Submitted by SquishyEmerald t3_1278qjt in explainlikeimfive
Need to get a new car. My financial planner says I should lease, but what happens at the end of the 3-yr lease term if I want to buy it? And why is this ever the right move if I plan on keeping the vehicle until it dies? I just don’t get it, ergo this question to this sub. Thanks in advance!
Thank you! That’s what I always thought. I buy a new car and drive it until something major happens to it that makes it more cost effective to buy a new car rather than feed the money pit. I’m not someone trying to project anything, and I don’t have New Tech FOMO about cars.
I'm in the car industry and proudly drive an 07 Toyota Matrix I'm going to drive into the ground before I buy another vehicle.
My co-workers are jockeying between who has the better cars and comparing between Audi's and BMWs and Mercedes. But they are just hemorrhaging money in car payments and insurance just so they can flex on their friends and family.
Pro-tip: literally no one gives a shit what you drive. If someone judges you for your ride, they are not an intelligent person whose opinion you should care about.
I completely agree!!
100% agree. A financial planner advising to lease is not someone who I want controlling my money--unless you specifically tell them that you only want to drive a new car and get a new one every three years and ALWAYS have a car payment.
> but what happens at the end of the 3-yr lease term if I want to buy it?
Part of the lease contract will be what the residual value of the vehicle will be at the end of the term. At that point you will be given the option to buy it for that price.
> And why is this ever the right move if I plan on keeping the vehicle until it dies?
It depends on your situation, but in your specific scenario it might not be. I can't speak for certain as I don't know (and don't want to know) your finances and situation.
In general, Leasing is targeted at people who want flexibility or want to drive a nicer car than they can realistically afford. They don't have to buy the car outright, and have the option of getting a new one every 3 years or keeping the one they have if they decide they want too. Also typically Leases include service packages so your car service is paid for the duration of the lease.
If you don't value that, then it probably isn't for you.
I leased an EV for two years, because i wanted to try it out. It cost me the same per month in total as my old gas car cost to keep running with parts and fuel. When the lease was up, I had moved and no longer needed a car at all, so I was happy to give it back.
Leasing, at least here in Canada, has some tax implications if you use it for business so all the sales guys where I used to work leased their cars to write part of it off. Plus the buy out can often be less than the used sale price so most of them would then buy it out and immediately privately sell it before leasing a new car.
What reason did financial planner give for leasing? Because in general it costs more in the long run to lease, as you're either always paying for the highest depreciation period of car ownership or paying unnecessary additional lease fees (acquisition fees and such) if you plan to buy it out at the end anyway, plus paying higher used car financing for the purchase at lease end.
Only way I could possibly see it being beneficial is if you own a business and lease the vehicle through the business.
Except today, lease rates are sky high since vehicles are selling at or even above MSRP and interest rates are high. It's not like you can lease a BMW for $399/mo. anymore.
It depends on the initial value of the vehicle and the depreciation. If you are talking about getting a luxury German car new, that will depreciate significantly during the lease period. It might make financial sense to lease and the buy the lease on the depreciated value after three years. You know the car's history and maintenance so you aren't buying someone else's problem, you got to drive a brand new car, and your payments were never as high as a loan on a $80,000 car would be. There are other benefits, if the car was a turd you don't have to worry about selling it, you just give it back to the dealer. If you don't like it anymore, you don't have to sell at a loss, you can just give it back to the dealer.
The benefit, particularly with German cars, of riding the depreciation wave, is that they depreciate because rich people want new cars; not because the cars themselves are bad. People misinterpret why luxury cars depreciate, the demand for new cars is because people like them shiny. So if you are coming off the lease of a $76,000 vehicle you treated well, and the residual value is now $39,000, you can now buy a 3 year old full sized German SUV for only $4k more than a new Rav4.
Obviously there are risks to these schemes, but your financial advisor isn't necessarily shooting you wrong here. New cars are much too expensive, and used cars are too damned expensive!
Buy if you intend to keep it until it dies. Less hassle for one thing. And likely cheaper, and possibly much cheaper.
So that’s the thing—the lease payments are cheaper per month for three years than the loan payments per month for 60 months. I think my financial planner wants me to lease because he expects interest rates will be better at the end of the lease term.
Possibly but none of us have a crystal ball. Yes payments will be higher because you will own the car in 5 years vs turning it in after three years or starting a loan, which will likely be much more than the lease and for another 5 years. It’s all just math. Play around with some loan vs lease calculators online.
We still have a 2004 Honda CRV, we bought it brand new, paid it off 17 years ago, maintained it, and it still is perfectly reliable with 280k miles on it. At this point we bought a newer car because we got a really sweet deal on a 2020 Volvo and the Honda is our supply chain insurance policy and my airport long term parking lot beater. It has liability only insurance and it costs me nothing but gasoline and the occasional oil change to keep because I’ll just donate it to someone if it breaks down. I have gotten well more than my money’s worth out of that car.
breovus t1_jed64uy wrote
Lease if you want to project status beyond your means OR actually have the financial means and want to swap out every few years for a newer vehicle because "life is short and I want it to be fun."
If you're a regular joe, leasing is just fucking dumb.