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Old 03-15-2013, 07:38 AM   #1
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Finance or Lease with buyout

Hi guys ,
I am looking to buy a new car.. Is it better to finance with a downpayment or lease it first then buy it out?

Do i pay more in leasing? The rates are the same at around 3%
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Old 03-15-2013, 07:56 AM   #2
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It's my honest opinion that if you don't know the difference yet you should probably ask your parents.

It all depends on you. There's no right or wrong answer.

What type of car. How much will you be driving. How much down payment can you afford. Do you want to own a car eventually. etc etc.

Also, google is FILLED with excellent comparisons that give you a situation vs. situation, and will be much more helpful to you.
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Old 03-15-2013, 08:26 AM   #3
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You will always pay less interest with financing given the same term and same interest rate. Generally, leasing only make financial sense if u can write it off as business expense.
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Old 03-15-2013, 08:46 AM   #4
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Even if the interest rate is the same, you will pay more with leasing.
(That's because you pay a lower monthly payment on leasing, which means more of the car's value is accruing interest over the term)
*But if the interest rate is low enough, the difference is minimal...(e.g. if interest rate is 0%, the total sum paid will be the same for financing vs. leasing)

Pros of Leasing:
- Leasing gives you "flexibility"...in case you don't want to keep the car after a few years, it makes it easier for you to dispose the vehicle...
- Leasing sometimes protects you against "excess depreciation" on a vehicle...(e.g. if the residual value was set at $20,000 after 3 years, but the car ended up being worth only $10,000 after 3 years...you actually saved $10,000 on the car depreciation value assuming you sell the vehicle)

Cons of Leasing:
- In most cases, you will end up paying more (from more interest cost)
- There is usually a big temptation to switch to a new vehicles at the end of your lease....and getting a new car every 3-4 years will definitely cost you more than keeping the same car for 10 years
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Old 03-15-2013, 01:54 PM   #5
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If you're 100% sure you're keeping the car after your term, finance it. Just go to the dealership and get a quote with your payments and how much it costs to buy out the lease. With that go home and use excel or a piece of paper. It's pretty easy math to figure it out.
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Old 03-15-2013, 02:08 PM   #6
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Without anymore information about you or the car you're looking at..

You should Lease
- if you can write it off as an expense, or
- if you plan to change your car every 3-4 years

Other than those two reasons, you should finance.
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Old 03-15-2013, 04:08 PM   #7
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Given all the above considerations, it also depends on what car you are looking at.

Some cars are better to be leased, some better to be financed,
regardless how long you plan to keep it.

As for business write-off, you can write off expenses even if financed,
it's just more work to get the right numbers.

In general cars that keeps its values well after 3-4 years, or if the manufacturers are OVERLY OPTIMISTIC about their residual values, are good candidates to be leased.
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Old 03-15-2013, 04:13 PM   #8
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Thanks guys for the info! I am deciding on keeping the car and I do not have high enough income to write off expenses. I guess financing is the best way to avoid paying more for it.
It is the 2014 Lexus IS model I plan on getting.
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Old 03-15-2013, 04:14 PM   #9
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One more thing I would like to point out when considering Lease vs. Finance on a particular car you are interested in, if you think you are likely to buy out at the end of lease, and you are working out the final total cost of ownership:

Don't forget you need to find a way to finance the buyout amount at the end of the lease, which is fair to say at Bank rate instead of the ultra low finance rate car manufacturers offer at the beginning.

that's extra expense in interest you need to factor into lease-to-own route.
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Old 03-15-2013, 05:43 PM   #10
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having been young and stupid, i'm glad i did certain things in life. one of them is to NEVER go into debt to get a fancier car than my life could afford. this includes financing a car

finance vs. lease - all depends on whether you want flexibility to walk away at the end of lease or buy (in this case, lease works best) - i own one car, and lease another for just that reason, the leased car is serving a purpose, but at the end of the lease we can see if we want to buy it or let it go - i've crunched the numbers and it is about equal had i bought the car used (was a lease takeover - another great option, but pretty small market for your certain car), or leased and buy - but that option to walk away and not have the headache of selling is HUGE right now

as for finance, well can you get the funds elsewhere cheaper? i.e. go to bank of mum and dad - see if they have a home equity line at 3.5%, and pay that off on a regular basis, you will, if you have half a brain cell, be able to negotiate a MUCH better cash purchase than finance deal, and be borrowing at stupidly low rates.

i know you didn't ask for it, but the third option is to buy a used car for less... i make good coin now that i'm old and wrinkly, my desire to ever buy a new car is pretty low, i've only ever bought 1 new car and that was because i got it on pre order before it's release, having a new car just isn't worth the premium you pay - but this is, of course, a personal opinion, so feel free to ignore this last part
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Old 03-15-2013, 05:44 PM   #11
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Quote:
Originally Posted by snowfly View Post
Thanks guys for the info! I am deciding on keeping the car and I do not have high enough income to write off expenses. I guess financing is the best way to avoid paying more for it.
It is the 2014 Lexus IS model I plan on getting.
good choice

if your income isn't high, concentrate on upping that, and then you'll never have to worry about this kind of thing again
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Old 03-15-2013, 07:22 PM   #12
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Finance all the way, unless you can claim the lease eh.
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Old 03-17-2013, 01:31 PM   #13
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Never negotiate the monthly payment. Always negotiate the cash purchase price first. Remember you are buying a car, not a monthly payment.

One of the most important aspects of buying a new car is to find out the invoice price of the car. You can find it on edmunds.com or other sources.
Remember a dealer is in it to make money, so work from the dealer invoice up but never the MSRP down. And obviously never pay over list, that is instant depreciation there.

It is helpful to bring a friend down with you when you negotiate and have them bring up points why they didn't like whatever you are looking at. This keeps the salesman off balance, just when the salesman thinks he has you, hit him with another objection. He will then have to sweeten the pot to keep the deal alive. Even if the objections mean little to you, the salesman will believe it is important to you. Prepare to walk away and never shop at only one dealer. You will 99% of the time overpay. And remember, make sure you don't pay tax on the rebate.

You should be finding out the interest before you even talk price. Make sure you get the lowest possible interest. And shop around, too. If a salesman asks you "how much can you afford a month?" Don't answer it. Say it isn't relavent.

Now the question is: IS LEASING FOR ME?

Leasing isn't for everyone, and it is not the cheapest way to purchase a car. The cheapest way to own a car is to buy it and keep it until it falls apart. But for those who keep a car 4-5 years, leasing may be an attractive way of getting a car. Leasing is sometimes the only way to drive a new car when you can afford to make monthly payments, but don't have enough cash for a big down payment.

Leasing a car has distinct advantages over buying a car:

1. No huge down payment.
2. Lower monthly payments
--Here is why: When you buy a $30,000 car you make payments based on that price minus the down payment. When you lease the payments are lower because the car isn't yours at the end of the lease. That means you don't have to pay for the whole car. That means the car that is worth $30,000 may still be worth $15,000 after a 36 month lease. So the leasing company would base their payments on $15,000 not $30,000.
3. You can walk away from the car at the end of the lease.
4. You can drive a more expensive car.

Sounds pretty good huh? No down payment, no headache of selling a used car...lower monthly payments...

Well there is a reason. Leasing is always more expensive then buying a car. That is because at the end of the lease you have nothing to show for all those payments. You can either drop the car off or buy it at the residual value.

There are two types of leases. Open and closed-end leases.

Closed end lease- Fixed residual rate with the option to buy.

This type of lease means that the residual value is fixed at the beginning of the lease and you have the option of purchasing the car at the residual value or simply walking away from it.

Open end lease- Fixed residual rate with the option to buy, BUT you must pay the difference.

With an open end lease there is still a residual value set at the beginning of the lease but if the car is worth more than the residual value then you must pay the difference. Always go for closed-end lease.

Money factor. This is the phrase used for the finance rate upon which the lease payments are based. The lower the rate, the lower the monthly payments. Obviously you want the lowest rate you can find.

GAP protection This is extra insurance coverage that will cover the lease balance and any early termination fees.

Mileage allowance
Watch the mileage allowance you are getting. If you are going to go over the allowence, trade your car in early. By doing that you can finance what you owe on the car by putting it towards your next lease instead of paying the mileage penalty up front.

Wear and tear
You have to keep the car in good shape. If you don't maintain the car well and run it down, you will be responsible for the damages at the end of the lease.

MISC. Fees

--Be prepared to give a security deposit.

Acquisition fee and Disposition fee. Ask for these fees to be negotiated out of your lease.

*******

Remember leasing a car is not different from buying a car. Never announce to the dealer you can pay x a month to lease a car. Start by negotiating the price of the car as if you are buying the car. Then negotiate the residual value and the excess mileage fees.

To lease or not to lease

-Leasing may be good for you if you want to invest your money in something other then a car.
-Drive a more expensive car
-Trade in every 2-3 years.
-No hassle of selling a used car
====
-Leasing may not be right for you if you usually drive your car more then 15k miles a year.
-You don't take care of your car.
-You want to keep the car long term

Bottom line. Make sure leasing is right for you, and make sure you understand everything you sign. Don't understand it? Walk away.

====
FWIW, I would never lease a car. For me, it doesn't make any sense. I mod and keep my cars long term.
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Old 03-17-2013, 10:33 PM   #14
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Unless you can buy it outright... don't buy a new car. Trust me.

Let some other sucker eat the depreciation... it's just not worth it. I bought a new car when I was young... because I wanted one.. and I've never lost so much money on an appliance on wheels.

Buy a nice used car... and save your money for mods. Just stay away from fugly Ebay body kits, please..
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Old 03-17-2013, 11:27 PM   #15
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^ what do you drive now?
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Old 03-18-2013, 11:08 AM   #16
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Unless you can buy it outright... don't buy a new car. Trust me.
I don't know. I bought my first 2 cars outright and financed my last one. With low interest financing isn't a bad option. If I had to go back in time I should have financed my second car and get something a little bit better... I would still have it now.

What you said about depreciation is very true and if you don't want to lose a pile of money buying used is the way to go.
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Old 03-18-2013, 01:56 PM   #17
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Quote:
Originally Posted by jlenko View Post
Unless you can buy it outright... don't buy a new car. Trust me.

Let some other sucker eat the depreciation... it's just not worth it. I bought a new car when I was young... because I wanted one.. and I've never lost so much money on an appliance on wheels.
Agreed. I bought my car CPO from vw and it was 2 years old when I got it. It saved be about 8k+ from new, and already had coilovers and an abt exhaust installed as it was a vw demo car when the mk5 gtis first came to Canada. I still ended up with a 40k warranty, tacked on top of the original warranty which had not expired yet. Add it all together with the mods I would have bought anyways, and I saved 10k to buy a 2 year old car, with a warranty that was only 10k kms less than if I were to have bought it straight off the lot brand new. Because of this, instead of car payments, I had money in my bank account at the end of the month.
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Old 03-19-2013, 07:36 PM   #18
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^ what do you drive now?
I drive a piece of shit, as it's provided by work... but what does it matter. I prefer to spend my money on my house and family activities
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Old 03-19-2013, 07:42 PM   #19
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i think you should finance it. but first ask your bank. they are probably gonna give you advice and opinion + a rate lower than lexus.
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Old 03-20-2013, 10:19 AM   #20
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OP is looking for a lexus so this probably doesn't apply....but.

If you are looking at some high maintenance European posh cars that really don't last past their warranty, you might as well lease.

One, you don't wanna own a headache past its warranty
two, if you get into an accident, the depreciation of the vehicle's worth because of this accident is irrelevant to you, you can always return that car and buy another one of the same (if you like it so) without the accident record, and you'd have a peace of mind that it's never been crashed.
three, even if you don't crash, the % depreciation of these Euro cars / Korean cars are going to be higher than your interest paid (given it's low interest rate).... They almost always overshoot their estimation of the car's worth at the end of the lease too. Find me a 5 year old European car that's actually worth what they estimated it to be.

Take, for example, a 2009 Mercedes E class say E350. Worth a lot new, worth next to nothing now, you just done your lease term. Problems galore now. Don't you feel good knowing that it's going to be someone else's problems now, while it costed you less during this period of ownership (w/warranty) in the first place?

So in my opinion Lease a euro and finance a Japanese car.... at least while they were still building them properly in Japan back then.
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