To Buy or to lease?

Hmmmm difficult question for sure. My take is a little different, as I leased this 2010 since I believe and feel that Toyota will make some big strides on additional efficiencies down the line within the period of my lease. I drive about 15,000 MILES, per year. So I took the lease with that option in mileage, and have a set in stone residual at the end. I can just walk away, of course pending only normal wear and tear items on the car, and select another vehicle at the end of the term. You can end them sooner but subject to appraisal etc.

If you plan on keeping it 6 years and drive a lot of miles, I would think "pruchasing" may be your better option. However I know you mentioned a business (consulting firm) so from a tax advantage the tax preparer may also suggest what is better. But from the initial comments it may be a purchase is better for the length of time and miles.

 

Hi WHC, If you are just looking for opinions; that's great, you'll get them here. You are asking a question that has tax implications, legal issues to consider, and ultimately will be an individual decision that only your employer can make.

What are your local lease laws, what income does your employer make, how much tax right-off might he qualify to take, can he separate his university (I am assigning a 'professor' to be employed by a university) from his consulting income, miles driven, terms of the lease regarding residual value, anticipated maintenance expense, and high milage penalty are a few thoughts that come to my mind.

If it were me, I would want informed, knowledgeable tax and legal guidance. Good luck --TK

 

Here you go buddy. Sounds like he should buy. Good luck.
A lot more information included in this link: Lease vs Buy? Car Leasing versus Buying Explained

[FONT=Arial, Helvetica, sans-serif]LEASE - If you enjoy driving a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don't like trading and selling used cars, don't care about building ownership equity, have a stable predictable lifestyle, drive an average number of miles, properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should lease. [/FONT]

[FONT=Arial, Helvetica, sans-serif]BUY - If you don't mind higher monthly payments, prefer to build up trade-in or resale value (equity), like the idea of having ownership, like paying off your loan to be payment-free for a while, don't mind the unexpected cost of repairs after warranty has expired, drive more than average miles, prefer to drive your cars for years to spread out the cost, like to customize your cars, expect lifestyle changes in the near future, and don't like the risk of possible lease-end charges — then you should buy.[/FONT]

 

Leasing companies are in business to make money. As a result, you always pay more to lease a car than to buy it, unless you are smarter than the leasing company, or simply get lucky. The only reasons that leasing makes sense are if you are willing to pay more to avoid the hassles of buying and selling, or if you have tax reasons that the expense of leasing is more attractive than the capital investment of buying.

Tom

 

Completely untrue buddy. Read up on it. You're assuming too much and not paying attention to the majority of the facts.

 

I stand by my post, but feel free to refute it with supporting data if you have any.

Tom

 

Whatever you choose, you need to stick with your initial decision. Leasing today, and then choosing to buy the car at the end of the contract will definitely cost you more money.

 

Most car leases are based on 21% interest.

 

21% interest?!? Thats also untrue.

Your professor should probably buy given the info you have given here.

Also I don't know the tax laws in Canada. In the US a big plus for leasing is the tax benefits if you writeoff deductions for business.

Leasing is very misunderstood. Yes leasing companies are in business to make money...so are car lenders. Its no different. Just because there is profit built into it doesn't mean its automatically a bad deal. Basically when you lease you are simply renting the car for a predetermined amount of time. Whether it turns out to be cheaper depends on you...the lease terms...and the car.

Lets do a case analysis with a 2009 Lexus ES350 (a commonly leased car) with an MSRP of $41k and a purchase price of $37k.

You lease it for 36 months with a money factor (interest rate) of .00264 (to figure out the interest rate always multiply this decimal by 2400, in this case the rate is 6.34%) and 15,000 miles per year with a residual of $20,440, the payment is $651/mo.

If you were to finance this car for 60 months at a rate of 5.75% the payment would be $719/mo. So right there a savings of $68/mo and you can make that wider by doing a 39 month lease, I wouldn't lease a car longer than that.

So lets say in either event you were going to trade this car in after 3 years.

In the lease scenario it has cost you $23,436 to basically rent the car for 3 years.

In the purchase scenario you have paid $4,680.24 in interest and the loan balance is $16,083.51 for a total cost of $25,596.73. Now you have to sell the car, according to KBB trade in value, an 06 Lexus ES fair with 45k miles is worth $15,700. So when you add it all up, it has cost you $25,980.24 to own the vehicle for 3 years, making leasing $2,544.24 cheaper for this scenario. Plus, with the lease you just walk away. With the purchase you have to get rid of the car and you never know what the actual value is going to be. Sure you can sell it privately and recoup more and maybe make up that difference, but leasing isn't designed for people who would do that.

Now, if you started looking at for business you'd have essentially a $23,436 tax deduction over 3 years vs the interest and depriciation and it starts to look even more attractive.

Now, as a caveat, there are a lot of special depreciation rules right now for new cars...so that makes it a little more complicated.

You have to compare it under this scenario though. If you are deciding between leasing cars and buying one and driving it for 10 years, buying one and driving it for 10 years is going to be cheaper. If you are planning on leasing and then buying it out of the lease...buying it originally is probably cheaper.

But, if you are going to replace the car in 3 years anyways...leasing has its merits, especially if you itimize deductions for business.

Some cars leasing just doesn't work for, some cars have subsidized dealer leases that make it even more attractive. Volvo has really good leases for instance...so does BMW. So does Mercedes sometimes also.

 

This is just the point. All other factors being equal, leasing will cost more than buying since the leasing company must make money and in addition go through the bother of reselling the car. The leasing company adds another layer of overhead.

However, in the real world there are many confounding factors that may make leasing come out on top. Leasing to save money is like buying insurance to save money. In the long run the average buyer loses. Some will come out ahead, most will come close to breaking even, some will lose.

Tax write-offs and the cost of capital make leasing attractive in some business situations. For others, the convenience and flexibility of leasing makes it worth the extra cost. Industry incentives throw a wild card into the calculation: Cheap financing favors buying while subsidized leases favor leasing. Some people lease because they have little credit and no down payment.

There isn't one right and one wrong answer. The only absolute is that leasing is essentially a long term rental. You pay someone to use their car, give it back to them in the end, and they intend to make money from the deal. Most of the time you pay for this service.

Tom

 

you said "The only reasons" are listed here. WRONG. I've got others.
"Always pay more to lease". check
"Unless you are smarter than the leasing company". Explain this.
"Unless you get lucky" Say what? Who are you again?
"Avoid hassle of buying and selling". check
"Tax implications" check

There are also other reasons that you didn't mention that can change someone's mind whether to lease or buy. Simply stating "the only reason to..." is irresponsible. Please include links so people can pick apart your argument without saying "no, you prove me wrong". Those "types" of people aren't needed here. Lease vs Buy? Car Leasing versus Buying Explained

"If you enjoy driving a new car every two or three years (some say maybe 4), want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don't like trading and selling used cars, don't care about building ownership equity, have a stable predictable lifestyle, drive an average number of miles, properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should lease."

There is a lot of information on lease vs. buy. OP, take a look at calculators as well. This will help your boss understand what exactly he's doing and shows him how much money he's saving in the short term or how much money he's paying out in the long term.

 

Jay, this is utter nonsense.

 

Lease rates

There isn't a time in history of this business when leasing a Prius is as comparable to buying one.

The average rates of interest are very close (a great lease rate compares to a 6.3% apr, and a great buy rate is now 5.25% apr.

The luxury of leasing is worth it to some. You have no risk, really. If the car's worth less than residual, you get to dump the problem in someone else's lap after 36-60 months, depending on the term you chose. If it's worth more, you have the first right to sell it and keep the equity.

That goes for all models we sell.

There are some models (not Prius) that have even lower rates of lease that equate to an even lower rate of interest, such as Scion (3.9) and Yaris .6% and Camrys 1.2 ... so this is a time to compare and see what would be better for YOU.

 

I really liked your post. I am talking out of recent experience. It wasn't Toyota but it was pretty educational for me.
In May 2003 I leased brand new beautiful BMW 530i. New car price about 69-70k. Absolutely loved it. In the end of lease salesman wanted to get me into another lease for same type of car (new style though). No way I am smarter. I bought it back for total cost of 40k. So by now car already costed me 80k already.

Here comes 80k kilometers, new tires needed, add another 1500. 85k brakes finally due for replacement, + 1400 (i replaced rears myself). 90k there is bigger service, + 2400. Mind you, car is running as it was on day one, no failures of anything.

So 6 years after I decided that my daughter, leaving the house soon needs car that is less expensive on maintenance and I wanted to still get something for that car. Ford Black Book utility on their site told me that car is worth 12-14k so I went to Ford and Toyota looking for hybrid. Both dealers said that I can get 10000 for it max. That was disheartening to hear. My Beemer in perfect condition, all options ...

So I sold it through ad in Auto Trader for 15750 (- safety, - emission test, - adds) = 15450. It had 104000 km (about 65k miles).

Let me throw number of 35k into equation. That is amount I could buy 3 year old BMW at the moment when i bought back my own (after lease expired). Why did I did I do that? Stupidness comes to mind. My argument was that since I was first owner I had total and complete knowledge about history of that car.

Now you can play with numbers above and calculator and you will find out that I could lease 2 consecutive brand new cars for the total price I paid to have and keep that one for 6 years! Car would be new under warranty at all times and I didn't have to buy tires, brakes, expensive service. I even purchased extra roadside assistance after 3 years of having it "just in case". Never needed it, I never used spare tire either.

I don't know if my experience applies to less costly cars. probably yes. Just to do justice, I heard that BMW is bi..h when you are returning car from lease. They want to charge people for anything and everything under the sun totally neglecting normal wear and tear term.

 

Buying or leasing

OK, so we are in a Prius forum. How about comparing a Prius lease?

Package IV with NAV/USB/Safety Connect. Mats. MSRP 29,230.

Let's use MSRP as a cap price to stay consistent.

Lease would be 35 remaining payments x 418.03 + tax = $458.79 and that's with 1000 cash drive offs that include the first of the 36 payments.
Residual is 19459.
If you reside in most parts of LA county, your monthly payment would be $40.76 a month = 458.79

If you BOUGHT the car for 60 months with $1K down, it's $600 a month assuming great credit and a 5.25 apr.

Now, let's do the math.

Lease:
458.79 x 35 = 16057.65 + 1000 = 17057.65 + KEEP car at lease end = 19459 + the tax on the 19459 is 1898 = $21337.

16057.65 +
1000 +
21337
_______
38,394 overall with all tax, title, "interest" etc.

_____________________________________________

BUY: 60 x 600 = 36000 + 1000 cash = 37000. (includes tax and title)

This is a calculation using a 60 month buy. Let's face it, most people won't do a 950+ payment for 36 months. Most will use a 60 month term, some even use a 72 month term. And, rates get higher over 60 months and if they keep it to a short term, they add more cash down anyway. ALL OF THOSE FACTORS MAKE THE DIFFERENCE GET SKINNIER when you add time to the loan.

But - apple to apple, it's about 1.5 grand more to lease a package IV with NAV. On a $30,000 car, if it costs you around $1,000 extra to have a car payment that's LESS THAN HALF of what it should be on a comparable buy (36 months)... and gives you the freedom to walk away from it or sell it and keep the change, that's why people lease. I'd rather stick that extra $xxxxx a month into my mortgage, my investments, or pay off credit cards that have a way higher rate of explosiveness! And, a way to switch to a plug in sooner!

Dianne

 

There are too many uneducated people attempting to explain a lease off things they have heard. Leasing can be great from some and horrible for others.

It also amazes me how many people there are out there that think they know everything to buying a car. I have 7 years experience from sales, to f&i and working the desk. There are so many people out there that don't do enough research before going out to start looking.

I plan on buying my Prius in December and my buddy is a Fleet Director of a Toyota dealership. I will get out the door prices from a 4 others dealerships then go see him.

If any of you have a questions, just ask.

 

Re: Buying or leasing

Dianne, sorry about pushing story about BMW. You are right, lets stick to Prius. I actually wanted to see how it works with less expensive car.
We just learned that it costs 17057.65 to drive brand new Prius for 3 year lease.
So let's suggest something wild here. Can you indicate what is residual value for the same Prius after 60 months of average use?

 

It's cheapest of all to pay cash :_>

 

Actually, it's better to finance if one could get 0% on the Prius like Toyota was offering last year.