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Discussion Starter · #1 ·
I am still rather new to the car industry, so somethings I still don't get very well.

I just heard about something and I would like to get it cleared up in my head please.

Someone has purchased a van that she will be financing over 5years and she said the cost of the vehicle was $24k but after the 5 years she will be paying over $32k! (no DP)

Now... I don't know what planet some of you come from, but isn't financing a car sooooooooooo much more expensives then leasing/purchasing it. :roll:

I mean... jeezuz! :shock:



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Wouldn't it be better for any smart person to save up an extra year or so in order to put a huge DP, so that they won't have to pay so much more interest during the term?

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Because alot of people here put small DP's and pay in the $450-$500 range for 5years. I find that nutty! Those payments end up being $27,000-$30,000 for a car that's worth aprox $23,000.

Therefore during those 5 years you can pay close to $7000 more, which is the price of my lease minus $2000 for 3years.

Your interest over 5 years is $2000 cheaper then me leasing a car for 3years... worry free!

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I want some feedback on this please, I know there must be something I am missing. But I would like to know it! Thanks
 

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No your not missing anything, in the senario you provided. That's why people end up in debt over their heads. Remember a car is not an investment it is an expense. If you can't pay cash you can't afford it.

That being said, most of us, myself included, don't have $20k - $30k to buy a new car outright. So we enter into voluntary debt via a lease or finance agreement.

If you can't afford to pay in cash or don't have a large down payment, 20 % is my benchmark, and want a new car, leasing is a good option.

A better option is to buy a reliable used car and keep saving till you can afford a very large down payment or to buy the car outright.

There's more to be said but I am trying to keep this post short
 

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**edit: This entire post is based on the assumption that the buyer has a wad of cash available to spend on a car, and is trying to make a decision based strictly on end net cost.**


Well SyCHo, it is entirely based on what interest rate you manage to get, which is based on your credit rating, and what kind of investor you are.

Yes, if you add up what a car is cash vs. what it would be after 4-5 years of interest, it is much less to pay cash - BUT what you don't realize is that that isn't the whole picture. Say I pay cash, then I don't have to pay interest... but I also don't have money to invest. Whereas if I finance, I am only paying a little initially, which means I can theoretically invest that money I still have.
If the interest rate on the car payments is low, and the interest rate on the investments is high (let's say car note = 0.0% interest for 60 months and I buy into a 5-year mutual fund that will return 9% interest or whatever) well then I actually saved money when it's all said and done, because the interest paid to the car is compensated for by the interest earned with the investment.

Did that make sense?

Simplified:
Total COST cash = cost of car + return you didn't make by investing.

Total COST financed = cost of car + interest on car - return on money invested

Of course it is MUCH more complicated than this once you take the decreasing principal into account, taxes on interest and all kinds of other things I am not qualified to explain.

But I'd sum it up like this. If you are in a position to invest that money at a significantly higher rate of return than the interest rate you can get on the car, then it is better long-term (by as little as a few hundred dollars) for you to finance.

If you are not going to invest anything, and the money would just be sitting in a savings account and not earning, then you're better off paying cash.

****DISCLAIMER****
Don't take my word for any of this, ask an accountant for a real explanation and some practical examples.
 

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yeah

"time value of money"
a dollar today is worth more than a dollar tomorrow because you can invest it
 

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With all of the great financing deals out there these days, it really doesn't cost too much to do it. I got my 3 at 3.9% for 60mos, so I'm paying roughly $1600 in intrest over the 5yrs. That's a good rate. I got my Miata at 0% for 36mos. That's a better rate.

Keep in mind that with leasing, you may get roped in by paying a lower monthly payment in some cases, but you pay per mile if you go over your allotment. In addition to that, at the end of the lease, you have to buy the car out if you want to keep it. Chances are that you'll have to finance the buyout amount anyway. So, over the long run, you've paid x years of payments to lease the car, and on top of that, you're now financing it... in the long run, leasing can be MUCH more expensive than buying. Also, leasing is essentially renting; you're paying money to use something that you don't (and in most cases won't) own. Taking that into consideration, even if you're paying a little more to finance (talking monthly payments here), at least you're paying for something that's yours.

If you want to play with numbers, go to any loan calculator, like this one, and check it out. You can also head to sites like kbb.com, edmunds.com, etc to read all about financing vs. leasing, and the pros and cons of each.
 

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I'm accountant, he's right.

As for leasing vs buying, down the road it is better off buying 95% of the time. For leasing to be a good option, you need to use 100% of the km you bought, not more not less - it's a game of residual value. Financing is traditionnaly higher on leases as well (leaving a deposit can help you reduce your financing cost as well, the return you get on you capital by leaving 5 payment in deposit is in the range of 10% - not bad considering the low interest rates these days.)
 

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It should be pretty much impossible to breach $400/mo on a 60 mo loan on the 3. I just barely managed it on a fully loaded 6s, and that was with dealer ripoffs thrown in. Maybe with HID/Nav, but still would be difficult.

That being said, sure financing is expensive... ya might pay like $3k more. But if you don't have the money, you don't have the money. Not much other choice. At least these days there's lots of 0% and low % financing (my 6s loan was at 3.74% and that was without Mazda (ie, no special deals)).
 

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My payment for 60 months is $241.67 at 4.25% with my credit union. Thats a little over $1400 interest for my MZ3s. I will pay it off next year though.
I will never lease a vehicle again... never!
 

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Unless you keep the car long term you're throwing money into a bottomless well so in most cases you're better throwing more of your money into an investment that actually earns money than a car. After discussing this with my dad over the weekend he summed it up nicely for me.

If an item appreciates in value you buy it, if it depreciates you rent it. The only rare occasions where you buy something that depreciates is when you want to keep it long term and can amortize the loss over a longer period. Buying a car and then dumping it after 4 or 5 years is silly because you loose 30% within the first 6 months to a year, why not let the dealership eat that?

I've said it before and I still maintain to this day that taking your larger down payment and putting it into an investment is a better expenditure than buying a car. All situations being equal I'd rather put $5000 into property than $5000 into a general use car.
 

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What you really should be comparing here is leasing for 3 years vs financing a car then selling it in 3 years with no downpayment.

In theory the lease residual value and the resale value work out about the same. You never really know till the time comes, but you eat the depreciation whether you lease or buy.

So you come down to the difference in interest rates. Which are typically higher on a lease, especially in these days of 0% special rates and 2-4% regular financing rates.

Throughout those 3 years you've also been paying down principal with the loan, so the amount of interest spent should be even less with the finance option.

Then there's that problem of leases trapping you. It can get pretty expensive to terminate a lease early if you need to for whatever reason.

Check out www.carbuyingtips.com
 

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I actually tried to get a new used car rather than a new new car... It was MORE expensive on the used car than the new car even though the new car cost more. The financing on used cars can be so outrageous (7% or more at times) where as, I was approved for 3.9%-4.9% on a new car (depending on dealerships/cars I could get as low as 0.9 or 2.9...

Another question arises: Is it cheaper to buy a new car rather than fix the one you have? My car requires or will require within the next year $800 for rebuilt rear calipers, $250-500 for new tires, $200 for a new dash (stolen stereo), $80 for brakes pads all around, plus any other stuff. That's $1600+ I could put into a new car which is under warranty, rather than put into a car that is only worth roughly 1/3 of that price for repairs this year alone...

If I had $20k I'd have bought the house I was looking at this year (nice DP). OR invested it in a short term (less than 10 years) growth fund.

Personally, I've budgeted x amount of money to go towards a new car for the next 60 months, BUT, with the no pentalty early pay off option and the fact that I get two bonuses every year I plan to pay it off early.

If you don't like the price of financing a car... just wait until you try to buy a house. 70k over 30 years @6.5% is: roughly 136k paid out in finance charges if you went the full 30 years and 6.5% is a pretty good rate right now. :D
 

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Bottom line

If you know you want to keep the car dont "lease option to buy" just finance it and buy it right away

Leasing it will cost you more money in the long run
Get the actual numbers and compare them, you'll notice it for yourself
 

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I personally traded in my '03 Escort ZX2 plus 3000 as a downpayment and have been paying off as much as possible as soon as possible. I have about 6500 left to pay on my car, however my dad helped me out, he transfered the loan on to a no interest credit card so i have 12 months to pay it off without interest. That's the best way to do it, if you can't buy it all up front, and that is if you have that option available to you.
 

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A lease doesn't have to trap you, you can sell a car you lease just as easily as you can a car you purchase. It takes a bit more effort because you have to go in and pay out your lease but you can sell a car and get out of your lease that way as well.

My dad has 2 months left on his current lease of his Nissan Pathfinder. With about a month left before he has to return it he's going to put it up for sale (he now lives in an area with very good SUV/Truck resale value) and he's going to try to make a few bucks off of the Nissan by selling it before the lease is due. Good idea if you can swing it if you ask me.

As for eating depreciation with leasing that's not the case unless you buy it out at the end. Since whether you lease or you buy you're spending money on the car we can call that a wash (whether it's higher interest or higher payments). When you buy the car you have it when you're done paying for it. In the end you're left with a 3 or 5 year old car (or whatever) and it's worth X amount of dollars that is the product of depreciation. When you lease you hand your keys back and walk away. Sure you don't own X value in that car but I've typically already picked up another car two years earlier and had a hundred or two extra more per month to put into something more worthwhile than a car like a real investment.

You have to look at it in the way that cars are an expense, not an investment of your money. The more you can reduce your expense and raise your investment the better off you'll be IN THE BIG PICTURE.
 

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Discussion Starter · #17 ·
cowtown said:
You have to look at it in the way that cars are an expense, not an investment of your money. The more you can reduce your expense and raise your investment the better off you'll be IN THE BIG PICTURE.
FINALLY SOMEONE WHO GETS IT! :D


That is exactly what I have been thinking for the past weeks and if you notice my other posts, everyone is against me leasing. But like you, I believe that my money should go elsewhere and not entirely into a vehicle.

Thanks you!
 

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Yes cars should be looked at as an expense. And leasing can be a more expensive option over the 3 year term.

How do you sell a car you don't even remotely own?

Check this out and make sure you fully understand everything before working out any paperwork on a lease.
http://www.carbuyingtips.com/lease.htm
 

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If you think financing a car is expensive, how about financing a house? With $150K house on a 30 yr mortgage ends up costing you close to $300K!!
 

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nouse4aname said:
Yes cars should be looked at as an expense. And leasing can be a more expensive option over the 3 year term.
]
It might be or it might not be. One of the benefits of a lease is that a 3-year selling price is implied and guaranteed and the risk of that selling price is borne by the lessor.

If you are going to trade cars every three years then the risk of the car having a lower residual than expected is passed to someone else. The lessors got stuck with a bunch of SUVs that turned out to be worth less than the residual that was originally estimated. Of course, residual could be higher than estimated if prices of foreign cars increase a lot due to the dollar devaluation. Either way, the sale price is locked in with a lease and the option to abandon at a set price is valuable to the lessee.

That said, I think it is stupid to buy a new car every three years.
 
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