetta TSI. Ended up at about $5000 off on the actual price of the car.
Plus they gave here $800 for a BEAT Jeep Grand Cherokee that was really worth scrap value (no brakes, bad tranny, CEL on, obvious misfire). This was one deal where letting the dealer work the trade made perfect sense.
Hmmm, now I’m starting to wonder what kind of deals are to be had on those Veranos…
Lease deals are only cheap when the car has high residuals…I get the sick feeling a Verano’s vaule will drop like a rock, which SHOULD, in theory, preclude cheap leases.
I’d roll the dice on a Chrysler 200 lease if it was cheap enough, but the iffy residuals make that improbable.
Residuals are not always based in reality. Many leases are written where the discount is at the back in by inflating the residual value above what is actually expected. That works great when you want to help your results in the short term, show the profit today and keep the loss off the books for 3 years.
Absolutely.
A bunch of years ago a TTAC commentator named “Maverick” put it thus:
You have to remember a couple of things regarding what seems to be a ridiculous policy at GMAC.
1. The people who set the original residual value are different than the people who are responsible for auctions.
As a result, there is no accountability for setting artificially high residual values because their goal is to move the metal on the original sale.
2. The people who set the original residual value are long gone–probably promoted or moved on to another job.
As a result, there is no accountability for setting artificially high residual values because their goal is to move the metal on the original sale and get their bonus.
https://www.thetruthaboutcars.com/2009/05/ken-elias-plea-to-gmac-sell-me-my-car/#comment-1482782
“Lease deals are only cheap when the car has high residuals”
Or if the lease rates are subvented, which is usually the case with those screaming deals.
There are three things that make up the monthly cost of a lease. The price of the car, the interest rate, and the residual value. Any of those can be changed.
In the case of the Jetta I just helped lease for a friend, the residual was absolutely not inflated. If anything I think it was a tad low for my local market – it was basically low trade-in value after three years. The interest rate was 0%. They took *$5000* off the price of the car, between VW and the dealer. 25% discount.
I hate the idea of leasing, although I admit it could work for me. Explain how well it works if you are not seeking a low-end Accord, but rather something like a Lexus RX350 or Volvo XC60? What is the math there vs a 3 year old car? For someone who drives 20k a year. It seems to me that leasing works if you want a car that has lease specials.
As for used vs. new, I very reluctantly bought new last summer because the used cars were overpriced and often in poor shape. I don’t really want a Lexus GS with crappy Chinese tires tossed on by the dealer. Why do they do that? The shift to moving vehicles to wholesalers rapidly has made the used market a total mess. If the dealer didn’t take in trade themselves, it’s often crap, even among luxury brands.
“Why do they do that?”
It’s cheaper and the overwhelming majority of buyers don’t notice and don’t care.
Whey wouldn’t they do that?
Yes, obviously. But it annoys the hell out of me. I see a CPO car at a luxury dealer, price looks good online, then…it’s filthy inside, and has K-mart tires that I’ll need to remove immediately at a cost of $1000 or so. Another dealer has immaculate cars with new Michelins, but charges $1500 more. But all the prices are too high.
I sell luxury imports, to be certified the vehicle passes a 150 point inspection and has to have OEM tires, no cheapos.
One Lexus dealer had Nexxen tires on every certified GS 350 in stock (4-5 of them). The one I liked was a smokers car. The ashtray was still full an it had ashes all over the interior, which had never been dusted, let alone vacuumed. Yet they showed me a few thousand in work they supposedly did to make it CPO. Yeah right. They never touched it.
Bought a CPO Volvo cross country wagon (’00) that needed new brakes 4000 miles later and had a bad VC/propeller shaft the day I took it home.
I think that’s a crap Lexus dealer. I have never seen anything even remotely close to that at the ones here.
Yep, the local Japanese combo dealer does this with their used cars. Most of them have made in Thailand “iMove” tires on them. This is the same dealer that marks up every new car by $1000 with a $600 doc fee and a $400 VIN etching fee.
When I bought our 2014 Jetta it had Bridgestone Turanzas on it. I told them I wouldn’t do the deal unless they swapped tires with one of the Jettas that had Continentals from the factory. They said no one had ever asked for such a thing, but they did it.
Leasing vs. buying is one of those things like “it’s better to own than rent” – conventional wisdom devalues liquidity. Over the horizon of the lease, you will put less into that leased vehicle than you would have in purchasing it. You will probably either lease something with the maintenance thrown in or, let’s admit this here, everybody shirks on the lease vehicle maintenance. The only stick with a lease is the mileage limit.
So, if you have some reason to value liquidity over a three year horizon, a lease makes perfect sense. For example, you could be retiring some other large expense that you know will be gone on the other side of that horizon but that needs your cash now. You could be planning to live off your savings for three years while finally leaving your day job and starting that business, and in three years, if you can’t pay yourself first, you’re going to get a 9-5.
I just leased a new Genesis last weekend. Right now there are so many incentives that carry to leases as well as purchases, it’s hard to say no to leasing. My points are as follows: you still need to haggle over the price: be sure that the lease matches your needs as to term and mileage: ask about “excess wear and tear” insurance. This excess wear insurance was a new one on me, but for $15/month (negotiated down from $20), I am covered for up to $5000 of excess wear. As a previous leasor, I am used to charges for dings, scraped bumpers and now for the curb damage to those expensive 18 inch wheels.
As to the trade, I had been to CarMax and had a written estimate, so I knew the ballpark trade in for my old car. I learned (the hard way) that depreciation is NOT linear and moves with the whims and sweet spot of the market. My 2009 LEXUS RX350 was valued by CarMax at $22K two and an half years ago, now only at $14K. $8,000 bath for 2 1/2 years of driving. Still want to own an older car???
Lastly, if you served in the military, bring your DD214 with you. Previously discounts were given only to active military and retirees. Now most manufacturers give a discount to any of us who served…and can prove it. This month, Hyundai doubled the military discount from $500 to $1000….very sweet.
P.S. Some of these great lease deals advertised in the paper at $199/ month with little down also note “does not include dealer added equipment” or “window tint not included” You have to hunt to find a car offered at exactly the manufacturer’s advertised terms.
Still want to own an older car???
Yes since I dont trade mine in. My car has more value to me when I can just give it a relative periodically who might need it for work. It has more value to them and me.
Why would dealers/lease companies offer leases, promoting them over outright purchase, unless they expected to make at least as much profit, if not more, than selling cars outright?
30 years ago, leasing a car as a private individual was extremely rare. Today it’s a large fraction of the business. Why has this changed? Is it because dealers and manufacturers believed the profits would be higher on leased cars than on purchased cars, maybe? No one held guns to the heads of those entities to force them to offer leases.
It looks to me like if you need to swap out cars every few years, and you don’t drive much, leasing is a reasonable deal – but if you don’t drive much, you don’t need to swap out cars every few years, and if you put a lot of miles and thus really do need to swap out frequently, then leasing is not a good deal because of mileage penalties.
The choice of lease a car for three years vs. buy it for three years presented above is a false choice. If I buy that car on a 3 year loan, I will keep it at least 10 years, if not 15. If I lease it for 3 years, at the end I have to roll it over and keep paying.
If you feel that making car payments for the rest of your life is a good plan, then leasing may be right for you. I’m sorry, but living without debt is not “Dave Ramsey BS”. It is a perfectly viable way to live, one which offers freedom and security that people who have a lifelong inelastic demand for debt service do not know.
Except you are an extreme outlier. I could not live with a 15 year old vehicle as a regular driver, nor could the vast majority of consumers.
And even keeping a car for 10 years is not the norm. Particularly in the north where salt is used 4+ months per year.
Isn’t the average car on US roads 11 years old now?
Keeping a car for 10 years may not be the norm, but driving something 10 years old appears to be.
Eh. It works for some cars. I have a car that’s driven through 15 winters in Minnesota and its exhaust is kinda rusty and some of the trim is rusty, but it has aluminum suspension and a well-sealed floorpan so it’s unlikely rust will take it out of commission in the next 5 years. At that point, it will have made it through 20 winters. Go to a place without winters and marvel at the older cars on the road. The costco in Hawaii had more vintage japanese cars than my local vintage japanese car meet.
If I put 25,000 miles a year on my car I wouldn’t want to keep it 15 years either. But, if I did that, I would get socked with excess mileage costs on a lease car.
I’m sorry, but the vast majority of consumers are idiots when it comes to managing their money. Consumer debt is at or near an all time high level. Just because the vast majority of consumers do something doesn’t mean it’s a wise decision. Believe me the vast majority of consumers COULD live with a 15 year old car as a daily driver. They CHOOSE not to. There’s a big difference. For that matter, if the vast majority of consumers had to live with a 15 year old car as a daily driver, they would pick better cars.
. . .and if they were diligent and didn’t skimp when coming to doing maintenance on said vehicle.
This!
I am a buy and hold car buyer. I occasionally toy with the idea of leasing a car when I see the cheap leases advertised. But when I add the down payment, taxes, fees etc. The deals don’t look so good. A sales engineer friend always leases SUVs and is always over his mileage limit at the end of the lease. The dealer forgives the extra miles when he re-ups on another lease. The result is a perpetual car payment plus the costs of tires, brakes and any other wear items. On the other hand, a cheap 7500 mile per year lease might be right for my 88 year old mother who once again is talking aboout a new car. But, she can afford to buy outright any car she wants.
“But if you try to insert the trade at the end of the deal, you’re taking away any chance that your trade might be actually helping to lower the price of your new car.”
If your used car “helps you lower the price of your new car”, then you are totally getting lowballed on the trade-in. It doesn’t really matter if you choose Doors Number 1, 2, or 3; the same *bleep!*-ing goat is behind all three; Schrodinger’s Goat, if you will…
As far as leasing vs. owning: Leasing is just another way of financing a car. With leasing the car’s value is pre-determined after a set amount of time. With buying, the car’s worth what it’s worth. Neither is inherently “better” than the other. If you can get a killer purchase-finance deal, maybe it’s better than The Lease of the Week.
“Do you really want to own a three-year old car with 36,ooo miles on it?”
Well, I like saving money, and keeping a car until it’s wore out is a lot cheaper, so, yes. (Heck, cars these days they are barely broken in at 36k!)
“Congrats! You own something that is absolutely, positively going to continue to depreciate, and you paid $20,000 to do it.”
Huh? You aren’t buying a share of stock here or investing in commercial real estate… you do, you know, actually get something to drive, and you’ll get to keep driving it for quite a long time if you want to for minimal expense. (vs. paying the most expensive part of the depreciation curve over, and Over, and OVER.) The new car you just traded-in to buy is going to depreciate too, and a lot faster at that…
Yes, if you are going to trade in your car every three years, it’s VERY common for leasing to be cheaper than owning (and certainly results in better cashflow numbers for the first car), but not everybody does that, because it’s *bleep!*-ing expensive. There’s a reason that the average new-car purchaser keeps their car for seven years, and the average used-car purchaser 5-6.
“Congrats! You own something that is absolutely, positively going to continue to depreciate, and you paid $20,000 to do it.”
yeah I dont get that one either.
so what I own it. The issue I have is the author writes this as if everyone buys stuff to trade in. I dont. This sounds like the smart phone mentality to me.
The reality is that 36K, 3 year old car typically has a lot of life left in it before it will need any expensive repairs. I dare say you could get another 3 years and 36K out of that Accord before you would need to do anything more than tires, brakes and oil. Plus that 6 year old 72K Accord will still have a decent trade in value.
Vehicles depreciate the most in their first years, so leasing is the high cost solution – absent any crazy manufacturer deals or tax implications. I wouldn’t want to worry for 3 years about being charged for damage done by my kids/dogs/cars parked next to me.
It just irritates the heck out of me that the salesman, in particular, the sales manager, doesn’t think we know basic math.
I went in with what I wanted out of my trade, based on KBB.com
With what I expected to pay for the new car, based on TrueCar.com
How much that deal should come out to per month.
They come back with, well, we can get you down to that payment, for an additional 12 payments.
Uh, NO, I can do the math, you’re not matching my deal, you want to charge me 12 X car-payment, more for it. That is at least 10 car payments more than it’s worth.
They weren’t willing to budge and neither was I, so I walked.
Another dealer, different brand, said we can only match that deal if you step down in trim level.
Again, uh, NO, I know what this trim level is worth, my offer is reasonable. They eventually gave me the deal I wanted. Then, of course, I felt like I should have offered less. You just never know where their bottom is!!?!?!?!?!?
Your offer is not reasonable if you want retail for your car (KBB) and want to pay wholesale for my car (truecar). The deal is is only good if both parties are happy with it.
but when you’re buying a used car and trading in a used car it’s reasonable for dealers to sell you a car at retail and value your trade-in at wholesale?
Regardless of reasonability, I just wish there weren’t the legislative barriers to entry for car dealers. It works very poorly as a market, and if it worked better, I’d probably change cars more often.
You’re missing the point.
The point is, do the research to know what a good deal is, and more importantly, what a good deal isn’t.
Be ready to do the math quickly, either in your head, or on your phone, to see what the total deal is. If they say, we can lower your payment, by adding 12 payments, then do the math and see what the difference actually is to the bottom line.
I’m nearing the end of my first lease… a 2013 Ford Edge Limited. I’ll admit… I’m a PRIME leasing candidate (beacon score: 810)… I like driving new cars, and I don’t put a lot of miles on them. With 5 months left on a 36 month lease, my Edge has yet to break 15,000 miles (I have a 3.5 mile commute). That said, I probably will not lease again. Why? I guess I’m a little too obsessive. I constantly worry about what the dealership will “ding” me for when I turn it in… and you are kindof locked in… for a specified period of time, anyways. I wish I’d gone for a 2 year lease instead. My justification for leasing was two-fold… first, you can get into a lot more car for the same money… and second, I didn’t want to be stuck with a lot of technology that’s outdated in a few years. All the bells & whistles are nice, but I’ve discovered that I much prefer a more basic setup. As long as I’ve got good air conditioning, a comfortable ride, & a great stereo, I’m happy. So… when the lease is up… back she goes to the dealership. At that point, I’ll probably just start to daily my ’08 Mercury Grand Marquis, as it only has 27k miles on it. Yes, leasing makes sense for me… but I still don’t like it. The cars that I’ve bought, I’ve done well on. Bought an ’01 Mustang GT ‘vert in 2006 for $11.5k OTD… sold it 2 years later for $10k (to CarMax). Bought an ’05 Mustang GT ‘vert in 2009 for $16k… sold it 4 years later for $13k. If you buy well (and smart), you can do fine. If I lease again, it would probably be for a cheap daily driver (not a loaded high-end model)… something like a Fiesta 1.0 liter ecoboost… we’ll see. I’ve bought new… and I’ve bought used. Used is nicer… just because I detest wasting an entire day squabbling with dealerships… it’s such an unpleasant experience… that’s why car buying services have become so popular. Buying used is much simpler/direct. I guess I’m getting lazy in my old age.
There are some leases, I think from GM, that are 24 month, 20,000 miles. So, that’s less than the 1,000mile/month of a normal lease. But, with your few miles, and it’s only 24 month lock-in, might be a good option for you. Of course, they’re a little better deal, because the car depreciates even less in only 24 months, than over 13 months.
Around here the really cheap Audi lease deals they advertise are only 7,500 miles per year.
I’m betting that most lease deals can be had for fewer miles per year with at least some reduction in cost if you drive a vehicle that little. Of course the other option is to buy it out and sell it if the low, low miles makes it worth more than the residual.
The reality though is that owning a properly purchased and sold car for ~2 years in the 3-6 year old range can be quite economical as that is where the deprecation curve has flattened out and before the repairs/replacements/service cost curve starts to climb for most mainstream cars, particularly if you put less miles on a car than “average”.
I’ve got an 800+ credit score but I can’t afford sh#t. I’m presently lusting after an 11 year old Lexus but can’t justify spending over $15k for it despite having less than 30k miles.
I seriously don’t understand how folks can stomach $500/mo car payments. If I could stand the idea, I’d be driving the SS I’m constantly on about. But I just can’t see that as a wise financial decision.
That better be an LS or LX for that kind of used money.
No lease for me will ever work. I have a CX9 08 and it has dings and dents. It has 164K miles on it. and Most of all I paid it off 3 years ago and it still runs great. I take my extra cash and go on mini vacations 4x per year with my family.
I just looked at a Lincoln MKT CPO on line here in North FL. Its 2015, 37 grand fully loaded ECOboost with less than 9k miles on it. It comes with a 6 year 100k mile warranty.
Tell me again how Leasing beats this?
The 2nd most economical way to own a car, even here in Norway, is either buying (if you are going to keep it ‘forever’)or leasing brand new, with full warranty, because the repair cost on modern used cars can be hilariously high if you can’t do it all yourself.
But the most economical way is to be the last owner of the car, but only if you know cars reasonably well, you are able to go without a car for a day or two in a pinch, and can manage to not get attached to it, and scrap it or sell it for parts when it reaches the point where repairs are more expensive than the car.( I usually fail at understanding when to ‘let go’)
With some luck you can even end up with a car that last so long that it starts repreciating (although that is very rare)
For me at least, buy vs. lease depends on taste and budget. When I was car shopping last fall, had the choice between buying an ’07 Buick Lacrosse CXL with 68k for $6500 or leasing a Kia Optima, Civic, or Malibu base. I went with the Lacrosse and don’t regret it.
May the power and salvation of 3800 be upon you always, my son.
I don’t mind buying really used. Last 3 cars I bought had well over 70K on them. My Z had 160K miles and I put a largely trouble-free 30K on it. I am mechanically handy and I don’t mess with anything too exotic so I’ve been pretty lucky. I just can’t stomach going new, whether lease, finance, cash, whatever.
I agree with Bark’s assessments though. If you are looking to get a brand new car, leasing is the way. With interest rates so low, if you have decent credit even putting a 3-5 year loan on top of your lease will only cost you a couple hundred dollars. Meanwhile Apple is trading at 11 times its earnings price. You do the math.
Apple has been trading at a P/E between 10 and 13 for the past four years and has no immediate growth prospects. If your plan is to lease a car and then invest all of that “saved” capital into Apple stock in the hopes that it will trade at a P/E of 20, you may want to reconsider.
First let me say I’d never use a Apple product. Still they have a history of coming up with something nobody expects and making a lot of money on it. JD23 is presenting the current opinion on their stock, but be a contrairian look beyond the mass opinion.
Of course your stategy assumes that you have the cash available to invest or buy a car. Most folks don’t.
For me at least, buy vs. lease depends on taste and budget. When I was car shopping ast fall, had the choice between buying an ’07 Buick Lacrosse CXL with 68k for $6500 or leasing a Kia Optima, Civic, or Malibu Base. I went with the Lacrosse. If I leased I wouldn’t have had to worry about repairs and would have a new car but I’d rather have what I like.
Leasing is the most expensive way to operate a car as only a small minority of folks can write off all or a portion of the payment for taxes. People can rationalize all they want (ie convenience, can’t afford down payment/monthly payment, better deployment of funds, etc) but leasing is renting. To each his own!
– Former Big 6 Controller
This.
Yes, always having a new car on a three year lease is fine for those who can afford it, but it’s the most expensive way to own and operate a car.
Just like driving to the most expensive restaurant in town and leaving your car with valet parking is fine if you can afford the luxury and convenience. But don’t try to rationalize it as an affordable way to eat.
OK here is what I do.
“You should negotiate your trade separately.”
Dealer will always ask if you have a trade, I say yes, but we can talk about that later. I’m on the fence, know your numbers and how ever it’s structured doesn’t matter.
“Always buy CPO or late-model used over new.”
It’s a good idea, but in some cases depreciation is not enough to make it worth while. Cadillac yes, Honda no.
CPO is not necessary if you have a good car. If you are concerned about repairs, buy a Toyota.
“You should always buy instead of lease.”
Leasing doesn’t work for me because of the mileage requirements. If you want a new car every few years, have some kind of tax advantage then go ahead and lease.
I’m also a cash buyer which I’m pretty sure Bark is against. I don’t like payments and my happiness is worth what ever few hundred dollars I’ve lost.
Yes. While Bark had me thinking about leasing, my wife drives 20k+ a year, and I can pay cash for anything under $30k. So 2013 Lexus RX350 with about 20k miles runs me $28-29k. She’ll drive it 5-6 years. If I lease, I’m in for $420 a month plus $3000 at signing, with only a 10k annual limit. Miles are .25 each, for $7500. Cost to lease about $25,500 for 3 years.
I’m also a cash buyer. For years a used buyer but current used prices are out of line So I’ve moved to new for now. While cash buying is looked down upon I like it for the following reasons: 1) it forces me to rationalize buying an expensive car (is that Mercedes CLA worth $10000 more than the Accord) so I really think before getting into the more expensive vehicle; 2) the large cash outlay usually forces me to go a year or two longer in the current vehicle and so far this has not burned me; 3) my monthly living expenses are kept low so I can be flexible about other things in my life.
The savings of the first two are pretty large. Six cars (five used one new) in my driving lifetime (38 years with a license averaging 15,000 miles per year). Without the discipline imposed by my requirement to get cars cash (the first several were well used until I could save more money) I would have been through 10-12 cars at a much greater expense.
Leasing works for me because it (i) prevents me from wanting to trade in the car after 1 year; and (ii) keeps my mod addiction in check.
This are the two main reasons that keep me from leasing a car XD
I could afford leasing a new ‘compact’ (more or less mid-size by Norwegian standards) which would be sufficient for 80% of my driving. But not being able to trade it or modify it whenever it pleases me would be pure hell for me.
Also, these two things are the best things about buying a 10-15 year old car for cash that I would waste anyway.
It’s a simple rule: lease German, buy Japanese.
For someone that doesn’t keep their car more than 5 years the lease is probably the way to go. We bought our truck used in 2002 with 57k miles on it. It now has 190k. We could bank a lot of lease payments in those years even with the stuff you replace as it gets old, like starters, alternators, batteries.
When we bought our new car we had the choice of new or one with 20k miles that was very similar. The difference in price was less than $1700, before negotiations.
Purely anecdotal… We drive a 10 year old paid-for van, we’re on top of maintenance and apart from some rock chips and scratched interior plastic, the van looks great. We have a very substantial emergency fund that would allow to buy the same van twice if we wanted. With careful vehicle ownership and disciplined finances I just don’t see the appeal of leasing for people in our situation. I still think it’s for people with very tight financial wiggle room who rely on steady payments to survive.
Instead of the B&B calling out the writer (which happens often around here, myself being just as guilty of such)… the writer’s now calling out the B&B! Lmaoooo
Well played, Sir. Well played.
The question of lease vs buy is simply too complex to reduce to a simple rule of thumb. It all depends on the conditions.
It goes beyond just the rate on the lease but also the opportunity cost of your money. If the stock market is rising then it may simply be better to invest your money and lease the car. You could have leased nearly any car in 2009 and fully paid for it in full using the gains from investing that money in equities.
Another case where leasing may be preferable is for “subsidized” leases. Many manufacturers (particularly luxury car makers) hate to discount the MSRP so they offer crazy low lease rates based on fantasy residual values and eat the loss on the back end. In many cases that will be a much better deal than buying the car.
Another reason for leasing is to hedge against unknown depreciation. With many new models you just don’t know what its resale value will be and leasing may be a safe option. Really want a Cadillac CT6? I suggest you lease it.
If you know the direction of the equity market with any certainty, the lease/buy decision is the least of your concerns.
After a major crash the direction of the market is usually no great secret. That’s why recessions make rich folks richer.
Or you could have lost 1/2 of what you left in the market rather then buying a car with cash in 2008.
Leasing makes financial sense if you lease a car that you could afford to buy.
Bark’s example of “paying $189/month to lease your Accord (rather) than paying $583/month to buy it” is a good one, because it’s the same car.
The mistake I see lots of people make is leasing a $500/mo car rather than buying one for the same amount. Four years down the road, that $500/mo loan will be paid-off, and you’ll still have at half of that in equity. Those $500 lease payments will never stop, not until you stop driving altogether.
Too many people look only at the monthly payment rather than total cost over a long time.
94.8% (and exact percentage as calculated by my precise Lifestyle & Irrational Financial Decision Algorithm) of American Consumers only care about and are BUYING A MONTHLY PAYMENT when it comes to living spaces, vehicles and many, many other high-ticket items, as there’s a compelling, deep-seeded, psychological need to signal that one is at least keeping up with co-workers, neighbors, those whom they aspire to be co-workers and neighbors with, etc.
This is officially labeled The Stanley Johnson Effect, and it leaves one “up to their eyeballs in debt,” and digging themselves deeper in debt, even if they receive incrementally higher income, which many do not in real terms (which means getting even deeper into debt).
I see this more with houses than with cars. And for the most part, it seems to be women who drive it in my experience. SWMBO just NEEDS that palatial McMansion with hardwood floors, a gourmet kitchen, and a 2-story foyer . And it has to be in the RIGHT suburb. I don’t know anyone who is “car poor”, but I definitely know a few people who are “house poor”.
If they’d bought the reasonable, or tiny/cheap house, would they have saved or invested the surplus/difference?
A needlessly huge/expensive house purchase, I can forgive/understand for the most part. At least they’re not perpetually renting. It’s dicey if they struggle to make the house payments without a guaranteed, steady income. Except it does fight inflation, long term and also an investment that gives you, your family “shelter”.
Cash the thing in at retirement, hopefully paid off or close, then downsize. The bigger the investment, the bigger the payout.
It doesn’t matter what they would have done with the difference. They are struggling to pay the bills primarily because they spent WAY too much money on the house (really, took on way too much debt/taxes/utility costs). You may or may not get to cash out at some point – for most of my friends, I am betting not. We are all in our late 40s/early 50s now, most of these houses will NOT be paid off at retirement age, as they can barely afford 30 year mortgages. At best you sell it and get out of debt with maybe a little equity for a down payment on a smaller place. This is NOT the Bay Area, house prices tend to rise steadily but fairly slowly. Nobody is going to get rich off a house here, that ship has long sailed. Still a better deal than renting, I agree. But a better deal is a house you can actually afford easily.
I bought my shack 15 years ago for much less than the bank said I could borrow. I make 3x as much money now, the place is nearly paid for, and I don’t plan on trading up ever. I do plan to buy a winter place down south at some point soon, but it will be just as modest, and I plan to have a roommate at that end too. Both will be paid off before I retire – I plan no more than a 10 year mortgage on the winter digs.
No kidding, “Long term” 30 year contracts, should be started long before turning 40. Although, a reasonable, modest home for a 60 year old, entering retirement with 10 years left to pay, thanks to inflation, should be much less than rent at the seniors only, free shuffle board, circle the drain, center.
So I decided at 28 to keep the beater truck going, and save up for 2 year all I could and buy the best, run-down shack I could afford for straight cash. I still live in it 20 years later and it’s still fairly shabby. Except I bought a 3 other shacks nearby that I did fix up really nice, as rentals.
The people who only look at the monthly payment are generally the ones who love to lease cars.
MAYBE it is cheaper to lease a series of cheap cars over and over (but I seriously doubt it on something like an Accord), but there is no way in heck it is cheaper to lease moderate to expensive cars over and over. Repairs and maintenance on an aging BMW are rounding error compared to initial depreciation and taxes on new BMWs, at least in my state.
The biggest reason I seriously doubt it is simply that depreciation is not linear. Cars DO generally depreciate more in the first few years than in subsequent years. But a modern car is highly unlikely to need any serious maintenance before 100K miles minimum, and many not before 150K+. So even if you only buy a new car every 5 years/100K miles, I don’t see how you won’t in almost every case come out far ahead. There is a lot less depreciation between 45K and 100K than there is between 0 and 45K.
If you are the type that just wants a new car every three years that is perfectly fine, you might as well lease and take the mystery out of the process. But trying to justify it by saying that leasing is cheaper is just silly.
“Listen, if you absolutely hate driving newer cars, or if you just don’t like cars at all, by all means, don’t ever lease anything. If you’d like to get a better car for your money, and if you’d like to drive a new car every three years, then explore leasing.”
I do like cars, but I have zero interest in driving some regulatorily-addled, forced induction POS with an automatic transmission and automatic braking. That’s not my definition of liking cars. Buying cars and taking care of them is the only way to be assured that I will have what I like. Maybe there will still be nice cars for people who are on the take, but what are the chances that there will be enthusiast-worthy cars for someone barely pulling six-figures while paying for Obamacare in four years? If you’re an automaton that likes whatever he’s told he should like, enjoy your disposable cars.
Todd,
Just lease a Viper, it meets almost all your criteria.
The problem isn’t driving a Viper now. The problem is what will I be driving three years down the road? If I have to give the Viper back and all that’s available is schlock like LPT Porsches and 1.5 liter turbo Hondas with CVTs, what then?
Well, they just released a new Miata chassis so that option should be around for another decade or so.
And the Civic will have an MT paired with the 1.5T in the fall.
So, is ToddAtlas driving a Viper now?
It’s situational.
If you’re interested in an Equus or 650i then leasing or CPO likely makes the most sense.
If you’re going for a 4Runner or HD truck then buying it new is probably the best call.
Bark seems to assume that a buyer will trade in his car at the same time as a lease would have expired. Keeping a car longer can tilt the balance toward buying if it isn’t high maintenance.
My Infiniti G37S is over 8 years old. Its only unusual maintenance expense has been warped rotors at the 30,000 mile major service. I expect it will need the same when I take it in next spring for its 60,000 mile service. That’s not bad for nearly 10 years of ownership.
The Ford Focus my wife drives has been trouble free for 3-1/2 years and 47,000 miles. The only big expense on the horizon is new tires before winter.
Our Subaru wagon is 18 years old and has 240,000 miles. It has been significantly more expensive than the others to maintain and not just because of age and miles. However, I’m not at all sure if six 3-year leases would have been any cheaper when I include the higher cost of registration and insurance for newer cars.
Yeah your insurance and license fees are going to be less buying a car and keeping it for 6 years vs leasing 2 cars over the same period.
If you want to drive a brand new car every 2 or 3 years, and don’t drive more than the miles included in the cheapo lease then leasing is the way to go. If you are fine driving a car for 6,7 10 years then buying is the way to go for your CamCord.
The first advise may be sound, but the rest of them, in the words of the author are “stupid”. In most cases/scenarios, it makes sense to buy used car and just pay cash for it. That way you don’t have to be suckered into any payments, you could lower your insurance, and you would not have to deal with new car depreciation. But for people that only want the new metal, with virgin leather inside, shiny paint, go for it. Lease it, so i can buy it for cash after you’re done, while you continue on to the next payment. I’ve had several new cars, and while no doubt i enjoyed owning the brand new car in the beginning, that joy started wearing off with first rock chip and toward multiple chips, i started hating the payment. Now i’m in completely opposite camp of cash for cars only and payment never again.
Interesting editorial and I completely agree with focusing on transaction price rather than trying to compartmentalize the new car and trade-in deals. Not wanting to talk about your tradein struck me as a bit adversarial right off the bat.
The leasing advice is interesting. A few years ago I calculated the overall costs for a 9-year scenarios: three 3-year leases, buying new and trading in at 4.5 years, and buying new and keeping it for 9 years. I included basic maintenance like fluid changes, brakes, tires. Leasing was the most expensive and, obviously, keeping the car for 9 years was by far the cheapest. I wonder what I’d find if I ran the scenarios now.
“Stop with your Dave Ramsey bullshit”. LOL. So being a debt slave till they take you away on a gurney is a much better way to live your life? That’s drinking the “debt is money” Kool-Aid. And how so many got flushed down the toilet when the housing crash came.
Ramsey is about financial independence because the mob does stupid things with money and credit.Like buying things when one can’t afford them.
Having screwed up financial priorities,the potential for indebtedness via E-Z credit, plus a desire to keep up with the Joneses and have a “lifestyle” rather than a life has driven people into bankruptcy.
Call Ramsey a bullshitter all you like, [and me too] , but I will take being mortgage, credit and auto debt free over being a bank’s tool with a cheap lease and mountains of debt just to have the latest thing any day of the week.
Ric Edelman claims it’s a bad idea to pay off your mortgage. Yes, duly noted Aunt Ric. I’ll consider it. /sarc
Plenty of bad financial advice out there as well as bad car buying advice. A two-fer, as it were.
Bark approaches most things from the sell-side, after all, he is steeped in auto salesmanship culture, and now advises auto dealerships in some capacity, apparently.
His advice on buying vehicles, and purchasing/consumption issues in general, is more often bad-to-terrible than not.
Given his role in some capacity in advising automotive dealerships, I chalk his frequent bad advice up to the fact that his livelihood thrives when the machinations of debt and EZ finance are pumping full throttle.
One need only look at his own sunk costs experience with his past vehicles owned to realize that taking his advice on finance is akin to asking Mike Tyson for advice on relationships.
Jack blows wads of money on vehicles and bikes and guitars, but isn’t trying to represent himself as some snake-oil debt/credit/finance/purchasing guru as Bark is.
“and now advises auto dealerships in some capacity, apparently.”
I thought he was a teacher. That’s how I’d always imagined his work.
His last retort on his career to me was that he somehow advises dealerships on improving margins and increasing sales and inventory churn.
He’s a Ruggles-In-Training!
I often take umbrage with Bark’s words/advice, and Bark & I often mix it up, but that’s a light year leap too far!
Ruggles is literally on a separate plane/plain, galaxy, universe, etc., and by the way, where is he?
With the number of dealer-related articles where he hasn’t taken part over the past few months, I think something serious happened to him.
I was wondering where I’d left my umbrage, and then I see that DW took it!
About Ruggles:L maybe Doug DeMuro could have an article asking the B&B to guess what happened to him.
I suspect an angry customer exercising his “second amendment rights.”
Doug took Ruggles with him on his 1,500 mile road trip in Doug’s 2007 Aston Martin Vantage!
Doug owns an Aston Martin Vantage? Where might I learn more about this daily and also Range Rover service issues and reliability JDM Skyline?
Sounds like quite the road trip. I hope they got the extended warranty on the Aston.
My problem with Dave Ramsey et al is that they take generally good advice to a ridiculous extreme. What makes sense when interest rates are 10%-18% does not make sense when interest rates are 0%-2%. I firmly believe there is good debt and bad debt. And debt isn’t debt when the interest rate is less than the rate of inflation and/or what you can make on that money by investing it. Ultimately, I have no problem with debt, I just hate paying interest…
I don’t think the author understands what Dave Ramsey actually says. His tenet is to live debt-free. When you have no debt then you cannot be hurt by a loss of income, change in ability to drive, or just plain being tired of the vehicle. You sell it and get another. When you have a car loan or lease, it doesn’t matter which, you are required to cough up money every month whether you like it or not, or whether you can afford it or not.
I own 4 vehicles free and clear. I can sell any one at any time I wish to make a change. That is a freedom a borrower does not have.
The increasing length of car loans really worries me. People 3 years into a loan have nearly no principal in a car that has lost half its value. If the car is totaled they will find themselves needing to borrow money just to get out of the original loan (often by rolling it into another loan).
What Dave Ramsey sells is peace of mind. I have no car loans, mortgage, or credit card bills. I don’t have to count the days until a paycheck comes. I don’t have to worry if something needs repair in my house or car, I just pay it. It’s a nice way to live and people would be happier without debt.
I will continue to buy cars with cash. I doubt I will ever buy another new car. I let someone else take the financial hit then buy it a year or two later for thousands less.
You can get out of a car with a loan very easily. All it takes is this old-fashioned thing called a “down payment”. That is money up front that ensures you are never upside-down on the loan. I could be rid of that car with a check in my hand with a 1hr drive to Carmax.
I have a car loan, a mortgage, and I use credit cards exhaustively, I don’t pay cash for anything. The car loan is cheaper than what the cash is making me, as is the mortgage. The credit cards are paid in full every single month. I could frugally retire tomorrow (but why, I love what I do and I am well paid).
I sleep very, very well at night. Debt is not the problem. Making stupid decisions about debt is the problem. Debt is not debt when you have the resources to make it go away at any time, and the very best time to borrow is when you don’t technically need to.
On the leasing bit, the math doesn’t make sense to me. So I talked to my ex who’s an actuary in this field.
Even at 200/mo. for three years, most car interest rates for dealers (it’s guessed) average 17% – but with no disclosure requirements there are no market dynamics released or shared.
Car companies don’t lose money on leases – typical residual values average 10-15% above market value.
Leasing as a practice in most cases is likely a near financial wash in the short term, but in the long term (assuming you own your car for more than 3 years after paying it off) it’s a bad bottom line financial decision.
More than that though, it’s thinking short term vs. long term. Allow me to explain through the lens of my own personal experience:
I’ve owned my 2009 Honda Civic Hybrid for 9 years – I bought it new in mid ’08 for 26K because I had one of the GM ignition switch cars that shut off 3 times while driving.
My car payment was 526 a month for 3 years after my 7K trade in for the GM.
For the last six years I’ve taken that 526/mo, and thrown it into a principle payment on the house. That’s over 37K that I’ve been able to reduce the mortgage which is aiding me in paying the house off later this summer.
If I get a hankering to drive a new car, I do. I’ll go to Enterprise and rent a new car for a weekend, and kill that new car buying energy.
Other than tires, a trans flush, and a hybrid battery replacement at 105K miles (which my Honda dealer took care of me on by taking what would have been a 5K hit and charging me a $500 deductible), the car has run and driven well. She’s got just over 152K miles on her, and still supports bluetooth and audio functionality with the latest technology.
Assuming I can keep the car another two years, I’ll have 24K in cash to buy a new car with no payments.
I’m not saying thinking long term is easy, but at least in my case, it’s working out okay.
+1
Resisting the latest SHINY isn’t easy, but it can work and help your budget with proper discipline. Well done.
Car dealerships love leasing not because they make more money on it, they don’t, but because they see you every three years vice 6-7. Those who lease also tend to have higher loyalty than those who buy.
Dealers make money whether you lease or buy. If they didn’t they couldn’t pay for the building, the interest on all that inventory, and all those salaries.
Most people can negotiate a reasonable price on a vehicle. But if you think you are going to consistently out-negotiate the other side and ‘win’ the deal and cause professionals at this to lose money, then you are either delusional or a presidential candidate.
What if you factored in the $5k for batteries?
And what off the $300+ you paid each month for 36 months. That’s nearly $11k that you could have used to pay down your mortgage sooner.
“But, while they are, you’d be absolutely foolish to buy a late-model or CPO car over leasing a new car.”
Far for me to bite the hand that fed me so recently, Bark, but with respect I think the real issue here is that hewing solely to one approach or the other is the problem. The tool used depends on the buyer. I think that’s what you’re getting at, or what I hope you’re getting at, in which case I agree.
For example, you may be comfortable with an item in your budget labelled “car payment” in perpetuity, in the name of always having a newer, more reliable car with better bells and whistles. I’m not the kind of buyer who believes in that premium. A paid-off car kept for years can mathematically make sense. The lease/buy conundrum comes down to the specific terms available and what the buyer values most.
“For example, you may be comfortable with an item in your budget labelled “car payment” in perpetuity, in the name of always having a newer, more reliable car with better bells and whistles”
THis is the cell phone addict I mentioned earlier. Every 7-12 months they have to have the latest and greatest.
I’ll agree with Bark’s observations since the current market distortions make some used car prices crazy, and leases are cheap. Also as he observes, sometimes the trade in can be spun in your favor.
I did none of these, since I didn’t have a trade in, I was looking for a car you can’t buy new, and it was cheap by current used car standards. Rules should be clearly understood, so they can followed, bent, or broken, as needed.
Maybe it was mentioned, but I don’t think it’s mandatory to turn in your lease at the end. If it’s met your needs and nothing else tempts, and it hasn’t been a lemon, just refi and purchase your vehicle. As often, the answer is, “Why can’t it be both?”
Depending on the buyout price purchasing it with a 3 year loan at the end of the lease may not be a bad idea.
Right. If you like the car and if the buyout price is at or below what you would pay for one used, then rolling into a loan can be wise.
A few thoughts:
– typically your payment to buy over 4 years will be pretty close to your lease payment (this will depend on the residual value built into the lease)
– if you are on a tight budget, keep in mind you will have maintenance/ repair expenses. Typically, you’ll need about $1K in year 5 to cover tires, brakes and battery
– ownership has advantages. Once you’ve paid it off, you can keep making the payments – to yourself by paying down other debt or saving
– If you do need to sell the vehicle, you are unlikely to be underwater on the loan after the first year, and may have built some equity. The longer you keep it, the higher the equity.
Am I foolish for buying a slightly-used car vs. new?
Heck no. I bought a non-CPO ’13 Sonic from a Chevy dealer for $10k ($11,300 OTD). It had 28k miles on it.
Same car new would have been $16k + TTP.
American cars depreciate quickly. Maybe a 3-year-old Toyota is a bad buy, but a 3-year-old Chevy is a good deal.
Buying a used, well-maintained, NON-ACCIDENT INVOLVED, 2 to 4 year old vehicle with low to average mileage is still one of the best moves for most people, as the depreciation curve is steepest between years 1 and 5 on MOST vehicles (there are exceptions, so this general rule applicable as good sense for most people need be adjusted accordingly when discussing high value-retention vehicles such as Accords, or appreciating, future cult classics such as limited production run exotic).
RE: High value retention – also things with high desirability that get dropped. Honda is good at this, eg. S2000, Element, Integra.
Many pickups, Chevy Avalanche (now discontinued; owners LOVE them and are repeat buyers).
This is helpful advice. I would add that buying a 3-4 year old car can be even smarter where you take advantage of a gap between the vehicle’s reliability and perceptions of its reliability. In practice, this means using readily available information (TrueDelta, CR, Steve Lang) to identify models (often domestic) that have great reliability, but lousy resale value.
Obvious examples of this were the Chevy/Geo Prizm and Pontiac Vibe, which were virtually identical to Toyotas, but much cheaper to buy used.
I’ve got current suggestions for reliable depreciation leaders that should be pretty good cars:
Verano
Any final-year Scion vehicle
ATS (maybe)
Remainder’ed SRX
EDIT:
Remainder G37/Q40/EX50 models
I’ll add in my Chevy Volt that I bought a couple of months ago.
Second Gen CTS….50k to 16k in only five years
“…buying a 3-4 year old car can be even smarter where you take advantage of a gap between the vehicle’s reliability and perceptions of its reliability.”
Absolutely.
“Buying a used, well-maintained, NON-ACCIDENT INVOLVED, 2 to 4 year old vehicle with low to average mileage is still one of the best moves for most people, as the depreciation curve is steepest between years 1 and 5 on MOST vehicles ”
When I bought my compact Toyota PU in ’93 going new was an absolute no brainer. After seeing the kind of money people were asking for some ratted out, ridden hard, put way wet used Toyota truck, I said F#$k this and went out and bought me a new one. Best decision I ever made.
First you need to focus on something you’re not going to be bored with 10 years from now, but yes I’m that guy paying cash for new. It makes you really take a good hard look at the ‘latest’ gadgetry, bling and tech candy.
A 3+ year old Camcortima would be pure misery for me, even with all the bells and whistles you could pile on it.
Mostly I refuse to enter into perpetual debt, like we’re all brainwashed into at an infantile age. If you watched your parents do it, good luck breaking that chain. Every generation gets worse at money.
NO!!!
Not, “First, you need to focus on something you’re not going to be bored with 10 years from now…” Rather –
First, you need to focus on buying a car that you can afford, even if some stuff hits the fan.
If all you can afford, to reliably get your butt back and forth to work, and be able to keep affording it even if the stuff hits the fan, is something that you’re going to be bored with…
Well BOO HOO. Buy that one. Later, if you have more money, and you can be assured you can afford something more interesting/exciting/etc., then you can buy that.
Let me tell you something, if you were broke and scuffling to make the monthly nut, a 10 year old paid off reliable boring Honda Civic would be pure joy for you.
Think long term ownership, long term savings, not jumping from new car to new car, perpetually in debt.
Being poor is a different sad story. Our hypothetical car *buyer* has $500+ a month to play around with and decent credit. A lease would free up a lot of cash it’s true, short term especially, but what I’m saying, look for something that you’ll still be interested in, way down the road, buy or lease.
Think specialty cars, including Mustangs, Miatas, Wranglers, pickups, etc, even if you have to spend a little more, burn a little more fuel, higher insurance, etc. Or what ever turns you ON, within reason.
DenverMikes got it right.
Two points I’d add:
PRO to leasing: if you have an LLC, the lease cost can be used as a tax credit (do it legally, kids!)
CON to leasing: Don’t see anyone mentioning this but when leased, you need to carry full coverage insurance. Here in The Armpit (New Jersey) that’s a lot of extra cash a month. If owning, once the car is paid off, drop down to liability. Doing that alone saves me over $300/month on the cars I own.
So what Bark is advocating is essentially renting a car in perpetuity?
I can’t buy into that. There’s no tax advantage to me in leasing. The West Coast climate is relatively easy on cars and I’d expect to get at least 10 years out of a new car. That leaves me with 4-5 car payment free years to enjoy.
You are clearly a lousy candidate for leasing.
I think what Bark is saying is that the standard advice that leasing is always a bad idea is not true for some buyers.
I’ve never heard anyone say “Leasing is always a bad idea”, standard advice or otherwise. Nor is Bark saying “Buying is always a bad idea”.
I agree, DenverMike. I overstated the strawman on leasing.
For the guy that HAS TO have the latest and greatest every year or two, leasing is a good move. Like someone who writes about it, professionally…
“I think what Bark is saying is that the standard advice that leasing is always a bad idea is not true for some buyers.”
“Leasing” is not a bad idea for “buyers”, it is an impossibility. The acts of renting and buying are mutually exclusive. It is an oxymoron to refer to someone who rents a car as a buyer.
No one ever seems to think of “what if” when advising people to remain in debt forever.
Let’s say you have a mortgage, two car payments (lease or buy), and a healthy revolving balance on your credit cards. Most of the “debt is money” crowd would say this is sustainable. Now what happens if the bigger earner of your family has a stroke and is unable to work? Once the disability runs out? Or alternately, what if you lose your job just as a big recession starts? A child comes down with a mental illness (most insurances limit mental health treatment costs severely)?
Oh yes, I remember, the money you aren’t spending, because you’re living off debt, you’re going to invest and make more on it than the interest cost on your debt. And that’s why all those Americans following that advice have such huge retirement account balances, right? Of course, if you get laid off in the midst of a recession, all those investments that you did so fantastically with, and now you’re going to cash in to live off of, are also probably recessing like crazy. But I’ll let you in on a secret: your creditors won’t reduce your interest and principal payments just because those investments aren’t making money.
I work on a few key principles; – never invade principal; – buy low, sell high; – always work to minimize your fixed costs. Debt service is a fixed cost. It will not vary with your income.
Well said. A lot of poor and even homeless Americans were formerly lived middle class lives with big house, 2 cars, vacations, etc. on the outside, but on the inside, it was student loan debt, credit card debt, and bills, bills, bills.
Which is sustainable, until it isn’t. No one keeps their job and health forever.
There’s quite a few old ladies in my town, living in old ‘van conversions’ and Toyota motorhomes, rotating around parking lots. You can’t blame mental illness, they’re holding it together quite well, otherwise. They dress OK and keep the RVs clean enough, and it still isn’t free living. It costs at least $600 month to live this way. But I’d like to know how they lived their prior lives before ending up homeless, towards the end.
Have a talk to one and ask. Then offer assistance if required and achievable on your part.
Instead of sitting on the web/net all of your life using multiple names, get out and assist.
I think I will. They do keep to themselves though, they don’t beg. I’ve talked to more than a few homeless, living on the street, and mental illness becomes obvious, the more you talk with them.
Best post in the thread. Yes, we all know that every person leasing a 320i is doing it because he has identified arbitrage opportunities.
I can’t wrap my head around leasing in the least little bit. I like to own it at the end of the contract and there is also the matter of wanting get to modify my car and drive the shit out of it.
Call me dumb, ignorant, an idiot or whatever leasing just seems incompatible with my lifestyle ( would hate to have 10k or in mods just collecting dust in the garage everything my lease was up and I wanted something altogether different )
Maybe if I was hemmed in and settled down and had to spring for a family truckster it would make sense otherwise yeah I’ll take the high payment and the hit in depreciation to order exactly what I want and use it however for as long as I want.
If the dealers are pushing something as hard as they push leasing, you know they are pulling a fast one on somebody. In this case, the somebody is the taxman. With leasing, the company keeps the car, takes your money as income, and declares the depreciation (what you are paying the company for) as a loss. So the dealership gets:
The car (to sell as a used car)
you money (which is nominally to cover depreciation)
and the tax loss (on the depreciation)
If they sell the thing outright:
you pay for the depreciation plus the cost of the used car (i.e. the whole cost).
no tax benefits.
So that’s why they do it. If you want a lease, make sure you get a cut of the action (which is presumably why Bark pushes it). Me, I like to own, but if the money is good enough I’ll take the better deal.
The other notion is on “break up the sale and trade”. If you are doing that, then sell on autotrade (which is almost certainly worth it, for pretty much the same reasons, plus they are likely to pay what the thing is worth). The question is what your time is worth and how much you enjoy selling the thing.
Disagree vehemently with buy new, for most buyers lightly used makes far more sense. I have broken the numbers down time and time again and thy almost always point to lightly used.
Your arguments above for new and leasing are weak at best.
Leasing over owning is a long-term game. Assuming you will always want a car payment, as you buy a series of new accords replacing the previous one, ignoring inflation as the lease deals & interest rates are similar and to keep it simple, by the 3rd car you’ll be profiting on ownership. Basically yes, you’re going to pay 21K to start the first car, the next car you’ll get 10-12K off because you have a trade value. By the 3rd car you’ll have so little to finance that you may have to do a personal loan for a year.
This is the point of the model, if you keep it cheap and the interest rate sufficiently low you can beat depreciation and unload cars fast enough to make them essentially leases with value.
Your leasing arguments don’t account for how long people lease or own.
Most people lease new every 3 years, buy used every 5 or 6, or buy new every 10. In these cases the NPV (net present value) works out in favor of owning, but not by much it’s true.
So at the end of the day, you pay a bit more for leasing, but you get the pleasure of a newer car too.
Crazy thing, the free market – you get roughly what you pay for. Imagine that. Now Venezuela, that’s a different topic…
Nobody has mentioned the insurance costs. There’s significant monthly cost differences between the full coverage advisable for new autos, and only liability coverage which is typical for everything over 6 or 7 years old. I’m paying about $80 /month for full coverage on a 6 year old Equinox, and about $25 /month for liability only on my 20 year old Miata and for my 18 year old Oldsmobile.
My take on this–buy used, keep em garaged so they’ll last forever (sorry for you Northern’s as I live in the South), and keep a good tool set handy at all times. Nobody ever figures out ownership costs in that scenario, cause it’s most definitely an outlying scenario.
Insurance varies so wildly by who you are and where you live that it is impossible to really bring into the discussion. For me, used cars are NOT particularly cheaper to insure than new ones, and certainly not any used car that is actually worth something. My 15yo Range Rover is slightly more expensive to insure than my new BMW, and the savings from dropping collision coverage on it is inconsequential at $150/yr. Liability coverage is the overwhelming majority of the cost, and it costs about the same for all of my cars.
It’s just one factor among many.
If nothing else, I would rather spend as little time dealing with car sales people as possible – getting to put off that hassle another 2-3 years by buying new might just make it worthwhile.
Terrible advice. Who approves this garbage?
Your right. Some of these comments appear to be written by folks who are wildly close minded. They refuse to even consider that there exist pricing opportunities that make their world models obsolete.
“You’re”…
I should know better than to post halfway through an overnight volley shift.
Even though I could swing a new car or pickup (upgrade) every 3 years, cash, it would be stupid for me and most folks here, without a locked in, guarantee of retiring a multi millionaire.
I suspect the plan for serial new car buyers/leasees is simply outliving their rich parents.
DM–I could swing a new vehicle every 3 years as well but I find a vehicle runs much better when it has a few years on it if it has had proper maintenance. For now I would rather put the additional money into my thrift savings account. I can see the benefit of leasing if you have to have a new vehicle every couple of years and you do not drive a lot. I might change my mind once I am retired especially since my wife would prefer a newer vehicle and as we are driving less.
Once it’s obvious you’re leaving behind a huge pile of money and assets for your ungrateful kids to fight over, yeah spend that b!tch.
I don’t have any children but I do not want to leave my nieces and nephews a pile of cash. I do think leasing works for some but not for most. A vehicle is at its best when it has a few years on it and it is broken in. I don’t mind driving a vehicle for years if it is something I like and if it is safe and reliable. Depreciation means little when you keep a vehicle for 10 plus years.
There is no doubt in my mind that if you are willing to drive whatever is offering the wackiest incentives at any given time that you can lower your total costs below even buy and hold.
Amusingly I meet Bark’s definition of the typical TTAC reader — Auto Fico “beacon” of 850/900 and I could have paid cash for either of theses deals but I chose not to.
Why not?
Last June I found a lease that has a LeaseHackr score of 23.2, meaning that the lease was so heavily incentivized that I would have to pay the average monthly cost (not merely the payments, but the total average monthly cost) for 23.2 years to cover the MSRP of the car.
So now I drive a 2014 BMW i3 that stickered for $50K for $177 month (all costs (Acq fee,mthly pmt, registration, dealer “doc” fee & disposition charge) averaged over the term). No down payment, no cap cost reduction, nothing hidden. Side note: I charge it for free @ my day job, AND I expense about 400 miles a month.
All right, not happy with the idea of driving an i3?
Here was my May 2011 lease deal.
I leased a 2011 Z4 35is, that stickered for $72,500, for $376 month (includes EVERYTHING except gas & insurance) for a LeaseHackr score of 16.8.
That one was particularly nutty in that the BMWFS 24 month residual was set at 82% of the MSRP despite the fact the cap cost was just ~89% of the MSRP.
Oh, and all this talk of “X” years with no payments? Who gives a hoot, depreciation never sleeps.
—
“The reason that the rich were so rich”, Vimes reasoned, “was because they managed to spend less money.”
(Look up Vimes boots for a good read on spending.)
—
Full disclosure – I did 7 MSDs to reduce the money factor on both of these deals.
That’s quite true, if you’re prepared to live the life of a coupon-cutter. You can save the same sort of money by only buying clothes from the remainder bin in discount stores, assuming you’re prepared to wear clothes that absolutely no one else wanted to buy.
That’s fine, as long as you don’t actually care about what you wear or drive.
What side are you taking?
I’m all in favour of rocking that lime green Mitsu MIEV at $49/month.
Occasionally, opportunity, luck, and timing come together to get a great deal. BMW built WAY too many Z4s back then and blew them out to get rid of them. And nobody wants the goofy looking i3 at its MSRP (though I find it fascinating). VW is basically giving cars away right now due to DieselGate. Mitsubishi supposedly gives away cars all the time. I’m guessing you were not able to replace that Z4 with another one anywhere near that cheaply.
Depreciation is irrelevant if you never sell your car. I plan to be buried in my 328i wagon.
My 03 has 326,000 miles. It has a cash value of $3000, maybe, and that is mostly the hood emblem… I’m sending it in for new PCV hoses, and a clutch. There are a few dings in the exterior, but I’m on the fourth set of shocks, umpteenth set of brakes, third alternator, second fuel pump, and for you cynics, yes, my fourth overflow tank-which actually makes sense as the car has the first radiator…. Still, the car is solid, and worth a new clutch…
I’ve changed oil every 5k, trans every 100k, and diff oil every 60k.
No, I’m never selling, but every time it needs work, it is still cheaper than the tax (flushed money) on a new ride. OK, it helps that it is an M Sport 3, so I’m not bored of the car or driving experience, and the BMW cloth interior is indestructible.
My MDX has 145k, and likewise, is a good car and worth fixing when it breaks.
Now, if you have a driveway and multiple cars you can play this game. If you don’t, then you need the 100 % uptime of a new car, and leasing if you don’t drive a lot makes sense.
Since I burn 30-35k per year, leasing is out, and a warranty is but a brief warm feeling which passes. I’ve learned to spend the money to fix, use OE parts or OEM suppliers, and just accept that instead of a $500 every month lease I’ll occasionally get a $500 repair bill and very occasionally a $1500 bill. You need to DIY and have an honest indy to make this work-and be able to accept the big bill…which rules out a lot of folks.
Most people start looking, when the current ride tosses a $2k grenade…even if it is a set of brakes or a valvetrain belt. Toss in a set of unbalanced tires or pulsing brakes and it’s new car time…
They may all be legit wear parts but when a few pile up people lose faith.
I wonder if the new BMWs have this kind of lifespan.
I agree with you very much. At the individual component level BMW can have some variable quality, but overall they are very well built cars that will last indefinitely with proper maintenance. The usual issue is that they fall into the hands of someone who can just barely afford the price of entry, and can’t afford the maintenance. If you can afford one new, that simply isn’t an issue. I plan to keep my 328i wagon forever. The M235i, maybe not, as that slot in the garage is more of a toy slot, and something else may catch my eye. I still really want a Cayman…
I generally think leasing is an expensive convenience if you are planning to buy a new car every few years anyway. Sometimes it is the right answer though, there are few absolutes in life. Well, I can absolutely say I will never buy a Camry… :-)
Yes, bought new, and from day one, maintained for the long haul. I agree on the Camry. Life is too short for boring cars.
If Subaru would just realize Americans buy cars based on the number of giant blue gorilla balloons at dealerships, they could sell all their BRZ inventory overnight, and more!
“Do you really want to own a three-year old car with 36,ooo miles on it?”
Absolutely.
Because “the used car market is completely bonkers today. Used car values at the auction have never quite recovered from Hurricane Sandy. It’s not completely uncommon to see low-mileage used cars going close to or even above new car invoice price at auction. Why, you might ask? Simple. Independent dealers can’t sell new cars, but many of them specialize in late-model inventory.”
I don’t mean to be mean, in fact I very much enjoy and appreciate Barks opinions, but an entire piece based on the premise that *everyone* wants a new car every 3 years when the average car on the road is 11 seems out of touch.
No worries. He grew up middle-class and he grew up proud.
A few months ago one of the local Chevrolet dealers had a lease deal going wherein you could, actually it was necessary for the deal, lease 2 Cruzes for $220 a month after $3,000 down. I can’t quite fathom why one would need 2 cars, but I suppose it was to cater to young families on the bleeding edge.