Leasing vs. Financing

[bigkavr]

RedNut,

I lease my vehicle only because I can take
80% of the lease off my taxes. (this works because of my truck being used for a emergency and rescue vehicle, and all the rescue equipment I carry inside. . )
If I had it to do all over again, I can't say for sure that I'd lease, but then again, maybe I would. So far it's been going well and at the end of the lease I'll only have a 10K buy out. That was the hardest part, to get the buy out down to a reasonable
price.
And yes, before anyone starts in about modifying leased vehicles, I know all about it, but it's a moot point if the vehicle won't get turned back it. . (gotta admit though, it would be kinda fun watching the service manager's face when he took if for a test ride around the block... . )YeeeeeHaaaaa!!

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97 2500, extcab, 4x4. BFG 285/85/16 AT, "warmed over" pump, JRE Stage III plate, AFC spring kit, BD gov. spring seats only, 370 injectors, K&N, 4" Edwards Exhaust with Dynomax straight through racing muffler & 5"tip, (Cat got "lost"), EGT, boost, oil & transmission temp. gages, Low Stall torque conv. & BD valve body, silencer ring "exiled", Grover Emergency air horn and a multitude of strobe lights and switches (Vol. firefighter)

 

[F Simkowski (In Memory)]

Moving over to the General Diesel forum for exposure and comments.

 

[paccool]

There are different type leases available. The last 2 trucks that we got for the company were leased with a "lease to own". At the end of a 5 year lease we get the trucks for $1. Lease payments are higher but the tax man says we save money by doing this way. The last company I worked for did it this way as well. Since most of the lease payments can be deducted I think we get to write off more than what would normally be allowed via depreciation. I don't do the paperwork so I may not have all the facts 100% right here, just stating what I've been told.

Stan

 

[446]

I leased my truck for three years because the payments were cheap and the write off for buisness. I thought I would just trade it for a new one when the lease was done. Well... when the lease was done I still liked my truck. 12 valve you know #ad
. So much so that I decided to buy it if I could get a good buyout. I owed about $1800 in over milage and return fee's. The finance company discounted the price to about $1000 under retail (not so good) they then financed for four years at 4% interest(very good and they even financed the $900 in taxes). All in all I think I came out of the deal real good ( close to wholesale if you take off the $1800 I would have had to pay anyway). BTW I put zero down when I originally leased it. Add up all the numbers. You already know it's history, If the bottom line looks good buy it.

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'97 2500 LT 4X4, WHITE,3. 54, AUTO, A/C, 35/12. 5-16. 5 BFG A/T, NO LIFT, K&N, 50K MILES, BOUGHT NEW

'69 SIX PAK B 4SP DANA - SCORCH RED

 

[sweeks]

Rednut; I would encourage anyone who qualifies (and most people do) to take advantage of the low financing rates vs. leasing. You'll save BIG in the long run and have something you own at the end. Good luck! Steve W.

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2001 2500 4x4LB,6-speed,HO engine,SLT,towing mirrors,Med. Bronze W/Dark Charcoal Line-x bedliner and rocker panels,CB,Banks EGT/Boost pillar mounted guages,Jacobs E-brake,etc.

 

[Cooker]

Ok I have done a great deal of research on "The Buy or Lease Decision. " In fact I am currently working on a project regarding this same topic in a finance class I have at school.

Now my $. 02, I hope this doesn't get too long.
Lets assume you pay sticker for the truck, although none of us hopefully have to do that. Although typically you will get a better bottom line price on a purchase.

First of all you need to decide your use for the vehicle and how long (minimum) you would like to keep it. Leases will benefit a business better that a buy will, in most cases, so that is why a number of business go the route of leasing.

For personal use a lease, most of the time, is not as good of an idea. Unless either 1. Your really like the idea of having a warranty and you will not drive over the mileage. Then every 3 to five years (if you bought the extended warranty) you will get a new car. This is not the best logic either IMO but I will try to explain further. or 2. You want to drive a more expensive vehicle than you can actually afford. This is even worse logic IMO but the fact of the matter is the majority of Americans live well outside their means and there is no way they could get financed on a new purchase, have any down payment, or much less make payments.

With that said I will assume we are all financially responsible people and can afford the vehicles we like. There are good leases and bad leases.

I try to explain to you a bad lease, bad for us but great for the leasing agency (believe it or not, even though the dealers may contract the lease, it is often sold to bigger corporations. At one time, 5 or 6 years ago, GE owned more leases than the big three combined. I haven't seen any recent numbers, but I suspect this has changed now). Anyway a bad lease (remember I assumed we are all financially intelligent) is one that requires little or no down payment (then you finance all other associated fees), set the miles at a measley 12,000 per year (with a high penalty), and locks (no easy buyout) you into a term longer than the warranty. These leases are designed to have lower payments because typically the really make up for it in mileage. They just want to get you into the vehcile and kee you there, because the'll get you later.

Ok this is getting too long, I'll shorten this quickly. A good lease is one where the payment is close to what you'd expect to finance the truck for. Offer you a buyout at any time with a realistic depreciation scale (bad leases severly under-depreciate the vehicle and that is one reason why payments are so low), and requires a downpayment, but not of monsterous proportions. This way if you do decide to sell the truck you may actually receive money back instead of haveing to, literally, pay money to terminate the agreement (either because you are locked in, or the under-depreciated truck isn't worth the fair market value).

Again, I have researched this quite a bit, and buying is better in most cases. I'm not trying to agrue with anybody here. The key is weather it is a good lease or a bad lease, and abviously there are other factors into deciding a good lease other than the ones above.

Ok this is really too long if anyone would like to discuss this further just ask.

 

[Power Wagon]

I'm gonna move this over to "Other" as it really hasn't anything to do with diesels #ad



I hope you keep it up, as the topic is very interesting to me...

Mark

 

[Bud Fox]

Just read an interesting article about this subject- Was wondering if any of you guys ever leased your truck then bought it out in the end?? Did it hold its value and did you get a good deal in the end from your lending institution?? Article said leasing has declined drastically recently, but I cant see dealers not continuing to give good leases on these trucks because I was told they hold their value so well(Diesel engine and the mileage that you are supposed to get out of them)I know you will get depreciation, but not as bad as gas engines. Any input or opinions?? THANKS

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98 2500 4x4 QC auto "one of the last 12 valvers- late Dec 1997" 305 70 16, K&N ,260/608 torque plate,EGT and Boost gauge under ashtray. Bought a spray can of CAT-BE-GONE. Ring removed- Whats next folks????

 

[446]

"Anyway a bad lease (remember I assumed we are all financially intelligent) is one that requires little or no down payment (then you finance all other associated fees), set the miles at a measley 12,000 per year (with a high penalty), and locks (no easy buyout) you into a term longer than the warranty. " These leases are designed to have lower payments because typically the really make up for it in mileage. They just want to get you into the vehcile and keep you there, because the'll get you later"


Gee I always "thought" I knew what I was doing.

I agree with the part about a lease being good for a buisness.
There are two ways of looking at this.
you pay $3500 down to lower your payment or you pay nothing down or first and security and pay $70 (or whatever) more a month.
either way you pay. I dont remember any extra fee's for not putting money down.
I've worked at a car dealership(quite a few years ago) and I've seen lots of peoples free and clear trade get sucked up into a deal never to be seen again. In my experience a bank will not finance the truck for more than its worth. So no money down keeps you closer to what the bank thinks the truck is worth. (of course if you have a 730 credit rating they may finance more) That's why dealers get as much down as posible, more money to suck into the deal hence more profit.
I would rather use their money and keep my money in the bank or other investments.

. " A good lease is one where the payment is close to what you'd expect to finance the truck for. Offer you a buyout at any time with a realistic depreciation scale (bad leases severly under-depreciate the vehicle and that is one reason why payments are so low), and requires a downpayment, but not of monsterous proportions. This way if you do decide to sell the truck you may actually receive money back instead of haveing to, literally, pay money to terminate the agreement (either because you are locked in, or the under-depreciated truck isn't worth the fair market value). "


I have yet to see someone turn in a vehical with 2 or 3 years of payments left on their contract and make any money.
This may all work good in finance 101 but rarely hapens in the real world.

As far as purchase goes, It's better than leasing for those not writing their truck off on a buisness expense.
Then again you could buy a nice house and make the payments for five years with the same money. (houses around here are appreciating at 15% a year)

I paid 23% over 7. 5 years on a $28000 truck.
thats 7. 5% a year or $36000 (no allowance for a discount since the first 3 years was a lease)
Add up the total of your payments! Dont forget to add your down payment.

 

[Cooker]

446,

I don't think we are too far out of agreement here. I agree that if you can keep your money in the bank (not really a bank at 3%-5% but in some other form of interest yielding investment) that is much better that using it as a down payment, if the interest on the loan is relatively low in comparison to the interest the investment is yielding. Heck some new vehicles offer 0% or . 9% financing, who can beat that, nearly "free" money.

In a bad lease, almost all dealer leases, I agree that very rarely is an individual able to turn in a vehicle with time left on the lease, especially 2 or 3 years, and receive a penny. In most cases I'd be willing to bet it cost them money, and the individual literally cannot afford to sell the vehicle (this happens often with a purchase too).

There are some independent leasing facilities (not only in Finance 101), usually financed by a local bank, that offer good leases with adequate depreciation rates. Even with $0 down, the lease can still be "good" if an adequate depreciation scale is used, not some understated dealer depreciation scale. One gentleman I spoke while researching this topic, with at a leasing dealership here in town, informed me that over 75% of the time his cutomers receive money back from the lease after they sell the vehicle regardless of where they are at in the lease. Also they don't offer the rock bottom lease payments though, but accurately deprecite the vehicle. He also stated that if the individual chose to keep the vehicle to the end of the lease, say 2 or 3 years, they amount back is rather substantial, $1000+. There were other independent leasing agents here in town that we able to solidify this information, so I will disagee that, "This may all work good in finance 101 but rarely hapens in the real world. "

You may still think this is bad because you are paying more now and getting it back later. There are no definite rules on depreciation. Yes there are generalizations, but as the economy and fuel prices change so does the value of the vehicle. Also there is no way to be for sure how many miles the individual will drive, and obviously this greatly affect the value of the vehicle. Yes there are mileage penalties, but in a good lease they taylor the lease to the miles you want and the penalty is not $. 15 per mile.

446, I argee that buying is typically the better choice, but there are instances where one literally cannot afford to turn down a lease. These are typicall MFG specials like Chevy's 4cyl S10's. They need to move a lot of these to raise their corporate fuel economy so at times, usually year end, they offer great leasing (and buying) opportunities. A friend of mine leased a brand new one, S10, 2wd, auto, 4cyl, pw, pl, cd player, and ac for 3 years, (not sure of the allocated miles per year, but he only drives 10,000 so he'll be safe), $500 out of pocket for closing cost, plate, first payment, ect, for $121/month (+tax). Now in my opinion that is a god priced dealer lease, but he is still locked into the contract and bound by the miles if that is a probelm. I can work up a spreadsheet if anyone would like to see how this breaks down compared to a buy. The buy in this case would have been ok too, but not financially advantageous to persue if you only planned on keeping the vehicle 3 years anyway.

446, If you could elaborate on one topic comment for me
"That's why dealers get as much down as posible, more money to suck into the deal hence more profit. "
You are refering to a lease correct? If the lease is financed through an outside source, ie any bank other than the Chyrsler Corp. , the dealer gets the full agreed upon amount right from the leasing agent. You contract with the bank and the bank pays them. I will agree that if you do put some money down are not up on the financial side of things and car buying/leasing it is easier for the dealer to make more money with money down, especially if financed throught the Chrysler Corp. They will probaly be less willing to deal on price. People must not forget that when shoping for a lease, there is still a bottom of the line purchase/lease price. This price is the one used to calculate the amount of the lease, buyout (if any), and lease payments.

Again, I don't think we are too far out of agreement on things.

Ryan

 

[SLittle]

I tend to oversimplify things but I think this decision gets down to how you own your vehicles. If you change vehicles every 3 or 4 years you may be better off leasing. If you hang on to a vehicle for 5 years or more then you will pay less in the long run by financing.

If you lease and then buyout the lease you may have lower payments up front but you will be making payments for 7 to 10 years.

I would ignore the tax consequences, you can write off 100% of the business use whether its a lease or purchase. In fact on a purchase you can elect to deduct up to $20,000 in the year of purchase, can't do that with a lease (unless it's a capital lease which is like a purchase... . yadda yadda yadda).

I think it is a personal/cash flow decision versus an income tax decision, I don't think spending $1. 00 to save . 15 or . 28 makes sense. Additionally, everyones personal/business/income tax situations are different therefore what right for one may be wrong for the other.

Sometimes you just gotta go with what feels right.

Scott in AZ

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2001 HO 6spd 4x4 Dually - Extensive Bombing includes: rear mud flaps... ... oh well, it's a start

 

[Cooker]

SSJL,

Well said.

One comment on the write off aspect of the purchase/lease. You can write off 100% either way, but there is more to it than that. As you said with a purchase you can write off $20,000 off the bat, but then the writes offs down the road will be different. There is more, but as you said Yadda Yadda Yadda.

I agree spending a $1 to save 15%/28% ect... is a funny idea, but if you don't spend it, our best friend Uncle Sam gets more of what he doesn't deserve, our money.

Ryan

 

[drives mopars]

if u dont write off as business, buz r limited to depreciation on trucks under i think 13,000 gvw,u write off all of it but over a longer time ,
if non business use, do not lease, unless
ur trying to get low monthly pmts. always
regociate cost 1st, then ask lease costs
monthly pmts 4 lease vrs purchase, one final
thing a lease is only another means to finance!!!! period,ask interest rate on lease, up front pmts end pmts. mileage costs
i de never lease anything period. as 4 buz
write off, have to weght part of lease pmt
as exp/ vrs depr and interest costs, your
better off to pay the extra monthly pmt as equity, in case you have to sell short ,you
may break even at end. w/ lease expect big
bucks at end if you keep or trade it in.
thats to pay out!!!

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1993 w350 ex cab, banks,nv 4500 in
open exaust, pw Injectors are in. Big rig flaps,tach in,. Its loud and goes ok, for a 93,Ham radio Call KK6dm
has ability to communicate any where in the world. Headliner shelf
5 antenna's

 

[446]

Cooker or anyone else interested
This is just my opinion and we all know about opinions #ad

The original topic was:

"Was wondering if any of you guys ever leased your truck then bought it out in the end?? Did it hold its value and did you get a good deal in the end from your lending institution??"

This is what I responded to on my first post.
I had no intention of buying my truck after the lease ended. It just so happend that I liked my truck still and decided that it was worth buying.
So when Rednut asked, I replied as to my experience.

Good lease/bad lease?
It's pretty obvious that a bad lease is one that cost you more money than it should have.
A lease to me is no diferent than a finance.
It was a tool that the dealers found was usefull in makeing more profit. It's funny that when you talk to a leasing agent (car dealer or not) he can not give you a strait answer on how much interest you are paying on your purchase. They tell you there is no interest, it's based on a factor. BULLHONKEY.
If you add up the numbers you can figure exactly how much the interest is, and it's usually NOT good.
If your truck cost $30000. 00 and your residual is $20000. 00, you are financeing $10000. 00 end of story. The payments should be $313. 36 a month for 36 monthes and the interest paid over 36 months should be $1281. 09(based on 8% interest). Add tax to this payment for your area. Just use any loan calculator to figure in your numbers.
If your payment is more or you need money down its because you are paying for something else or for more profit, interest, factoring, credit life ins, warranty ect... (take your pick)
with this info go into a dealer and see if you can get this payment (not likely).

I said it before and I'll say it again.
THE DEALER IS NOT YOUR FREIND. He did not lose money on your deal. He built that nice shiney show room on prime property on profits he made selling you a truck.

If your an average person with average credit
and you go in to buy a new or used truck, the bank that finances your deal will want you to have an investment in your truck. If you have no money to put down, the dealer will have to take some of his profit out to show the bank that you have that investment.
(dealers such as Auto Nation do not apply to this theory because they finance their own cars and dont mind holding a note for more money than the car is worth)
Hence my theory of no money down. The bank and leaseing companys are not stupid. They WILL NOT repo a car and be burried in it willingly or knowingly.

Those dealers or leaseing agents that told you that 75% of their customers make money when they sell ARE LYEING "or" you are paying higher payments than you should be, as you stated I might add, effectively paying down the loan faster than the car is depreciating(high payments).
If you are going to give it back in 3 years, why worry about the depreciation being being too low? It makes your payment and cost of ownership lower. Why put money down? Follow the terms of the lease, get it as cheap as you can and give it back at the end of the lease. Like your s-10 buddy

0% or . 9% financeing?
Just another way to get rid of a car that isnt selling and usually in lew of a discount.
FREE MONEY - remember, free is a four letter word. If you spent money it isnt free.

Am I a negative person? Not at all! This is reality. This is big buisness. These people have a lot of money and time and people on their side. All of it geared to one thing. Profit. Dont think that a lowley indevidual is going to come in and take advantage of them. It wont happen. But that doesnt mean you cant go in and get yourself a resonable deal, just go prepared

Quote
"I will agree that if you do put some money down are not up on the financial side of things and car buying/leasing it is easier for the dealer to make more money with money down,"

All I can say is :
you may be a finacial wiz but I have seen many succesfull finacially savy well to do people get royally screwed on a lease. And you may not ever know it until you go to trade in after 3 years of a 5 year lease, when the sweet spot the salesman was telling you about comes around, and your ready for a new truck. Then it hits you that they are telling you that they need $7000. 00 cash to trade you into a new truck.

I know this was real long. Sorry

Read your contract, add up the total of your payments, include your down payment or trade,
if it sounds like its too much dont buy it.
residual + total of payments + down = price you are paying for the truck on a lease. (also as Cooker stated. )

 

[Cooker]

446,
Your thoughts were well stated. I agree that many intelligent people get screwed on leases. Often times, like you led on to, people do not look at all of the "fine print. " There are many factors to consider, besides if they can afford the payment.

Yes, "free money" is a horrble term and doesn't really describe the situation too well, but a loan at 0% or . 9% is as close to a free money we are ever going to see next to the lotto, and even that's not free.

I agree to get it as cheap as you can, if you just want to give it back anyway, but mileage is still a concern for most of us. I you know you aren't going to keep it, then yes maybe shopping for a lease is a better option and if you can get one cheap enough, and mileage is not an issue. I still have issues with this logic, but there are some people who want to drive new, don't want to keep them past warranty, and have a little more disposeable income to do this, and that's fine too.

Your logic of the $313 payment on a $10,000 isn't 100% accurate. If things were truely that way, then to lease new would be a great opportunity. Yes, I agree that in your example you are financing 10,000, but they are also chagring a fee for the other 20,000 worth of vehicle you are dirving. So I don't think you could find a $313/3yr lease payment on a $30k vehicle without money down or some dealer/factory incentives. Like you said they are not your friend, and that's the truth.

Anyway it look like we have a bit of disagreement between the good/lease bad lease issue. That's ok because there is really no definite answer in this area, and we are all intilted to our own opinion

The bottom line is, and I think you hinted at this too, is that people have to do what they feel comfortable with, after all it's their money right. I just hate to see good people get screwed $1000's on a lease buy a dealer.

Ryan

[This message has been edited by Cooker (edited 02-03-2001). ]

[This message has been edited by Cooker (edited 02-03-2001). ]

 

[446]

hey
Good topic Ryan
It will at the least give some things to think about before someone signs the next time they go for a lease.

Ray

 

[Cooker]

Ray,
I hope all of the input here gives RedNut, and others, the information needed to make an intelligent/informed decision while deciding how to pay for a vehicle.

Yes indeed great topic,
Ryan

 

[Bud Fox]

Hey fellas, I hate when they transfer out to another forum. On a lease I have on another vehicle, the bank that has the lease lets you negotiate the price at the end,so you actually dont have to pay what is owed. Now i know not all places do this, but to me you cant go wrong,2,000 down in the beginning,42 month lease,if you like the vehicle in the end, find out book value ,compare it to what you owe and negotiate from there. The bank really does not want it back to take to auction so if you persist you can probably get a good deal and maybe a good interest rate from the same place. So instead of putting 12,000 up front to get my payment where I want to be, I put 2000 up in a lease, ride it out, see if i want to keep it, then negotiate in the end. Granted I may pay 12,000 in the end(14,000 total)but I have the option to keep a vehicle that i owned since new. Now i know 90% of leasing places dont bargain in the end but if you find one that will,I think it is win/ win situation because if the final numbers dont work, you can always walk away and that is the last thing a lending institution likes to see(except now with rates falling). also that 14,000 I finance for two years,will probably be pretty close to my lease payment( dont hold me to the numbers guys, Just speaking hypothetically). You pay that lump dow payment sum either way but (a. since i am self employed i enjoy the write off and (b. I would rather see what my vehicle is worth in the end and decide then if I am keeping it. Just my . 02 worth BTW my company is First Union and they no longer do leasing--- go figure

[This message has been edited by RedNut (edited 02-03-2001). ]

 

[446]

Hey Rednut
It took a week, 3 cusomer service reps and a manager to negotiate the price down a thousand dollars. They were'nt going to sell me the truck. They said they could get more money at the auction for it. #ad

I guess these trucks hold their value pretty good. Maybe you can get a lease that locks in the price now. Then you can negotiate if the truck is'nt worth the price at the end of the lease.

 

[E7mack96]

I leased a Voyager new in '95. term was 3 years. with a residual of 13K. At the end of 3 years, chrysler sold it to me for 10k and even financed it. that loan was for 3. 5 years. I paid it off in 2. 5 years. I feel that I did very well in this situation as I got the van at invoice, had low payments and saved 3,000 at the end also. I calculated the cost vs. if I had just financed it and the costs were just a little lower. and the option of walking away was nice too. I used the van 'til Dec. 2000 and sold it for 5 K with 100,000 miles on it. I'd do it all again. FYI lease factors convert into APR by multiplying by 24. EX: factor of . 003 = 7. 2% APR.



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2001 3500 QC 4X4 Cummins H. O. & 6 Speed, Powermax 2 and needing more power!!!!