Nothing wrong with leasing a vehicle. Doesn't mean one can't afford the car, that's why they are leasing.

Lots of people out there get board ones the "newness" wears off and like to have a new car every few years and it also gives them an option of trying something different.

 

excellent write up!

the funny thing is most of this "why i chose this vs that" car articles can be summed up in a few words....

"you dont buy a car with your brain, you buy it with your heart"

 

But wouldn't it be a better deal to just buy the car, then sell it and get a new one? I don't really see the point in making the purchase even more expensive and paying (a very high) interest, if you have the money available.

Leasing I think can be justified if you cannot afford a vehicle which enables you to earn an income.

 

No, its not better.

Chances are you will be upside down doing it that way. Leasing (at least in the States) is a great way to go if you have excellent credit and like to switch vehicles every few years. Other benefits of leasing include your vehicle is ALWAYS under warranty and you will have zero repair costs. I own my XKR-S but I always lease my daily drivers and have never bought brakes or anything other than tires.

The interest rates (money factors) on leasing are super low right now and many dealers are offering very attractive lease specials to move vehicles off the lot, with little down payment. For example, for very little down my wife is driving a 2010 RAV4 limited for $328 a month. This is a $33,000 vehicle. If we would have bought it with the same money down, the payments would have been well into the upper $500's. We trade it in this year and are looking at a 2013 4Runner, and we have no worries about being upside down for getting out of just a 3 year old vehicle. In fact when I traded in my leased Tundra a few years ago, I got a credit for it.

It is never a sound financial idea to buy a depreciating asset like a car, but we buy them anyway because we want/need to. I have leased my last 4 daily drivers and it has been great for me and my wife. Can we afford to buy? Of course, but leasing is just better for us right now. Every situation is different for each person. For some people, they just drive too much and cant lease for the extra mileage would kill the deal.

I also used to work in the car business as a salesman and my father was a finance manager. Most of the guys at the dealership make good money, but many of them lease as well. If you aren't driving more than 12k miles per year on your daily driver, then leasing can be a good option.

I just think the general public has a big misconception about leasing.

 

Not even close. Try googling "oil and gas subsidies 2012".

I know, I know. It's all lies...

 

For folks like you and I that tend to keep cars a long time (at least I am inferring that from your sig) leasing is never a good option. For those that need to have a new car every couple of years, leasing makes some sense. I and those in my circle are not in the same category as others here who can cavalierly drop $100K on a car. Consequently, when it comes to super high end cars, if I really had to have one new than the option would be to lease. Ownership would have to wait for a few years when depreciation might make buying a used vehicle would be more realistic (at least for me).

Doug

 

It really depends what your goal is.

Option 1. Lets just say, you are in a market for a used XF and your budget is $25-$30,000. If you plan on keeping the car for 4-6 years or even for longer period of time, then it's probably better to buy it, if you don't care about having a car for that long.
You will have to take care of the maintenance and such.

Option 2. You can lease a brand new XF and upon the 42 month lease term, you will have paid about $30,000. At the end of it all, your money is gone and so is the XF.

Option 3. If you spend $50-60,000 on a XF and have a change of heart 6 months later, that car is only going to be worth $45,000. Which is a huge hit as cars only depreciate with time, especially in the first year or so.

If you have the money, option 2 will be a better choice. This way you are not committing to anything. You don't get your hands dirty with maintaining the car. Just fuel it and enjoy it.

In addition, the more expensive the car gets, the cheaper it becomes to lease a vehicle.

 

I buy cars I can see myself tweaking. Which is most of the cars I have ever owned .

If you want to keep your cars bone stock, like to avoid all but routine maintenance, and enjoy trying new models on a regular basis---but basically treat them all as little more than tools of travel to which you develop no deeper attachments--leasing can make a lot of sense.

 

Wow, reading those comments to your blog post, I am shocked that Tesla owners are tree huggers. I assumed it was for people who simply wanted a fast car and the appearance that the care about environmental issues.

 

Our accountant said not to. As long as the car was used primarily for business we could write off the payments and I needed the right offs. It was a third car.

 

Exactly and thank you!

 

I guess, if you live in a country with weird taxation laws and/or high taxes (such as the US), there could be reasons for leasing.

 

Why make it so complicated? In the end it all comes down to opportunity cost (and/or taxation legislation).

If the leasing fees and interest rates combined are lower than a fixed-return risk-free savings alternative, then leasing would make more sense than purchasing. Otherwise not.

The question is, can you really find a leasing alternative today, that will give you an effective interest rate that is lower than your fixed-interest risk-free investment alternative?

 

You are focusing in too much.

I am not sure if i understand the correlation with the interest rates/taxes, as most people who lease aren't concerned about any of it.

 

If you have the money to buy a car, but decides to lease instead, that means that you can place the money in a risk-free asset which will give you an interest payment. If the interest equals the effective leasing rate, then there is no difference between the both alternatives. Depreciation is the same for a car that you buy or lease. Granted, there is more work in selling the car than simply giving it back after your lease is up, but selling a car within a few days, for the same valuation as the leasing company will make on your car - is not hard.

The taxes on capital gains also matter in this equation, since you might have to pay cap.gains tax on the interest returns received on the invested cash, as well as (if applicable) fortune tax. I'm happy to live in a country without capital gains tax myself.

The corporate/personal tax situation can complicate things, in that sometimes leasing a corporate car is a fully tax-deductible cost, while purchasing the car is not.

But as you said, most people I guess never make any intelligent caluclations before leasing or buying a vehicle. IMHO, most just want to drive fancier cars than they can afford.

 

Guilty as charged.

 

I am sure, all of the Toyota/Honda owners look at Jaguar owners and say the same.

 

Actually from a strictly economics thing, when it comes to cars the best tack is to buy a car that is about 1 year old or so (so you get the benefit of the huge first year depreciation) and then sell the car when it is about 4 years old. At least this is what I heard from an economics professor many moons ago and still hear from guys like Clark Howard.

But if you have to be the first on the block to get the newly introduced latest and greatest and can afford it, obviously you will not care about the economics of cars. Funny thing is though I have noticed that for the uber-wealthy types that are the first to buy some hottest-of-the-moment vehicle, the thrill is only fleeting and lasts about as long as the introduction of the next latest-and-greatest.

Doug

 

This is so true and most of the guys that put cars into the Club Sportiva Pool do this. If you pick the right car and buy it right you can often drive it for a year or two and still sell it close to what you bought it for. Both Austin Martins and XKRs drop massively in the first two years then stabilize. I'm hoping the F will hold up better but I've reconciled myself to the fact I'll likely take a bath. But leased or financed it would have been the same bath and it is so much fun to drive a car that is heavily promoted but rare. Everybody and their brother has a Tesla here and it is almost like being a celebrity to drive this thing at the moment. I think it's worth it, I imagine other's might not.

 

What the hell is the Club Sportiva Pool? Sounds like a bunch of "Bredleys" and "Buffeys" with too much time and money on their hands who need some new thing to be seen doing between going to the polo matches and yacht sales?


Doug