rxdriver

Yes, there's interest in a lease payment. In a way, you're borrowing the money from a financial institution to pay for an expense today, and you're making smaller payments drawn out over time. You're tying up some money over an extended period of time, and that money has value.
Essentially, all a lease is a loan on the difference between what the car costs today and what the car is expected to be worth at the end of the loan. You're only making payments on the amount of money that's lost to depreciation. So yes, a lease is more like renting than buying.
People don't save any money on the purchase price of the car itself by leasing - the benefit is a lower monthly payment. But you're also correct in that you sort of become married to monthly car payments forever. At the end of the lease you own nothing, so you have nothing to put down on the next car. So you either take a gigantic monthly payment or another lease.
What many people don't realize is that when they lease, they can still negotiate the initial cost of the new car (the "capitalized cost" in lease lingo), the expected future value (or "residual value"), and the interest rate (the "money factor"), just as you would if you were buying it outright. People get too focused on the payment, and then don't pay attention to these variables. You should negotiate the selling price of the car irrespective of the lease/buy decision, and then when you say you'll lease it, start negotiating the residual value.
I can see the advantages of leasing - lower monthly payments and a new car every 3 years. But personally, I wouldn't ever take a lease. I'd be uncomfortable with the idea of renting and then owning nothing at the end, and also with the fact that it's not as easy to get out of a lease as it is to get out of a car you own. Heaven forbid, something terrible happens and you can't afford the payments anymore. You can immediately try to sell or trade a car you own, but with a lease you have to deal with either buying your way out of the lease agreement or finding someone else who will take over the lease for you.

jfarber

I understand that money has value over time, but when I buy a car, even if I have the money, I'm not paying $43,000 out of pocket. Are you? I put around $13,000 cash and another $5500 in trade down on my 2005 RX330. My payment is $425 a month and I owe it in 5 years. I have a 7 year warranty and put less than 7500 miles a year on it, so I'll keep it for 7 or so years and have something to trade in. I just think people are fooling themselves when they think a lease will save money. Also, I got a deal on the car, 1% over dealer invoice for a 2005 RX330 in 12/04, because my wife's company has an agreement with some local dealers. I paid around $37,000 for my truck w/o nav. I know everyone can't get that deal, but $44,000 seems really high.

barry_s

I have never leased a new car before. I have always either paid cash or financed it. The reason that I am planning to lease an RX350 is that effectively they are offering to lend me the money at 4.75% for three years. I can (and do) get a higher interest rate than that on CD's. I also don't have $40k in cash tied up. At the end of 3 years, I fully expect to exercise the option to purchase (at the fixed price) but I also have the flexibility to walk away and get something different. That is why I believe that THIS leasing deal makes sense for my situation.

xfirechief

Our lease is up in aprox. 4 months. RX 330 needs new tires & has small crack in windshield. I can buy it for 23K. Tires & new windshield about 1.5K I would think.

Could sell it then & get 28-30K but thats a pain in the $ss. What to do?
We do like the new ES 350 but like the RX 350 too. Will have to decide soon.

HELP

mwike

I'm seriously considering this lease deal as opposed to purchasing solely for the reason of paying less. My dealer won't come off MSRP very much. Is there any logic to buying, with financing, when the purchase price is in excess of the present value of the future lease payments? In my situation (with no leverage for purchase deals), I'm paying about 40k for a lease or 43k for a purchase. Don't take this as being a smarty, I'm truely interested as it could impact my decision.

thanks

mdevine

Any help here would be appreciated. I am not good with math. Getting wife RX350 to replace Honda Pilot. I usually buy cars, but Lexus seems to be pusing leases very hard. Which deal you like better. This is purely a financial decision of wich os a better deal. I can buy the car if that is the better deal.

Car is RX350 Prem Plus package.

I can buy the car for 39,500.

or

I can lease the car for: (these are all final/bottom line amounts)
399 per month x 36 months.
12K miles per year
5675 down up front (includes first payment).
$25,200 residual to buy car after 36 months.

Any thoughts on which deal is better?

Thx

rxdriver

I'd decide if you really want to own that car. You're right, trying to flip it will be a pain in the $ss.

You probably want to lease a new one instead, and that's probably the best way to go.

Learn from this experience, though! On the next lease, negotiate the residual value (purchase price at end of lease). If you really think that you could get $28K-$30K retail for your 330, but your residual value is $23K, then you lost $5K - $7K over the term of the lease. They got you - maybe not on the capitalized cost, but on the residual value.

That's one reason a lease is tricky to negotiate. Residual value is a variable you don't have to worry about when you buy it outright, but it's huge on a lease as it determines your monthly payment. And lower isn't better! They make it sound like lower is better by calling it the "purchase price at end of lease". But actually the higher it is, the lower your payment will be. And if the car winds up being worth less in 36 months, that's their problem, not yours. You don't have to purchase it at the end of the lease!

rxdriver

I've never analyzed lease-vs.-buy taking net present value into consideration. I'm not an accountant, and while I get the concept of NPV, I couldn't tell you how to actually figure it.

Your # 1 problem is that the dealer isn't coming down from MSRP. You might want to stop right there and find another dealer. Talking to them about a lease will only muddy the waters more and hide what they're really charging you for the car.

The most in-depth math I've done is to figure out exactly how much cash I'd lay out over the term of the lease (including all of the up-front costs), and comparing that to how much I'd lay out for the new car over the same amount of time with a car loan or with lost interest income on the cash down. Although you'll probably shell out more cash in the buy scenario, you do end up with an asset after 36 months with some value, so you've got to figure that into the picture as well. I do that by pretending to sell it after 36 months and deducting that from my cash outlay.

rxdriver

After doing the math, it sounds like the dealer is giving you the same negotiated price of 39,500 in the lease deal.
If you put the same $5675 down on a loan, your payment on a 5-year loan will be a little over $700 a month. You will have paid around $11,000 more in loan payments than lease payments after 36 months. After 36 months, you'll still owe about $14,500 on the loan, but if the residual value is correct, you'll own a car worth $25,000. In that case, the extra $11,000 you've paid is almost a wash, because that's the equity in the car.
NOTE: These numbers are based on some reasonable guesses for MSRP, tax, and interest rates on a 5-year loan. As they say, your mileage will vary. You might want to seriously consider the loan scenario and go through the same calculations wtih real numbers for the loan they would offer you.

topgun04

Leasing and buying is just two different forms of financing the car. Depending on what you are after one is better than the other. It is not true that one is always better than the other. I leased a 91 LS4, 94LS4, 98 GS4, 01 RX, 02 SC and 02 LS4. Currently I leased a 04 Accord Coupe and CLK 55 convertable and own a 04 Accord Sedan.

There are several advantage that leasing is better than owning that people just tend to ignore.

1) if you used the car for business purpose for more than 50%. Leassing is almost alway better becuase of tax advantage.
2) If you get into a new model car (e.g. the new GS450H) and not sure how the car will depreciate in the future. Lease the car is a good idea. The car manufacturer set the residual and if the car worth more than they set up by the time your lease is up, you can always purchase it. If the car is worth much less, you can walk away from the car. Essentially the manufacturer take the risk for you.
3) Gap insurance. Some manufacturer provide it other don't. Lexus give you the gap insurance. If your car is totaled and the insurance company hand you a check for settlement. If the check is bigger than what you owed Lexus, they give you back the difference. If the check is less, Lexus will just call it a day and you walk free. When someone purchase a car, the owner will picked up the difference.
4) Some manufactor may have a better interest rate for lease (money factor in lease term) than purchase becuase they want to promote leasing for a particular model. In Lexus case, they allow a leasee to put up 1 to 9 deposit (return after the lease) and each deposit reduce the money factor by 0.0001 (roughly 0.24%). So 9 deposit reduce your money factor by 0.009 or 2.1%. I did it for both the 04 LS and 04 SC and it saved us about 110 or a month on the lease payment.

When negotiate a lease, it is almost the same as negotiate a purchase except we need to know a little bit more. In both case, we need to know the purchase price (cap cost in lease term), the interest rate (or money factor in lease term). But in lease, we need to know the residual to figure out the payment. The good news is that residual is not negotiatable. The bad news is that different financial organization can put different residual on the same vechicle. Stick with Lexus financial is the best solution. Their residual tend to be spot on over the time that I owned those vechicle. Out of the 6 that we leased from Lexus, the only one that we finish the term is the 94LS. All the rest we trade it in before the lease is up and we tend to be able to get very closed to the amount we owed. So if we sell those car on our own, I am pretty sure that we can even make some money.

Here is the equation to figure out your payment:

Payment = depreciation + rent + tax

depreciation = (cap cost - residual)/number of month
rent = (cap cost + residual) * money factor
Money factor - Lexus has a money factor for the dealer for each model. However, dealer sometime mark up the money factor. And this is one that we have to shop for.
Tax is different in different state. Some required a leasee to pay it all up front for the whole car (Texas, NY). Other like California will just make you pay the tax on the monthly payment (so in my case, the tax is (deprication+rent)*0.0825).

In my case of the 2 04 Accord, I leased one for my kid in California. After they have the car, I was very impressed with it and bought one in AZ. In AZ, when someone trade in a car, the sales tax is offset by the trade in value. In my case I have a car that I traded in worth only a few thousand less than the Accord. The saving on tax over a period of 3 years is worth buying rathen than leasing. And my finance cost at that point is about 1+% (that is what the bank pay me at that time vs Honda money factor is about 2.4%)