came across this article today on how many people lease vs buy luxury brands. There is also data specifically on the XJ vs MB/BMW/Audi

Don't Believe Everything You See - Blog Posts by Tom Libby | R. L. Polk & Co.

For the record, I purchased my vehicle and did not lease it so I guess I was one of the few here in the SoCal area.

 

I don't know why people have such a stigma against leasing. There are many reasons to lease. First, it is less risky. You've already pre-negotiated the residual value. And for such a hugely expensive car, that can amount to thousands and thousands of dollars if the market takes a turn for the worse. Also, you are not tying up your money making car payments when you could be investing it in the stock market or doing something else more worthwhile with a better rate of return. Lastly, you are never really in a negative equity situation like you are when you finance a car for purchase. And typically during the entire period you'd be leasing, you'd still be upside down on your car payment and then some!

Leasing is just another form of financing. Of course, you still have the option at the end of the lease to purchase the car in cash or with financing.

 

My problem is that I drive my vehicles about 20,000 miles per year. Excess mileage costs would kill me.

 

You are correct. However, as Dok said, high mileage is a killer on leases. Also, most leases have an early termination fee, so you are locked in for the life of the lease. Too restrictive for me.

Barry

 

I think the author of the article was implying that people are using leases to live beyond their means and drive cars that they probably can not afford otherwise.

 

My XJL was the first lease that I've ever done. I did it primary for 2 reasons:

Lower interest rate on the borrowed capital.
Guaranteed residual value (put option) that appears to be "free".

I went in ready to purchase (this is the first time I've ever leased), but, after running the numbers, I just don't see how it would be in my advantage. I give up the "put" option, pay a higher interest rate, and pay all the sales tax up front. I could have purchased the car outright, but I really didn't want to tie up that much money in a car (and, god forbid I total it with 100 miles on it!). Also, the lease automatically includes gap coverage.

After running the numbers, I really don't see any reason that most people should buy; even if you're going to go way over on miles, at least you have a guaranteed "get out" number (if you want to), and if you love the car and it's working well for you, buy it at the end of the lease.

Again, this is my first lease, and maybe I missed a number somewhere, but; running it several different ways, I just don't see how it would ever make more sense to buy this car than lease it (even if you're "end goal" is to eventually own the car).

 

High mileage is a killer with any form of ownership. What??? You expected to be able to drive 20k miles a year without paying a penalty? (When you own, you pay that penalty in the form of increased depreciation.)

I think it is a misconception that you are "locked in". There are services like leasecompare.com that will facilitate you trading your lease to someone else. You also always have the option to pony up the lease "payoff amount" using cash or a lease buyout loan. Then you can sell it just like any financed car.

 

It really depends on what the terms of the lease are. The thing about leases is that there are so many variables: length of lease, mileage, capitalized cost, bank/acquisition fee, residual, cost factor, downpayment, excessive wear/tear etc. Too much for most people to handle. I think this is probably the reason that most people don't do it.

I like leasing because you can really easily predict what your costs will be, because you know exactly what the residual will be at the end of your lease. This way, you can easily determine your real cost per month.

Compare that to financing, when your "real cost" per month is really not known until it comes time to sell the car and/or is irrelevant, because you're tying up all that money anyway.

 

Yup, I totally agree. I had to take the numbers home and work on a spreadsheet to figure it all out. But, frankly, I don't see (with the current deals, sometimes there are FAR better deals for leasing or financing, depending on the mfgr), how you could be "hurt" with a lease on the XJ (assuming you have the capital to buy it out should you go way over on miles and/or want to keep the car).

It really seems that Jag is "giving away" a below market interest rate and coupling it with a put option for a very reasonable price. It's nice to know, that, should this car be a nightmare or depreciate like crazy, I have a guaranteed out 36 months from now. And if I love it, I have a "max price" that I'll pay for the car in 36 months. Kind of like a "try before you buy".

 

Lease = rent. It makes sense to lease if it's a company car. The whole payment can be a write off. A purchase can't.

 

It is non-sense to say that leasing is living beyond's one mean.. Those of us leasing pay for the cost of ownership every month. How many people are upside down on their loan when they want to trade in their car? those are folks that live beyone their mean.

Buy vs lease is a very complicated discussion and local tax may play a role in the discussion.

In both form of ownership we pay for the depreciation of the period we onw the car and we pay the finance cost of the money we borrow. The different come in the way the finance company structure the transaction and the tax law.

For someone with a business, it is a no brainer that lease is much better deal. One can write off the amount of lease payment in porportion to the usage of buiness. Try that on a purchased car.

Most lease come with a gap insurance (ask about it). If the leased car get in to an accidents, one can turn in the insurance check to the lease company and they will shake our hand and call it even. Try that with a purchase car.

And the pre-negotiate residual is a very big deal for a car like Jaguar. Can anyone guess what is the real transaction price for a 3 or 4 years old Jaugar a few year from now? I leased an 05 CLK55 AMG with a residual at 48k. At the end of the lease in 08, Mercedes sent a letter to us and willing to sell the car to us at 40K. And when I looked around in our area, there is two CLK55 in the same year that is asking for 35K with addition year of CPO warrenty and about 20K miles less than our car. One thing the die-hand buy folk forget is that car is a machine, At the end of the lease, if someone like the car, they can buy it at the residual (we did it with our 07 Infiniti G35). Or we can buy it from the used car dealer if the price is better. Wifey like the 05 CLK55 very much and we end up buying another one in 09 for 31K and the car only has 8000 miles on it.

And one can get out of the lease easy. The question is do one need to pay more or make money out of getting out of the lease. It all depend on how popular the car is. We get out of an 08 Lexus LS460 with one more year on the lease early this year with no out of pocket money at all. And we sell the car back to a Lexus dealer in our area.

Lease is not perfect. One need to pay an acquisition fee range from 550 to 750 depending on the manufacturer. And different state has different way to calculate sales tax. Some state charge leased car the same way they charge purchase car. Other state like California charge sales tax on monthly payment only.

Lease is more complicate to negotiate, so it turn off a lot of people. but to say that it is inferior to purchase is just pure non-sense. What matter is the deal available at the time of purchase or lease..

 

I could have written a check for the car, if I had wanted to. So it wasn't an "affordability tool" for me, it just seemed like the better financial tool to purchase the vehicle.

As you mention, the "pre-negotiated residual" (or what I often call the "put option") is a huge deal for me. I'm always kind of a "look at the worst possible situation" kind of guy (at least in financial matters). What if Jag goes out of business? What if they find out these cars need a new transmission every 30K miles? What if the styling that we think is awesome today looks like a Ford Pinto in 3 years? What if I wreck the car with 1K miles on the clock?

All of those "what ifs" are succinctly answered with a lease (there's a known "get out" cost at all times). And, although it's not supposed to happen, there are many times when that pre-negotiated residual is incredibly valuable! Imagine you had leased an H2 Hummer in 2005 for 36 months! The residual was probably about 40%, the actual value was probably more like 20%! And, take the other situation; you lease the car today, and, 3 years from now, you love it. Or they are selling at 50% of the cost of a new one (so your residual is very low compared to actual value). Well, you don't have to exercise the put; you can just buy the car at the pre-negotiated price and then either sell it or keep it.

Finally, the money factor (interest rate) was shockingly low on the lease. Looking at my paperwork, it's going to cost me 1400 dollars to borrow 75K for 3 years (call it 500 dollars per year). Considering that the money I would have used to buy the car is currently earning me an adjusted 4-5% interest (primarily in muni bonds and high dividend stocks), that seems like a big win; I keep the 75K earning 3-4K per year and pay 500 dollars to use somebody else's money (and have them take the depreciation and total loss risk for 3 years).

In FL, the final advantage is that the taxes are only charged "per month" instead of on the entire value of the car. That's a pretty big deal on a car that costs what the XJ does, instead of paying the entire 3-4K in sales tax, it's spread over 36 months and only on the lease payment amount. If I turn the car in; I never pay taxes on the residual. If I buy it, I pay taxes 3 years from now (which are ALWAYS preferable to paying taxes today).

I'm not trying to convince people to lease, I'm trying to find the flaws in my logic. So please, feel free to tear my ideas/conceptions about leasing apart, I want to understand this financial product more completely and be able to use it (or not) in the future.

Thanks!

 

I leased a Camry once. After paying lease payments for three years, I turned it in and they gave me $350 because I had not gone over on the mileage. In my opinion I will buy slightly used from now on.

 

I had not gone over on the mileage. In my opinion I will buy slightly used from now on.

I would encourage you to look around in the lease world and see if you can beat a slightly used car with a new car lease. It doesn't happen a lot but it does from time to time. It happen when a manufacturer really want to move a car (XJ is not in this category yet) because they have too many cars on the lot. What manufacturer do in that circumstance is to low the money factor, artificially increase the residual value of the car, and give dealer additional money so they can lower the cap cost (the negotiated price for the car) and sometime they will give money to buyer directly under royalty rebate, conquest rebate etc that a used car don't have. In 08, Mercede S550 went for 800+ a month while the new one now is about 13000-1400 a month because they are changing the model and the old one does not sell well.

for those geek who are interested in figuring out a lease. The formular for calculating lease payment is:

monthly depriciation = (cap cost - residual value)/ month of lease
Rent = (cap cost + residual Value)*money factor
Cap cost = negotiate price of the car + acquisition cost + document fee + any junk fee that dealer throw it in


residual value = MSRP * residual factor (Residual factor change each month and it is determined by manufacturer. no negotiation on the residual factor). Residaul factor change depending on the length of the lease.
Money factor - is the interest rate we pay, it is normally in the form of 0.00xy and it can be converted to interest rate by x2400 (so 0.0014=3.36%). Dealer can pad money factor to get some addition profit. Some manufacuturer allow customers to pay addition security deposit to lower the money factor (e.g. Infiniti allow a security deposit to lower the money factor by 0.00001). Don't know if Jaguar allow that.

And the drive off should be the DMV fee + 1st month lease payment. Sales tax vary by state. Some state demand full sales tax up front as part of drive off. And other will charge sales tax on monthly lease payment.

Dealer (and customer) has to option to structure the lease anyway they want. They can move the drive off and cap cost around. So if one want lower monthly payment, they can pay more on drive off (why bother. But some people like to have a low payment ).

 

I have never leased a car and have always bought but that has been mainly because I keep a car a pretty long time and I didn't see a point of the constant car payment. Also, being in the military in Europe we save quite a bit of money off the top. The XJL Supercharge starts at about 80K before I start optioning it out. The German version of my car which doesn't even exist because they don't get the Supercharged engine unless they go Supersport is around 150K euro.

 

Alan, sorry for the lack of precision in my comment. I meant that high mileage kills the economic advantage of leasing over buying.

You are correct, but the additional cost / brain damage of early termination of the lease ruins the economic advantage, IMHO.

On the other hand, if you drive under 12,000 miles a year, and are willing to commit to keep the car for the life of the lease, then I agree with other posters here that are pointing out the economic advantages of a lease.

 

None of these are worst possible situation. The worst possible situation would be if the economy double dips and the market for used high maintenance luxury cars plummets!

 

Selling a financed car can be a pain in the butt, too. And no matter how you slice it, if you sell a new car within the first few years, you are going to lose big time.

It is true that the less miles you drive on your lease, the less the lease will be. However, you can negotiate leases with higher mileage rates. My Honda Insight lease is 15k/year and amounted to a few bucks extra every month over a 12k/year lease. Made the cost of those extra 3k miles more like $0.05/mile versus $0.15/mile overage, which is probably similar to what you might experience when driving extra miles with a car that is purchased.

Again, leases are not always better. But, IMO, for what most people are looking for, it is definitely worth comparing to a purchase option when in the market for a new car. Too many people just say, "I don't like leasing! It's renting a car! I don't want to get charged for extra miles!" without actually sitting down with a calculator (or a spreadsheet) and crunching the numbers.

 

Yup, that one entered into my mind as well. Imagine you had leased a Hummer H2 in ~2003-4, what a deal that would have turned out to be for you. And if the opposite happens (economy takes off, inflation kicks into high gear, or Jag has a massive surge in popularity) you just buy the car at the end of the lease. The residual on the XJL (non-supercharged) for 36K miles 36 months is about 42%, seems like there's a "lot of possible upside" on that number. A 3 year old luxury car with less than 1/3rd of the "low maintenance miles" driven should be worth more like 50% (IMHO) not 42%. But if the economy nose-dives, or if Jag goes out of business, that put option is always there...

 

I was firmly in the "I don't like leasing" camp until I sat down with the numbers on the XJ. First off, it's much harder to figure out (because there are more numbers moving around in the negotiation), I found a really good website (I think it was "leasecompare") that ran much of the math for me. Then I took those numbers and put it in a spreadsheet and ran some more math on it. After doing that (and staring at the numbers for a long time) it was pretty clear to me that, for my situation, leasing was the preferable option. I get to keep my 75K in the market, pay a stupid low interest rate on the borrowed money, defer paying the sales tax (and never pay the tax on the whole car if I turn it in at lease expiration) and get a put option I can exercise in 36 months should I so desire. I went in there "ready to buy" and came out with a lease instead.. Trust me, I was shocked.