Leasing a car - Updated

[SSG T]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

 

[DogBoyRy]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

Cash flow if you’re not a business.
You can also give it back if you’re not happy with it, want to upgrade, etc.
The last 4-5 cars i’ve drove or owned have been lease to own or give back.
My wife( pic included ) has a tahoe we bought when lease expired.
My bmw was a lease i upgraded when another expired.
Key #’s are months, mileage allowed and penalty rate and residual ( pay off if you want to purchase).
My kids cars were almost all deals of used cars coming off lease.

 

[LesClaypool]

What’s “penalty rate”?

 

[IowaHawkeyeFBnBB4Life]

I’m not a fan of leasing. I consider it like renting an apartment. Plus you usually have mileage limits.

 

[DogBoyRy]

What’s “penalty rate”?

Mileage over allowed.

 

[B1GDeal]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

You can negotiate the cost of the car. Then, when it comes to the finance part let them know you’re interested in leasing it. They get paid either way and some prefer that cuz they get the car off the lot and the vast majority return the car to the same dealership where they get to make money off the same car again.

My most recent lease I had the Camry when the new body style came out. Drove it for 3 years and only paid for 1 oil change the final year. The rest of the maintenance they covered. With 4 months left in the lease I saw the same car was selling for several thousand more than my payout, so I listed it on AutoTrader and got some bites before I ended up selling to a dealer (not the one I leased it from). Took a few weeks but got my check and it took them 2 months to sell it and likely made a couple thousand too. We both were happy.

Lease if you aren’t sure what you want and know you’re not tied into anything long term, car will be new and low-maintenance. I like to lease or buy something 1-3 yrs old that are still like new but someone else took the depreciation hit.

 

[LesClaypool]

Mileage over allowed.

Aha - gotcha. I’m winding down my first lease now. Never heard it called that, but relieved it’s not something else/additional.

 

[DogBoyRy]

Aha - gotcha. I’m winding down my first lease now. Never heard it called that, but relieved it’s not something else/additional.

Yeah, might not have the exact term right but usually dependent on car value.

 

[TJ8869]

One of the biggest factors is sales tax. In some states you have to pay sales tax on the full value of the vehicle, even if you only plan to lease it for 3 or 4 years. In some states you only have to pay sales tax on the amount it's expected to depreciate during the time you're leasing it. That can mean a difference of several thousand dollars.

 

[LesClaypool]

Yeah, might not have the exact term right but usually dependent on car value.

No I’m sure you’re right. Ignore me. I was just scared there was a fee that I didn’t know about. The mileage over allowance one, thankfully, I get...and won’t be subject to on mine.

 

[BrunoMars420]

It’s dependent on what you are using the vehicle for. You don’t want to go over that mileage.

 

[Fluffles]

I wouldn’t lease—still paying for all the depreciation with none of the equity.

 

[DogBoyRy]

I wouldn’t lease—still paying for all the depreciation with none of the equity.

??
You’re saying the residual has none of the depreciation/value?

 

[SSG T]

Mileage over allowed.

IIRC, I think it was something like $.25 per mile over. And the difference between 10 and 15k on the lease was, I want to say, around $8 per month.

 

[DogBoyRy]

IIRC, I think it was something like $.25 per mile over. And the difference between 10 and 15k on the lease was, I want to say, around $8 per month.

$.25 Pretty common.
The residual is always a % of the price based on length.
If it looks good do it but make sure the warranty covers it thru the lease term.

 

[QChawks]

Leasing is great if you’re like Mrs QC and want a new car every three years. Zero maintenance and lower payments.

only negative is the mile limits, typically we can only take one major road trip a year to stay under 12k a year. Although the penalty isn’t bad, we traded in our last one at 40k and only paid $300 extra.

 

[Gonolz]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

Here is a good article. Car leasing article You can deal on the price just like buying. You need to understand the capitalized cost (the price), the money factor (the interest rate) and the residual value (the amount they will credit you for when you return the car). Also consider any upfront payments (like a down payment).

I've never liked the idea of leasing, but I always keep cars more than 5 years. If you want a new car every 3-4 years, want a lower monthly payment, don't drive a ton of miles and don't want to deal with the hassle of selling your used car to get a new one, then leasing may be good to consider.

 

[swagsurfer02]

DON’T


The overage miles will kill you. Although Karl’s in Urbandale didn’t penalize me for some reason. I only brought back one fob too.

 

[SSG T]

Here is a good article. You can deal on the price just like buying. You need to understand the capitalized cost (the price), the money factor (the interest rate) and the residual value (the amount they will credit you for when you return the car). Also consider any upfront payments (like a down payment).

I've never liked the idea of leasing, but I always keep cars more than 5 years. If you want a new car every 3-4 years, want a lower monthly payment, don't drive a ton of miles and don't want to deal with the hassle of selling your used car to get a new one, then leasing may be good to consider.

I will say this, the one I'm looking at is a 2020 model, they are advertising it at just over 9k below MSRP (about 30% off). I rounded down to the nearest $100, about another $300, and told them I'd look at the lease if they hit that.

So another question...how do they determine the amount the lease will cost, overall. For example, what I'm looking at lists at $31k, they are asking $22k, and I'm looking at 4 years. Do they estimate the depreciation and you pay the difference? Is there a set amount by model?

I mean, I know I won't end up paying $22k, but would I end up paying 10k? 15k?

 

[3 and Out on D]

I've never leased and when I'm looking at cars all the salesman wants is to get me to lease. No thank you to the lease.

 

[SSG T]

Here is a good article. You can deal on the price just like buying. You need to understand the capitalized cost (the price), the money factor (the interest rate) and the residual value (the amount they will credit you for when you return the car). Also consider any upfront payments (like a down payment).

I've never liked the idea of leasing, but I always keep cars more than 5 years. If you want a new car every 3-4 years, want a lower monthly payment, don't drive a ton of miles and don't want to deal with the hassle of selling your used car to get a new one, then leasing may be good to consider.

Also, I have always "liked the idea of keeping a car until it's basically trash. However, I only did that once...with the 92 Chevy 1500 I bought new in 92.

I mean, I've had 6 cars/SUVs in 10 years. A couple were totaled, thanks deer, one blew the transmission, another I sold to upgrade. I just haven't actually had a car for a long time.

 

[DogBoyRy]

I will say this, the one I'm looking at is a 2020 model, they are advertising it at just over 9k below MSRP (about 30% off). I rounded down to the nearest $100, about another $300, and told them I'd look at the lease if they hit that.

So another question...how do they determine the amount the lease will cost, overall. For example, what I'm looking at lists at $31k, they are asking $22k, and I'm looking at 4 years. Do they estimate the depreciation and you pay the difference? Is there a set amount by model?

I mean, I know I won't end up paying $22k, but would I end up paying 10k? 15k?

The residual will be calculated based on length and value of car.
Add up total lease payments plus residual. That should give you an idea of what you would pay to own.

 

[Joes Place]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

New transmission will cost you less than a lease will.

 

[Gonolz]

I will say this, the one I'm looking at is a 2020 model, they are advertising it at just over 9k below MSRP (about 30% off). I rounded down to the nearest $100, about another $300, and told them I'd look at the lease if they hit that.

So another question...how do they determine the amount the lease will cost, overall. For example, what I'm looking at lists at $31k, they are asking $22k, and I'm looking at 4 years. Do they estimate the depreciation and you pay the difference? Is there a set amount by model?

I mean, I know I won't end up paying $22k, but would I end up paying 10k? 15k?

Much like the people who buy cars based on monthly payments, you have to do some math to determine how much you are really paying for a lease.

They estimate the depreciation which is basically Price - Residual Value. That amount is the capitalized cost. Then apply the money factor, which is basically interest and that amount and based on the term, you get your monthly payment. Most leases have an upfront payment too, so you add that to what the price actually is.

In the auto dealer business, the more complicated the math is, the more you are getting screwed unless you understand the math.

 

[SSG T]

New transmission will cost you less than a lease will.

But it will cost me more than the car is worth...even with a new transmission.

 

[SSG T]

Much like the people who buy cars based on monthly payments, you have to do some math to determine how much you are really paying for a lease.

They estimate the depreciation which is basically Price - Residual Value. That amount is the capitalized cost. Then apply the money factor, which is basically interest and that amount and based on the term, you get your monthly payment. Most leases have an upfront payment too, so you add that to what the price actually is.

In the auto dealer business, the more complicated the math is, the more you are getting screwed unless you understand the math.

That's what I have my son for, he was the math major.

 

[The Tradition]

If you can write it off as a business expense, that's the only way leasing makes sense.

 

[BigDelHawk]

I’m not a fan of leasing. I consider it like renting an apartment. Plus you usually have mileage limits.

Plus they hit you for every little imperfection at termination. Leasing is OK if you are a business, not so much otherwise. Great for the dealership though.

 

[Joes Place]

.

But it will cost me more than the car is worth...even with a new transmission.

So? If the car is still in good shape, and will last another 3-5 years, it's still cheap.

You're not investing the transmission into the equity of the car; you're using it to go places. Now, if it's otherwise not likely to last or be reliable, then scrap it.

I'm fine with paying $500-1000 a year in car repairs on something that's still otherwise reliable (and doesn't leave me stranded routinely).

If it starts with transmission, then another $1k in turbo, then another $1k in R&P steering , then $1-2k in engine rebuild....that's well past time to move on. But a major repair every few years is pretty cheap once something is mostly depreciated already.

You'll pay way more than the cost of a transmission on the depreciation with a new vehicle in the first 3 years.

 

[QChawks]

Plus they hit you for every little imperfection at termination. Leasing is OK if you are a business, not so much otherwise. Great for the dealership though.

no they don’t, they have always accepted normal wear and tear on our vehicles. The Highlander we traded in had a dent in the bumper, nasty door scratch and broken window shade and they didn’t charge us anything extra.

 

[Derekd3408]

Leased my wife's previous two vehicles and loved it until she got a job at a gym half way through the last lease and she drove 35 extra miles a day. They charged me 4k for overage. A friend ended up telling me I could sell or trade the lease to avoid the charges. So I ended up coming out ahead.

 

[SCHawkFan]

It really comes down to this - if you want to always be driving a relatively new car, you have a certain amount of money budgeted for the monthly payment, and you drive a predictable number of miles each year, a lease works for individuals. One recommendation is to rent a car if you are going on a trip that will add up to a lot of miles. Also, shop the lease with multiple dealerships. You can see a big difference in lease terms for the same make and model vehicle.

 

[goldmom]

no they don’t, they have always accepted normal wear and tear on our vehicles. The Highlander we traded in had a dent in the bumper, nasty door scratch and broken window shade and they didn’t charge us anything extra.

They like having pre-owned inventory of certain vehicles and In your case, they like Highlanders. A 3-4 year old Highlander with average or below miles flies off the lot.

 

[Tenacious E]

So, I need a new car, thanks transmission, and was just looking at buying a newer used one, but a salesman brought up a possible lease.

I've never leased one before. What are some pros/cons of leasing, aside from you don't own anything when the lease ends?

Do you deal on the price like buying? How do they figure the monthly payment/total lease value?

FTR, I'm looking at getting a 3/4 year at 15k per, since I'm going to be driving a bit each day.

I have had a leased car from about 10 years. Initially through work before we ended the program, and then continued on for the "pros" listed below. I am intending to buy this last one out of the lease and call it good, as I love the vehicle and it has and will have extremely low miles due to the pandemic.

Cons:

• fuzzy math on the lease payment. I have constructed several spreadsheets over time based upon different websites and articles, and I can never quite get the math to work out like the dealer has.
• you don't own it and cannot do with it what you like.
• you will need to replace the tires when you turn it in.
• you build no equity so when the lease is up you either buy at a negotiated value, buy another vehicle, or remain on the leasing carousel.
• you get charged for mile overages but you don't get credit for unused miles, at the end of the lease

Pros:

• Cheaper monthly rate.
• Not necessarily a bad financial deal if you are a good negotiator playing regional dealers against one another.
• Can work out well financially if you intend to buy the vehicle out of the lease, and you know the history of the car.
• If you stay on the carousel, you always have a fresh ride under warranty.

 

[Joes Place]

One recommendation is to rent a car if you are going on a trip that will add up to a lot of miles.

I agree with this, regardless of whether you own or lease your current car.

Run the math.

My trips back to Iowa are 1600-1700 miles round-trip (and with local driving).
At the .59 per mile reimbursement, that's $1000. Now, that includes your gas, but the fuel costs for the trip are around $150, max (more like $120-130 at current prices).

So, that's $850 in "wear and tear" on your vehicle (based on the reimbursement calculations).

I can rent a vehicle for less than half that (thru Costco or with other association promotions that give you discounts). Typical 1 wk rental for me is $200-250, so even a 2 week rental ends up costing less in the long run.

It is less convenient than just driving your own, as it does require the pick-up/drop-off, and I vac cars out when done (so I don't get dinged for dog hair/prints). But total cost is <$500 for a $1000 wear-and-tear equivalent cost on my own vehicle.

Just make sure you're rental contract is for unlimited miles, and includes out-of-state trips.

 

[goldmom]

Agree on the rental thing, too. The out of state clause is often a surprise. My sister and I rented a car in Salt Lake City and we just happened to mention we'd be going to all the National Parks in Utah plus Wyoming (Yellowstone!) and they had to add that into the rental agreement showing multi-state travel.
We're thinking of renting a full size Suburban for an extended trip later this spring and we are both glad to park our cars at home in our garages. Saving the wear and tear on our cars.

 

[Brian_Fantana]

Leasing a car can have advantages but as others have said, there are many things to consider. In no particular order -

1 - is there a upfront cost outside of the standard costs? I don't think you should ever pay a "down payment" (outside of taxes and license of course) on a leased vehicle. It is a clever way for the dealership to make some money right away.

2 - as has been hammered home above, residual value, is often key, especially if you think you are going to want to buy it in the future. Not all dealers are alike so some will value the exact same car with a different %. Often times, dealers that focus on leasing use their own finance companies or floorplan companies they have a relationship with so they should know the residual value immediately. Fairly decent article that breaks it down in pretty simple terms -
https://www.edmunds.com/car-leasing/the-residual-value-of-leasing.html

3 - also mentioned above - mileage is key. Can add up quickly if you go over.

4 - are you looking at a vehicle that is highly sought after in the used market? If so, that could help towards the end of the lease

5 - I have never leased so I do not know if insurance is looked at the same on a leased vehicle, so worth checking with your company ahead of time. Most companies require full coverage when you have a loan so I assume it is, but may be worth checking.

6 - may be worth considering if there is a fee to break your lease and/or return the car. For one reason or another you may not need/want the vehicle. Probably overthinking that one.

 

[beanerhawk]

Have leased 3 vehicles for my wife in our time together, she gets a new or newer car every 3 years so it made sense for her. Got good deals on all of them for what I was hoping for. Never got charged back anything at the end of any of the leases. Now that she will work from home for probably ever we'll continue to lease something for her.

 

[beanerhawk]

Leasing a car can have advantages but as others have said, there are many things to consider. In no particular order -

1 - is there a upfront cost outside of the standard costs? I don't think you should ever pay a "down payment" (outside of taxes and license of course) on a leased vehicle. It is a clever way for the dealership to make some money right away.

2 - as has been hammered home above, residual value, is often key, especially if you think you are going to want to buy it in the future. Not all dealers are alike so some will value the exact same car with a different %. Often times, dealers that focus on leasing use their own finance companies or floorplan companies they have a relationship with so they should know the residual value immediately. Fairly decent article that breaks it down in pretty simple terms -
https://www.edmunds.com/car-leasing/the-residual-value-of-leasing.html

3 - also mentioned above - mileage is key. Can add up quickly if you go over.

4 - are you looking at a vehicle that is highly sought after in the used market? If so, that could help towards the end of the lease

5 - I have never leased so I do not know if insurance is looked at the same on a leased vehicle, so worth checking with your company ahead of time. Most companies require full coverage when you have a loan so I assume it is, but may be worth checking.

6 - may be worth considering if there is a fee to break your lease and/or return the car. For one reason or another you may not need/want the vehicle. Probably overthinking that one.

Insurance has always been the same for us.

 

[Tenacious E]

Leasing a car can have advantages but as others have said, there are many things to consider. In no particular order -

1 - is there a upfront cost outside of the standard costs? I don't think you should ever pay a "down payment" (outside of taxes and license of course) on a leased vehicle. It is a clever way for the dealership to make some money right away.

2 - as has been hammered home above, residual value, is often key, especially if you think you are going to want to buy it in the future. Not all dealers are alike so some will value the exact same car with a different %. Often times, dealers that focus on leasing use their own finance companies or floorplan companies they have a relationship with so they should know the residual value immediately. Fairly decent article that breaks it down in pretty simple terms -
https://www.edmunds.com/car-leasing/the-residual-value-of-leasing.html

3 - also mentioned above - mileage is key. Can add up quickly if you go over.

4 - are you looking at a vehicle that is highly sought after in the used market? If so, that could help towards the end of the lease

5 - I have never leased so I do not know if insurance is looked at the same on a leased vehicle, so worth checking with your company ahead of time. Most companies require full coverage when you have a loan so I assume it is, but may be worth checking.

6 - may be worth considering if there is a fee to break your lease and/or return the car. For one reason or another you may not need/want the vehicle. Probably overthinking that one.

My insurance is the same on both the leased car and the cars we own outright. There is a penalty for turning in the car early. With residual value, it goes both ways. The lower the residual value, the higher the lease payment will be, but the cheaper the car will be to buy at the end of the lease. You just need to see what similar cars are selling for to determine if that is a good deal for you.