What does the bad economy do to lease rates?
01-27-09, 10:25 AM
#16
Respectfully, if you can't afford $600 a month, please consider another car. There is no reason why a student should be stretching his budget to drive a new Lexus...
And how much driving are you going to be doing as a student? If you lease a car, you're not going to come close to 12 or 15K miles a year for 3 years, are you? And if not, then it's seriously a waste to pay the time depreciation portion of the lease.
And to directly answer your question. My thought is that it's a mixed bag. On the one hand, overall sale prices are depressed, so that drives down the cap cost, reducing the lease payments. On the other hand, I'm not sure what's going on with the residual value in the calculations. If they are being adjusted accordingly, then lease payments have to go up to compensate. Given that your max budget is $600 a month, I assume your credit is not great. I'd think your payments are going to be higher than typical relative to the general market.
And how much driving are you going to be doing as a student? If you lease a car, you're not going to come close to 12 or 15K miles a year for 3 years, are you? And if not, then it's seriously a waste to pay the time depreciation portion of the lease.
And to directly answer your question. My thought is that it's a mixed bag. On the one hand, overall sale prices are depressed, so that drives down the cap cost, reducing the lease payments. On the other hand, I'm not sure what's going on with the residual value in the calculations. If they are being adjusted accordingly, then lease payments have to go up to compensate. Given that your max budget is $600 a month, I assume your credit is not great. I'd think your payments are going to be higher than typical relative to the general market.
01-27-09, 12:56 PM
#19
Lexus Champion
I will respectfully have to disagree with the previous post that lease rates will increase during bad economic times. I have a finance degree with an economic minor and everything I read in that previous post goes against basic fundamentals of finance and economics. If a person fits the loan guidelines of a bank, then it would not make sense to be picky about who they lend money to. As a matter of fact, during economic hardship, banks are more willing to lend money to whoever can qualify based on their credit history, employment, and net wealth. In addition, banks are more likely to lower their lending rates in order to get people to finance a loan. Recessions, like what we are currently in, cause people to spend less because they are saving for the difficult times that may lie ahead or they simply aren't making the money they once were. During these rough times, most people aren't thinking about buying a car, so the banks and dealers have to provide incentives to draw people in to the dealership. The basic fundamental of economics is supply and demand. When there is little demand for a product, and excess supply, all other factors remaining constant, the price will go down. To sum it all up, I have a hard time believing that lease rates would go up during these rough times because it would simply keep people away from dealerships when they are trying like everyone else to earn a buck because they are also feeling the effects of the bad economy!
While I agree that the current economy won't necessarily cause lease rates to go up (they gotta sell cars), I think your analysis is flawed. What has happened historically during recessions doesn't necessarily translate to the current recession, which is driven, in part, by lack of available credit. Banks are tightening their lending standards, plain and simple.
01-27-09, 03:43 PM
#20
Lexus Test Driver
I will respectfully have to disagree with the previous post that lease rates will increase during bad economic times. I have a finance degree with an economic minor and everything I read in that previous post goes against basic fundamentals of finance and economics. If a person fits the loan guidelines of a bank, then it would not make sense to be picky about who they lend money to. As a matter of fact, during economic hardship, banks are more willing to lend money to whoever can qualify based on their credit history, employment, and net wealth. In addition, banks are more likely to lower their lending rates in order to get people to finance a loan. Recessions, like what we are currently in, cause people to spend less because they are saving for the difficult times that may lie ahead or they simply aren't making the money they once were. During these rough times, most people aren't thinking about buying a car, so the banks and dealers have to provide incentives to draw people in to the dealership. The basic fundamental of economics is supply and demand. When there is little demand for a product, and excess supply, all other factors remaining constant, the price will go down. To sum it all up, I have a hard time believing that lease rates would go up during these rough times because it would simply keep people away from dealerships when they are trying like everyone else to earn a buck because they are also feeling the effects of the bad economy!
Last edited by 15951; 01-27-09 at 03:54 PM.
01-27-09, 03:49 PM
#21
Lexus Test Driver
I have to completely disagree with your assessment. I first leased an 07 IS 250 navi, 15,000 miles per month, HID, etc in August 2006. Turned the car in early in December 08and leased a 2009 IS 250 with navi and saved $168 per month on my lease payment. And this is with having to roll 7 payments on my old lease into my new one. Down payment of $1500 which is what I put down last time. Same 15000 miles...plus I received 24 months or 24000 miles of free maintenance. The residual value of my new car was $3300 less than my 07 model. Leasing is dependent on the money factor and residual value. While I agree leasing is not the best idea cause you will never own the car, I just dont like sinking money into an asset that depreciates 50% +as soon as I drive it off the lot.
The residual value being less than your 07 is bad news, not good news.
Last edited by 15951; 01-27-09 at 03:52 PM.
01-27-09, 07:13 PM
#22
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01-27-09, 08:07 PM
#23
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Thankfully, I'm doing well, but others I am close to are not. Let's hope 2009 pulls us out of this!
01-28-09, 06:04 AM
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No worries. As I'm sure you know, the economy is cyclical. Extreme highs are followed by extreme lows. We'll be just fine!
01-28-09, 03:47 PM
#26
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okay finance majors... here's the thing... the current status is against the fundamental principles of economics and finance okay!! please.... it all really depend on your credit history and more factors which makes things more complicated... which can result for things to go either way
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