250-awd

When i said I don't have the patience to do the math, it would have benefited the lease price, not the finance because I am entitled to add the taxes on top of the down payment which I didn't, and because I am entitled to an extra month's worth of compounding on the lease rates. On top of that, I also should be taking the difference between the payments and Future valuing those amounts to get a proper determinant which would increase the spread by a few thousand. Also, whether you pay sticker and get one rate, or discount and get another, the dealer still gets X amount for the car and you still pay X amount of that in interest which works out to a similar amount because the dealer cannot negotiate the interest rate below a certain amount. Also as far as 7.4% goes, nothing in life is guaranteed. You show me that smoking is guaranteed to cause cancer and I will show you at least 25% of the smoking population that will stop smoking. But is it prety much a certain fact? Yes. Is it guranteed? No.

But if you want to get into probabilities (my forte), the probability of me getting a return less than 10% on my investments is somewhere around 4.13%. So I am willing to take the risk, save a min of 6k to 8k (and that is for a IS, the spread gets bigger as the car gets more expensive) based on the fact that around 1/25 times i might get a rate lower than 10% which is okay since I still only need 7% to meet my figure. Is there anyone here in finance that can maybe better explain what I am saying? I may be getting a bit too technical and not explaining PV and TVM in plain english enough.

Cut-Throat

Oh I understand PV and TVM, I've been investing before you were born. What you don't understand is Risk/Reward. You are only 21 and have never been through a bear market. (sigh!)

Why would Banks be so stupid to lend money at 6%, if you could show them how they could get 7.4%?

250-awd

The reason banks lend out at 6% is because it is a long term loan that is guaranteed WITH collateral that does nothing but increase in value. Very different from an investment in a securities market. And trust me I have worked for a venture cap firm which is umm about.... .1% the size of a major bank but owned a offshore bank and even they put a decent chunk of their money in securities. I will bet anything that a fairly large chunk of a bank's cap does get put in securities and offshore markets. Not to mention the cash cows that bank issued credit cards are with 18% interest rates.

LexFather

I'm reading this!! Good debate here!

epiney

250 AWD

There is a special lease and finance rate on that vehicle in Canada right now. In my state, Lexus offers around 7% for exceptional credit. Sure lower finance rates can be had, but that's not the point.

Special lease or finance rates are a type of incentive on a vehicle. Luxury brands do not like to offer marketing support or trunk money in their vehicles since it cheapens the perception of the brand. A good example is BMW. It costs about the same to buy a GS or a base 5 series. However it costs a lot less to lease the Bimmer. BMW averages $3500 in incentives in the US per car. Read the press release about unhappy analysts and shareholders. You never see it as cash back. It shows up in low money factors and high residuals, resulting in attractive monthly payments.

If you put the same value of the special lease rate into a rebate on purchase price, the result is much closer. I'm not going to debate the risk free 7.4% interest rate, but most people that make that have to pay tax on it at the marginal rate (around 50% where you are I believe). So again the gap closes.

The bottom line is that there is no universal clear cut answer to lease versus buy. It depends on the money rate, residuals, incentives, etc. Each case needs to evaluated on its own merit and each person's circumstances. There are also intangibles such as risk tolerance.

In some cases leases will be more attractive, in others buying is preferred. With those special rates, I would be inclined to lease the IS. However, you can't predict everything. I leased a Volvo at 1.9%, based on a similar calculation you ran. Didn't care much for residual as I planned to buy the car after lease. Opps, needed to move out of the country. Tried to prepay the whole lease and buy the car. Sure two months penalty. Ouch. No way around it. Least costly thing to do was to get someone to take over the lease. I was well below on mileage, so anything I gained on the special lease rate was gone.

marshmallo

I love the GS right now. In the executive class I would drive nothing
else and would not downgrade unless I could not afford the payments
anymore...

AlterZgo

I think the consensus between people with reasonable minds is that there are advantages to leasing, financing to buy, and paying cash depending on your own situation.

Those who think otherwise make the assumption that everyone's personal, financial, and occupational situation is identical to yours which is absolutely not the case.

As for the original question of whether I would pay over $700 to lease a GS350, the answer to that is no. I would rather lease a loaded BMW 535i for $700/month. Due to BMW's leasing incentives, you can lease a $55K BMW for the same or cheaper than you can lease a $45K Lexus.

That said, if I were buying a car outright, I'd probably get the Lexus because it's a much better value and it's a car that would reliably last the 7-10 yrs I might want to keep it vs. the 535i which is much more expensive and of questionable reliability. Believe it or not, BMW's extended warranty doesn't even cover the nav system! It would probably cost about a billion dollars to fix if it went out. Another reason I would rather lease than buy a BMW.

Cut-Throat

Read this link

Lease vs. Buy

doug_999

So what? He just proved that leasing can be cheaper....

Seriously, how many cars have you leased? The rate does NOT change when you negotiate the price.

OMG - you are not serious!? PLEASE tell me you are not serious. In today's market, if you can't get 7.4% on your money then yes, you SHOULD be buying your car.

Doesn't matter....

The fact is that lease rates are often subsidized- especially on luxury cars. Couple that with some serious depreciation and you will find (as most smart luxury car buyers have) that leasing is indeed a cheaper way to own a luxury car.

Of course PURCHASING a high residual value car (think Accord/Civic) is the "smart" money - alas, we are talking luxury cars right?

Cut-Throat

I'm listening. Just show me one investment. I've got $300K of my cash looking for a new home. His whole example is based on getting a 7.4% interest rate for the next 4 years.

The U.S. Government is offering a shade over 5% on 10 year treasuries. Lot's of institutions are locking up that interest rate, when they could be listening to you Doug.

We're waiting

250-awd

I think what myself, and Doug are stating is again, of course nobody will guarntee you 7.4%, but some things in life are certain enough that you don't really need a guarantee. Please I hope you, or anyone do not take this the wrong way, but the reason why you are looking at 5% rates and are probably getting something around there is based on the fact that you are over 55, retired, and have a relatively conservative investment profile. Especially based on the fact that you are the purchasing type and looking at secured, locked in rates and due to your age and that fact that you are retired, your investment adviser, or your self, or both, have determined that you are not in a position to be risking your money in potentially volatile markets (and I strongly suggest that any market averaging 7.4% is definitely not volatile).

I have a relatively small amount (around 10k) in overseas markets that are giving me GUARANTEED 10% annually, compounded semi-annually. Now why don't I have all my money there? Because even an guarantee is not guaranteed. Just like when I sign a lease agreement and promise to pay Toyota Finance Corp a payment of $700/month, I can still default on that amount, although I did gurantee to pay it. But Toyota has looked at the relevant facts and determined that there is a fairly high probability of me not defaulting on my payments. Which is the same thing I do with my investments. They are not all guaranteed, but there is a fairly high probability based on the markets I am in, as well as previous returns that I will not see anything below about 9% for the next 2-3 years. Then I will have to re-arrange my portfolio to get the same return.

topgun04

"I'm listening. Just show me one investment. I've got $300K of my cash looking for a new home. His whole example is based on getting a 7.4% interest rate for the next 4 years."

Cut, I think the attitude of knowing it all really show here... 300K is not a lot of money.. Please don't let having money getting over your head. If you really have 300K, you should know better about your investment option. Try PFN, EFT (8.5 to 8.9%) for junk bond fund. HTE, PWE, CNE for Canadian Royalty trust (10-12% after the 15% Canadian Foriegn Tax), or try U-Haul Preferred A (8.5%) ... Sure they are more risky than treasury but the return is out there. Epiney and Alter said it well, everyone situation is different and it is unwise to try to project what is right for you to everyone else.. If you cannot argue your position, showing off your money really don't bolster your case.

Cut-Throat

I know $300K is not a lot of money. This is a luxury car forum. The $300K is just the "Cash" portion of my portfoilo. Or don't you understand asset allocation? --- As in Stocks/Bonds/cash. When you have a certain percentage of cash in a portfoilo, it's there to draw down in down market years. Instead of stocks in down years. You don't buy Junk with the Cash portion.

And if those markets sour over the next 4 years, the easy 10% that I'm seeing thrown around here will come to haunt those that have taken a 50% hit on those investments. You guys are talking like the tech stock investors of the late 90's. A sure warning sign! Plug that into your lease calculator.

doug_999

Lose the dorky guy with the whip and I'll give you the secret......

StevenC56

I believe that is a fly fisherman,not Indiana Jones!