OK. So I have great pricing on a 2011 Grand Sport in cyber gray from a local dealer. Just about to finalize finances and somebody at work says, hey why own a depreciating asset? Lease the thing for 3 years and you will always be in a car less than 3 years old.

Good point. Never leased before and the calculations involve a "secret " formula called money factor.

I am aware of milage restrictions and inability to do mods on a lease vehicle

I would appreciate input from those of you who lease before I purchase a "depreciating asset"

Thanks.

 

Money Factor = Interest

Get the residual value at end of lease also which will be based on miles/year. Higher the res value, the cheaper the payments.

It's not a bad way to go really. I do it for company vehicles as it's a direct write off without having to figure depreciation.

Usually, the payment is lower but you build zero equity.

 

I've leased exactly 2 cars in my lifetime.

Never again

 

It's nice having lower payments but to me it's like renting the thing. If I'm flipping out that kind of money every month I'd rather be buying something with it. Not renting.

 

I guess it depends on how long you keep a car. My wife buys new BMW's like candy and always leases. The money factor is giant. It can swing a BMW payment by $100 to $200 per month. When the manufacturer wants to dump inventory they play with the factor. As a rule, the manufacturer loses money on a lease. When the car is turned in, it's not uncommon for BMW to be upside down a few grand. If you put $10,000 down, you can have cheap payments on an expensive car. Now if you are a car guy, forget leasing. It's harder to love somebody else's baby. I'm cheap and pay cash. I hate payments. I let the first owner take the hit.

 

In a lease you are paying for the estimated depreciation and at the lease end you have nothing. If you want a new car every 3 years, always covered by warranty a lease could be for you. I prefer to own and have something at the end of the paymnent cycle.

 

If you don't plan on keeping the car then it might work for you. On the other hand if you decide to keep it, it will generally cost you more.

 

Exactly; at the end you own nothing. Leasing only makes sense from a business perspective but is not advisable for private ownership. No useful car is an investment, all you can do is limit your losses. Just my 2c's.

 

what you can do is figure out what the 'sale price, known as the cap cost' of the car would be, the MSRP, the best interest rate you'd expect with your credit score, and the state tax interest rate - then put those numbers into a spreadsheet to get a monthly payment you'd expect.

money factor is a relation to the interest rate
to get the money factor - you take the interest rate and divide by 2400
ex. int rate of 3.48 / 2400 = .00145 money factor

on a monthly basis:
depreciation fee is the (cap cost minus the residual) divided by the monthly term (note here that if you do a 3 year lease, and the 1st month lease fee is paid up front, your term is 35 NOT 36.

finance fee is the (cap cost plus residual) * money factor
tax fee :if you include the tax in the deal, the tax is calced:
(depreciation fee plus finance fee) multiplied by state tax%

add all 3 up and you get the monthly lease amount.

note that some people like to pay the tax in whole up front

depreciation fee is the amount you'll pay on the dollar amount that the car is worth between the selling price and the ending residual value

finance fee - is a fancy way of saying how much the 'loan' will cost you, just like an interest rate on a normal 'purchase'

residual is the value of the car at the end of the term, in dollars - this is a 'difficult' number to pin down, but is negotiable to an extent - for example, I was looking at an Acura MDX, residual sits around 57% of the original MSRP, for a Cadillac SRV - 50%

note also on leases, they typically get you for a bank acquistion fee. also, the motor vehicle fees and doc fees are part of the deal, but I did not include them in this example - you can just add them into the cap cost - or decide to pay them up front.

my opinion is: leases are good if you like to stay in a new car every few years, and like the gent above said - you don't have equity. also, you are responsible for excess mileage and excess wear and tear.

anyways, hope this helps.

 

Thanks for the great info (alandchris)...

(like your car!)

 

Ditto I lease a car for my business. 100% write off. I wouldn't lease a Vette as I wouldn't be able to resist modding it.

 

It is generally best to purchase a car outright and then sell it after 3-years to a private party, compared to leasing. It will save quite a bit of money over a lease, depending upon the cost of the car originally and the economy.

BTW, a car is a liability, not a depreciating asset.

An asset should be generating positive cash flow - like a certificate of deposit.

Unless your car is used as a taxi, it probably isn't going to be generating any cash flow.

 

I leased my C5 and it worked out great. I bought the car at the end of the lease at the depreciated value, when I did that I put no money down and just signed the papers for it.

It just depends on ones financial situation, and what you prefer to do with the car, and how often you turn them over.

BTW I modded the sht out of my C5 the year after I started leasing it, I knew I was going to want to buy it at the end so I didn't care. I only drove it 5 months out of the year (stored in winter) so milage was not an issue.

This time around when I bought my C6Z, I was able to buy it and not lease, and still have an affordable payment for my budget.

 

But you could own it if you bought it at the lease end.

I just don't get the hating on the leases. A well configured lease will put the value of the car approximately at it's street value at the end of the lease which is equal to the approx depreciation of the vehicle. Whether leased or financed is irrelevant (assuming similar interest rates), the car depreciates at the same rate either way.

The concept of building equity is incorrect. The only way you might have equity is if the lease value is lower than street value when financing (which means you've paid more than the car actually depreciated). If you want to capture that "equity", just buy the car at the end of the lease - bingo, no difference than finance.

The upside of leasing is the busines advantages, and/or fixing the known depreciation (who knows the bottom could fall out of the market like it did here in Canada so GM was losing their shirts on overvalued lease end amounts) and you win. You also are not signing for the whole amount of a loan (ie you're only on the hook for the lease payments, not the whole value of the car), plus you aren't paying the taxes on the residual value of the car which is another HUGE savings.

The only major downsides to leasing is you can't easily get out of the car before the lease term, whereas if you finance you could sell the car, however you are most likely underwater in the car for a significant term of the loan so this can also bite you.

If only GM offered leases in Canada........

 

Got it. The term "depreciating asset" was not of my origin but rather came from my buddy. His take: always lease. Always have like new car, always be under warranty etc. However I do see the flip side. I do like the idea of buy and if I desire sell after three years.

Looks like I'll purchase.

 

Another point. If purchased and financed over say 5 or 6 years if one wished to sell after 3 years they would need to borrow money to pay off the note in order to have the title to sell vehicle, correct?

 

I think the residual value numbers are very bad now for Corvettes? Back in the C5 days there were some "GM Smart Buy" leases that actually were pretty good. I did this on a '99 and bought it with the end of lease balloon payment.

 

If you lease, you can always buy it out at the end of the lease and sell it to make a small profit. From the numbers I checked, it came to roughly the same amount to lease a car for 3 years and pay cash for the residual or buying it from the start including interest.

On a $30k car, your residual would be like $13k after 4 years. You could probably sell it for 15-17k and make some money on it. But is the hassle of selling the car worth it? To many, they don't want to go through the trouble of selling a car, so they just lease. It's worry free.

 

The note has to be paid somehow, so either you pay the note off and get money from your purchasor, or the purchasor may be able to take over the loan or pay it off.

The key difference is with a lease you are "borrowing" the car and paying the depreciation vs purchasing you "own" the car but of course are still paying the depreciation.

 

Thought about it but never did it on any vehicle,something about paying for something you own gives me more satisfaction and at the end of 72 months it's ALL mine.And still worth a hell of a lot since Vettes don't depreciate as other vehicles and that goes a long way towards a down payment if I wanted to upgrade to the C7 someday. IMHO buy it,don't rent it.