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Purchase or lease? Pros and cons.

macchiaz-o

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I leased my first vehicle. I ended up purchasing it at the end of the lease. Since then, I've had just two other purchases (and no other leases). So my experience with this topic is VERY limited.

Some folks are enthusiastic about leasing, including my father who began leasing soon after he became a car salesperson decades ago. So he's had a lot of experience with leases for himself and his customers.

What I can't seem to extract from him, though, are the benefits of leasing. He'll point out the low likelihood of out of warranty costs, low-ish monthly costs, and having a new car with the latest safety features. But those are also characteristics of trading in for a brand new car every few years.

I've taken a stab at listing the benefits of a purchase over those of a lease, and vice versa. I'd love your feedback. I'm obviously looking at purchasing at this point, but I'm open to the idea that there are benefits to leasing to which I'm currently ignorant.

Purchasing instead of leasing:
  • no calendar pressure on when to replace vehicle; if I'm satisfied with the car after 2-3 years, I choose to continue to own it and at this point, I begin to see significant financial savings versus leasing since the vehicle continues to depreciate, but less rapidly.
  • I can choose to sell the car to any number of buyers: privately, via retail (e.g. CarMax), or via dealer trade-in; or I can give the car to a family member or charity
  • no need to predict or restrict my future mileage; if I'm way "under" mileage, no problem and no money wasted; if I'm way over, my per-mile rate for "excess" mileage is just actual costs without adding in finance/bank rates.
  • I won't be surprised by lease-end fees or hassles from dealers about accepting the vehicle back
  • when I decide to replace my car, I'll more easily resist dealership sales pressure since they'll know and I'll know that I'm not under a hard time constraint on purchase of my next car
  • over the long term, money spent on out of warranty repairs is typically far less than money spent on lease or loan payments; this is true even on cars that have proven to need significant numbers of repairs like my Ford Fiesta.
  • I can choose to buy used, for significantly more savings
  • I can choose a more affordable auto insurance plan
Leasing has this benefit:
  • for a first-time car 'owner' (or when adding another vehicle to garage), "loan" payments on lease will be less than on purchase of equivalent new car, in exchange for pre-arrangement of returning the car back to the lender.
What have I missed? Any additional reasons to lease vs. purchase?
 

hybrid2bev

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I leased my first vehicle. I ended up purchasing it at the end of the lease. Since then, I've had just two other purchases (and no other leases). So my experience with this topic is VERY limited.

Some folks are enthusiastic about leasing, including my father who began leasing soon after he became a car salesperson decades ago. So he's had a lot of experience with leases for himself and his customers.

What I can't seem to extract from him, though, are the benefits of leasing. He'll point out the low likelihood of out of warranty costs, low-ish monthly costs, and having a new car with the latest safety features. But those are also characteristics of trading in for a brand new car every few years.

I've taken a stab at listing the benefits of a purchase over those of a lease, and vice versa. I'd love your feedback. I'm obviously looking at purchasing at this point, but I'm open to the idea that there are benefits to leasing to which I'm currently ignorant.

Purchasing instead of leasing:
  • no calendar pressure on when to replace vehicle; if I'm satisfied with the car after 2-3 years, I choose to continue to own it and at this point, I begin to see significant financial savings versus leasing since the vehicle continues to depreciate, but less rapidly.
  • I can choose to sell the car to any number of buyers: privately, via retail (e.g. CarMax), or via dealer trade-in; or I can give the car to a family member or charity
  • no need to predict or restrict my future mileage; if I'm way "under" mileage, no problem and no money wasted; if I'm way over, my per-mile rate for "excess" mileage is just actual costs without adding in finance/bank rates.
  • I won't be surprised by lease-end fees or hassles from dealers about accepting the vehicle back
  • when I decide to replace my car, I'll more easily resist dealership sales pressure since they'll know and I'll know that I'm not under a hard time constraint on purchase of my next car
  • over the long term, money spent on out of warranty repairs is typically far less than money spent on lease or loan payments; this is true even on cars that have proven to need significant numbers of repairs like my Ford Fiesta.
  • I can choose to buy used, for significantly more savings
  • I can choose a more affordable auto insurance plan
Leasing has this benefit:
  • for a first-time car 'owner' (or when adding another vehicle to garage), "loan" payments on lease will be less than on purchase of equivalent new car, in exchange for pre-arrangement of returning the car back to the lender.
What have I missed? Any additional reasons to lease vs. purchase?
Leasing vs. buying really depends on your use case. There are certainly arguments for both sides.

The typical US loan is on average 72 months. If you try to trade in or sell your vehicle in 24-36 months you’re typically in a situation where you owe more on the loan than the vehicle is worth. This is the #1 lease benefit for my situation. I get a new vehicle every 2-3 years and never have negative equity, it’s always a clean slate. I know how many miles I drive, so I structure the lease accordingly. I don’t trash the vehicle so I don’t worry about excessive use charges. The lease turn in process is super easy. So leasing works for my situation.

Certainly buying a used vehicle is far cheaper because they are a depreciating asset.

I’ve purchased vehicles before and kept them until they cost more to repair than they were worth. Or tried to trade out early when my life situation changed only to roll the negative equity into the new loan and get even further underwater. But I’m older now and like having new things instead of 10 year old vehicles, so leasing works for me.
 
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macchiaz-o

macchiaz-o

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The typical US loan is on average 72 months. If you try to trade in or sell your vehicle in 24-36 months you’re typically in a situation where you owe more on the loan than the vehicle is worth.
Isn't that analogous to leasing a car with a 3 year agreement and deciding you want to swap it out after 18 months? What happens in this case?
 

hybrid2bev

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Isn't that analogous to leasing a car with a 3 year agreement and deciding you want to swap it out after 18 months? What happens in this case?
To terminate a lease you typically have a few choices. Try to trade it in and roll the negative equity into a new lease/loan. Pay the remaining payments and turn the vehicle in. Or buy the vehicle outright.

Trading out early is problematic in both leasing and buying. Leases typically have lower monthly payments than buying. So 18 lower lease payments is usually a smaller hill to climb than 36 higher loan payments (half of a 72 month loan).
 

zhackwyatt

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To terminate a lease you typically have a few choices. Try to trade it in and roll the negative equity into a new lease/loan. Pay the remaining payments and turn the vehicle in. Or buy the vehicle outright.

Trading out early is problematic in both leasing and buying. Leases typically have lower monthly payments than buying. So 18 lower lease payments is usually a smaller hill to climb than 36 higher loan payments (half of a 72 month loan).
Does this seem like a good rule of thumb: If you keep cars > 3 years, best to buy, otherwise lease.

From a purely financial perspective I think its obvious to buy a car and hold onto it for as long as possible. But as you say, that clashes with the, "I like shiny new stuff" paradigm. Which unfortunately a lot of people do even though they can't afford it -- but that's a topic for Dave Ramsey.
 

hybrid2bev

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Does this seem like a good rule of thumb: If you keep cars > 3 years, best to buy, otherwise lease.

From a purely financial perspective I think its obvious to buy a car and hold onto it for as long as possible. But as you say, that clashes with the, "I like shiny new stuff" paradigm. Which unfortunately a lot of people do even though they can't afford it -- but that's a topic for Dave Ramsey.
My opinion is buying makes sense if you plan on keeping your vehicle for >4 years. The key is being prepared for out of warranty expenses and negative equity if your situation changes. At the 5 year mark of a 6 year loan you should be in an equity position so there is less risk from then onwards.

You could also lease it first, decide if you want to keep it and buy it at the end. It’s possibly more expensive to do it that way but it gives you options.

I agree that paying off a loan and having no car payment is great, until you have a major component failure (I’m looking at you Dodge Caravan).

That reminds me of another great feature of most lease contracts is that GAP insurance is automatically included in the lease. So you don’t need to buy extra insurance from the dealer or worry about negative equity if the vehicle gets wrecked. GAP insurance will cover the difference between what you owe and what the insurance company will pay.
 

timbop

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Personally 2 big factors in the decision are the that fact that it IS a BEV and it will be in its first year of production. Both of those lean me towards leasing: it is an absolute certainty that in 4 years' time battery and charging technology will have improved and decreased in price - lowering the resale value much more than what you would expect to see in an ICE. While one could keep the MME for 5 or 10 years, having a longer range car with better mi/kwh and faster recharging is a definite bonus. As a new model in a new-for-Ford segment, one never knows what kind of longterm issues will crop up that both impede its resale AND makes it more expensive to keep past the warranty.

By way of history, I had leased a 2012 Focus ICE, and am glad I got out after 3 years
 

LYTMCQ

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In US, only if you do the low miles.

With EV's especially first model like the Mach-E it does protect from any issues with the car and with guaranteed "resale" value.
 

rplinpa

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I have never leased because I tend to keep my cars for a long time. I am starting to rethink that in light of all the new technology coming out with cars, however. A serious question I would ask is: are you the kind of guy who needs a new computer every 3 years or so? To me, that is the big issue. Another is battery life and type. Would I be better to lease and then take advantage of the latest battery technology and range. Then again, if I lease I won't have one of the Limited Edition ones in Grabber Blue. Decisions, decisions.
 

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I have never leased because I tend to keep my cars for a long time. I am starting to rethink that in light of all the new technology coming out with cars, however. A serious question I would ask is: are you the kind of guy who needs a new computer every 3 years or so? To me, that is the big issue. Another is battery life and type. Would I be better to lease and then take advantage of the latest battery technology and range. Then again, if I lease I won't have one of the Limited Edition ones in Grabber Blue. Decisions, decisions.
1591639441702.png


But in all seriousness,
"Would I be better to lease and then take advantage of the latest battery technology and range. Then again, if I lease I won't have one of the Limited Edition ones in Grabber Blue."

I don't see why these are mutually exclusive? If you've already got a reservation for a First Edition in the US you may be able to do a Ford Options contract (depending on your state) which is really similar to a lease, in that you can turn the vehicle in at the end of the term.
 

rplinpa

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1591639441702.png


But in all seriousness,
"Would I be better to lease and then take advantage of the latest battery technology and range. Then again, if I lease I won't have one of the Limited Edition ones in Grabber Blue."

I don't see why these are mutually exclusive? If you've already got a reservation for a First Edition in the US you may be able to do a Ford Options contract (depending on your state) which is really similar to a lease, in that you can turn the vehicle in at the end of the term.
But then I lose my first edition! ;o)
 

hybrid2bev

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But then I lose my first edition! ;o)
How do you lose it?

Ford Options allows you turn in the vehicle or buy it out at the end? You have the 'Options'. You can keep the vehicle if you want to.
 

stmache

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The one disadvantage with a Mach-e lease (in the US) is you don't get the tax credit of $7,500 taken out of the lease price. Ford is doing something different which "gives" the tax credit to the leaser. Leaser can not get it until they file their taxes the following year. When I did my Honda Clarity PHEV lease, Honda took the full $7,500 and applied it to the cost of the car drastically lowering the price and lease payments.

Also, not everyone will get the full $7,500 tax credit. It will depend if you owe taxes and how much you owe. If it's less than $7,500, that's what you get. And it does not help in lowering a loan or lease payment.
 

rplinpa

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How do you lose it?

Ford Options allows you turn in the vehicle or buy it out at the end? You have the 'Options'. You can keep the vehicle if you want to.
If I turn it in after the lease.
 



 









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