How Does a Car Lease Work?

[greenskeeper]

How Does a Car Lease Work?

They take your money AND the car when it's all done

[disneysteve]

you can have equity in your lease. Let's say that 18 months into a 36 month lease your payoff on the vehicle is $14,000 but the vehicle is worth $18,000. You can trade this leased vehicle in and you now have $4000 of equity.

I lease a new vehicle every 3 years and every time I do it my payment gets lower and lower because I use my equity to my advantage.

Is there any penalty for breaking the lease? Wouldn't that count against any "equity" you have?

The fact that you lease a new car every 3 years and your payment keeps getting lower just means one thing - you take on a new car payment every 3 years. How long have you been doing that? How long have you had perpetual car payments? I bought my car used in 1998 and paid it off a couple of years later. I've had ZERO car payments for about 10 years now. We bought my wife's van used for cash in 2002 so have never had a payment on that and it has been over 9 years. Who made the wiser financial move here?

No matter how you try to spin it, leasing is a waste of money. It is by far the most expensive way to drive a car.

[Shewillbemine]

A. Not another 4 year old thread revival.

The general consensus is always that leasing is not the cheapest way to have a car and in the long run, always more expensive than buying/loaning. However, for people who deem it worthwhile to own a new car every few years, leasing can be the smarter route.

Look, if our position on this forum is save every single penny, then yes, buy yourself a $1000 vehicle and be done with it. But if you are solvent and can write off a car lease as a business expense, it isn't out of the question.

The problem with forums is that everyone is dying to give absolute advice but everyone is different. My millionaire boss who leases his expensive vehicles? Yeah, he's fine.

Steve, It's admirable that you don't have a car payment and drive a 10 year old car, but not everyone wants that. Others might tell you "why do you have a computer or pay for internet?". Remember, only a Sith deals in absolutes.

[photo]

A. Not another 4 year old thread revival.

Well, at least the person replied more than just saying, "Yeah, great advice," and left it at that. Sometimes I don't think people pay attention to the dates at all.

The problem with forums is that everyone is dying to give absolute advice but everyone is different. My millionaire boss who leases his expensive vehicles? Yeah, he's fine.

But does your boss frequent these forums and ask for advice? Probably not. You're right that we all have different wants and needs. However, for the average person who doesn't have a multi-hundred-thousand-dollar-a-year salary --and-- is trying to save money (which is the raison d'être for these forums), leasing is almost always a very poor option. The one exception that comes to mind is if a person will be working overseas for a relatively short period of time, then it may be more cost effective to lease a car for a year rather than shipping one's own over the Atlantic or Pacific. And then again, maybe it's cheaper to ship the car, I don't know.

[disneysteve]

for people who deem it worthwhile to own a new car every few years, leasing can be the smarter route.

I suppose that's true but I would disagree with the premise.

Look, I'm glad there are people who buy/lease new cars every couple of years. That's what creates the supply of gently used cars for the rest of us to buy. But if somebody comes asking my advice, I'm never going to tell them to lease a new car.

if you are solvent and can write off a car lease as a business expense, it isn't out of the question.

I'm not an expert on the tax issues here but I have heard that leasing through a business can make sense so I won't argue that point. That isn't what people here are typically asking about, though. Most are asking about personal leases.

The problem with forums is that everyone is dying to give absolute advice but everyone is different. My millionaire boss who leases his expensive vehicles? Yeah, he's fine.

I agree. We all tend to spout rules of thumb with the unstated understanding that it is general advice applicable to the average person. Those rules of thumb, however, don't apply to everyone. Take car buying, for example. The rule of thumb is that if you must take a loan, the payment shouldn't exceed 10% of your income for no more than 36 months. That's great if you earn 50K but if you earn 500K, that limit is ridiculous. So your boss is spending probably far less than 10% on his car payment even if he is leasing. I've got no problem with that. Even Dave Ramsey (who is pretty extreme) says that you shouldn't be buying a new car unless you're a millionaire, so he recognizes that at some point, the rules of thumb don't apply.

Steve, It's admirable that you don't have a car payment and drive a 10 year old car, but not everyone wants that.

Fair enough, but when asked for my advice, I'm going to give it based on what I would do in a given situation. Anything else would be hypercritical.

[photo]

Even Dave Ramsey (who is pretty extreme) says that you shouldn't be buying a new car unless you're a millionaire,

I disagree on that one. We buy brand-new cars because we don't want to inherit problems from people who know they won't be keeping their cars for very long. However, we drive our vehicles until they're all but dead, so to us, it's worth the price.

[disneysteve]

I disagree on that one. We buy brand-new cars because we don't want to inherit problems from people who know they won't be keeping their cars for very long. However, we drive our vehicles until they're all but dead, so to us, it's worth the price.

I didn't say I agreed with him. I was just giving his view. I think buying a new car is fine is your income and financial situation is sufficient to justify the purchase and you don't mind taking the hit on the depreciation.

[Fredy Atwater]

I leased a minivan and after three years I bought and I think it is one of the lousiest deals I've done in my life. After three years of big payments I realized I had nothing then I had to buy the car because I was in love with the car. Not a good deal at all. The minivan was great but not the deal. Buy used on e bay motors. That's my advise.

[Fredy Atwater]

I think that DisneySteve comments are mature and on the spot. If you are anxious to lease a car for three years you are in for losing money. When I leased my car I had the money to pay for it all cash still I was too immature to understand I was going to lose money because I was hot for having a minivan. I learned my lesson and now I buy minivans with low mileage and cheap and I am not in debt and I get to keep the car for as long as I want.

If you have never owned a new car and you are desperate to lease a car to get the taste for your dream vehicle you better think twice because you are in for an experience you might regret even if you have the extra cash.

[Fredy Atwater]

I love people like Photo because they are the one's who give out sell their gorgeous cars after they depreciate in value and people like us are waiting desperately for those deals to come to us once in a while.

[photo]

I love people like Photo because they are the one's who give out sell their gorgeous cars after they depreciate in value and people like us are waiting desperately for those deals to come to us once in a while.

Really? Make me a deal on my gorgeous 18-year-old car!

[disneysteve]

We buy brand-new cars because we don't want to inherit problems from people who know they won't be keeping their cars for very long. However, we drive our vehicles until they're all but dead,

I love people like Photo because they are the one's who give out sell their gorgeous cars after they depreciate in value and people like us are waiting desperately for those deals to come to us once in a while.

Really? Make me a deal on my gorgeous 18-year-old car!

Fredy, I think you neglected to read photo's entire post, specifically the part I bolded. If you buy new and keep the car for it's entire lifespan, the depreciation isn't as significant an issue as if you buy new and sell in 2-3 years.

[LuckyRobin]

I had to laugh at this entry because I literally didn't remember asking this question. Then I checked the date and went, "Oh, yeah." Thankfully, I never did get a lease because of how well it was explained to me here.

[Nikka]

Bad credit & leasing

So straight to the point...

I am older, have no children, no partner, getting my finances back on track. I have a very low credit score I am working on improving. I desperately need a new car.

I would love a sporty 2 dr as I have no real need for a family sedan. I cant quite afford the down payment that would make the monthly payments in my comfort zone. I would have to put down an extra 5/6 grand.

So I settled on buying a sedan i dont really care for. I figure having a car payment is a great way to work on my credit score. Then I start thinking.....

How about an open/close end lease on the sports car (Toyota)? Myabe only for 2 yrs? then my credit will be better and ill get a better interest rate to buy a car. Or maybe just keep the one I lease if no children pop into my life....Will this still help with my credit? Is this a real option for me that makes sense financially?

Thanks for any advice