NFR Buy or lease vehicles?

[Josh]

I have mostly always bought used cars in my life. In fact, I've only ever purchased one new car and at that time, I had saved up enough to pay cash for it. But these days new new cars are getting so pricey and used cars remain in scarce supply (and thus expensive) since people are keeping cars longer rather than paying for a new one.

At some point I'm going to either need to replace my wife's 4runner or my Ranger, both of which are old enough to buy beer at this point. So I've been thinking through how I want to do that. Cash/loan for a brand new truck/suv seems unlikely for my family that doesn't drive all that much and has two kids creeping towards college age. Most likely, I'll hunt for something used and just accept that it will take time and cost more than I think it should.

But every so often I see lease offers that make me wonder if that's the way to go. I had always sort of seen leasing as kind of a long term car rental. But it's also a car buying method that seems to have stuck around for decades. So SOMEONE must find value in it. Do any of you lease your cars? Do you turn them in at the end of the lease or just take the "buy" option? Does the money really pencil out with leasing? It just seems like you are tossing cash away with no equity being built (even accepting that "equity" in a depreciating asset isn't really a thing).

 

[jaredoconnor]

I think leasing only makes sense if it’s a business expense.

I would never get a car loan, unless there was some circumstance in which the interest was guaranteed to be lower than the performance of my investments.

In all other scenarios, I would just buy whatever I can afford in cash.

 

[Brian Miller]

We're in the same demographic of "low" annual mileage. We prefer not to carry contracted debt that includes leasing. We consider regular maintenance and unplanned repair expense as periodic one-time car payments. We have saved (and saved and saved...) to pay cash for our last three used but low mileage vehicles; two of which were still under full factory warranty for a year or more.

 

[Josh]

We consider regular maintenance and unplanned repair expense as periodic one-time car payments.

Yeah, same here. If I have a $700 repair, I look at it like "well, that's a month and a half of a new car payment. Will this car still be safe/good/etc to drive for another month and a half? If so, I should do the repair."

Now, cars don't last forever. And if we drove more than we do, I'd probably calculate things differently. But for the time being, that's been our mindset generally.

 

[Robert Engleheart]

In 1991 I leased a new Honda Accord EX (top model) for 0 down and $190/ month. Drove it three years and Sold it for $3K over residual. Then leased 94 Accord, same trim, 0 down and maybe $20-30 month more. Sold it at end of lease for somewhere between $2500-3000 over residual and put that down on a new ‘99 that I decided to purchase and keep. Haven’t been interested in leasing since but from what I see it appears most require a substantial down payment to make it seem as if monthly payments are lower.
I tend to agree with Jared in that it makes sense if one can use it as a business expense but I haven’t looked at the economics.

 

[Tim L]

FWIW, it's not evil (dare I say it's advised) to carry some debt with a reasonable amount/term/rate over the vehicle's "useful life" (same principal applies in personal finance as business/corporate). As in, make sure the amount of cash you're tying up in a single instant also makes sense. The question shouldn't be "can you" but "should you" purchase in full for cash.

Josh, I didn't address your original question. I'm not big on leasing myself (on the personal side). My own rule of thumb, buy used low mi or find a $300 over invoice deal on new with zero to squat percent financing. Overall, a third to half for the downstroke and carry the rest for 36 to 48, and I'll generally rinse it early. For me, if that's not comfortable I'm likely at too high a price point.

 

[Robert Engleheart]

I financed my last new vehicle, a 2017 Tundra, because Toyota credit was 1.9% APR compared to my money I would have used to purchase earning 7.5%. Everyone’s situation is different. Bear in mind that lease requires returning the vehicle in excellent condition or you will get charged.

 

[Stonedfish]

My ex always leased her rigs, but it was for business and she always wanted a new vehicle after 3-4 years. Made no sense to me but her company paid most of the tab anyways.
As far as myself, I've always purchased vehicles and drove the wheels off them. On the past few I purchased, I always put a decent amount down to keep the monthly payments reasonable on them and financed the rest. Money was cheap then. I think the last two were at 0% and 0.9% on the last two rigs I purchased new and paid them off early. That isn't the case now. I'm likely done buying anymore new vehicles. I'll buy used the next one I acquire.
I've had my Explorer for 24 years and only dump about a $1,000 into it each year.
SF

 

[Josh]

I suspect the days of 0-2% interest loans are long gone on the most desirable vehicles for the foreseeable future. 4% for 48 months seems like what passes for "a deal" these days. And again, a lot of high demand vehicles won't see any financing incentives and you'll be stuck with 7-8% from the bank.

 

[DimeBrite]

Buy all cash for a "like new" used car. One time payment, and it forces you to research and commit to a vehicle for >7 years.

 

[Scottybs]

I suspect the days of 0-2% interest loans are long gone on most vehicles for the foreseeable future. 4% for 48 months seems pretty common. And again, a lot of high demand vehicles won't see any financing incentives and you'll be stuck with 7-8% from the bank.

I saw GMC offering 0% the other day. If cash is in your wheelhouse, let the economy tank and walk in like you own the place. Also don’t be afraid to look in another state. You and I are both bhamers… lets just say I’m less than enthused on our local dealerships and my interactions. If you need maintenance done, highly recommend Bellingham Automotive! They’re honest and very reasonable.

 

[JayB]

With the price of new cars - new trucks in particular - I've started to wonder if more folks might start contemplating just putting a new engine or engine + transmission in their vehicles instead of buying new if the rest of the vehicle is in good shape.

 

[castsN2trees]

I've had quite a lot of experience leasing cars...mostly good.

I (and my wife) have leased a BMW M3, Mini Cooper S, (3) Ford Focus ST's and a Jeep Wrangler:

Mini Cooper S - Wife: Got an unbelievable deal on it... no down payment and a low monthly rate....car handled like it was on rails and was a blast to drive. Super awesome experience. Mini covered all maintenance except tires and oil changes.. only thing we ever paid was the monthly payments, and a couple oil changes.
BMW M3: First new car I ever had (all my previous cars were used cars that I paid cash for, $9k or less).. last naturally aspirated V8...had it built from the factory with a manual transmission, and no options except leather seats and sports package (lowered 1/2", stiffer springs, 19" Y-spoke staggard wheel setup)... car redlined at 8250 RPM's, had a governor @ 155mph though it was capable of 186mph, and had the second best exhaust sound I've ever heard in a car... I tracked it 8 times, detailed it relentlessly (longest detail job took 18hrs) and went through 5 complete sets of Max Performance tires in 22k miles...and the clutch blow before the first oil change ($11k...BMW covered 100% of the cost).. traded it in before we moved to Washington... car had equity built up, and I got a check for $4k when I turned it in.... I miss that car everyday.
(3) Ford Focus ST: good cars, quick..the early versions had awful torque steer which made driving them a lot of fun... got excellent lease deals on them, and we had good experience with all of them.
Jeep Wrangler: When the pandemic hit, I traded in my Focus RS (purchased) for a Jeep Wrangler lease... it was much better fishing vehicle, but primarily I did this to get my monthly payments as low as possible, due to the uncertain economy. My payment dropped $250/mo, but the Jeep dealership was very difficult to deal with..and with the horror stories I've heard about Jeeps, I had no intention of buying it out.... but then I started fishing 80 days a year...and I put 77k miles on a vehicle that allowed 36k miles on the lease. Instead of paying $10k in mileage fees, I decided to buy it out (this is the first time I've ever gone over the mileage allowance on a leased vehicle). Fortunately, car values have spiked in the last 3 years, and I can come out pretty close to even (car value vs. purchase option price)...but beware of the sleazy tatics used by the dealership @ lease end... I secured outside financing and went to the dealership to verify the buyout price...after waiting around for 1.5hrs, and having to come back 2 days later, they tried to force me to sign an agreement that they had added $5k of fees and taxes to... also, they had a finance rate of 9% even though I had secured a 7% rate from my bank.... this is a long story with lots of sordid details, but when I was leaving, the sales manager even told me I couldn't drive the vehicle off the lot because they would get sued if I were in a crash... I very directly questioned the absurdity of his claim, and he eventually back down and handed me my keys.... needless to say, I've found an alternative method for purchase that doesn't involve dealing with the dealership.

Overall, leasing can be a great option...if you don't drive too many miles and if you don't plan to purchase after the lease term... but it can also be a headache... I think a lot of it has to do with the residual value of the car, the negotiated payment, and whether or not you have to deal with cheesy car salesman.

hope this helps.

 

[Mukman]

General rule of thumb:

If the asset appreciates, buy it.
If the asset depreciates, rent/lease it.

This from a guy who has never leased a car in my life. New or used, I just like the idea of (eventually) not having a car payment.

 

[Wadin' Boot]

I've had my Explorer for 24 years and only dump about a $1,000 into it each year.
SF

Exactly $0 have gone into cleaning products for that vehicle in the last 24 years

Stonefish's vehicle has provided numerous undergrads and grad students with unbelievably bad/narrow thesis projects:

"Benign Neglect: Off Aurora Avenue paint resiliency project- Automobiles and Light Trucks"
"Changing DNA of one vehicle's mildews"
"Shoreline Camo; does how a vehicle looks lead to car ferry loading priority?"
"50 shades of Gray? Seasonal Variance of Ford Explorer Appearance and Resulting Spontaneous Encounters of Single Perfumed Swimmers On Puget Sound Beaches"
"Beach Glass to 6 weight load ratios: Ford Explorer"
"How many prank blown up large blue nitrile gloves fit in one Ford Explorer?"

 

[DimeBrite]

Exactly $0 have gone into cleaning products for that vehicle in the last 24 years

Stonefish's vehicle has provided numerous undergrads and grad students with unbelievably bad/narrow thesis projects:

"Benign Neglect: Off Aurora Avenue paint resiliency project- Automobiles and Light Trucks"
"Changing DNA of one vehicle's mildews"
"Shoreline Camo; does how a vehicle looks lead to car ferry loading priority?"
"50 shades of Gray? Seasonal Variance of Ford Explorer Appearance and Resulting Spontaneous Encounters of Single Perfumed Swimmers On Puget Sound Beaches"
"Beach Glass to 6 weight load ratios: Ford Explorer"
"How many prank blown up large blue nitrile gloves fit in one Ford Explorer?"

Hundreds of nitrile gloves in that vehicle. CSI Seattle would be very suspicious.

 

[Stonedfish]

Exactly $0 have gone into cleaning products for that vehicle in the last 24 years

Stonefish's vehicle has provided numerous undergrads and grad students with unbelievably bad/narrow thesis projects:

"Benign Neglect: Off Aurora Avenue paint resiliency project- Automobiles and Light Trucks"
"Changing DNA of one vehicle's mildews"
"Shoreline Camo; does how a vehicle looks lead to car ferry loading priority?"
"50 shades of Gray? Seasonal Variance of Ford Explorer Appearance and Resulting Spontaneous Encounters of Single Perfumed Swimmers On Puget Sound Beaches"
"Beach Glass to 6 weight load ratios: Ford Explorer"
"How many prank blown up large blue nitrile gloves fit in one Ford Explorer?"

Well to be honest, it did get washed once in maybe the last 10 years or so.
I drove it to work one day. I came out to go to lunch and my boss was power washing it.
That took a lot of paint off of it, but the green patina has grown back quite nicely since.
The drivers side floorboard has enough sand on it to be considered a beach. Quite surprised it hasn’t rusted through yet.
SF

 

[Mossback]

That vehicle killed my lawn...

 

[Wadin' Boot]

That vehicle killed my lawn...

Every time Stones crosses the West Seattle Bridge.....the Duwamish River heaves a little, gags a few times and tries to swallow back some bubbles of vomit....

 

[Speyfishingcowboy]

I suspect the days of 0-2% interest loans are long gone on the most desirable vehicles for the foreseeable future. 4% for 48 months seems like what passes for "a deal" these days. And again, a lot of high demand vehicles won't see any financing incentives and you'll be stuck with 7-8% from the bank.

6.9% at 48 mos is an exceptional deal.


Rates will never be lower than 6 % again

This country will pay for the last administration hold rates artificially low below inflation! Making real rates -4%!!!


The bill is coming due.