leasing a hot car ? or wish you didn't ??

[crackedback]

RS7,

Most of the time there is a monthly rent included in the payment in excess of the estimated depreciation and interest charges.
Have to check the contract closely.

Later,

Cracked

 

[goldenarm]

Quote from rs7:


Seems like a big factor is how long you intend to keep a car. If you buy outright and keep a car for a very long time, then there is no way to beat that. You own the car free and clear at some point, and in theory can drive it forever.

Exactly. I've owned my Toyota Celica outright for the past six years (it's a 1992 model). I've driven the hell out of it and my maintenance expenses for the past six years have been about $500 per year. I plan to buy a new car next year and I'll probably get $3000 in a trade-in. For me, buying has been well worth it. I guess it depends on the cost of the car (mine was about $21K). I wouldn't buy a $70K Range Rover knowing that it'll probably break down in 5 years and maintenance costs will be a few grand per year. Let's face it, the Japanese can make cars that last damn near forever!

I must have saved many thousands of dollars by buying as opposed to leasing. The drawback is that I can't impress my friends with a new car every three years but I couldn't care less.

___________
GO J-E-T-S, JETS, JETS, JETS!

 

[rs7]

Quote from crackedback:

RS7,

Most of the time there is a monthly rent included in the payment in excess of the estimated depreciation and interest charges.
Have to check the contract closely.

Later,

Cracked

Looked at my statement. There is "rent" (base payment) which I believe IS the depreciation, and then there is sales tax. As far as I understand it, the "rent" is the total of "depreciation" plus "interest" (called "money factor in a lease), and the taxes are on a seperate line. Obviously the "rent" also includes profit (if any) to the leasing company. This is where I am confused. Seems like there is very little apparent profit.

This "lack of profit" seems to be a result of the adjustment done on the original contract. Unlike in a sale, in which the purchase price is usually negotiated, it is my understanding that in a lease, you pay based on sticker price. The "negotiating" is about the monthly payment. Which means, since you are paying full price, (plus "money factor" which is "interest"), then the point of flexibility in setting a monthly charge can be affected by only two things. Down payment (capital reduction), which is obvious, and the "residual".... it is the manipulating of the "residual" that has me confused.

To lower the monthly payment, they need to raise your residual. So at the end of the term of the lease, this gets confusing (at least to me). How do they make money when the residual is set higher than the real value (as happened with my Lexus)? Seems like the leasing company has to eat any loss. Yet the dealerships are very anxious to lease cars. As are the factories. So what is the magic? How do they make money with these special lease programs?

Peace,
rs7

 

[bobcathy1]

Gee. I drive a 1988 Dodge Aries my Dad gave me when he traded up. Before that a $300 1989 Plymouth Horizon until the Air Conditioning crapped out totally.
I have had really expensive sports cars. I can afford to buy anything I want, but living here in the Keys a Conch Cruiser is the way to go. We get hurricanes and it would be kinda painful to watch a Ferrari take a salt water swim! The island is at sea level and I have been here when the land just up and disappears.

 

[marketsurfer]

what i do is lease preowned high end cars for 2 year terms. this way someone else takes the deprieciation hit and i am always driving something new/different at a substantially lower payment than new. it works for me. i have the folks at www.leasetrader.com searching for another one. we will see what happpens.

best,

surf

 

[igsi]

Quote from rs7:

How do they make money when the residual is set higher than the real value (as happened with my lexus)? Seems like the leasing company has to eat any loss. Yet the dealerships are very anxious to lease cars. As are the factories. So what is the magic? How do they make money with these special lease programs?

For a new or recent model, nobody really knows what that model's real market value in three or five years is going to be. One can only guess. Therefore, the lender cannot be warranted that, when the times come, the residual he set based on his guess will be lower than the real value. However, if he can guess close enough, which is evidently possible, then the cost associated with occasional miss (like with your lexus) will be offset by the profit extracted from many other deals. In contrary, the lender who sets the residual too low hedges himself against car's low real market value but does not attract any customers and therefore does not make any money.

So, despite that "the leasing company has to eat any loss", that loss is just a cost of doing business.

 

[GATrader]

rs7. You pretty much have the essence of what a lease is. You asked why leasing co. would jack up the residual value more than the market rate. since leasing is a relatively new phenom, the mathematicians /statisticians/actuaries really don't have a lot of reliable historical data to base their projections on values. In an effort to drum up business in the 90's they needed to hike up the residuals to lessen the lease payments per month. As such, these leasing co are now bleeding millions since they are now stuck with invnetory of cars whose put stirke prices are higher than actual market values. My prediction: next 3 years SUV can be bought at 85 cents on the dollar

 

[nitro]

Quote from GATrader:

rs7. You pretty much have the essence of what a lease is. You asked why leasing co. would jack up the residual value more than the market rate. since leasing is a relatively new phenom, the mathematicians /statisticians/actuaries really don't have a lot of reliable historical data to base their projections on values. In an effort to drum up business in the 90's they needed to hike up the residuals to lessen the lease payments per month. As such, these leasing co are now bleeding millions since they are now stuck with invnetory of cars whose put stirke prices are higher than actual market values. My prediction: next 3 years SUV can be bought at 85 cents on the dollar

I have heard this as well - the theory is that come spring/summer, the deals will be the juiciest in a long time.

My problem is:

1) These things are _already_way_over_priced_, so what good does it do me to "save" .15 on the dollar when I am overpaying .50?

2) They are _gas_guzzlers_. And that creates two problems
a) They destroy the environment
b) The cost of having to fill the gas tank twice as often as car has to be calculated into the price of the car.

On the other hand, I like them because I like my wife and daughter not to be at a disadvantage in an accident with one of these behemoths...still, we would probably all be better off without them.

To add injury to insult, I understand that if you own a business, you can deduct (up to 1/2 ?) of the cost of an SUV. There does not appear to be an equivalent for a car.

Ugh.

nitro

 

[hardrock375]

Quote from bobcathy1:

Gee. I drive a 1988 Dodge Aries my Dad gave me when he traded up.

Those are pretty sweet cars. Aren't they similar to the Reliant "K" car?

 

[hardrock375]

Quote from goldenarm:


Let's face it, the Japanese can make cars that last damn near forever!

Very true. I drive a 1989 Nissan 240SX with 197K (approx.) miles on it.

The odometer/speedometer quit working a month or two ago. That kinda puts the fun back in driving...rolling along at night, with no idea how fast you are going, how far you have traveled, or how much fuel is left in the tank. Oh yeah, no interior lighting either. However, the car IS in tip-top running shape.