Lease vs. Purchase

[Patrick M]

Gentlemen (and ladies?)

Now that my sweetie (Daytona, Silver, Black tips) is on the boat, I guess its time to figure out how to pay for her. Any input on the lease vs. purchase decision will be appreciated - I haven't leased a car in many years and am a neophyte when it comes to current lease issues.

I apologise for the general nature of this request, but I don't even know what are the right questions to ask!

Patrick

2002 Allroad (chipped)
2000 BMW 540i sport
1999 Corvette C5
1988 BMW 325is (track only)

[nene]

My first decision was always to own the car. So, I wanted to purchase it, and not have to lease it for 2-3 years, and then have to buy it. This would mean that I'd have to pay less monthly during a lease, but in the end pay a lot more for the car to buy it.

This is how I base my leasing vs. purchase decision:
If I really know I'll want the car for the life of the car, then I buy it. Otherwise lease.
Keep in mind that leasing means that you have at most 10-12K miles per year. Anything above that is at a premium.

[eph94]

Originally posted by Patrick M
Gentlemen (and ladies?)

Now that my sweetie (Daytona, Silver, Black tips) is on the boat, I guess its time to figure out how to pay for her. Any input on the lease vs. purchase decision will be appreciated - I haven't leased a car in many years and am a neophyte when it comes to current lease issues.

I apologise for the general nature of this request, but I don't even know what are the right questions to ask!



I am in the same boat as you. I guess you need to think if you want to keep the car longer than 3 years. If so, leasing might not be a bad idea as you only pay for the car you use. In essense, you're renting the thing, and when the lease is up, you simply turn it in. Also, you need to think of what you could be doing with the money you "save" instead of committing it to the purchase of the car.

Right now, I'm thinking that I'll probably keep the car longer than 3 years, but my track record for my past 4 cars has not been good. Every single time I say I want to keep it forever, and then within a year, I start to get the "itch". I then fight off the itch for another two years, and then trade it in and get killed in depreciation.

Can you just imagine what kind of Model Year 2007 Beast will be available in the Fall of 2006?? Whenever I think of that, I lean towards leasing...

I was thinking of getting a third car, like a TT-Roadster 3.2 DSG or something, to "churn" every three years on a lease to possibly satisfy that itch for a new car.

I'm really torn. I'm curious to see what others (who don't have the option of writing off the lease as a business expense) have done in terms of buying or leasing too.

:addict: :cheers: :addict:

[target01]

Ah the beauty of leasing. The fact is, in my case, that the leasing company pays for everything that needs to be done to the car. So I can just burn up my tyres and get new ones every month; for instance.

Also, when I reversed into a pillar with my current car; Volvo V70, I called the lease company and they sorted out everything. I just had some papers send to me, signed those, and basta...done.

Finally, insurance, again, in my case, anyone who has a valid driving licence can drive the car, fully insured, so long as they have my permission.


Leasing saves money, especially when you have to maintain an expensive car.

[jconley]

What you also have to consider is the tax effects of leasing vs. buying. If the RS6 isn't a business expense for you, i HIGHLY recommend you find a way to make it one. At the end of the day, you save your tax bracket percentage on all expesnes related to the car (including gas and tires)

note: i am NOT an accountant, but have been advised by one that this is allowed.

[Bauer]

I agree, I can write the car off as a business expense so I am most likley going to lease the car. However, I am also torn with the fact I may keep the car longer 3 or 4 years which means I would end up over paying for the car since I would buy it out at the end of the lease. But again I will probably get a new car in 3 to four years. My wife is famous for getting a two year ich with EVERYTHING so I am sure she will be pushing for a new car.

Bauer
01 S8
92 S4
03 RS6

[2manycars]

I have done a premier purchase on my last 3 audis. Though the interest rate is higher, the tax advantage far outways the small payment difference at the higher rate. When the balloon comes due i can walk away. or purchase tha same a s a lease, and i also have some equity in the car.

My dealer ran the numbers all ways and this came out to be the best, at least in my situation.

[schvetkaaks]

what kind of lease numbers are you guys talking about? On a car this pricey and this exclusive, I can't imagine the money factors are any good, so the payments must be somewhere in the neighborhood of $1500/month for 36 months...

[jconley]

Money factor is equal to about 4.2%

The payments aren't low, but worth it for tax.

Just remember, never put anything down on a lease.

J

[eph94]

Originally posted by jconley
Just remember, never put anything down on a lease.


Does a trade-in count with this reasoning? I understand not wanting to put cash down, but how about putting down a depreciating asset and locking up that asset value up front? I was always curious how the leasing conventional wisdom viewed trade-ins. Also, I wonder if that money factor will change now with bonds taking a beating??

[jconley]

Assuming you could sell the car for the value of the trade-in or more, than no you should trade it in because the same logic of not putting cash down applies.

If you are getting more for your trade than you could otherwise, you have to analyze the time value of money vs. the premium you are getting on the trade-in.

J

[dabull]

[COLOR=darkblue] Can you explain why you should never put any money down when leasing? :addict: :addict:

[eph94]

One of the financial reasons from leasing is to free up capital to be used in better ways than locking it up in a car and/or car payment.

[schvetkaaks]

Originally posted by JJV-MA
One of the financial reasons from leasing is to free up capital to be used in better ways than locking it up in a car and/or car payment.

Lease down payments can often be used as a writeoff just as the payments and maintenance are, however. I wouldn't say 'NEVER' put anything down on a lease, just consider your options and weigh them carefully. I've done it both ways for different reasons...

[jconley]

Ok, here's the idea

With a lease you have the following factors

1. Capitalized Cost - This is the cost of the car, plus dealer fees, etc. (Assume $80,000)
2. Residual- Value of the car at the end of the lease. (Assume 50%)
3. Money Factor- This is the cost of money, it isn't really an interest rate, but can be looked at like one. If you multiple it by 24(Assume .00175, or approx 4.2%)
4. Term- Length of the lease (assume 36 months)

To calculate the monthly payment, we do the following:

Depreciation Cost= (Cap Cost - Resid)/Term = (80000 - 40000)/36 = 1111.11

Finance Fee = (Cap Cost + Residual) * Money Factor = (80000 + 40000) * .00175 = 210

So, all that was so you understand what goes into a payment. Sales tax is added to this amount also, based on where you live. Sometimes the sales tax is only on the depreciation cost.

So, now as to why you don't put money down-

It rarely helps your money factor. A .00175 money factor is pretty good, but it is a result of low interest rates. You should be able to get a better interest rate investing your money (at least 6-8%, even today). So as such, if you still want to manage your cashflow on a montly basis, you pull from the cash reserve you have from not putting money down, and you are making more interest on that money than you are paying.

Make any sense?

J

[jconley]

Oh, ya and the other reason, which is a BIG one, is that if the car is totalled during the lease, you are OUT every cent you put down at the beginning.

J

[eph94]

Originally posted by jconley
Oh, ya and the other reason, which is a BIG one, is that if the car is totalled during the lease, you are OUT every cent you put down at the beginning.J

Geez, that complicates matters a little. Maybe buying isn't such a bad idea after all. The last thing I'd want is losing a $20,000 trade-in on top of a cell-phone gabbing idiot smashing into me a stop light and totaling my car. I wish it wasn't such a pain in the behind to sell a car. I hate the hassle of it.

[Bauer]

JJV-MA,

I would not worry about the money factor as of yet because short term financing such as credit cards, auto loans and financing less then 5 years tend to be based off the Fed Fund rate which stands at 1%. There has been very little talk of raising it anytime soon......but who knows with the Fed. Hope this helps.

Bauer
01 S8
92 S4
03 RS6 ordered

[jconley]

Try Carmax. They will buy your car for what you would get for trade in or a bit better.

Had a great experience with them selling my TT.

J

[eph94]

Originally posted by jconley
Try Carmax. They will buy your car for what you would get for trade in or a bit better.

Had a great experience with them selling my TT.

J

Unfortunately, the closest Carmax location to me is Baltimore/DC and I live in Massachusetts... I wonder if it would be worth driving down, selling, and flying back.

[btumble]

One added bit of info...
Here in NJ, the amount of a trade in is deducted from the purchase price of the new car when calculating sales tax. The $ I saved in tax made up for enough of the difference in price I would have gotten for my trade had I sold it personally.

[gregoryindiana]

My accountant here threw a bucket of ice cold water on leasing today. At least in my situation, it doesn't sound like even if it's 85+ % business use, that I can make financial sense of it, even though I would like the lower upfront cost. Something about taxable fringe benefit added to my W-2 , and that depending on fair market value of the car (RS6 = high value).

Is this such a bad deal because I'm having it leased by my company?? I would lease it personally, and then try to get reimbursed for the business portion of the expense, if I could. Is that what all you experts are talking about?

I never have leased, and would not have considered it if I hadn't been watching this thread. But I also don't need to get my clock cleaned in an audit.

[Bauer]

It may depend on what type of business you are in. The field I am in it is common practice to write off up to 85% of the lease. I have had gotten this information from two seperate accountants and I have done it for numerous years with no problems. Maybe getting a second or third opinion may not be a bad idea as more information is better.

Bauer

01 S8
92 S4
03 RS6 orderd

[jconley]

Originally posted by Bauer
It may depend on what type of business you are in. The field I am in it is common practice to write off up to 85% of the lease. I have had gotten this information from two seperate accountants and I have done it for numerous years with no problems. Maybe getting a second or third opinion may not be a bad idea as more information is better.


Agreed. I am not an accountant, and my adive would be ultimately to trust an accountant, but do get more than one opinion.

j