Topic Author
Posts: 2854
Joined: Fri Jun 10, 2005 4:08 am

Buy Or Lease

Wed May 10, 2006 9:22 am

Here's the thing. My daughter just got her US driver's license and now (obviously) wants wheels. She's only got a year left at college before she comes home, so my question is: which would be the better way to go, buy a good (?) second-hand car or lease a car?
What is the dealership responsible for if she leases?
Anybody who can give me the skinny??
'Somebody tell me why I'm on my own if there's a soulmate for everyone' :Natasha Bedingfield
Posts: 2372
Joined: Thu Jan 27, 2005 1:45 pm

RE: Buy Or Lease

Wed May 10, 2006 9:39 am

Lease is usually good for those people who need the car to go to work or for people who can't afford to buy a car. Also, lease isn't so good if you like to take the car for long drives or if you like to travel. The reason is because if you lease you sign a contract that you can only drive like 30miles per day, or 10-12k miles per year. If you go over the milage they are supposed to charge you extra but you can negotiate when you return the car after the lease is up. Be careful of leasing expensive cars such as BMW/Mercedes they might have $300 dollar leases but they only let you drive like 8k miles per year, which is ridiculous.

Leasing is actually perfect for parents who want to spoil their kids with new cars but if I was her I would buy a used car just beause it sounds like she is not financially stable, after she finds that job and has income and credit then she should be looking for a new car.

[Edited 2006-05-10 02:39:55]
Posts: 700
Joined: Fri Dec 09, 2005 3:46 am

RE: Buy Or Lease

Wed May 10, 2006 9:45 am

That can be a complicated question. Overall, buying would be better unless she can answer yes to all of these questions.

1. Do you plan on keeping the car only a few years?
2. Do you drive only 12,000 miles or so a year?
3. Do you plan on buying a new car every few years?
4. Do lack a large down payment?

Overall leasing cars like Fords, GM, Chrysler etc is a bad deal
Look at leasing cars with strong residual values such as BMW, Mercedes, Honda, Acura, Lexus.

Typically the way a lease is computed is as follows.....
I will use a car with a MSRP of $24,000.00

So say you negotiate a price of $22,000.00

The bank says the cars residual value is 50% over a three year lease. In other words the bank says the future value of the car will be $12,000 at the end of the lease.

So say you have the price of $22,000.00 and you put down $2,000.00
so you will be paying for $8,000.00 of depreciation. That would be your adjusted "Cap Cost" .

Now depending on how the lease is structured count on an "aquisition fee" of around $500-$700 or so. That is what the bank charges to get the whole thing going.

Now also depending on the state, you may have to pay sales tax up front, some states such as California adds the tax onto the monthly payment. This is the formula I will use to compute the lease.

So here we go
Adjusted Cap Cost is $22,500.00 (assuming a $500 aquisition fee)
State License say $350.00

Now you will pay your $2000.00 down so that leaves

$8850 is the amount of depreciation that you will pay
Take that $8850 and divide it over the term of the lease for your monthly depreciation.....this is a 36 month lease so that comes out to $245.83 for monthly depreciation....

Now the bank wants to make money so that is called "rent charge". It is computed using a "money factor".

The money factor is decimal number. If you have good credit it should be around .00205-.00305. If you want to compute that to an APR multiply the money factor by 2400. So we will use .00305x2400=7.32% APR..
But that is for reference only.

To get your monthy rent charge take your residual value and add it to the adjusted cap cost....12000+22000=34000.
Take the 34000 and multiply it by the money factor so $34000x.00305=103.78

Take the 103.78 and add it to the monthy depreciation and you get $349.48.
for 36 months

That should be pretty close to what you payment would come out to, within a few dollars..

Now if you were to BUY that same car your payment would run $487 for 5 years...assuming still the same $2000.00 down.

But it really depends on you daughters own personal preference. Be VERY careful with a lease, it is real easy to get burried. Before I worked for AA I spent 7 years selling and working in finance offices at large cardealer ships.

email me if I can assist you in any way.

Oh one more thing. Getting out of a lease BEFORE THE END OF THE LEASE is very difficult, unless you bring lots of $$$$ with you.

[Edited 2006-05-10 02:59:24]
Posts: 802
Joined: Sun Oct 15, 2000 6:28 am

RE: Buy Or Lease

Wed May 10, 2006 11:16 am

I always tell people to buy a used car and never to lease!! I'm not sure what the car market is like where your daughter is living, but it should be fairly easy to find a good used car for cheap. Just tell her to ask around (friends-fellow students) and see which dealer is going to give her the best deal. If and when she decides to move back home she can always sell the car again for cash.

Quoting Dc10s4ever (Reply 2):
Oh one more thing. Getting out of a lease BEFORE THE END OF THE LEASE is very difficult, unless you bring lots of $$$$ with you.

I agree 100% Also remember that if the car has a scratch or stain its going to cost you more $$$

Posts: 2063
Joined: Wed Feb 25, 2004 8:53 am

RE: Buy Or Lease

Wed May 10, 2006 4:38 pm

I would suggest leasing her a new car.

Reason being if you finance a 2-3 year old car you have a worthless 6-7 year old car when you are done making payments. Now you have maintinence costs, etc. If you lease the car you will be in the same position 3 years down the road only you will have been making a smaller payment.

I sell cars for a living, if you have any questions feel free to shoot me an email.

Also DC10s4ever's lease calculation was the best I have seen. Although I would disagree with the fact that you should not lease Fords or Chryslers. Ford and Chrysler usually inflate their lease residuals to lower the payments. If you buy one you are stuck with the crappy resale value.

Topic Author
Posts: 2854
Joined: Fri Jun 10, 2005 4:08 am

RE: Buy Or Lease

Fri May 12, 2006 8:59 pm

Thanks, guys. You've given me a lot to think about!!
'Somebody tell me why I'm on my own if there's a soulmate for everyone' :Natasha Bedingfield

Who is online

Users browsing this forum: Bing [Bot], David L, parapente, TheF15Ace, vrbarreto and 2 guests

Popular Searches On

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos