3 year lease or the 6 year loan?
08-30-06, 08:42 AM
#1
Instructor
Thread Starter
3 year lease or the 6 year loan?
Hello Guys,
Just wanted some advice or peronal input on this manner. I am 24 years and getting started in the world and wanted to follow some kind of blue print. I have leased 2 cars so far and it is great because i get a new car every 3 years but the downward part is paying 1400 out of pocket every 3 years. (Leased Pontiacs) Now with lexus, they are reliable and more expensive, is it worth leasing every 3 years and coming up with the Fees and stuff around $1500 or is it worth financing over 6 years and when the car is paid off it is still worth around $12-15K because lexus holds its value and then use that money for my next down payment instead of dipping into my pockets. Just wanted some advice or input. thanks
Just wanted some advice or peronal input on this manner. I am 24 years and getting started in the world and wanted to follow some kind of blue print. I have leased 2 cars so far and it is great because i get a new car every 3 years but the downward part is paying 1400 out of pocket every 3 years. (Leased Pontiacs) Now with lexus, they are reliable and more expensive, is it worth leasing every 3 years and coming up with the Fees and stuff around $1500 or is it worth financing over 6 years and when the car is paid off it is still worth around $12-15K because lexus holds its value and then use that money for my next down payment instead of dipping into my pockets. Just wanted some advice or input. thanks
08-30-06, 09:43 AM
#3
How does the lease payment compare to the loan payment? Similar I bet. If you need a new car every 3 years then go with a lease. Personally I think leasing is like throwing money away because you are left with nothing at the end of the lease. (I know you can choose to buy the car at that point.) At least with a loan you build equity that can then be used as a downpayment to reduce the loan duration on the next car. Then you build more equity quicker.
08-30-06, 09:43 AM
#4
Instructor
Thread Starter
so it is still cheaper with the $1500 out of pocket every 3 years than the interest over 6 years that I would pay even though i would end up with money in the end of the loan. I guess i would still pay alot in interest after that i got a new 6 year loan even with that large down payment.
08-30-06, 09:56 AM
#5
Lead Lap
Join Date: Jul 2006
Location: CA
Posts: 733
Likes: 0
Received 0 Likes
on
0 Posts
Since i am an accountant, I will give you some realistic financial perspectives worth considering, but of course you can ignore my opinion. 
Leasing is perhaps the worse thing you can do with your money, as you build no equity and you end up with nothing at the end of your lease. Leasing is only marginally acceptable if you use it for business purposes, in which you can deduct rental expense (lease payments) from your income taxes. You can't deduct asset depreciation if you dont own it, so you only have a partial tax advantage even if you use it for business.
If you are a young person starting out in the world, you really need to do some serious planning now. The difference between doing it "right" and doing it "wrong" is significant. You want to start building wealth at a young age so things get easier as you get older. My 65 year-old secretary wishes she had better planning when she was younger. She has no savings and cant afford to retire. There is a universal balance: Enjoy now, pay later.... or Pay now, enjoy later. We as a society tend to favor instant gratification, thus so many of us suffer later on in life. Of course this is a non-issue if you have a really high paying job and make a lot of money over a lifetime, but this is not the case for most people....even Lexus owners.
My advice: Dont lease if you dont own a business. Dont finance if you dont own a business (interest expense is only deductable for business use). If you can afford the car, pay all cash. If you cant afford the car, buy a lesser car. Remember, your car is NOT an investment. It does not produce a monetary return (unless its a rare antique car). You are entitled to enjoy what you can afford. If you want to enjoy it now even though you can't afford it, expect to suffer a little later on. It's a trade-off. If you must have a new car every 3 years, well.... that's why some of us can afford to buy our 1st home at age 26 while some of us are still renting apartment at age 50. It's a personal choice. IMHO
The crazy accountant
Leasing is perhaps the worse thing you can do with your money, as you build no equity and you end up with nothing at the end of your lease. Leasing is only marginally acceptable if you use it for business purposes, in which you can deduct rental expense (lease payments) from your income taxes. You can't deduct asset depreciation if you dont own it, so you only have a partial tax advantage even if you use it for business. If you are a young person starting out in the world, you really need to do some serious planning now. The difference between doing it "right" and doing it "wrong" is significant. You want to start building wealth at a young age so things get easier as you get older. My 65 year-old secretary wishes she had better planning when she was younger. She has no savings and cant afford to retire. There is a universal balance: Enjoy now, pay later.... or Pay now, enjoy later. We as a society tend to favor instant gratification, thus so many of us suffer later on in life. Of course this is a non-issue if you have a really high paying job and make a lot of money over a lifetime, but this is not the case for most people....even Lexus owners.
My advice: Dont lease if you dont own a business. Dont finance if you dont own a business (interest expense is only deductable for business use). If you can afford the car, pay all cash. If you cant afford the car, buy a lesser car. Remember, your car is NOT an investment. It does not produce a monetary return (unless its a rare antique car). You are entitled to enjoy what you can afford. If you want to enjoy it now even though you can't afford it, expect to suffer a little later on. It's a trade-off. If you must have a new car every 3 years, well.... that's why some of us can afford to buy our 1st home at age 26 while some of us are still renting apartment at age 50. It's a personal choice. IMHO
The crazy accountant
08-30-06, 10:01 AM
#6
Driver School Candidate
Join Date: Aug 2006
Location: Chicago, IL
Posts: 17
Likes: 0
Received 0 Likes
on
0 Posts
You'll be hard pressed to get $15K on a 6 year old ES. I just traded in a 2001 Infinity I30. Great shape, very low miles. CarMax offered me $11.5, the dealer gave $10.5 It ended up being the same as I saved $1K on sales tax with the trade in, so it didn't matter.
Also remember, any discount you are looking for is going to be negotiated with the trade-in factored in. If you can sell your car yourself, that's cool. But that's not always easy to do.
6 years on a car loan is a long long time.
We have two cars, 3 years apart in age, that we keep for six years. We replace one of them every 3 years. We use the older car as a trade on the new car, plus cash. Then finance the remained over 3 years. The monthly payment is a little bit more than what a lease payment would be but the car is ours after 3 years.
Leasing is great if you are sure you will always be leasing another after 3 years. Being young as you are, you may decide in 4 or 5 years to buy a house. And might not want a car payment for a few years. After the 3 year lease is up you won't have a car payment, but you also won't have a car.
Keep your payments in a reasonable zone. Don't get into a lease or a loan that is sinking all your disposable income into a payment. Keep some cash on hand in the bank to cover a few months payments should you for some reason be out of work.
Aside from that, work hard and enjoy your toys.
Also remember, any discount you are looking for is going to be negotiated with the trade-in factored in. If you can sell your car yourself, that's cool. But that's not always easy to do.
6 years on a car loan is a long long time.
We have two cars, 3 years apart in age, that we keep for six years. We replace one of them every 3 years. We use the older car as a trade on the new car, plus cash. Then finance the remained over 3 years. The monthly payment is a little bit more than what a lease payment would be but the car is ours after 3 years.
Leasing is great if you are sure you will always be leasing another after 3 years. Being young as you are, you may decide in 4 or 5 years to buy a house. And might not want a car payment for a few years. After the 3 year lease is up you won't have a car payment, but you also won't have a car.
Keep your payments in a reasonable zone. Don't get into a lease or a loan that is sinking all your disposable income into a payment. Keep some cash on hand in the bank to cover a few months payments should you for some reason be out of work.
Aside from that, work hard and enjoy your toys.
08-30-06, 10:57 AM
#7
I am a branch manager for a finance company and we do auto loans. There are several factors you must look at. First, what is the interest rate on the lease? This is called a money factor. Sometimes, manufacturers sub-vent their leases (give discounts) to move units. For example, the $199 3/36 lease on 06 Accords that is currently out there. This is a sub vented lease from Honda to move out inventory, and can be a very good deal if you stay within the miles. I doubt there are any sub vented leases on the ES because it is so hot.
Also, a typical auto loan is for 60 months. If you go extended term (anything over 60 months) you will pay a higher interest rate.
Lastly, on leases, you are limited to a certain number of miles per year. If you drive a lot, a lease may not be for you.
Since Lexus does hold its value, I do suggest to buy it instead of lease it.
Also, a typical auto loan is for 60 months. If you go extended term (anything over 60 months) you will pay a higher interest rate.
Lastly, on leases, you are limited to a certain number of miles per year. If you drive a lot, a lease may not be for you.
Since Lexus does hold its value, I do suggest to buy it instead of lease it.
Trending Topics
08-30-06, 11:14 AM
#8
Lead Lap
Join Date: Sep 2002
Location: CA
Posts: 654
Likes: 0
Received 0 Likes
on
0 Posts
Your interst in car might change in time... Models get updated very quickly... Car might have problems.... and etc... etc...
6 year seems to be very long time for me and lots of things could happen....
6 year seems to be very long time for me and lots of things could happen....
08-30-06, 01:57 PM
#10
Lexus Test Driver
Now, how realistic are these advices to a 24 year old (probably just out of school with student loans) to pay $40k cash or to buy a beat up old car which you can afford and save your money for a house (with a real estate market that doubled in value over the last few years)????? We have to consider that times have changed A LOT since we were in his shoes. Unless he has rich parents or just out of school with a good paying job and still living at home, you have to be realistic with todays times...
I'm waiting for PaJaHa1 to reply to this thread since he is exactly in the same shoes being in mid 20's and leasing his 07'ES350. As far as "my generation" (just turned 32) I would recommend paying cash for stuff you can afford (what I did with my ES350 purchase). And for 24 year old, if you really want ES350 - get a loan instead of a lease... Or better yet, buy any of those cars from manufacturers with 0% financing...
I'm waiting for PaJaHa1 to reply to this thread since he is exactly in the same shoes being in mid 20's and leasing his 07'ES350. As far as "my generation" (just turned 32) I would recommend paying cash for stuff you can afford (what I did with my ES350 purchase). And for 24 year old, if you really want ES350 - get a loan instead of a lease... Or better yet, buy any of those cars from manufacturers with 0% financing...
08-30-06, 02:55 PM
#11
Driver School Candidate
Join Date: Aug 2006
Location: Chicago, IL
Posts: 17
Likes: 0
Received 0 Likes
on
0 Posts
Twister, I think all these recommendations are realistic.
What they are mostly saying is be wise with your money and don't **** it away.
He's 24, you're 32, I'm 51. and in the last 30 years since I've gotten out of school nothing much has changed but the numbers.
When I got out of college, with an accounting degree, I got a job as a staff accountant making $8K a year. What does a accounting grad make today? $30-50K a year is not unrealistic.
I owned my first house when I was 27. It wasn't much but I managed to scrape together $7K for a 10% down payment. That $7K has rolled forward into 3 succeeding houses and has appreciated substantially. The equity built up is going to be a significant part of my retirement nest egg.
Even if it's 30 years since I got out of college, the challenges are pretty similar.
What they are mostly saying is be wise with your money and don't **** it away.
He's 24, you're 32, I'm 51. and in the last 30 years since I've gotten out of school nothing much has changed but the numbers.
When I got out of college, with an accounting degree, I got a job as a staff accountant making $8K a year. What does a accounting grad make today? $30-50K a year is not unrealistic.
I owned my first house when I was 27. It wasn't much but I managed to scrape together $7K for a 10% down payment. That $7K has rolled forward into 3 succeeding houses and has appreciated substantially. The equity built up is going to be a significant part of my retirement nest egg.
Even if it's 30 years since I got out of college, the challenges are pretty similar.
Last edited by shcowgo; 08-30-06 at 02:59 PM.
08-30-06, 04:01 PM
#12
Lexus Test Driver
Yes, the challenges are similar, but "numbers" make a HUGE difference. Even with a $40k salary, how long will it take to save up $40k cash for a car and 20% downpayment (to avoid PMI) for an average $500k-$600k house (East Coast prices)? Not to mention a typical $50k (or more) 4 year student loan and all other everyday expenses.... Yes, you have to start saving, budget your life, cut a lot of corners, and you can reach all your goals. Just, IMHO, for someone in their early/mid 20's today who wasn't born with a silver spoon, it will take much longer to achieve this than previous generations... Therefore, giving an advice of paying $40k cash out of your pocket for someone who doesn't have this money is not realistic... Of course, I'm making a lot of assumptions in here about "mikedozz", so this might not apply to him at all...
08-30-06, 04:08 PM
#13
Lead Lap
Join Date: Jul 2006
Location: CA
Posts: 733
Likes: 0
Received 0 Likes
on
0 Posts
Twister, I think all these recommendations are realistic.
What they are mostly saying is be wise with your money and don't **** it away.
He's 24, you're 32, I'm 51. and in the last 30 years since I've gotten out of school nothing much has changed but the numbers.
When I got out of college, with an accounting degree, I got a job as a staff accountant making $8K a year. What does a accounting grad make today? $30-50K a year is not unrealistic.
I owned my first house when I was 27. It wasn't much but I managed to scrape together $7K for a 10% down payment. That $7K has rolled forward into 3 succeeding houses and has appreciated substantially. The equity built up is going to be a significant part of my retirement nest egg.
Even if it's 30 years since I got out of college, the challenges are pretty similar.
What they are mostly saying is be wise with your money and don't **** it away.
He's 24, you're 32, I'm 51. and in the last 30 years since I've gotten out of school nothing much has changed but the numbers.
When I got out of college, with an accounting degree, I got a job as a staff accountant making $8K a year. What does a accounting grad make today? $30-50K a year is not unrealistic.
I owned my first house when I was 27. It wasn't much but I managed to scrape together $7K for a 10% down payment. That $7K has rolled forward into 3 succeeding houses and has appreciated substantially. The equity built up is going to be a significant part of my retirement nest egg.
Even if it's 30 years since I got out of college, the challenges are pretty similar.
Having a nice car was my lowest priority. I figure a family, house, and master degree (new job) had higher priority. Thus I never had the luxury of driving a cool car when I was in my 20's.... Maybe I coulda gotten more girls, who knows.
Back to the topic: I think the consensus is, don't lease. There's your answer.
08-30-06, 05:13 PM
#14
Driver School Candidate
Join Date: Aug 2006
Location: Anaheim, CA
Posts: 47
Likes: 0
Received 0 Likes
on
0 Posts
Hey fellas, I'm 23 reading this is really helpful; too bad i bought my ES350 already and owe my bank $27k @ 5.25% APR. I just graduated college and have an okay paying job @ roughly 50k a year if I work in the summer time too. My question is, sould I start putting away in savings account in a roth that is taxed or tax defer? I'm not real good with saving money since I am inexperienced, but my supervisors have been telling me that if I don't make that much money, I should go with the saving account that is taxed now, then if I make more money later, change my roth to where it wouldn't be taxed? Please explain how that works.
-Andy
-Andy
08-30-06, 05:24 PM
#15
I highly recommend that you read the book, Boomer or Bust: Your Financial Guide to Retirement, Health Care, Medicare, and Long-Term Care. It will answer all your questions. ISBN is 0-13-188176-0 and is available from Amazon.com, Barnes & Noble, or any other bookseller.