Leasing vs. Buying

[jcmseven]

This is a question I asked over a year ago and thought I would resurrect. At that time, the economy was quite different as were circumstances for us all. I was curious to get thoughts from our group, which includes folks who use their trucks, cars, etc., for work and for personal use. I would like to ask based on my personal situation, but would like to hear how others have surmised their circumstances. The reason I ask is that it is time to get the wifey a new car and I am debating about how to pursue it. Here are the circumstances:

1. My wife drives about 18,000 miles yearly, much above the annual lease amounts--unless we pursue additional mileage.

2. We cannot take much, if any, of our mileage off for business expense due to our AGI (adjusted gross income) and our travel patterns (Thanks, Uncle Sam!!!)

3. We take very good care of our vehicles.

4. We have always bought, but with the long term, low rate financing programs most makers have, our car values (even on a highly-prized) car have substantially depreciated, more so than we expected. This makes us think "owning" a vehicle might not be such a boon. This devaluement has resulted in my looking into leasing again.

5. We GENERALLY LIKE to trade often. We have kept vehicles five plus years, but my wife's current car has 105,000 miles on it and it is a 2005 model bought in fall 2004.

6. Leasing seems to be the cheaper option initially but with obvious compromise.

Both general and specific thoughts are appreciated. I realize some of the tax-related benefits, of which we would receive none anyway, are more for accountants. I mainly wanted to get personal experiences and the logic behind them. I personally would like to run the wheels off our current ride, but my wife would like a bit larger vehicle due to the kids' growth and this seems like a good time to consider doing so.


John M

 

[Diamondpilot]

Everyone's needs are different. I keep 2 vehicles for myself and 2 more for the family/business. I currently have a lease on a 2007 F-150 Super Crew because it was a great deal. Its a FX4 leather, sun roof, power slider, running boards, bed liner, sirrus, ect. Its a 4x4 with 5.4 and cost $330 per month for 24 months with no money down. Now the problem is I love the truck and the lease ends in May and to replace it will cost $600 a month in today's economy. I though of buying the truck from Ford but they want $26,000.00. I am currently looking at used 2 year old Nissan Titans with everything including a Detroit Locker for about $20,000.00 to replace the F-150.

I have leased 8 trucks in the last 10 years, all Fords. The deals have been great but as you said times have changed. We own a 2 Superduty Fords that were leases but we bought them at the end of the term. I also have a little Saturn that was bought used. On the previous leases the cost was less than buying them originally by going with the 24 month lease then buying it at the end by 15% or more. I really like the lease for the simple fact is its like a extended test drive and you should not have to do things like tires, brakes, ect if you do a 2 or 3 year then just give it back.

In this economy if you are looking for a compact grocery getter the lease may be a great option but from what I have seen the way to go on a truck is 2-3 years old with 35,000 miles or so. The Titian's I have been looking at are 1/2 the price or better than a new one.

Chris

 

[MarkV]

As said, everyone's needs and wants are different. I've looked at it every way I know how and have decided that the best deal is a low mileage two year old vehicle that you will drive for ten years. With the present economy I don't want to sign on for any long term payments for anything.

MarkV

 

[kthompson]

Leased a Ford auto once. Never plan to lease again. The value of that auto dropped greater than in my option to buy and Ford would not drop it for me. Rather sell at auction. Am sure leases vary but in the one I had it was a win win for Ford, not me. I do not like the aspect you are force to make a decision with the end of the lease regardless of your own economics or anything else. As to taking off on your taxes and I am not an accountant nor do I play one..if you have a business have you check to see if it mattered if the business or you owned the vehicles? I had a friend who would buy the vehicle and lease it to his company. Said he did so for tax reasons. No idea how that worked for him. It is my experience you have to present the options to most accountants and ask for me which is best.

 

[chh]

Some deals work out differently and for business use leases can have an advantage, but leases are generally designed to give the greatest benefit to the company you are leasing the car from. One of my favorite financial guys refers to leases as "fleeces". Last July Chrylser discontinued leasing when they started coming out on the wrong side of the numbers too often. I suspect(and have seen data that backs that view) that generally speaking most leases give a substantial advantage to the car company.

For me and the uses I have for a vehicle I always purchase, try to pay cash, and usually either buy slightly used, leftover discounted models, or otherwise discounted vehicles that a dealer is really wanting to move. As Diamondpilot mentioned there are some really good deals out there on 2 year old or so vehicles with very low mileage.

 

[BarryinMN]

A little confused on your writeup, but if you are saying business income is less than the transportation cost deduction, then your transportation costs are fully an after tax expense.

New vehicles trading often puts you into the steeper depreciation curve regardless if leased or bought. It becomes a matter of picking a vehicle with historical lower depreciation. Example: Accord or Camry vs Taurus or Impala. When the manufacturer's design updates are released may impact when to acquire or unload. Those calenders may be accelerated, delayed or cancelled these days!

I had a friend who did not spend much on cars. He bought new Mercedes Benz 240D's ran the wheels off 'em always in style as they did not change body styles.

Another one wanted to reduce 5yr transport expense. Traveling sales at 50K mi/yr x 5. He bought a new to the market Lexus 400 series, then after the brand became the quality benchmark did not sell it.

Your gonna laugh but think about this: there may be sweetheart deals on new Hummer's soon, in 5 years when nobody is making large diesel 4x4 passenger cars your Hummer sells with a huge market supply of spare parts from IRAQ.

 

[Bird]

It's been quite a few years since I really got into it in detail and did some serious calculating, but every time I did, I reached the same conclusions:
1) leasing is not a way way to go if it's for a strictly business use vehicle. It greatly simplifies the record keeping, especially at tax time,
2) if it's for personal use, you're paying an exorbitant premium in the long run to drive a new car. And don't forget to have enough money for a down payment for another vehicle at the end of the lease.

 

[jcmseven]

I have always felt buying to be the better option. I have only leased one vehicle in my driving life, and was not left with a good taste. My point with regard to the financials of leasing is that we simply cannot, nor will not, be able to take any of dollar amount as a tax credit. I know that many folks lease vehicles for small businesses, etc., but looking at it for predominantly personal use--with occasional use that could pass for business use--in our income bracket results in no real advantage tax wise. There used to be a couple small, moderate deductions we could take with regard to our vehicles with what we do, but those have been dissolved for folks with a certain AGI--they no longer exist. Thus, it boils down to whether leasing for cost is a good idea now. I have looked at the numbers and it seems to me still buying is the better option, even though in my opinion, carmakers have collectively devalued their vehicles through long-term financing to the point a used vehicle has little value anyway. I have always heard "buy a vehicle if it has a high residual value or is highly sought, and lease if it does not." Now, with the high RV vehicles not having much RV either, this is seemingly no longer applicable. I wondered if these changes made more people look as lease options, or not.

John M

 

[framer]

Leased 3 trucks starting about 15 yrs a go. They worked well for me wen leasing was poplar and cheaper than buying.If it was a good truck at the end of a 4 yr. lease i would buy it back for the agreed residual in contract.Could not buy another used truck for that amount. It changed about 7 yrs a go
residual was a lot higher and payments to boot.With interest free money on
most vehicles its hard to beat it.Good luck. Framer

 

[WilliamBos]

2) if it's for personal use, you're paying an exorbitant premium in the long run to drive a new car. And don't forget to have enough money for a down payment for another vehicle at the end of the lease.

And some more cash for the inspection when returned. If the car is not up to par, it will cost you to bring it back up. Example, may need new tires, brakes, etc. All costs to factor in when leasing. The return can cost you a small fortune.

I say buy!!

 

[Diamondpilot]

And some more cash for the inspection when returned. If the car is not up to par, it will cost you to bring it back up. Example, may need new tires, brakes, etc. All costs to factor in when leasing. The return can cost you a small fortune.

I say buy!!

For that reason I only do 24 month leases. Have done at least 10 that way and never had a single issue on return. I never put money down also. Just want to walk in, make first payment, and leave.

Just like you said it has all changed. I will not lease again until its like the good old days.

Chris

 

[Mike Costello]

I leased a minivan for my wife as her job required much travel. The lease terms were 5 years and no more than 75,000 miles to turn in. I thought this was quite generous of the bank(one of the majors) and happily went my way.
It turned out to be a major mistake on the bank's part and they wound up eating a lot of leases because the residual values didn't hold up.
Since I take care of my vehicles, I offered them fair market value for the van and they still wouldn't let me buy it. They carried their lease fiasco down to the bitter end with me and a lot of other people. The result was most of the vehicles went to auction at givaway prices.
I never leased any vehicles again, but later found out the bank had taken a loss of upwards of 250 million dollars on their lease programs. I'm sure heads rolled on that one.

 

[Diamondpilot]

I leased a minivan for my wife as her job required much travel. The lease terms were 5 years and no more than 75,000 miles to turn in. I thought this was quite generous of the bank(one of the majors) and happily went my way.
It turned out to be a major mistake on the bank's part and they wound up eating a lot of leases because the residual values didn't hold up.
Since I take care of my vehicles, I offered them fair market value for the van and they still wouldn't let me buy it. They carried their lease fiasco down to the bitter end with me and a lot of other people. The result was most of the vehicles went to auction at givaway prices.
I never leased any vehicles again, but later found out the bank had taken a loss of upwards of 250 million dollars on their lease programs. I'm sure heads rolled on that one.

I am in the same situation. Leased a 2007 F-150 4X4 5.4L loaded with FX4 package, tow package, leather, sun roof, sat radio, power sliding rear window, center shift, running boards, and a bed liner. No money down, 24 months, $299 per month. Actually with tax and such its $324. Anyway the buy out is $25,000. Just turned 20,000 miles Saturday. It has to go back on April 17th. I have offered to buy it for $18,000 but they said no, they want $25,000.

Anyway 24 months at $299 comes out to $7,176. Add that to the $25,000 they want and it equals $32,176. The sticker on the truck was $39,000, so not to bad of a deal but I can get one for 18ish around here. I love this truck but not 25K worth. I am now having to search for a new truck.

I was told that if they sell them for less than the residual value its called a short sell. If they send them to auction and lose money on them which they always will they can right it off as a loss. Much better on the books for them this way. Kind of like the mortgage fiasco.

Chris

 

[Alan L.]

People who sell leasing give out misleading information. They talk about how cars depreciate and that is why you should never "buy" one. What they fail to mention is that depreciation is built into a lease, as well as interest. If leasing was always better, then how do leasing companies make a profit buy buying vehicles and then leasing them out?

It makes sense to lease in 2 situations. Number one, you don't want to worry with or deal with the value of the car at the end of the lease, since it is agreed upon ahead of time. You either buy at that price or return it. The other reason to lease is because you can't afford to buy, and you can get more car for the same payment. The lease is less because you have nothing of value at the end.

Sometimes the so-called guaranteed value at the end is not, because your idea of normal wear and tear vs the leasing company's idea may be different. Only problem is, your opinion doesn't count.

I think the leasing industry is pretty sleazy, they way they mislead customers. As long as you understand it, go for it, otherwise, buy.

 

[Diamondpilot]

People who sell leasing give out misleading information. They talk about how cars depreciate and that is why you should never "buy" one. What they fail to mention is that depreciation is built into a lease, as well as interest. If leasing was always better, then how do leasing companies make a profit buy buying vehicles and then leasing them out?

It makes sense to lease in 2 situations. Number one, you don't want to worry with or deal with the value of the car at the end of the lease, since it is agreed upon ahead of time. You either buy at that price or return it. The other reason to lease is because you can't afford to buy, and you can get more car for the same payment. The lease is less because you have nothing of value at the end.

Sometimes the so-called guaranteed value at the end is not, because your idea of normal wear and tear vs the leasing company's idea may be different. Only problem is, your opinion doesn't count.

I think the leasing industry is pretty sleazy, they way they mislead customers. As long as you understand it, go for it, otherwise, buy.

I agree and disagree. Some leasing companies are sleazy, some are not. My sister-n-law got caught up in a bad deal on a Cherokee. Now I look over and go with her on anything she buys.

Leasing can be a good option if you do not plan on keeping the vehicle and the deal is good. For example I leased my F-350 then bought it out. Did not plan on buying it but it never gave me any problems to speak of so I figured it was a keeper. The lease equaled about $12,000 and I bought it for $28,000. The truck stickered for $48,000. I probably could have talked them down to $42,000 but I now have $40,000 in it. Plus if it was giving me problems I could have just turned it in.

The other situation that is good is for a business. You do not have to concern yourself with major maintenance or replacing items like tires or brakes if you do a 24 or 36 month lease. I would never do any more than 24 months myself. The company I work for leases 100's of cars for the executive and sales staff plus the maintenance vehicles that support or 18 sites. They actually give the employee driving the vehicle the first option to buy it then they become available to all employees through a sort inter office craigs list. I have not personally bought any but know quite a few fellow employees who have with good results.

Chris