DaveAMass

Not even going to consider it. Thanks for the heads up. I would have looked a the carfax before going in but glad you pointed it out.

SW17LS

The question is one of value. In continuing to pay for her Sorrento until such time as its no longer upside down that money is at least going to some purpose. If you just pay it off now it just goes into the ether.

Even wrapping it into the financing, as long as you KNOW that you're going to pay this car off before trading it, or at least wait a long time into the financing then rolling the negative equity over isn't such a big deal. You'd be paying interest on it on the Sorrento anyways...at least the Lexus will hold its value MUCH better (thats a lot of your issue with the Sorrento).

Because of the miles she drives coupled with Kia's poor resale, its entirely possible by the time you've paid that $3k down, it will be worth more than $3k less than it is today...so trading out of it now may be the right move. Just remember though, the Lexus depreciates too....especially with all those miles.

The issue is when someone buys a car, sells it 2 years later, wraps negative equity in, sells that 2 years later and wraps even more into the next one. Thats not the issue here it sounds like.

I might not write it off so quickly. Sometimes VERY minor repairs show up on a Carfax. It might just be a bumper. I would try and find out exactly what happened to it...you might be able to use the fact that it does not have a clean carfax as a negotiation tool, and if you're going to keep it 10 years, 200,000 miles until its fully depreicated the carfax at that time won't matter.

FastTags

Ok, lets break it down.

1. People who lease cars, do it for multiple reasons, one of them is that they are paying 25-35% less a month for the same car if they were to BUY it.

2.The concept is to Lease a car, trade it in, in a few years, not to loos any $ and get another car

3. You dont really loose money if you BUY and then trade it in a few years VS. a lease, but you do end up paying more a month. To buy a $50,000 car for say 60/m, it would close to $900/m vs. a lease $500/m. So in the period of 36/m you pay $32,000 and if you lease you pay $18,000.

Yes, at the end it may be the same thing, but it has its advantages, and one of them is that you pay less for say 36/m

SW17LS

Thats just the thing...you might.

This is all based on the idea that somebody is going to trade the car in a few years anyways. Sounds like you and I are alike on that front. We're going to want a new car within 2.5-3 years. We understand this is an expensive way to drive cars, its much cheaper to buy one and drive it until its 10 years old. But...thats not for us.

When you buy in this scenario you are taking on risk, risk that the resale value may not be there for your model, risk that you may be in an accident that will reduce your car's value. Either of these factors could cause you to be upside down 2.5-3 years in.

If you lease in this scenario...you have no such risk. If you can't trade it in and get the residual or more, you just turn it in...accept zero...and move on. If you own you may be faced with the possibility of trading it in, having negative equity and being forced to eat that or keep the car.

The other benefit is as you said, a reduction in the amount that you have tied up in the vehicle. Leasing requires no money down, and the payments are much less.

So even though you might have a shot of building some equity over 2.5-3 years if you buy...you're paying a lot more to have that possibility, and with that possibility comes risk, and in any event the equity thats there is just your own money you've paid in. So...I have that equity too...the money has just remained in my bank account.

Its like somebody thinking their tax refund is some windfall from the government. No, its just your money you've let the IRS hang onto all year for free.

FastTags

i dont agree with you here, I dont see how the same car with same millage is different in value in your eyes if you LEASE vs. BUY.

If you lease the same car is say $36,000 and if you buy it same $36,000 trade-in.

The only difference is that, if you own it you OWE the $36,000, if you Lease it you dont really owe anyone. But if you are trading it , which the same thing, except DEALER is paying the $36,000, NOT you.
In which case it still the same $36,000 that the dealer would pay to the BANK if you Trading you OWNED car.

BUT there is one huge benefit, if you dont see positive equity in the car after you LEASED it, and you did not go over the milage, screw it, turn it IN.

There is another Negative thing about Leasing, depending on the state, when you trade it in a Leased car, you may not get a TAX credit. In Texas you dont.

SW17LS

I'm not following what you're saying...and I think we actually do in fact agree.

Its not that the car has a different value...when you lease you take on less risk is my point if you're going to be trading cars every 2.5-3 years.

Lets say you lease a $60,000 MSRP car ($55,000 purchase price) for $614.99 a month/36 months with 0 down, money factor is .0006. The residual is 58% or $34,800. So, after 36 months you've paid $22,139.64. At the end of that lease, if you can sell the car for $36,000, then you just made $1,200. If you can only sell the car for $30,000 for whatever reason...you loose nothing.

Lets say you buy the same car and finance it for 60 months at 1.9%, your payment is $961.62. After 36 months you've paid $34,618.32 to drive the same car. At that point you owe $21,702.58. Lets say you sell that car for $36,000...the good scenario we discussed above. They cut you a check for $14,297.42. Lets say you sell that car for $30,000, the bad scenario we discussed above. They cut you a check for $8,297.42.

Lets look at total cost to drive the car for 36 months under both scenarios. Best case, it cost $20, 939.64 to lease the car. Best case it cost $20,320.90 to "own" the car. So, here you've come out about $600 ahead.

BUT...lets look at the total cost in the bad scenario. Worst case scenario its cost you $21,702 to lease the car for 36 months. In this scenario...its cost you $26,320.90 to "own" it...$4,618.90 more.

Now, if you live in a state that only charges a monthly use tax, that wipes out the best case $600 savings in our illustration. If you can deduct a vehicle lease for business, even moreso.

So, to me..."owning" it has a very small potential upside, and a huge potential downside understanding that I WILL replace the car in 3 years. Not something I'm interested in.

ItzFilyO

A lot of good information here.

Schmexus

Let's say you can keep the car for 5 years which really isn't much longer to wait. You will actually OWN that vehicle. Obviously what vehicle you purchased will determine how much it's worth, but looking at a 5 year old GS right now the value is around $30k depending on miles, options and condition. That's a $30k asset you now OWN. Yes, it's a depreciating asset, but it's still an asset and could be turned into cash immediately. In my state if you trade in a $30,000 vehicle for a $60,000 vehicle you only pay tax on the difference so there is a huge tax benefit if you decide to purchase another vehicle. If you decide to keep the vehicle longer you will pocket that payment every month, yes while your asset slowly depreciates, but still...

Yes, I could get into an accident and lower the value of my asset. That's a risk I suppose, but I have insurance to pay for proper repairs so I'm not too worried about that.

I'm also not a fan of buying new. I'd rather buy slightly used and not take the huge depreciation hit right off the bat. I think that makes buying more worthwhile for me and allows me to stay away from being upside down. My last 3 vehicles were purchased with no cash out of pocket and my last 2 vehicles were only owned for a year(life happens).

I do get the bug for a new vehicle quite often so I can see how a lease would be attractive. My last salesman tried to talk me into a lease after he looked at my track record of vehicle swapping. I'm just more comfortable with the idea of eventually owning the vehicle and being able to do what I want with it.

To each their own...

FastTags

Yes, you have a very valid point that if the car goes down in value, Leasing give you a leg up because the residual is set. Thats is why in order to stay ahead in the game you must lease cars that keep their value.

But, as far as the cost of ownership buy vs. lease if you are trading the vehicle, you will only see a difference the cost of ownership if the MF and the % are different OR if you do not have to pay the FULL TAX as in some states. If not, it should be the same.

Also, as I said above OWNING has a TAX break advantage guaranteed when you trading it IN, Lease only in some states.

To the poster below, we are not comparing cost of ownership if you keep the car for 100 years. It is obvious the car will pay itself off over time. .

Schmexus

5 years, not 100. No need for remarks like that.

SW17LS

This is a different scenario...but I don't want to wait for 5 years. I want a new car every 2.5-3 years...and I'm not interested in compromising on that. Its twice as long...which to me is a lot longer to wait.

Even if I could wait that long, I'm not going to be able to bring myself to wait longer than that...so its going to get traded at the end of 5 years for sure. So lets do the math there:

Using the numbers from above, it will have cost me $57,697.20 to purchase and finance the car.

Using kbb.com 2009 GS350 AWD with all the options, 82,500 miles (16,500 per year for 5 years) I get "Very Good" trade value as $19,487. So, subtract that from the $57,697.20 and the car cost me $38,210.20 to "own" for 5 years...with an outlay of nearly $1,000 a month the whole time...and the risk of loss, and it being out of warranty, the cost of brakes and tires, and so forth.

Lets again look at our lease figures, and we won't factor in being able to trade the car with any equity at the 3 year mark. Lets assume I have to pay $50 more per month to lease a new GS after 3 years. So for the first 3 years I've paid $22,139.64. Now, my new payment on my new car leased year 3 is $50 more, so $664.99...24 months of that is $15,959. So at year 5 of this scenario my cost is $38,099.40.

SO...leasing has saved me $111 over those 5 years, AND I've not had to drive a car older than 2.4-3 years old, AND I don't have to worry about tires, brakes, being out of warranty, fluxuations in resale value (hence...its WAY lower than you thought)...and thats assuming my new lease is $50 a month more. If I can lease the same car for the same payment, then leasing saves me $1310 over those 5 years. Thats also assuming I cannot trade out with equity, like I said I have never leased a car I couldn't trade out of with at least $1,000 in equity.

If I continued buying and trading every 5 years over and over again...its going to cost me the same as leasing and trading every 3 years, with more downside risk, with 35% more out of my pocket every month and a less happy me because I have to drive an old car past when I want a new one. The only way it saves you money is if you keep them for a good while with no payment...and I'm just not going to do that.

See..."renting" aint so bad....

Same is true in MD, and if you trade out of a lease and lease another car...the sales tax benefit is the same. In states like TX where you pay a monthly lease use tax...you save the same thing on taxes even if you turn them in because you only pay taxes on the depreciation.

Also a different situation. I don't want to buy used, I want to buy new.

And thats perfectly fine, just don't come in here denigrating us by telling us we're driving "rental cars". You can see by the scenarios I've presented above...leasing can be a pretty darn good deal. "Ownership" of anything that you owe money on is just a state of mind. It makes sense to buy a house vs rent a house because it will hopefully increase in value, the interest on the loan is tax deductible, and you want that stability for yourself and your family. In a car, you don't get any of those benefits.

And it is usually roughly the same, as it is in my calculations above. Difference is risk, and cashflow.

If you TRADE IN your leased vehicle (not TURN IN) in states where you pay sales tax on the whole purchase price with a lease, then the tax advantage is the same.

In states that charge a monthly use tax, the tax advantage is the same because you never paid tax on the full purchase price to begin with.

FastTags

I apologize, I just couldn't see how the comparison was relative, since we comparing cost of ownership Lease vs. Buy over the period of 3 years.

IMO both have pos. and neg. depending on where you live. I prefer actually sell the car after about 2.5 years instead. If you buy a car like Lexus, Honda, Acura, Toyota, you do not have to worry about owning more than what it worth, if of course you did not pay an arm and the leg for it in the beginning.

Also, to SW13GS, in TX you actually do NOT get a TAX break on the Lease trade in. I called the DPS, and that is a sad truth. The TEXAS states is fk up actually. let me tell you how it actually works, 1. You lease a vehicle. 2 You pay the FULL tax on the car. 3. when you decide to buy the vehicle off or trade the vehicle you will HAVE TO PAY TAX on the residual again! ONLY IN TEXAS!

great comparison to 5 years btw, i just read it.

SW17LS

Thats an entirely different situation then, and totally unfair. You're paying taxes on the same vehicle/money twice.

I have heard something about that in Texas now that I think about it, and that they are working on rectifying that.

Schmexus

That wasn't my intention, but I'm not sure why the word "rent" should be so offensive?
You said it yourself. It's a rental contract. It's not an insult.
Rent to own. Still not insulting...


In your case since you want to drive brand new cars and only drive them for a short period of time it sounds like a great deal. For myself and the OP who like to buy used and drive for longer periods if time it's not the same. Like I said from the beginning, leasing/renting cars isn't for everybody and I think we should all be ok with that lol.

I apologize for calling it renting, but if its ok for the folks who ARE leasing to use the word than it should be ok for me, too.

FastTags

totally unfair. The reason for this is when you lease the car, the Banks actually owns the car and has its name on the TITLE, they dont just hold the TITLE.

There for, when you decide to buy it off, you have to do a transfer of ownership and pay the TAX again.

Same thing applies when you trading it in, the dealer is buying the car off the BANK and they have to pay TAX on it, so they simply make you pay for it.


In order to avoid this, you must sell the car first, send the money to the bank, get a title in your hands, make the new owner pay for the TAX, then go buy a new car )))))))))))))))))))))))))))))))))