OT: Keeping the car talk going... Leases

[Seinfeld]

I've never leased a car because there's something that's just never made sense to me about agreeing to pay the depreciation on a car's 3 most valuable years of its life prior to turning it back in, but I'm starting to change my tune. Considering all the options that are out there in the mid to full size SUV range, I like the idea of trying something out for a few years and then taking it back to the dealer for something different if it doesn't work out. Plus, there have been some pretty solid offers during the last few months ranging from $379/mo for a Palisade SEL to $10,500 in incentives for a Grand Cherokee 4xE

My question is... what's the downside? I get that the best financial savvy decision is almost always going to be to get a used 3-5 year old used car, but then you're losing maintenance incentives, you're losing a big chunk of your warranty, and you just don't know how the prior owner(s) took care of it. Are there any major pitfalls to look out for on a lease?

 

[Anon1697564126]

I put way more miles a year on a vehicle than the leases allow without a penalty.

 

[greenbean.sixpack]

For someone who doesn't put many miles on a car and wants something new every few years, I think it's a good deal.

 

[TrueMaroonGrind]

I’ll say this with never having done a lease. Obviously all the money you put into. It is gone as soon as you trade in that car. They also put restrictions on how much you can drive. If you go over those you pay a penalty, I don’t know how severe it is but you’re still getting penalized for driving your car. I don’t know what happens if there’s a maintenance issue. Ideally, you shouldn’t have one for a few years and if you do, it should be covered by warranty.

In my opinion, there are no circumstances where I would do a lease.

 

[The Peeper]

I like the idea of trying something out for a few years and then taking it back to the dealer for something different if it doesn't work out.

My question is... what's the downside?

You just need to buy something new and trade it in before the warranty is up or buy an extended warranty if you are uncomfortable "if it doesn't work out". At least then you get some of your $$ back. If you turn it in at the end of the lease what do you have? You have absolutely NOTHING but the paperwork and its not fit to wipe yourself with. If you buy and trade it in you have an asset to claim some of your money back. There aren't any circumstances I would do a personal lease. Maybe if it was a corporate lease there may be tax reasons for a company but they almost always go over in mileage unless its a CEO w/ minimal driving

 

[patdog]

Leasing vehicles is right up there with payday loans and whole life insurance in terms of value for the customer. It's a gravy train for the leasing company. Trust me, you don't want to know the implicit interest rate in your lease if you're currently leasing a vehicle.

 

[dawgman42]

I've never leased a car because there's something that's just never made sense to me about agreeing to pay the depreciation on a car's 3 most valuable years of its life prior to turning it back in, but I'm starting to change my tune. Considering all the options that are out there in the mid to full size SUV range, I like the idea of trying something out for a few years and then taking it back to the dealer for something different if it doesn't work out. Plus, there have been some pretty solid offers during the last few months ranging from $379/mo for a Palisade SEL to $10,500 in incentives for a Grand Cherokee 4xE

My question is... what's the downside? I get that the best financial savvy decision is almost always going to be to get a used 3-5 year old used car, but then you're losing maintenance incentives, you're losing a big chunk of your warranty, and you just don't know how the prior owner(s) took care of it. Are there any major pitfalls to look out for on a lease?

You just dedicated yourself to a perpetual car payment. I haven't had one in 6-7 years and love that. Besides, there aren't enough new features that would make me want to keep coughing up money to try them out. But to each their own.

 

[aTotal360]

I know a guy that only leases. They have 4 cars that are all leased. He "chases" cheap leases not a specific vehicle. Meaning he doesn't really drive the car he wants, he drives the best deals. With that being said, I hate all his cars. I think I've seen over two dozen new cars in his fleet over the years. Most of them are Asian mid sized SUVs. Mazdas, Kias, and Hyundais. Nothing wrong with them, just not my flavor.

 

[GloryDawg]

I leased one back in the 90's. It was cheaper to buy the car after the lease than to pay what I owed to turn it in. Miles and the condition of the car will kick your butt. I am exaggerating a little, but the cost was so high I was better off buying it.. It might have changed since then, but I did not have a good experience with it. You have to be really disciplined. A Tesla would make since for a lease. You usually only use those for around town drives to the store. I don't know if they lease or not.

 

[Mobile Bay]

 

[DesotoCountyDawg]

With a lease you are forfeiting all of your equity that you would have in the car long-term. Also, you have to be very careful about how many miles that you put on the car because some penalties can be pretty stiff.

 

[Seinfeld]

Leasing vehicles is right up there with payday loans and whole life insurance in terms of value for the customer. It's a gravy train for the leasing company. Trust me, you don't want to know the implicit interest rate in your lease if you're currently leasing a vehicle.

Is the why the lease payments keep balooning once you start to shop inventory? I keep seeing ads that show $399/mo or whatever, but then when you find an actual car for the same MSRP +/- 5%, the lease price is suddenly $620/mo. My guess is that this is because the offer is based on nothing other than capitalized cost, and by the time they get to the actual paperwork, it's like oh yeah... here's everything with interest included.

 

[patdog]

Is the why the lease payments keep balooning once you start to shop inventory? I keep seeing ads that show $399/mo or whatever, but then when you find an actual car for the same MSRP +/- 5%, the lease price is suddenly $620/mo. My guess is that this is because the offer is based on nothing other than capitalized cost, and by the time they get to the actual paperwork, it's like oh yeah... here's everything with interest included.

I would guess that's just good old-fashioned bait and switch. Buy a new Accord for $25,000. Then when you get to the lot, that particular stripped-down Camry always seems to be in the back corner of the lot, and they never can seem to find it. Meanwhile, all the other Accord's and any similar vehicles that you might actually want are all over $30,000 or pushing $40,000.

 

[johnson86-1]

My question is... what's the downside? I get that the best financial savvy decision is almost always going to be to get a used 3-5 year old used car, but then you're losing maintenance incentives, you're losing a big chunk of your warranty, and you just don't know how the prior owner(s) took care of it. Are there any major pitfalls to look out for on a lease?

The downside is the restrictions.

If you are leasing, you are essentially making a bet that the upfront payment, monthly lease payments, and any end of lease payments will be smaller than the interest you would pay and depreciation you would have if you bought the car and sold it after the term of the would be lease. Obviously that has been a pretty bad bet in recent years with the way used car prices have behaved. There was a time where people on leases came out pretty well because used car prices dropped so much. The leasing company took the depreciation and then they had the option to go buy or lease a new car at a good price. Of course it's pretty painful when you pay more than the depreciation and then you also have to go replace your care with a new expensive one. Of course the option to buy at the end of the lease should limit that risk.

 

[eckie1]

If you don’t want to ever own a car again and are good with always having a car payment, why not? As it’s been mentioned, it depends on how much you drive and how bad the mileage penalties are.

I always pay cash for a quality used car and drive them until it’s not feasible to make some repairs. Lots of people can’t do that, so I get why leases could make sense. I have friends that do it, and they just budget a car payment.

I don’t think it’s a crazy idea, depending on your situation. I had a crazy co-worker that would end up upside down in her leases, and that’s a BAD idea.

 

[patdog]

If you don’t want to ever own a car again and are good with always having a car payment, why not? As it’s been mentioned, it depends on how much you drive and how bad the mileage penalties are.

You're paying a MUCH higher interest rate on a lease than you ever would on a loan. I've done the calculations for a client. It's 20%+. Comment I got was, "Man, I kind of knew they weren't a great deal, but I didn't realize how bad we were getting screwed."

 

[GulfDawg]

I used to think leases were only for people that could not buy a car but due to personal experience i am a fan. My company leases the truck I drive and I think it is a great option. I am about to get my third leased truck. The key is that you can’t put too any miles on them and you do not turn the lease in, you sell it. Three years ago I sold my leased truck for 9,000 over what I owed to pay the lease off. Given that was in 21 during the truck shortage. The one I am in now i anticipate to sell for 4,000-6,000 over what the lease payoff is. I average 12,000 miles a year in my truck. It’s a GMC premium model so some of the resale cost may be due to that but I am sold on a lease. I am probably gonna do the same for my wife’s car in the near future.

 

[eckie1]

You're paying a MUCH higher interest rate on a lease than you ever would on a loan. I've done the calculations for a client. It's 20%+. Comment I got was, "Man, I kind of knew they weren't a great deal, but I didn't realize how bad we were getting screwed."

But, basically anything above a flat tire is covered by warranty…. Always. There are definitely trade offs.

 

[Boom Boom]

I've never leased a car because there's something that's just never made sense to me about agreeing to pay the depreciation on a car's 3 most valuable years of its life prior to turning it back in, but I'm starting to change my tune. Considering all the options that are out there in the mid to full size SUV range, I like the idea of trying something out for a few years and then taking it back to the dealer for something different if it doesn't work out. Plus, there have been some pretty solid offers during the last few months ranging from $379/mo for a Palisade SEL to $10,500 in incentives for a Grand Cherokee 4xE

My question is... what's the downside? I get that the best financial savvy decision is almost always going to be to get a used 3-5 year old used car, but then you're losing maintenance incentives, you're losing a big chunk of your warranty, and you just don't know how the prior owner(s) took care of it. Are there any major pitfalls to look out for on a lease?

It's possible to come out ahead with a lease, but it's unlikely before even considering the physical pitfalls. You are on the hook for every ding, scratch, stain, rock on the highway, etc. Plus the math is based on being dead on the alloted miles. If you drive more, you owe. If you drive less, they are banking the value not you. You'll have to insure sufficiently to cover your risk. In exchange, you get maintenance covered and only pay interest on the depreciation not the sale price.

As others sort of stated, you only come out ahead if the used value of the car turns out to be way off. If it's way less, you give it back to the dealer and they take the hit. If it's more, you pay it off at the previously set price and get to keep the higher valued car.

If you aren't using the vehicle much and not in ways that cause minor damage, and expect to buy it back because you'll be far under milage, or will be dead on the miles, and can't afford to pay cash, it's probably OK. If you can afford to pay cash, avoiding the interest makes it more advantageous to buy. Buying a cheaper vehicle is of course better than leasing a more expensive one.

I guess if you have enough cash to pay a lease up front but not a purchase, then you could come out ahead by avoiding interest.

 

[Called3rdstrikedawg]

I have had a lease vehicle twice. When I went through a divorce in my early 30's and needed a car with low monthly payments. Somebody rear-ended me and totaled it but I walked away free and clear and just a sore back.
And now. I have only bought one vehicle in my entire life where I drove it until I paid it off. I have only bought used cars and financed them until we finally started having mechanical issues regularly as government regulations and Union labor have essentially rendered car quality workmanship null and void. So long term warranties on new cars became necessary for me and the wife. We got what I believe to be a good deal on her new car in 2021 and it is still under warranty. My previous used truck had to have the engine replaced 5000 miles after the warranty went out. That did it for me. But I need a truck, so lease it is. And unless they lied to me on what my purchase price will be at the end of the lease term, I couldn't buy a 3 year old truck with 36000 miles and still under warranty for that price off any lot around. So I will not be paying for mileage overage at turn in, because I know who has been driving it, maintaining it, cleaning it, babying it, fueling it and getting it serviced and I have no problem buying this vehicle and keeping my payments reasonable at lease end.

Foolishness is having a $800 - $1000 a month car payment that I would likely trade long before paying it off! Not to mention the absurdity of paying the same or more for something that depreciates faster than an ice cream cone than you might pay on your house note.

 

[patdog]

But, basically anything above a flat tire is covered by warranty…. Always. There are definitely trade offs.

I've never had any significant repairs to any car I bought within the first 100,000 miles, except for one warranty repair. Unless you're just buying/leasing the absolute worst vehicles on the market, the odds of any significant non-warranty repairs within the first 36,000 miles are extremely low.

 

[Called3rdstrikedawg]

I've never had any significant repairs to any car I bought within the first 100,000 miles, except for one warranty repair. Unless you're just buying/leasing the absolute worst vehicles on the market, the odds of any significant non-warranty repairs within the first 36,000 miles are extremely low.

What brands to you primarily buy? Maybe I need to start buying your brand, because I have owned Chevy, Ford, Nissan. Honda, Buick, and Kia.

 

[Boom Boom]

I have had a lease vehicle twice. When I went through a divorce in my early 30's and needed a car with low monthly payments. Somebody rear-ended me and totaled it but I walked away free and clear and just a sore back.
And now. I have only bought one vehicle in my entire life where I drove it until I paid it off. I have only bought used cars and financed them until we finally started having mechanical issues regularly as government regulations and Union labor have essentially rendered car quality workmanship null and void. So long term warranties on new cars became necessary for me and the wife. We got what I believe to be a good deal on her new car in 2021 and it is still under warranty. My previous used truck had to have the engine replaced 5000 miles after the warranty went out. That did it for me. But I need a truck, so lease it is. And unless they lied to me on what my purchase price will be at the end of the lease term, I couldn't buy a 3 year old truck with 36000 miles and still under warranty for that price off any lot around. So I will not be paying for mileage overage at turn in, because I know who has been driving it, maintaining it, cleaning it, babying it, fueling it and getting it serviced and I have no problem buying this vehicle and keeping my payments reasonable at lease end.

Foolishness is having a $800 - $1000 a month car payment that I would likely trade long before paying it off! Not to mention the absurdity of paying the same or more for something that depreciates faster than an ice cream cone than you might pay on your house note.

Another way to say this, if the price at the end of the lease is way lower than the actual value.....then they've been overcharging you during the lease, because they charged you for more depreciation than there actually was.

 

[Dawgzilla2]

It's an alternative finance option that might make sense if you cannot afford the car you actually want.

Buying a car is not an "investment". You will lose money, but you are getting a car (with the exception of people who sold used cars in 2021 when prices were through the roof due to supply issues). As stated above, if you plan on staying below the mileage limit and you really like getting a new car every few years, it can make sense. If your plan is to buy the car at the end of the lease, then you are most likely better off buying something.

Leases make great sense for business fleets, though. I used to work for a law firm that leased vehicles for the partners. They made huge, tax deductible, monthly payments, so the residual after 2 or 3 years was well below the market value for the car. The partners would then buy them, and either give them to their kids or sell them to associates. It was awesome until the IRS audited the firm.

 

[MSU67]

For someone who doesn't put many miles on a car and wants something new every few years, I think it's a good deal.

Normally you can get a nicer, higher priced vehicle for your money

 

[Perd Hapley]

My question is... what's the downside? I get that the best financial savvy decision is almost always going to be to get a used 3-5 year old used car, but then you're losing maintenance incentives, you're losing a big chunk of your warranty, and you just don't know how the prior owner(s) took care of it. Are there any major pitfalls to look out for on a lease?

Losing a big chunk of the warranty is hardly a downside in this comparison.

If you lease a vehicle for $500 / month for 3 years, that’s $18,000 you’re not getting back, guaranteed, unless you buy out the lease. And buying out the lease is still going to be far more expensive overall than if you’d just bought it outright to begin with….you’re not getting anywhere close to full recovery of the payments. Maybe $3,000 or so of that $18,000 is going to be baked in cost for the “free” basic maintenance, warranty coverage, and insurance (if offered). But still, that’s $15,000 of the cost you’ve got to cover to essentially rent the vehicle.

Now back to the warranty. IF the engine or transmission blows up after the warranty is up, that’s $6,000-$8,000 P&L to replace either one. If BOTH blow up, that’s $12,000-$16,000. That’s your extreme worst case scenario. 99.9% chance that neither is going to fail, 99.99999999999999% chance that both will not fail.

So, pay a 100% guaranteed $15,000, or run a risk of 0.000000000000001% that you might pay up to $16,000. Really easy decision if you ask me.