Is a car lease a good idea?

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TheRedHare
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Location: Atlanta, GA

Is a car lease a good idea?

Post by TheRedHare » Mon Feb 18, 2019 12:15 am

So I've thought about getting a car lease versus purchasing a used car in cash. Some of the obvious advantages are that you don't have to worry about maintenance for the lease car, and you can easily estimate your car expenses.

I'm not interested in getting anything fancy. I'd be satisfied getting something like a Honda fit for 150 - 300 a month. I wonder if my insurance would be higher since it's a lease?

I've still got my 96 ford ranger that is still kicking, but idk how much longer the transmission is going to last. I'm planning to finish paying my student loans off this year, and so all my cash is going to the loan. I don't want to end up putting anymore money into this truck as it's realistically worth about 2k.


Thoughts?

vexed87
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Location: Yorkshire, UK

Re: Is a car lease a good idea?

Post by vexed87 » Mon Feb 18, 2019 5:25 am

Right off the bat, leasing is often regarded the most expensive way of driving a new car. Yes, insurance will be higher initially due to the increased value of the car, but the Fit will be cheapish to insure from the outset anyway. DW leased her first two city cars, Citroen C1 & VW UP. I leased a VW Polo before I got my financial shit together. Leasing is an easy and low capital way to get into a new car. Leases tend to make more sense financially if you opt for a high value car that depreciates slowly. You can pay about the same monthly fee for a luxury upmarket car as something that is really not desirable and doesn't hold value, but you have to be spending big money here. This is because ultimately you are paying for the depreciation (worst in first few years), cost of finance plus the bit of profit for the lease company before they take the car back and sell it on the used market.

Cars that depreciate faster, generally lower value models/badges make less financial sense to lease for this reason. You don't own the car, you can't modify it, but you take the depreciation cost, the cost of financing the car, plus excessive wear and tear, milage and early termination fees (they can really screw you on this too). DW had both her cars in the body shop before returning them to avoid inflated charges by the lease company. All of this massively increases costs, thanks to other drivers damaging your new car.

IMO you are better off financially to buy the car outright and sell it privately after 3 years rather than lease it for 3 years, you have more flexibility and less risk of unexpected fees at the end of a lease contract. Alternatively, if you insist on driving the latest models, a more frugal approach would be to look for a 1-3 year old ex-fleet and buy in cash (ideally), or source your own unsecured loan at the best rate you can find if you need the finance, this way you avoid the the huge initial depreciation hit on a new car, but they should still be in good shape mechanically, especially if mileage is on the lower end. You can sometimes find better finance on new cars, but you can't be picky about make/model.

Look for the cars within their warranty period, and check it transfers with the owner, or buy from a main dealer who can supply extended warranty if you are worried about faults developing in the short term. DW and I bought a nearly new car outright which RRPs at £28k, it was just 7 months old with some minor cosmetic damage and only 7000 miles on the clock for £17k. If we had leased the same car, it would have cost us ~11k just to lease it for the same period! Leasing would not have made sense, at the end of the period we would have handed it back and had nothing to show for the expense. Yes our capital outlay was much higher, but we keep the car as long as we need/want, and if we look after it and decide to sell it on we can recoup some of the capital. It developed a battery fault a few months ago, but it was still under warranty, so no cost to us. Whilst we went for a car twice the price of the fit, the principle is the same.

When you lease, and you do so under the pretence of knowing your running costs in advance, think about how much you are paying for that (so called) peace of mind. If you don't buy the new car/lease and instead opt for nearly new, or even 2-3 years old car, the extra money that you would have wasted on depreciation can be put aside for maintenance costs, and you'll still likely be ahead. All cars develop mechanical/electrical issues eventually, so they shouldn't surprise you, it's part of car ownership. I certainly wouldn't want to pay through the nose on depreciation costs for the illusion that I won't have problems. I've had new cars that have been plagued with faults. One way or another you pay for it in running costs. If some git dinged my new lease car in a car park, I know I'm getting screwed by the lease company at the end of the contract, but their T&Cs are vague about the exact fees. DW reversed our car into our neighbor's car a few weeks ago, no major damage, but scrapes down the rear wing, if that had been my lease car, I would have freaked out, as we own it outright, meh!

If circumstances changed and I needed to drive further than my agreed mileage, I'd be screwed again.

Someone pursuing FI shouldn't be faced with choosing between paying $1000 repair bill or eating, so leasing to avoid repair costs seems like a dumb idea financially, to me at least. Leasing literally only makes sense if you are in the habit of churning new expensive/desirable models, BMW 6 series etc.

I agree, it doesn't make sense to keep sinking $1k repair bills into a $2k car. A car usually stops depreciating around about 6-8 years, so buying around 5 years is pretty much the sweet spot when it comes to buying cars with plenty of life left in them but still in relatively good shape. DW doesn't have the risk appetite to buy a 5 y/o car, but if I needed my own, I probably would. Cars are never cheap to run. Whichever way you go, you will pay for it one way or another. If you want bang for your buck, go down the used route. YMMV depending on variables such as types of roads/winter driving conditions, your mileage, technical competence with DIY maintenance etc etc. If you want to drive a new car without forking out over 10 grand on a car up front, leasing might suit you better. Or get a bicycle. :lol:

BlueNote
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Location: Toronto, Canada

Re: Is a car lease a good idea?

Post by BlueNote » Mon Feb 18, 2019 11:06 am

It depends... There are various lease vs. buy calculators online that you can google. However they often throw up different answers.

What I generally find is that:if you (a) have a high credit score (b) can invest the excess cash flows from leasing at a reasonable ROR and (c) need/want to drive a relatively new car then my experience is that leasing usually works better. In addition you can often opportunistically take over a lease from a distressed lessee and get a lower payment and upfront cash to boot. In the USA I found http://www.swapalease.com and in Canada I think Leasebusters.com is the most popular site for this. I am sure other countries have similar sites.

However as Vexed87 pointed out it can make sense to buy an older car because the accelerated depreciation on a car diminishes significantly around year 5 (depends on make/model). If you can do your own maintenance and a lot of the repairs than buying probably makes more sense. However if , like me , you cannot then leasing may make more sense.
Last edited by BlueNote on Mon Feb 18, 2019 11:33 am, edited 1 time in total.

Clarice
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Location: California

Re: Is a car lease a good idea?

Post by Clarice » Mon Feb 18, 2019 11:10 am

Leasing is more expensive than buying with cash. Buying used from a dealership is not such a hot deal either. Buying from a private party requires lots of homework and some technical skills. The strategy that has worked for me has been paying with cash for a simple new car and driving it until the wheels fall off. Have you considered Mitsubishi Mirage? Here is a link:

https://www.ericpetersautos.com/2019/01 ... hi-mirage/

Augustus
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Re: Is a car lease a good idea?

Post by Augustus » Mon Feb 18, 2019 12:46 pm

My usual strategy is buying a 3-4 year old car with 40-60k miles, using it for a few years, then selling it and getting another 3-4 year old car. The best I ever did was buy a Civic for 7000, using it 6 years, and selling it for 5000. I don't know that you can do better than that without being able to fix a car in your garage. It's still expensive though, 100+/mo because of gas, maintenance, insurance, etc.

I'd also take a look at this list: https://www.iihs.org/iihs/topics/driver-death-rates

I bought a bigger more expensive car after having a baby in part because it's basically a tank and will survive a crash. Being alive > saving money. Trying not to drive much/at all is the best way to stay safe though.

classical_Liberal
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Re: Is a car lease a good idea?

Post by classical_Liberal » Mon Feb 18, 2019 5:28 pm

I'm the guy who will buy the civic (although I prefer the small Toyota's) from @Augustus. 8-10 years old with 100Kish. I drive it 6-7 years until about 200k, then sell it to a HS or college kid for 2K. Who wants to complete this cycle?

George the original one
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Re: Is a car lease a good idea?

Post by George the original one » Mon Feb 18, 2019 10:10 pm

Leasing is generally a no-no. I've heard that it makes sense in Texas, with someone outlining why, I think it was something to do with taxes (taxes in Texas, nice alliteration), but I don't live in Texas, so didn't bother trying to understand and put it out of my mind.

Toska2
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Re: Is a car lease a good idea?

Post by Toska2 » Mon Feb 18, 2019 10:41 pm

I have taken five vehicles past 200k. All bought with 100k and 5-8 years old. I even repaired the transmission in one of them. The savings on lower insurance more than covered the cost of repairs.

Kriegsspiel
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Re: Is a car lease a good idea?

Post by Kriegsspiel » Tue Feb 19, 2019 8:38 am

Everyone's hit on the big points, so I'll comment on the worry aspect. With new cars it is true you don't have to worry about maintenance for a while. But that is offset with worry about damaging it (at least if you're like me). When I owned the only new car I've ever had, I always had low-level worry that someone would ding it with a shopping cart, or a branch would fall out of a tree and damage it. Or someone would key it or kick the side mirror off. Anything, really. Once I started buying used cars like Toska2 and classical_Liberal do, I don't give a FUCK. So maybe take that into consideration if you're a natural worrier.

"It is better for you to be free of fear and lying on a bed of straw than to own a couch of gold and a lavish table and yet have no peace of mind."
- Epicurus

intellectualpersuit
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Re: Is a car lease a good idea?

Post by intellectualpersuit » Tue Feb 19, 2019 2:33 pm

I say keep driving the ranger. But if you must do as Augustus or Toska2 recommended.

TheRedHare
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Location: Atlanta, GA

Re: Is a car lease a good idea?

Post by TheRedHare » Wed Feb 20, 2019 12:01 am

Thanks for the feedback ya'll. I appreciate it. Everyone has made some good points, and I think I will stick with the truck for a little while longer...at least until I pay off my student loans. Then I think I might want to get something more fuel efficient, and newer. I've got my eyes on a 2013 Honda civic. Or a Toyota. Really I'll just be scouting Craigslist for good deals.

intellectualpersuit
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Joined: Wed Feb 13, 2019 11:23 am

Re: Is a car lease a good idea?

Post by intellectualpersuit » Thu Feb 21, 2019 2:19 pm

That is an excellent plan in my opinion. I know a lot of people who buy from Craigslist including myself, if you are patient enough and search often enough you will eventually get an eye for good deals and get one yourself.

Salathor
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Re: Is a car lease a good idea?

Post by Salathor » Thu Mar 07, 2019 4:51 pm

Also, something to note:

"Some of the obvious advantages are that you don't have to worry about maintenance for the lease car..." is not necessarily true. I have a coworker who leases a car from the car dealership that is her side job. Even as an employee the maintenance on her leased car is not included--although it IS mandatory that she take it to the dealer for service (also a bad deal).

TheRedHare
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Location: Atlanta, GA

Re: Is a car lease a good idea?

Post by TheRedHare » Wed Apr 03, 2019 8:16 pm

So I ended up buying a 2004 Toyota Camery LE 4cyl for $5,400. It's super clean both in and out and the guy seemed to take very good care of it. It's got 105,000 miles on it, so still a good bit of life left in it. Hoping it lasts me!
Here's a link for those interested: https://atlanta.craigslist.org/atl/cto/6849250076.html

I also sold my little truck for $2,000 so I think I did pretty well.

SavingWithBabies
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Location: Midwest, USA

Re: Is a car lease a good idea?

Post by SavingWithBabies » Wed Apr 03, 2019 9:39 pm

Nice buy! Clean, simple interior without too many doodads and a reputation for reliability. Recent tires and the 90k service being done is a real plus.
Last edited by SavingWithBabies on Thu Apr 04, 2019 1:06 pm, edited 1 time in total.

George the original one
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Re: Is a car lease a good idea?

Post by George the original one » Thu Apr 04, 2019 12:35 pm

Wow, someone really took good care of that car!

Laura Ingalls
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Re: Is a car lease a good idea?

Post by Laura Ingalls » Thu Apr 04, 2019 3:29 pm

classical_Liberal wrote:
Mon Feb 18, 2019 5:28 pm
I'm the guy who will buy the civic (although I prefer the small Toyota's) from @Augustus. 8-10 years old with 100Kish. I drive it 6-7 years until about 200k, then sell it to a HS or college kid for 2K. Who wants to complete this cycle?
I buy new and drive it til it the salvage guy buys it for $140. Actually that has only happened once. DH and I married in 2000. We both had a car at the time. We have bought 4 vehicles in that time. One we traded. One our teenager wrecked last month and the two we currently own. I think changing vehicles infrequently reduces overall cost

classical_Liberal
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Re: Is a car lease a good idea?

Post by classical_Liberal » Fri Apr 05, 2019 2:21 pm

@Laura Ingalls
I don't doubt there is value in getting to know your car. However, I assume a good Japanese compact/sedan has about 200k of pretty much trouble free millage on average. I can either pay $25,000 for all 200K of it, $19,000 for the first 100K, or $6,000 for the last half.

Laura Ingalls
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Re: Is a car lease a good idea?

Post by Laura Ingalls » Fri Apr 05, 2019 4:08 pm

classical_Liberal wrote:
Fri Apr 05, 2019 2:21 pm
@Laura Ingalls
I don't doubt there is value in getting to know your car. However, I assume a good Japanese compact/sedan has about 200k of pretty much trouble free millage on average. I can either pay $25,000 for all 200K of it, $19,000 for the first 100K, or $6,000 for the last half.
In my specific case which was a small Japanese wagon I paid $14.5k out the door and I owned it 15 years squeezing 225k out of it. Used ones with ~100k are mostly five or six years newer and in the $6-8k range. I don’t think the depreciation curve is quite as steep as you described. I also had the knowledge that it never used any oil and had been well cared for (much harder to verify with a used vehicle.

Nomad
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Re: Is a car lease a good idea?

Post by Nomad » Wed Apr 10, 2019 8:02 am

Usually, a car lease is not a good idea.
Personally, I either save up and buy a used car OR get a very cheap loan for a small amount of money and buy are very used car.

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