Leasing most popular way to acquire a vehicle?

[Bob B.]

I hear a guy on the radio this morning say that leasing a vehicle is the most popular way to acquire a car now. Now, this was from a guy on the radio, so I wouldn't call it a reliable source. But, is it possible that leasing IS the most popular way to acquire a vehicle? Maybe the most popular way to acquire a NEW vehicle? I may have misunderstood that part.

Anyway, I've never ever even considered leasing a vehicle. For that matter DW and I have never bought (financed) a new vehicle.

But, seriously, my thinking is right, isn't it? Leasing a vehicle is crazy, isn't it? I mean, I guess if you're the type that wants a new car every three years, maybe. But, even if you financed the purchase of a new car over three years, and drove it for - god forbid - five years, you would still be ahead as compared to a three-year lease, right?

[greenskeeper]

But, seriously, my thinking is right, isn't it? Leasing a vehicle is crazy, isn't it? I mean, I guess if you're the type that wants a new car every three years, maybe. But, even if you financed the purchase of a new car over three years, and drove it for - god forbid - five years, you would still be ahead as compared to a three-year lease, right?

You would pay more for the outright purchase of the vehicle with a 3 year loan vs a lease. With the lease you are financing only the expected depriciation of the vehicle over those 3 years.

I am not a fan of leasing but for some people who don't want the hassle of car repair and maintenance and need a new car every 3 years then it works for them. Leasing a car could also be considered a business expense depending on the situation.

[ua_guy]

I think your surprise might be because the majority of people don't seem to exercise "best financial strategy" when it comes to car buying. Most people are focused on what they can spend in a month versus what a car deal does for them long term. You can lease a brand new BMW 3-series sedan for between $299-$399 per month depending on options and config. That's very comparable and often cheaper on a monthly basis compared to a 3-5 year purchase on "much less" of a vehicle.

I heard a statistic that something like more than 70% of new Mercedes Benz sales are leases. It absolutely makes sense if you're only focused on a monthly payment. You can get a spectacularly awesome vehicle and appear much richer than you actually are, for the comparable price of buying a much cheaper and less- sought after vehicle. These kind of people, on the flip side, always have a vehicle payment.

[tzsgti]

But, seriously, my thinking is right, isn't it? Leasing a vehicle is crazy, isn't it? I mean, I guess if you're the type that wants a new car every three years, maybe. But, even if you financed the purchase of a new car over three years, and drove it for - god forbid - five years, you would still be ahead as compared to a three-year lease, right?

Wrong. In most cases manufactures inflate residuals as an incentive. These residuals are unrealistic in most cases. Most cars depreciate 50% after three years with 12k miles a year. If a manufacture offers you 55-65% on a lease you are better off. Also in some states you only pay the taxes on the lease payments and not on the whole car. Example would be if you would purchase a $25,000 car in NY you would pay $2,093.75 in taxes. Even if you were to sell the car at no loss at all you would still lose the $2,093.75 in taxes you paid.

Also lease payments are usually $100-$150 lower then a finance payment assuming you put very little down. Example to finance a New Honda Civic ($19,000) with just taxes and fees up front you are looking at around $360 a month but lease specials are running about $199 a month with just fees up front. Granted after 36 months you would only owe $8,640 and the car should be worth more than that but you are gambling.

Now of course if you keep the car for more then 3 years the depreciation rate slows down and you start to come out ahead. Or just buy a used car that already depreciated by 50%. But for a new car that you are only planning on keeping for 2-3 years a lease usually comes out cheaper.

[LivingAlmostLarge]

A lot of people lease as business expenses. It's deductible. Also if you are given a car allowance for work for a lease. Depends on how it's worded. You always lease since you have the allowance but can't own the car.