Register a SA Forums Account here!
JOINING THE SA FORUMS WILL REMOVE THIS BIG AD, THE ANNOYING UNDERLINED ADS, AND STUPID INTERSTITIAL ADS!!!

You can: log in, read the tech support FAQ, or request your lost password. This dumb message (and those ads) will appear on every screen until you register! Get rid of this crap by registering your own SA Forums Account and joining roughly 150,000 Goons, for the one-time price of $9.95! We charge money because it costs us money per month for bills, and since we don't believe in showing ads to our users, we try to make the money back through forum registrations.
 
  • Post
  • Reply
Don Lapre
Mar 28, 2001

If you're having problems you're either holding the phone wrong or you have tiny girl hands.

Showpan posted:

I'm in a situation where I am not 100% sure what to do. I have a growing family, 2 kids and a wife, and need to upgrade to a vehicle with more space, maybe a mid size SUV, probably used.

What I currently own:
2005 Ford Mustang, V6, 33k miles, good condition inside and out.
Still owe 5k on it.

My financial situation:
I only have the car payment on the mustang and 1 credit card. My credit score isn't super, it's at 630 right now but my debt to wealth ratio is pretty good.

My real dilemma here is that I have the money to pay the mustang off right now, would it be better to pay it off and turn around right away and use it as a trade in, or should I just go trade it in without paying it off? Would paying off the Mustang first be better for my credit?

Trading it in is the same as paying it off. The dealer is just writing the check instead of you? If you owe more than the dealer will give you they will tack the extra onto your loan.. You are better off selling it privately and using the funds to buy a replacement vehicle.

Adbot
ADBOT LOVES YOU

IOwnCalculus
Apr 2, 2003





Yeah, if you can pay it off then you can sell it private-party, which will in 99.9% of situations, net you considerably more than a trade. Technically you can still sell a car with a lien private-party as well, but it's a pain in the rear end and would limit your buying pool somewhat.

oRenj9
Aug 3, 2004

Who loves oRenj soda?!?
College Slice

IOwnCalculus posted:

Yeah, if you can pay it off then you can sell it private-party, which will in 99.9% of situations, net you considerably more than a trade. Technically you can still sell a car with a lien private-party as well, but it's a pain in the rear end and would limit your buying pool somewhat.

I disagree, it is easy as hell to sell a car with a lien. If the person buying the car is financing, then the banks really handle all of the paperwork, you just have to sign your name. You don't even need to go to the BMV. If the person is paying cash, it is a bit more involved. But not by much, just an extra trip to the bank the next day to get the title release notice.

Leperflesh
May 17, 2007

Also SUVs didn't even really exist 25+ years ago and yet everyone with growing families somehow survived. Buy a station wagon! Or even better yet, a minivan. Just do it, they're better in every way than an SUV: better mileage, better price, better interior room, more cup holders, etc. Just as safe, too.

Get a Honda Odyssey or a Toyota Sienna.

This was your anti-SUV mini-rant for today.

Nocheez
Sep 5, 2000

Can you spare a little cheddar?
Nap Ghost

Leperflesh posted:

Also SUVs didn't even really exist 25+ years ago and yet everyone with growing families somehow survived. Buy a station wagon! Or even better yet, a minivan. Just do it, they're better in every way than an SUV: better mileage, better price, better interior room, more cup holders, etc. Just as safe, too.

Get a Honda Odyssey or a Toyota Sienna.

This was your anti-SUV mini-rant for today.

Thanks for doing it, because I wanted to write it out but got busy.
Once you get over your "image" you will realize that minivans are some of the best vehicles you can have, especially with a family.

Leperflesh
May 17, 2007

In the mid-1980s, my family and I (four kids, two adults) spent three weeks driving halfway across the country and back, camping at KOA camp sites, in basically a completely tan (no brown part) version of this:


We had plenty of room for four kids (including one infant), all of our toys and games and poo poo, a huge family-sized tent, sleeping bags, cameras, diapers, a coleman stove, etc. etc. and not feel too horribly cramped.

God, it didn't even have AC, we drove right through the southwestern deserts in that thing. In July.

CornHolio
May 20, 2001

Toilet Rascal
It's kind of depressing that future generations are never going to know the joys of driving across the country uncomfortably. I came to love road trips because of poo poo like that.

MrKatharsis
Nov 29, 2003

feel the bern
If I could go back in time and trade my parents' crappy station wagon for a modern Dodge Caravan with dual DVD players, I would do it in a second. Childhood road trips in lovely cars were anything but glorious.

CornHolio
May 20, 2001

Toilet Rascal
Where's the adventure? You might as well be on your couch watching TV.

Leperflesh
May 17, 2007

Despite the hot weather and being cooped up with my family for three weeks, it was fantastic. I have fond memories of that trip (and another we took later). I had a little 110 kodak camera and I took a bunch of photos I still have somewhere of places like zion and bryce and the grand canyons.

Aside from the lack of A/C it was perfectly comfortable... big bench seats are fine for kids, really.

Don Lapre
Mar 28, 2001

If you're having problems you're either holding the phone wrong or you have tiny girl hands.

Leperflesh posted:

Despite the hot weather and being cooped up with my family for three weeks, it was fantastic. I have fond memories of that trip (and another we took later). I had a little 110 kodak camera and I took a bunch of photos I still have somewhere of places like zion and bryce and the grand canyons.

Aside from the lack of A/C it was perfectly comfortable... big bench seats are fine for kids, really.

You probably remember it fondly but i bet your parents remember you complaining the whole time.

Zuph
Jul 24, 2003
Zupht0r 6000 Turbo Type-R
I posted to the general questions thread, I guess I'll bring it here for more specific wisdom:

I'm 25, have a stable job at a massive megacorp, no debt, 6 months emergency fund, great credit, and $7000 in the bank earmarked for "New Car". I'm still driving the car I got when I started driving, and it's on its last legs. Any repair would cost more than the value of the car, and parts are getting harder to find.

I've been looking at small hatchbacks, which have been holding their value extremely well, making buying used less appealing. It's not the most frugal possible option, but I'm really considering buying new. I have been looking closely at the Hyundai Accent, Mazda2, Ford Fiesta, Nissan Versa and (less likely) Honda Fit.

Am I overlooking something glaringly obvious? Any thoughts/tips for buying in this segment of the market?

CornHolio
May 20, 2001

Toilet Rascal
Why is the Honda Fit less likely? It's my understanding that it's the car to beat in that field, and it will likely hold its value better than the others.

The cars are all similar enough that your choice will likely be influenced by the aesthetics and driving dynamics of the cars. Just wondering what was influencing your decision thus far.

Throatwarbler
Nov 17, 2008

by vyelkin

Zuph posted:

I posted to the general questions thread, I guess I'll bring it here for more specific wisdom:

I'm 25, have a stable job at a massive megacorp, no debt, 6 months emergency fund, great credit, and $7000 in the bank earmarked for "New Car". I'm still driving the car I got when I started driving, and it's on its last legs. Any repair would cost more than the value of the car, and parts are getting harder to find.

I've been looking at small hatchbacks, which have been holding their value extremely well, making buying used less appealing. It's not the most frugal possible option, but I'm really considering buying new. I have been looking closely at the Hyundai Accent, Mazda2, Ford Fiesta, Nissan Versa and (less likely) Honda Fit.

Am I overlooking something glaringly obvious? Any thoughts/tips for buying in this segment of the market?

Go here and find an aggregated listing of cars by their crash test results in both the IIHS and NHTSA tests. The Nissan Versa is by far the most unsafe car sold in America, the Honda Fit and the Hyundai Accent are sort of OK but not great, the Ford Fiesta is pretty good and the Chevy Sonic is very, very good, The Mazda2 hasn't been tested extensively yet but will probably be similar to the Fiesta as they have similar underpinnings, same with the Kia Rio(with the Hyundai Accent). The Toyota Yaris is also too new to have been tested extensively but generally has a good record and Toyotas other 2012s have been very good so one could expect it to be at least pretty good.

Cars in this category aren't all that luxurious or fast and most shoppers aren't really looking for that sort of thing, but I think almost everyone, even if they don't care about cars at all, would rather be in a safe car. Not to mention by most accounts the Chevy Sonic is actually the most luxurious in any case, and when equipped with the turbo engine and manual transmission also the fastest, most fuel efficient and fun, but you can go determine that yourself with a test drive.

skipdogg
Nov 29, 2004
Resident SRT-4 Expert

Zuph posted:

stuff

Nothing wrong with buying new. The Mazda and the Ford are both great little cars. The Hyundai has a very attractive warranty if that is important to you.

I'm most familiar with Ford products, my last 4 new cars have all been Fords and they've all been fantastic vehicles. I really recommend them these days.

Check out the incentives available, the Fiesta has some promo APR financing options or 500 cash back. Check out the Focus as well, they're doing a 1500 dollar rebate on them right now, and they're easier to find and can probably get one for invoice. You could get a pretty nicely options Focus for about 17K

There isn't much margin on the Fiestas. You're probably going to pay close to sticker if you go that route.

Daeus
Nov 17, 2001

Zuph posted:

I posted to the general questions thread, I guess I'll bring it here for more specific wisdom:

I'm 25, have a stable job at a massive megacorp, no debt, 6 months emergency fund, great credit, and $7000 in the bank earmarked for "New Car". I'm still driving the car I got when I started driving, and it's on its last legs. Any repair would cost more than the value of the car, and parts are getting harder to find.

I've been looking at small hatchbacks, which have been holding their value extremely well, making buying used less appealing. It's not the most frugal possible option, but I'm really considering buying new. I have been looking closely at the Hyundai Accent, Mazda2, Ford Fiesta, Nissan Versa and (less likely) Honda Fit.

Am I overlooking something glaringly obvious? Any thoughts/tips for buying in this segment of the market?

You have it exactly right. Is buying a new car the absolutely more frugal money wise choice, no. Are you responsible with money and want to splurge a little on your car, yes. You're not dropping $35k on an Infiniti with $60,000 in student loans. Assuming you have good credit, you might be able to even qualify for 0% financing.

Zuph
Jul 24, 2003
Zupht0r 6000 Turbo Type-R

CornHolio posted:

Why is the Honda Fit less likely? It's my understanding that it's the car to beat in that field, and it will likely hold its value better than the others.

The cars are all similar enough that your choice will likely be influenced by the aesthetics and driving dynamics of the cars. Just wondering what was influencing your decision thus far.

Demand is so high, or stock so low (in my area, at least) that dealers aren't really willing to negotiate much on pricing. The sticker price is $2-3k above MSRP, and the average paid (according to TrueCar) in my area is ~$1k above MSRP.

Plus, for the same price, the Honda has fewer features than the others.

I'm looking at for cars under $16500, and the Sonic is just a bit above that.

IOwnCalculus
Apr 2, 2003





You're looking at this from a very sensible perspective. Buying a new car is never the most financially prudent angle (by many accounts, finding the right cheap-rear end used car and replacing them when something major needs to be replaced is one of the cheapest ways to go) but there's an awful lot of convenience and value that come along with owning something new instead of a $2000 beater.

If the used car market wasn't so jacked up from the lack of cars coming in from ~2008-on, it would make sense to buy a lightly used version of one of these cars instead and save a good chunk right off the bat...but whenever I look at a Mazda2, for example, the used ones (sometimes with as much as 12k miles) are almost right at MSRP for new.

skipdogg
Nov 29, 2004
Resident SRT-4 Expert

IOwnCalculus posted:

You're looking at this from a very sensible perspective. Buying a new car is never the most financially prudent angle (by many accounts, finding the right cheap-rear end used car and replacing them when something major needs to be replaced is one of the cheapest ways to go) but there's an awful lot of convenience and value that come along with owning something new instead of a $2000 beater.

If the used car market wasn't so jacked up from the lack of cars coming in from ~2008-on, it would make sense to buy a lightly used version of one of these cars instead and save a good chunk right off the bat...but whenever I look at a Mazda2, for example, the used ones (sometimes with as much as 12k miles) are almost right at MSRP for new.

Here's another example of the hosed up used car market. I've been looking at new Explorers. Thought I might try to save some cash and pick up a gently used 2011 instead of buying new.

2011 XLT Explorer, 24K miles former rental car.
MSRP New: 34,495
Sale Price: 31,900

Now that's just insane. I can't buy a new car off the lot and then put 24K miles on it and sell it for 32K, why would they expect me to pay that? That was their 'best price' and they're asking 34,4 on the website for it. The funny thing is, these things are moving. 3 weeks ago they had 4 on the lot like that, they all sold in 10 days or less.

Now here's the deal if I buy new

2012 XLT Explorer, exact same features
MSRP New: 35,795
Sale Price: Invoice +500 (33,296+500= 33,796)
-1000 Ford Public Rebate
-750 Ford Private direct mail rebate (we got in the mail)

Final Sale price of car 32,046.

I'm seriously paying less than 200 bucks more to get a brand new car instead of a 1 year old rental car with 24K miles on it.

Thwomp
Apr 10, 2003

BA-DUHHH

Grimey Drawer

Zuph posted:

Demand is so high, or stock so low (in my area, at least) that dealers aren't really willing to negotiate much on pricing. The sticker price is $2-3k above MSRP, and the average paid (according to TrueCar) in my area is ~$1k above MSRP.

Plus, for the same price, the Honda has fewer features than the others.

I'm looking at for cars under $16500, and the Sonic is just a bit above that.

Just to chime in since I did my own test driving of the subcompact segment and I'd have to agree with this opinion of the Fit. It's got great versatility, visibility, and style. However, I found its got bad engine/road noise problems. It lags in fuel economy (behind Ford w/, Hyundai/Kia, and a Chevy w/manual). It also lags in warranty (Hyundai/Kia standard and powertrain and just Chevy's powertrain). And that's all before inventory issues which drive the price way higher than what you could get at one of these competitors.

I'd still take a Fit over a Mazda, Ford (size reasons, I felt real cramped in both of those and I'm 6'1"), and Nissan (overall cheap feeling and poor safety).

CornHolio
May 20, 2001

Toilet Rascal
Are you guys suggesting GM has actually made a decent small car?

I'll be damned.

El Kabong
Apr 14, 2004
-$10
The information in OP about car leasing is not helpful. This site is http://www.leaseguide.com/lease07.htm

You can find out what the interest rate is on a lease by asking for the "money factor" and multiplying it by 2400. There is more information in the site I linked.

Daeus
Nov 17, 2001

El Kabong posted:

The information in OP about car leasing is not helpful. This site is http://www.leaseguide.com/lease07.htm

You can find out what the interest rate is on a lease by asking for the "money factor" and multiplying it by 2400. There is more information in the site I linked.

The leasing information in the OP is helpful. The OP basically says don't get a lease because it's more expensive than buying. The only time leasing is better than buying is if you are constantly getting a new car every few years. If you are getting a new car every three years then already you're doing something money stupid and this being the financial advice forum, is not recommended. Cars lose the vast majority of their value in the first few years, why in the world would you want to keep on signing up to be the person bearing this cost?? Buying and holding (either new or used) is going to be the smartest financial decision.

That site you linked is laughably biased towards leasing. I especially love the comparison in buy vs. lease where someone who bought a car and paid it off in three years spent more money than someone who leased a car for three year. No poo poo, except the difference is that person who bought now owns their car outright where as the person who leased is left with a bicycle. Another point this site tries to make is the opportunity cost of 'having all your money tied up in a negative savings account' when you buy a car. This is also comical because it's somehow trying to convince people that the better financial decision is just to keep your payment as low as possible so you can invest your other money. Except if you buy a car and pay it off, you have a vehicle without a monthly payment which is a much better deal than paying lease payments until the day you die.

El Kabong
Apr 14, 2004
-$10

Daeus posted:

The leasing information in the OP is helpful.
No, it really isn't.

It's been argued here better than I can: Link

The thread: link

Daeus
Nov 17, 2001

El Kabong posted:

No, it really isn't.

It's been argued here better than I can: Link

The thread: link

First of all that exact same post was debated extensively in this very same thread about a year and a half ago. I'll try and sum it up as succinctly as possible.

A huge caveat is Throatwarbler's post is only comparing new car purchase vs. new car lease. Buying a used car is still the best deal because you avoid paying for the massive depreciation on a new car. The point in my previous post that you didn't address.

Throatwarbler's main point is that a lease has an option at the end of the term and that an option has value (I agree up to here). Because a lease has this option which has value, it is therefor always better than buying (this is where I disagree). The option has some value, but it is not extremely valuable. The situation where SUVs depreciated massively in a short period of time was extraordinary and unprecedented, don't count on it happening again.

The fact of the matter is that financing charges on leases cost more than purchasing the same vehicle according to the folks at Consumer Reports, KBB, and Edmunds. This is because the leasing company is taking on risk about depreciation and this is a cost to them. They also need to make a profit, just like an insurance company, so your premium for this option in included in your leasing costs. Consumer Reports and Edmunds agree that even serial leasing is going to have higher auto costs than someone who buys a car and then sells it every three years.

This is just the pure purchasing aspect and doesn't include all the decreased flexibility you are in a lease. Drive too many miles and you pay a huge penalty. Drive very few miles and you are paying for extra deprecation that wasn't realized. It is also extremely expensive to get out of lease if something in your life changes and you need a different car.

IOwnCalculus
Apr 2, 2003





Thwomp posted:

I'd still take a Fit over a Mazda, Ford (size reasons, I felt real cramped in both of those and I'm 6'1"), and Nissan (overall cheap feeling and poor safety).

Really? I'm 6'4" and felt quite comfortable in the Mazda2. I also love how it felt to drive, since it really felt like my old Miata (minus about 20hp and the convertible top).

CornHolio posted:

Are you guys suggesting GM has actually made a decent small car?

I'll be damned.

By most accounts it really is pretty drat good. It actually looks pretty nice in pictures, outside and in. The fact that the best fuel economy in it comes from a turbo and a six speed manual doesn't hurt either.

Thwomp
Apr 10, 2003

BA-DUHHH

Grimey Drawer

IOwnCalculus posted:

Really? I'm 6'4" and felt quite comfortable in the Mazda2. I also love how it felt to drive, since it really felt like my old Miata (minus about 20hp and the convertible top).

Well, I did fit in it but the seat was all the way back, destroying any legroom in the backseat. Also, getting in and out was not the most pleasant experience.

If it was just me, I'd probably be okay with it. But I'm personally looking for something that could carry 4 people comfortably on occasion.

quote:

By most accounts it really is pretty drat good. It actually looks pretty nice in pictures, outside and in. The fact that the best fuel economy in it comes from a turbo and a six speed manual doesn't hurt either.

It actually is really nice. When they finally bring an auto to their turbo engine and I found a really great deal on it, I'd jump on a Sonic in a heartbeat. It had great style, feel, and utility. It also had several little touches that, honestly, I felt would be more natural seeing in a Honda than a Chevy (cubbies, thoughtful little touches, etc).

It's just a bit too pricy for its current fuel economy and warranty.

El Kabong
Apr 14, 2004
-$10

Daeus posted:

First of all that exact same post was debated extensively in this very same thread about a year and a half ago. I'll try and sum it up as succinctly as possible.

A huge caveat is Throatwarbler's post is only comparing new car purchase vs. new car lease. Buying a used car is still the best deal because you avoid paying for the massive depreciation on a new car. The point in my previous post that you didn't address.

Throatwarbler's main point is that a lease has an option at the end of the term and that an option has value (I agree up to here). Because a lease has this option which has value, it is therefor always better than buying (this is where I disagree). The option has some value, but it is not extremely valuable. The situation where SUVs depreciated massively in a short period of time was extraordinary and unprecedented, don't count on it happening again.

The fact of the matter is that financing charges on leases cost more than purchasing the same vehicle according to the folks at Consumer Reports, KBB, and Edmunds. This is because the leasing company is taking on risk about depreciation and this is a cost to them. They also need to make a profit, just like an insurance company, so your premium for this option in included in your leasing costs. Consumer Reports and Edmunds agree that even serial leasing is going to have higher auto costs than someone who buys a car and then sells it every three years.

This is just the pure purchasing aspect and doesn't include all the decreased flexibility you are in a lease. Drive too many miles and you pay a huge penalty. Drive very few miles and you are paying for extra deprecation that wasn't realized. It is also extremely expensive to get out of lease if something in your life changes and you need a different car.

As I understand it the finance charges are based on the deprecated value of the car and not the residual value which makes the payments per month cheaper compared to an auto loan which will usually be much closer to the full cost. I don't think an article that says finance charges are higher for leasing, but then doesn't share the method shown is of much use. As biased as you think this site is it still has better info than that article: http://wwwe.leaseguide.com/lease03.htm
Also, I live in a state without sales tax, so I wouldn't have that on each payment, making it a little more appealing.

I don't drive more than 12-15000 miles a year, but that could be a consideration for some.

Just as SUVs lost massive value so can fuel inefficient cars. A lease is insurance against that possibility.

I still think the leasing info in the OP is insufficient. Whether you buy a new or used car is irrelevant, which is why I didn't address that point.

El Kabong fucked around with this message at 18:06 on Feb 3, 2012

Daeus
Nov 17, 2001

El Kabong posted:

As I understand it the finance charges are based on the deprecated value of the car and not the residual value which makes the payments per month cheaper compared to an auto loan which will usually be much closer to the full cost. I don't think an article that says finance charges are higher for leasing, but then doesn't share the method shown is of much use. As biased as you think this site is it still has better info than that article: http://wwwe.leaseguide.com/lease03.htm
Also, I live in a state without sales tax, so I wouldn't have that on each payment, making it a little more appealing.

I don't drive more than 12-15000 miles a year, but that could be a consideration for some.

Just as SUVs lost massive value so can fuel inefficient cars. A lease is insurance against that possibility.

I still think the leasing info in the OP is insufficient. Whether you buy a new or used car is irrelevant, which is why I didn't address that point.


The leaseguide site is making the comparison based solely on monthly payments which is a poor way to evaluate any sort of financial transaction. What their calculator doesn't show you that at the end of 36 months with the loan you have paid off your car and own it in full. At the end of the lease you have nothing, this is why the payments are lower.

To illustrate my point, I did a discounted cash flow analysis to calculate the net present value of the cost to have a car. Please understand I am not trying to flaunt these financial concepts, but want you to read and understand where I am coming from on this. You'll notice the net present values in all of these scenarios are negative because obtaining a car either way costs money. Our goal is for it to cost the least amount of money possible.

I am going to use their own numbers on the site you linked in their buy vs. lease comparison. $23,000 price, $1,000 downpayment, and $11,000 in residual value at the end of 36 months. When discounting cash flows you must establish a discount rate which is what your money could otherwise be earning. I used 1.5%, a reasonable assumption of what you could get in a 3 year certificate of deposit.

Three Year Scenario
For the three year time horizon I did the three scenarios they listed. Buy at 6%, buy at 0% and lease at 6%, all with a three year term. For all three scenarios the first month you pay $1000 (downpayment) plus the recurring monthly payment. You then pay the recurring monthly payment for the next 35 months. Then at the end of 36 months, the people who bought are left with a positive $11,000 cash flow from the value of their car at the end. The lease has a 0% cash flow (and this is assuming there is no fee at the end which is actually common).
code:
Buy (6% Loan) - NPV = -$13,388
Buy (0% Loan) - NPV = -$11,397
Lease (6%)    - NPV = -$14,279
As you can see leasing is the most expensive option, 6.7% more expensive than buying, even with a 6% loan which is unreasonable for anyone with decent credit buying a new car. If you have good credit and qualify for a 0% loan leasing is 23.2% more expensive!

Six Year Scenario
Also to illustrate how leasing is even worse over time. I calculated what it would cost to have a car for six years. I compared five scenarios here. Buy with a three year loan, and after the loan is paid off hold onto to the car. Buy with a three year loan and after three years, sell the car and buy another with a new three year loan. Lastly, lease a car for three years and then lease a car for another three years. For both of the buy scenarios I again did it with 6% and 0% loan rates. Again I also used the numbers provided on the leaseguide site. The only new number I had to determine was the value of the car after six years. I used $6,000 which is approximately a 74% deprecation over six years (based off several online calculators) this seems about right.
code:
Buy and Hold Six Years (6% Loan) - NPV = -$18,428
Buy Sell and Rebuy     (6% Loan) - NPV = -$26,497
Buy and Hold Six Years (0% Loan) - NPV = -$16,437
Buy Sell and Rebuy     (0% Loan) - NPV = -$22,494
Lease back to back     (6% Rate) - NPV = -$27,703
As you can see once again, leasing is the most expensive option. And that is even with a 6% loan on a new car which for anyone with good credit is on the high side. If you can get a 4% or 5% loan it only decreases the cost of buying making leasing more expensive by comparison. If you can qualify for 0% financing on a new car, taking out two three years leases back to back is 23.2% more expensive than buying selling after three years, and buying again. Obviously buying and holding is the best financial value.

Link to download excel doc with detailed calculations for each of these numbers: http://www.scribd.com/doc/80405598/Buy-Lease-Comparison

Daeus fucked around with this message at 21:52 on Feb 3, 2012

skipdogg
Nov 29, 2004
Resident SRT-4 Expert

Those are super interesting numbers.

I would be curious as to how they change when you start talking about more expensive cars, say a 60,000 dollar E-Class Benz. For a specific example could you compare this transaction for us?

36 Month 36K mile lease on a 60,000 dollar MB E-550 coupe. Assume 4K due at signing which covers destination of 800 and first months lease payment and apply the rest to taxes and other fees.

MBUSA's current lease rates on that car are 3.88% APR (.00162 Money Factor) and 57% residual (34.2K)

Assume for a purchase your rate is 3% for 72 Months which is what my local CU offers.

edit:

One thing about a lease is the option to get out of it... an option has value of course but it's hard to value at the beginning. Anyone who leased a large SUV or luxury car in the 2006 to 2007 years made out like a bandit because the cars weren't worth anywhere close to the estimated residual value at the beginning of the lease when the lease came to term.

Say I lease that Ford Explorer I was talking about earlier with an MSRP of 36.5K. Residual on it might be in the 21K range, but say in 3 years ford changes the body style and prices drop and they're selling for 18K. I just turn the car back in. But say the sales stay strong and it's worth 24K instead, I have the option to buy the car at 21. I'm not a finance whiz so I don't know the terminology, but that option has some value I would think.

skipdogg fucked around with this message at 21:54 on Feb 3, 2012

El Kabong
Apr 14, 2004
-$10

Daeus posted:

At the end of the lease you have nothing, this is why the payments are lower.

Both buying and leasing requires that you pay the deprecated value of the car. Both options seem to leave you with nothing for that cost.

The difference is the person who leased paid less per month and had the option to invest that difference toward the the future purchase of that car or any asset that will increase over time unlike a car, while the person who bought just lost that money.

At the end of the lease you can either return the car, negotiate to buy it for what it is actually worth on the market, or return the car and buy a similar one used.
Not so easy for a new car buyer. If, for whatever reason, there is a huge depreciation in the car's value, he eats the loss and is stuck with the car.

I'm essentially just restating throatwarbler's argument, which isn't productive.

Leasing is a valid option for some people. It's not simply a no-man's land. The info in the OP makes a bunch of assumptions that don't match up with the reality, but I doubt it will be updated since it hasn't since 2009.

Throatwarbler
Nov 17, 2008

by vyelkin

skipdogg posted:

Those are super interesting numbers.

I would be curious as to how they change when you start talking about more expensive cars, say a 60,000 dollar E-Class Benz. For a specific example could you compare this transaction for us?

36 Month 36K mile lease on a 60,000 dollar MB E-550 coupe. Assume 4K due at signing which covers destination of 800 and first months lease payment and apply the rest to taxes and other fees.

MBUSA's current lease rates on that car are 3.88% APR (.00162 Money Factor) and 57% residual (34.2K)

Assume for a purchase your rate is 3% for 72 Months which is what my local CU offers.


I'm pretty terrible with numbers and can barely count to 10 without a computer, so it's easier for me to explain with inductive reasoning than calculations.

What he's got there is a really round about way of saying that if your opportunity cost is 1% and a loan costs you 6% then you shouldn't take the loan. Both a car loan and a lease are forms of leverage, a lease is more leveraged than a loan(usually, see bolded paragraph 2) because with a loan, you pay the whole principle in 3 years while a lease you only pay off the depreciation of the car. So if your money costs 1% and the loan is 6% then the more money you borrow the more you pay. Of course the opposite is also true, if your opportunity cost is higher than the rate on the loan then the more leverage you take on the better off you are. You need to evaluate what your actual opportunity cost is, it's usually not the rate on bank deposits. For example do you have any other debt like a mortgage? If you do and you can pre-pay it then your opportunity cost is at least the rate on your mortgage, or student loan, or credit card, which is probably higher than 1%.

To throw a further wrench into the equation, Most car companies, especially the luxury marques, have an additional option where you can place additional cash down in the form of one or more deposits that is returned at the end of the lease. So if your opportunity cost is actually lower than the rate on the loan, you can basically "put money into the loan" and make at least the cost of the loan. Sort of as if you were lending money to Mercedes Benz instead of the other way around. With this you can tailor your leverage ratio to pretty much exactly what you need.

(ed: Bolded this section because I've never talked about it in past posts.)

As your opportunity cost and the rate on the loan converge, the delta between the lease and the loan approaches 0. The difference, if there is one, is the "premium" you are paying for your option to dispose of the car for a set price in the future. So you would have to consider that there is a variance on the future resale you might receive on the car and that your option is a hedge against this variance. In your example, your lease says your Mercedes is worth exactly $34,200 at the end of the lease, but obviously that's only an estimate and every single example doesn't sell for exactly that figure, and what your particular car might sell for on the used market could be higher or lower. It's not implausible to me that your car may, for example, only fetch 95% of their estimated value, in which case if you owned the car outright and were selling, you would be down $1700 from where you were expecting. If you had leased the car, you would be protected from this downside , but still gain from variance in the opposite direction, since if you can sell it for 105% of the residual, you can still do so.

Maybe you can start building some kind of Black-Scholes option pricing model to determine exactly what the option would be worth, but that's probably trying to wring more useful information out of the numbers than actually exists. Suffice to know that it exists and has a value greater than 0.

Other than that there's no real way to evaluate your example further, since there are so many more variables that you can only really uncover by going to the dealership and figuring out what your actual transaction prices for the car are. Car makers will often have additional incentives and whatnot on top of both lease and purchase financing deals, and all through this you are assuming that the residual given by the leasing company are even accurate and not being inflated by the car manufacturer to boost sales.

Throatwarbler fucked around with this message at 22:40 on Feb 3, 2012

Daeus
Nov 17, 2001

skipdogg - I'll see if I can get around to making a general calculator rather than one just based on the figures on the leaseguide site.

El Kabong - The whole point of doing discounted cash flows is it takes into account that lease payments are less than loan payments and frees up your money. What the calculations reveal is that the extra money you save with lower lease payments is less than the value you have at the end of the purchase scenario where you still own your car.

Are their people who leasing makes sense for? Sure. Someone who doesn't want to deal with buying and selling cards every few years and understands that they are paying a more to do this.

Since Throatwarbler joined in, I'll address his points.

He is correct that a part of the calculation is what your opportunity cost is. I chose 1.5% because that is a reasonable risk free rate with savings now. You are right that if you truly take take the extra dollars you save from the lower monthly payments and put those in your mortgage increasing the opportunity cost it will slightly improve the prospect of leasing by comparison. However note that for this scenario to be valid you must be diligent about putting every extra dollar saved each month from the lease into your mortgage immediately, this requires a high level of discipline and is probably somewhat unrealistic. Also even at 5% in my examples leasing still is the most expensive option, just not by as much.

I definitely agree the option is worth something, and I wish I had the data to see how residual value compares to market value at the end of the term and what sort of variances there are to calculate a Black-Scholes price. I think it is a fair assumption that the companies financing this have done this calculation very carefully and aside from the one time where SUV's plummeted due to gas spikes, are pretty good at ensuring a profit for themselves (just like an insurance company). While this option does provide some additional value you also need to look at the negatives and price them in as well (too few/too many miles, early termination fees, end-of-lease fees etc.)

It also seems that if you have great credit and can qualify for better rates on purchases as opposed leases. Getting a 0% rate on a new car loan is better than a lease by a decent amount. Only if you can't get a great rate does the lease and purchase start to become more of wash.


Maybe we can agree on the following points?

In general...
1) From a purely financial point of view, buying a used car is the best deal because you avoid paying the initial massive depreciation.

2) If you want a new car and have good enough credit qualify for a 0% loan, it is cheaper than leasing in almost all scenarios. This is based on looking at NPV for a variety of promotions across multiple different websites.

3) If your best loan rate you can get is close to that of a lease, it is more of wash as to which is better in the end and will come down to small things such as fees, current incentives, and sheer luck about how the car depreciates.

Throatwarbler
Nov 17, 2008

by vyelkin
The problem with this and also the OP is that you are mixing subjective value judgements with purely financial considerations and it doesn't help anyone.

"From a purely financial point of view, buying a used car is the best deal because you avoid paying the initial massive depreciation." is a meaningless statement because no one actually thinks used cars and new cars are equivilant in value, otherwise they wouldn't be different in price. Leasing 2 cars for 3 years each is not the same thing as buying one car and keeping it for 6 years, prime rib is different from hamburger, telling people to stop eating prime rib and stick to hamburger or to not buy the Mercedes and stick with a used Cavalier isn't financial advice. The statement about "high level of discipline" is also useless and paternalistic and akin to the old pre-housing bubble admonishment that housing is a forced savings scheme. Maybe I'd rather have 2 Mercedes than extra money and maybe I'd rather have my next meth hit than a house, who are you to judge? I said nothing about it the first time you posted because I was sick of the argument.

The various options for security deposits within a lease will allow you to adjust your leverage ratio depending on what your opportunity cost is. I don't think they technically allow you to, say, pay for the whole car up front and just have the option to return the car at the end of a specified period, but there is enough flexibility that if you *did* want to pay more up front you can still lease.

EDIT: I've posted this before, but relatively speaking, this is the worst time in history to be a used car shopper. You know how it was common knowledge that house prices only went up and housing was always a great investment until it wasn't? Yeah, if everyone is doing something because it's common knowledge it's probably time to start heading the other way.

Throatwarbler fucked around with this message at 23:57 on Feb 3, 2012

Throatwarbler
Nov 17, 2008

by vyelkin

Daeus posted:

I think it is a fair assumption that the companies financing this have done this calculation very carefully and aside from the one time where SUV's plummeted due to gas spikes, are pretty good at ensuring a profit for themselves (just like an insurance company).

This is another thing that I've already addressed previously. Why would you assume any such thing? Leasing companies are usually branches of car makers and car makers have all kinds of ways to make money, such as "sell you a car for more than it cost them to make" or "let's get rid of these unpopular cars because keeping them around waiting for the right buyer is going to loving cost us more in inventory costs Jesus Christ!". Sometimes they don't even get it right and end up losing money! You are making a very much unfounded assumption about the hugely complicated cost structure of car companies and you don't need to. Just concentrate on how much you are paying.

Daeus
Nov 17, 2001

You do realize you're in BFC and not AI, right? The entire point of this subforum is to make the best financial decisions. You'll note that even in the 0% loan case it's still cheaper to buy, sell after three years, and buy again than it is to take two back to back leases.

Obviously some people value being in a new car more and are willing to pay a premium for it. Depending on market conditions, how much extra that costs varies. I never was judging anyone for what they wanted to spend their money (not sure where you got this idea). But this being BFC, we are generally in the business of helping people with the financial aspect of their decisions. In fact just yesterday, in this same thread, I recommended should Zuph buy a new car if he wanted.

As for the discount rate, it is not accurate to say "Oh, well if I put the money in my mortgage I'd get 5% return so I'll use that as my discount rate" and then instead spend it on something else. It's not being being 'paternalistic' to say if you are going to make that assumption you need to follow through on it for the assumption to be valid.

Throatwarbler
Nov 17, 2008

by vyelkin

Daeus posted:

You do realize you're in BFC and not AI, right? The entire point of this subforum is to make the best financial decisions.

So my posts are not finance-ey enough? I recommend you buy a 10 year old Mazda Miata and a shock dyno so you can revalve your own dampers.

quote:

You'll note that even in the 0% loan case it's still cheaper to buy, sell after three years, and buy again than it is to take two back to back leases.

What? Yes, 0% is lower than 6%. Even I can figure that out without a spreadsheet.

quote:

Obviously some people value being in a new car more and are willing to pay a premium for it. Depending on market conditions, how much extra that costs varies. I never was judging anyone for what they wanted to spend their money (not sure where you got this idea). But this being BFC, we are generally in the business of helping people with the financial aspect of their decisions. In fact just yesterday, in this same thread, I recommended should Zuph buy a new car if he wanted.

You've just posted a wall of text and literally made a spreadsheet in an attempt to prove that new cars are more expensive than second hand cars. Can you do one for clothes too? How about furniture? I must know whether it's cheaper to buy a new couch or just pick up a used one off craigslist. Please include discounted cash flow analysis to calculate the net present value

quote:

As for the discount rate, it is not accurate to say "Oh, well if I put the money in my mortgage I'd get 5% return so I'll use that as my discount rate" and then instead spend it on something else. It's not being being 'paternalistic' to say if you are going to make that assumption you need to follow through on it for the assumption to be valid.

If I get 5% on my mortgage and I spend the money on something else instead, then the something else was worth more to me than 5%.

Daeus
Nov 17, 2001

Throatwarbler posted:

So my posts are not finance-ey enough? I recommend you buy a 10 year old Mazda Miata and a shock dyno so you can revalve your own dampers.

You have made no quantifiable financial argument that leases are cheaper. Your counter point is babbling on about cars? Go back to AI.

Throatwarbler posted:

What? Yes, 0% is lower than 6%. Even I can figure that out without a spreadsheet.

You can't get a lease for 0 money factor, part of the reason leases are more expensive. I was also comparing 6% loan to 6% lease rate. The fact I did a 0% was just based on the three scenarios on the leaseguide site that was originally posted.

Throatwarbler posted:

You've just posted a wall of text and literally made a spreadsheet in an attempt to prove that new cars are more expensive than second hand cars. Can you do one for clothes too? How about furniture? I must know whether it's cheaper to buy a new couch or just pick up a used one off craigslist. Please include discounted cash flow analysis to calculate the net present value

You're an idiot if you think the main point of that analysis was to prove that used cars are cheaper than new cars. That vast majority of that 'wall of text' was comparing buying new to leasing and in the second part buying new, selling, and buying new again compared to back to back leases. I only included the two scenarios in the second analysis to show how much cheaper buying and holding was as a general financial principle and only mentioned it in a single sentence. The main point, which you were unable to grasp apparently, is buying and selling new, even every three years, even with the same loan rate, is still cheaper than leasing. I didn't even include end of lease fees, but maybe I should go back and add them in...

Throatwarbler posted:

If I get 5% on my mortgage and I spend the money on something else instead, then the something else was worth more to me than 5%.

Of course what you are saying is that you have a very high personal discount rate which means you prefer to spend money now rather than save money. This is basically the opposite of what BFC tries to accomplish. Is this why are you so butt-hurt about being told that leasing is usually more expensive?

Throatwarbler
Nov 17, 2008

by vyelkin
Oh no, I better go back to AI where everyone leases new cars! :ohdear:

(USER WAS PUT ON PROBATION FOR THIS POST)

Adbot
ADBOT LOVES YOU

Realjones
May 16, 2004
Obviously buying a used car will always be cheaper, but when I was considering leasing vs buying a new car it seemed to me that it all came down to how much value you placed on having a new vehicle every three years or so.

This "value" is not quantifiable because it means something different to everyone. Someone who constantly leases cars will be spending more than the buy and keep forever crowd, but that extra money means you constantly have a new car with the newest technology. That difference has value, but it's not something you can put a number on.

For some cars (like BMWs) leasing means you have the free maintenance/service/etc whereas if you keep the car eventually the warranty and maintenance will be gone. Owning some modern cars out of warranty is a VERY expensive proposition and is why a $100K M5 is now worth in the 30s after four years. I know most people can't afford to lease a $100K BMW, but the general idea of in warranty vs out of warranty also has value that can't easily be defined.

There is the sell/rebuy every three years option as well, but I think that is very uncommon. This method is not without its faults as well as you could have the market go under (like SUVs bought in 06), get into an accident that kills the cars value (not an issue when leasing), etc. You're continually eating the highest part of the depreciation curve with no guarantee of value at the end of the three years.

Realjones fucked around with this message at 19:16 on Feb 4, 2012

  • 1
  • 2
  • 3
  • 4
  • 5
  • Post
  • Reply