Confused by some of the hate on the lease option. Seems wise for those wanting Low Down and Lower Monthly Payments

[BR0NCO]

I leased a car once, felt like I was borrowing a friends car for 3 years. I watched every mile I put on it, stressed about every ding or rock chip it got, and hesitated about anything I wanted to put into it because it wasn’t mine. Wasn’t for me. Buying the Bronco will give me the freedom I need to bang it up a little and modify it as I want. I know some lessees will do that anyways but I can’t

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[jaruss01]

For guys here that lease cars, it is fairly obvious this car leases horribly the higher up you go with lower residuals. If you compare true apples to apples, nothing down, 36k mos, taxes and fees and 1st mo out of pocket, it looks like this:

$50k - ~$700/mo (Bronco) vs ~$600/mo (bad lease) vs ~$500/mo (baseline good lease)
$55k - ~$800/mo (Bronco) vs ~$650/mo (bad lease) vs ~$550/mo (baseline good lease)
$60k - ~$900/mo (Bronco) vs ~$700/mo (bad lease) vs ~$600/mo (baseline good lease)

Biggest sticker shock is comparing an FE to the other side of the spectrum (a good german lease). An FE lease is closing in on $1,000 mo, which is the equivalent to a german car that's almost $100,000

BOTH of my cars in my sig are leased for a combined MSRP of 82k (same as above, nothing down tax and fees out of pocket) for a total payment of 690/mo. Fords monthly lease for my OBX Sasquatch at 58k is not only more than BOTH my cars, but considerably more at 820/mo. That’s Cayenne/ Range Rover Sport money. No thank you. It’s a laughable lease.

 

[Hoofnmouth]

Its like we are all waking up after a huge party with bad hangovers these finiancial threads?
Good info though.

 

[Drex]

There are three possibilities;

1. First is that the 57% residual is exactly correct when the lease is over, the vehicle is worth 57% of original cost (minus taxes and fees, they are not addressed in the tables due to regional differences). Since it does not include the destination fee or acquisition cost, that would be ($54170-$1495-$645) x 0.57 = $29640 value at the end. Sales tax, if any, would be a wash for these simplified examples, you would pay for the portion you used in most States.

The total of all lease payments (and up front money of $5921) would be $575 x 48 + $5921 = $33191. Since the vehicle was $54170 in real cost (ignoring tax, if any, as noted above, typ.) and the equity is $29640, the value used up is $54170-$29640 = $24530. Which means you spent $8661 more than the value that was used up, that is the premium for having the lower payments (you are effectively paying $180 each month of that $575 as a premium for having the lower payment.)

The other two will be simpler as the (highly simplified) math is similar to the above and does not have to be shown.

2) If Ford was wrong and the real residual was 62% (meaning they set the residual too low at 57%, inverse relationship here), then vehicle is worth $32240 at the end, leasing would cost a someone $11261 more than the value used up or a premium of $234 a month of that $575 lease payment.


3) If Ford was wrong and the residual was actually 52% (Ford set the residual too high); Then vehicle would have been worth $27040 at the end, so value used up would be $6061 less than total lease payments. $126 premium paid in each month of the $575 a month lease.


So, as expected, you are paying a substantial percentage premium for the lower payments (mostly because you are eating the extremely high relative depreciation costs of the first four years and gaining no offsetting equity) If Ford is predicting higher residual value than reality, you are paying less premium, however if you want to buy the vehicle at the end, they get you on the higher pre-negotiated residual value. If Ford blows it and the value is more at the end, you are paying a higher premium monthly, but you would get some of it back IF you bought it (for cash) and sold it immediately for the higher amount than you paid. It really sort of evens out if you purchase at the end, although most people don't think it through and figure that if they can buy it for less at the end than for what it is worth, that they somehow came out ahead (and usually boast about it online), forgetting that they paid the difference (and likely more) in total higher monthly premiums over the actual value of use in the original lease payment. To reiterate; If you can buy a vehicle for less than it is worth at the end of a lease, you already overpaid an amount that is greater than the difference in the lease payments. You are not making any money, you are getting some of the money you already over-paid back.

The only way to win financially with a lease is if the finance company (here Ford Credit) really screws the pooch and sets the residual high by a huge amount. As an example let us say the actual residual after 48 months is 40% and Ford leased with a 57% residual. The vehicle cost $52000 (we took out destination and fees from the $54170 as above), the value after 48 months is 52000 x 0.40 = $20800. Used up value is (same as above) $54170 - $20800 = $33370. Since the lease payments are $33191, you would actually pay less by about $4 a month than the value used up and you would win by walking away at the end, however nobody is going to offer a lease that has even the remotest chance of being that far off, they know how to research and calculate residual value a lot better than we do. If you are going to buy the vehicle at the end of a lease, even if you are going to sell it immediately, you are better off not leasing by thousands of dollars. (again, if the residual is wrong and it is worth more at the end, you are not making money by buying and selling it, you are clawing back some of the extra you paid in lease payments, you are losing less, not making more)

And for the convenience of being able to walk away (and be under warranty all the time), you will pay a premium as well. This is why people disparage a lease, unless the leasing company makes a huge error in residuals, you pay more than the drop in value of the vehicle during your use.


edt below, used 48% because I misread the chart, recalculating numbers now, will take a few minutes all fixed now with stated residual value at 57%

 

[BEM-S4]

I didn't read through the whole thread but I don't think anyone mentioned this. Leasing is great if you want a new car every three years, always need a warranty, etc.. I lease cars for my mother all the time because that's exactly what she wants. You don't typically come out ahead or behind since the car is a depreciating asset anyway so buy and sell in three years versus lease for the three years is more or less the same thing.

Here's where you can lose... for sake of argument say you lease a $50K car, negotiate $5K off so your purchase price is $45K. Your lease residual is based off the $50K, so if it's 50% your buyout would be $25K... I am ignoring interest for ease of illustration. So you're effectively giving back some of the savings you negotiated up front since your 10% discount only applies to the half of the value you used up already.

Beyond that if you end up buying the car it's just like any other car load, the longer the term the longer you'll be under water. With a lease then buyout scenario you're effectively taking one 3 year loan for a portion of the vehicle then another loan to buy the rest.

 

[Drex]

I didn't read through the whole thread but I don't think anyone mentioned this. Leasing is great if you want a new car every three years, always need a warranty, etc.. I lease cars for my mother all the time because that's exactly what she wants. You don't typically come out ahead or behind since the car is a depreciating asset anyway so buy and sell in three years versus lease for the three years is more or less the same thing.

see my post above yours in this thread. You come out way behind financially (in the BL lease I showed above if the residual is correct, $180 a month is the premium (the extra fee) for the convenience of getting a new car every (in this case four years) and only being in full warranty for three or less (depending on mileage for bumper to bumper))

Yes, the new car every three to four years and no need to budget for a new transmission if it fails, peace of mind and so forth has value, but make no mistake, you are paying a large percentage premium every month for that value. If it is worth it to you, great! Just be aware that it may be costing 20% or more of the monthly payment for that value. It is not more or less the same thing. If you bought her a new car every four years, you would begin to build up equity and have the same benefits and a lowered cost of ownership as time went on (you would trade in the increasing equity on the next vehicle), sure...the payments would be higher at first, but then would decrease over time as the trade in equities became a higher percentage of the cost of a new vehicle and you would not be paying the hundred or two hundred a month of that lower lease payment for nothing.

You are paying the depreciation on both anyway, if you keep getting newer cars, you pay more in depreciation as a percentage and get no equity to use next time, that is what you pay extra for the new car every 3/4 years

 

[BEM-S4]

If it is worth it to you, great! Just be aware that it may be costing 20% or more of the monthly payment for that value. It is not more or less the same thing.

Setting aside someone who would hold a car longer and be out of warranty, that's a completely different discussion. Simply for someone who, like my mother, will only drive a car with new factory warranty and maintenance for three years, it really makes very little difference. If I lease her a car and they set the residual way too high she gets a cheap car for the term of the lease. If it's set way too low, I can buy it and resell it. That's really the only added complication. In my state at least you only pay tax on the leased portion of a vehicle.

Again I am not even contemplating holding the car for a single day past the warranty... that's not something she will entertain. I also typically lease her BMW executive demos as well, so they have 1-2K on them and the economics especially with MSD are VERY compelling. She's driving a $49K 3-series that we got with 2,200 miles I believe... 3 year lease 12k per and with the MSD that I get back at the end. That car costs me $395 per month.

 

[broncoskip]

Lease is stupid.

Here is the math.

$52,370 Bronco (lease price)
$51,725 (Purchase price)

48 Month lease:
$5173 Down payment - 10500 Mileage limit
$594/month

84 Month Loan
$5173 Down payment - No mileage limit
4.69% x 84 (Current navy federal)
$651/month

You can own it for $57 more a month.

After 4 years of the 7 year (84 month) loan, you would owe $21,791. If you only put 40k miles on it, and Bronco holds value like wrangler, the Bronco could be worth as much as 35k retail or $30k on Trade. That's about $10,000 in trade equity you can use to upgrade to a better Bronco!

That's why i don't like leasing.

Here is what the amortization table for the 84 Month loan.

Years - Payoff amount
1 years: $40,727
2 Years: $34,708 (Possibly even on trade)
3 Years: $28,401 (Ready to trade)
4 Years: $21,791
5 Years: $14,865
6 years: $7,606 (We are in "just pay it off" territory)
7 Years - Paid off

OH and if you are willing to make a higher payment and do a shorter term, it gets much better and the rates go down.

$51725 with $5,173 down.
48 Months, 2.19% $1,013/month Cost of Loan: $2111
60 Months, 2.19% $819/month Cost: $2637
72 Months, 2.79% $702/month Cost: $4058
84 Months 4.69% $651/month Cost: $8148

A 72 Month loan is far better than a 84 Month loan, but an 84 Month loan can net you trade equity where a lease cannot.

Think of it this way. In four years you would have paid $28,152 for the Lease and not get any of it back in trade or $31,485 towards the loan and get at least $5,000 back in trade equity.

Either way you can get a new car every 4 years.

 

[Boxer4]

I sold 4 VW vehicles that I leased. I made $1500-$4000 on each. Market value was higher than my buy price.

This is what most people against leases miss. The bank is guessing on the future value. Pick the right vehicle to lease and don't return it. Instead sell it or better yet get a dealer to buy it out. No worries on damage or miles.
Understand the money factor and how the net capitalize cost comes about. Loss leaders deals are there, hiding the low interest rate and price reductions.
Even if you are buying vs leasing, look at the national loss leader lease deals. It shows right off the bat what discount and interest rates they are willing to use to unload inventory.

 

[Drex]

Setting aside someone who would hold a car longer and be out of warranty, that's a completely different discussion. Simply for someone who, like my mother, will only drive a car with new factory warranty and maintenance for three years, it really makes very little difference. If I lease her a car and they set the residual way too high she gets a cheap car for the term of the lease. If it's set way too low, I can buy it and resell it. That's really the only added complication. In my state at least you only pay tax on the leased portion of a vehicle.

Again I am not even contemplating holding the car for a single day past the warranty... that's not something she will entertain. I also typically lease her BMW executive demos as well, so they have 1-2K on them and the economics especially with MSD are VERY compelling. She's driving a $49K 3-series that we got with 2,200 miles I believe... 3 year lease 12k per and with the MSD that I get back at the end. That car costs me $395 per month.

Okay...then like I said, if it is worth it to you great! I was responding to your flippant remark that you don't come out ahead or behind in a financial sense due to depreciation, Which is incorrect. I wasn't attacking your choices, I really mean it when I say 'great!', just pointing out that, based on your own words, you indicated that you did not have a full understanding of the true costs of leasing. I was trying to help you (and people reading your erroneous remark) in making a more informed choice about leasing. I hope you have a good day.

 

[BennyBronco69]

Maybe I am missing something significant so help me and others like me out here if that's true.

For those people that are unable to or are hesitant to throw down a large down payment, leasing seems like a good option. Leasing allows for you to put less down and have significantly lower monthly payments then straight financing would with the same amount down.

Example using my numbers but plug your own into it to help you out;

My Build is $54,170. A lease at 48 months allows me to only put down $5,353 driving 13,500 miles a year and gives me a monthly payment of $575.

Financing with that same amount down, $5353, a 48 month term at 3% interest gives me $1,067 month payment. A 60 month term gives me $866 a month payment. 72 Month term is $732 a month payment.

In order to get anywhere near my lease payment of $575, financing, I will need to put down $20,000. At 3% interest and a 60 month term and I am sitting at $603 a month payment. Extend my term to 72 months and I am now at $510 dollars a month.

So if I am unable to make a large down payment or I am wanting to keep more of my cash in savings for now, it seems like leasing is simply a better option.

By the end of my 4 year lease term I believe I will owe approx $21,217 dollars. Original MSRP $54170 minus my down payment $5353= $48817. Minus what I pay during the term of lease $27600........ $48817-$27600=$21,217. (I know that interest isn't accounted for and for the act of simplicity I am keeping it that way.)

Now, am I correct in stating that regardless if you lease and then end up buying out your Bronco or finance your Bronco from the get go you will still be paying the same price of the Initial MSRP, minus differences in interest and some nominal fees of course?

In my view A lease is really letting you change up when you pay the large down payment. I.E. doing it now vs doing it later, in this example 48 months down the road I can pay my remaining balance of $21,217 or even finance the car for another couple years to pay off the remaining balance. Thus allowing you time to save for that buy off amount if needed.

I see a couple of other perks to financing, I.E. not paying sales tax on total vehicle price on initial purchase, but will save those for later as this was alot to throw out there. I hope that all makes sense and I look forward to the thoughtful reply's.

Thanks for bearing with me on a long post. Damn excited for getting me and the fam a Bronco and want to do it wisely.

$ wise leasing makes sense.

For me it does not bc I would not be able to mod it like I want and ill be nervous to take it off road. The damage that may occur might bite me in the ass when I return the lease if I choose not to buy.

 

[BEM-S4]

Okay...then like I said, if it is worth it to you great! I was responding to your flippant remark that you don't come out ahead or behind in a financial sense due to depreciation, Which is incorrect. I wasn't attacking your choices, I really mean it when I say 'great!', just pointing out that, based on your own words, you indicated that you did not have a full understanding of the true costs of leasing. I was trying to help you (and people reading your erroneous remark) in making a more informed choice about leasing. I hope you have a good day.

I am not trying to argue with you. Literally every time there is a lease thread I avoid commenting because it always turns into a mess. Trust me I do have a full understanding of the true costs of leasing, I work in finance for a living and have a degree in economics from a very reputable school...

These things always devolve into leasing is stupid arguments. My ONLY point is that for certain people in certain situations leasing can be a very compelling option that does not have wild implications one way or another financially. It can in fact be a smart thing if done right, especially if one only intends to keep a car for 3 years.

If three years is your hold period, buying a new car isn't good either. You won't ever reach the point where the depreciation curve flattens. Buying CPO can be a good choice with warranty intact, but again if someone won't drive a used car that's a personal decision that negates that option.

 

[Drex]

Yes. Lease a vehicle that you think will be worth more than the buyout price. That will make the lease buyout financing easier and put you in a better spot. I sold 4 VW vehicles that I leased. I made $1500-$4000 on each. Market value was higher than my buy price.

yes, and this is where people completely miss the trap of leasing. You think you made $1500 to $4000 on each of those vehicles. Obviously the residual was too low on the lease, means your payments were too high as they are based on that residual. Over the 36 or 48 months or whatever the length, you paid more every month than if the residual was right (probably more than $100 a month too much). At the end of the lease the total extra in payments you made each month is more than the amount you 'profited' when selling. It is like paying $10000 in income tax and getting a $5000 refund. People gleefully shout out that they got $5000 refund! When the reality is they over paid that money during the year, there was no gain or 'making', you just recovered some of the money your overpaid on the lease payments by buying and selling at the end.

Go and look at what you paid in total for the lease and add the cost of buying the vehicle at the end. That is what you paid for the vehicle. Now, figure out what it would have cost you to finance and purchase the vehicle over the same amount of time. (the result is the same, you paid differently each month, but the vehicle is paid off at the same moment in time, You will find a rather large difference in favor of buying from the start. The closer the number, the less money you lost by leasing and then buying the car for resale. I suspect if you did that, you would no longer be claiming you 'made' any money buying and selling at the end of a lease. The cost is hidden in the payments and not broken out so that you can easily see it. A lot of people miss it. anyway, once you get the difference in numbers, divide it by the number of months from getting the car to getting the title and that is how much extra you wasted on the lease each month.

 

[Drex]

I am not trying to argue with you. Literally every time there is a lease thread I avoid commenting because it always turns into a mess. Trust me I do have a full understanding of the true costs of leasing, I work in finance for a living and have a degree in economics from a very reputable school...

These things always devolve into leasing is stupid arguments. My ONLY point is that for certain people in certain situations leasing can be a very compelling option that does not have wild implications one way or another financially. It can in fact be a smart thing if done right, especially if one only intends to keep a car for 3 years.

I knew we were closer together on this than it seemed! Yes, if you have decided that you want a new car every three years (for whatever reasons that make sense to you, obviously they are valid and you understand the attendant costs), then leasing can be a good thing, especially if you get a favorable residual. No argument here. My misunderstanding was in taking your remark that it really didn't matter one way or the other as a blanket statement for everyone rather than a specific statement for your situation. I apologize for my misreading of your post and my subsequent response

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