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shredswithpiks
Jul 5, 2006
Blast! I need a goon account!

Faceless Clock posted:

The argument is that he can afford a $180 lease payment. If he wants to lease a new car, it is a financially sound decision for him to do so, even if buying a used car would cost less overall.

Besides $180 looking small in comparison to $4000/month after tax income, there's really no basis to call leasing a financially sound decision. When you're making that kind of income you're in a place to save up and pay cash for a car. Then if you want the excitement of a monthly payment, put that $180/month into a high-yield savings or money market or something that builds interest so you can start paying for your next car.

I dunno what the rest of the budget looks like, but on $4k a month it should be feasible to save up and buy a $10-$15k car in cash within a year or so. There's really no reason to complicate the process and get into a lease just because you can't wait a year to have a nice shiny toy to tool around town in.

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BlackRider
Dec 28, 2004


shredswithpiks posted:

I dunno what the rest of the budget looks like, but on $4k a month it should be feasible to save up and buy a $10-$15k car in cash within a year or so. There's really no reason to complicate the process and get into a lease just because you can't wait a year to have a nice shiny toy to tool around town in.

You aren't listening. He can afford it AND putting extra money into a savings account is POINTLESS!

Tragic Otter
Aug 3, 2000



shredswithpiks posted:

Besides $180 looking small in comparison to $4000/month after tax income, there's really no basis to call leasing a financially sound decision. When you're making that kind of income you're in a place to save up and pay cash for a car. Then if you want the excitement of a monthly payment, put that $180/month into a high-yield savings or money market or something that builds interest so you can start paying for your next car.

I dunno what the rest of the budget looks like, but on $4k a month it should be feasible to save up and buy a $10-$15k car in cash within a year or so. There's really no reason to complicate the process and get into a lease just because you can't wait a year to have a nice shiny toy to tool around town in.

Come on. I don't want to have to repeat myself. I already listed why it is better to lease even if you can pay cash for a new car. So have other posters.

Besides, have you actually looked at car prices? You're not going to get much of a new car for $15k.

moana
Jun 18, 2005

one of the more intellectual satire communities on the web


Faceless Clock posted:

If you put more mileage on a car you buy you have to pay for it through additional depreciation. That is why leases have the mileage limits in the first place.
Isn't this a losing proposition to begin with? I mean, car dealers ostensibly are calculating expected depreciation, then increasing that a bit in order to not lose money. Like insurance - you are always going to have negative expectation SIMPLY BECAUSE they need to be making money off of you. To decrease that variance, you're paying a premium. Isn't it the same with a lease?

Also we're not talking about artard here, you're making a general argument and I'm replying to that general argument. I'm specifically interested in your argument against Leperflesh because I will soon be in a similar position and if it's really better to lease a new car than buy one I'd like to know why. Throatwarbler's post also relies on two ideas that I don't think are necessarily correct:
- paying the premium to reduce risk is a financially wise option (something that I disagree with for many types of insurance for the same reason as stated above)
- that returning your leased car after a few years and buying a used one on the market is equivalent to keeping a car that you bought new. In the latter case, there is much less risk in terms of knowing what has been done to the car.

moana
Jun 18, 2005

one of the more intellectual satire communities on the web


BlackRider posted:

You aren't listening. He can afford it AND putting extra money into a savings account is POINTLESS!
I agree that particular argument is a pretty bad one but I don't want this to devolve into shitposting. Well-reasoned rebuttals are always appreciated and are more helpful to bystanders so let's keep it to that please.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Leperflesh posted:


That's just it. The discussion here seems to be "which is better, leasing a new car for three years, or buying a new car and then selling it three years later".

What this discussion always seems to miss is that both of these are terrible ideas.

If you buy a new car it should be your intention to drive it for the entire life of the car. This is BFC, where we discuss what is the best financial decision, and financially it is a bad idea to choose to own (or lease) a car only during the steepest part of its depreciation curve.

There are many intangible reasons why it might be great to buy or lease a brand new car. I bought a new car in 2005 and I don't regret that decision - but I am not one of those people who sells their new car after 39 months of ownership, either. I'm going to drive my car until it can't be driven any more, at which point I will buy another new car, and when that one reaches the end of its life, I'll be at retirement age at least.

There is a 'sweet spot' where reliability is balanced by price, and that spot is going to be different depending on what a person's tolerance for reliability for their new-to-them car might be. The sweet spot is more or less never at the "brand new" point.

The problem then with leasing is that you really can't lease a two- or three-year-old car (at least not as far as I'm aware). Hence, leasing is bad.



So you're saying that new cars cost more than used cars? Amazing. So by that principle since hamburger is cheaper than steak, no one should ever eat steak, and no one should ever buy new clothes either as there are perfectly serviceable garments available at Goodwill for a fraction of the price?

The comparison is between buying a new car and leasing a new car because that's the apples to apples comparison. Comparing leasing a new car to buying an old car is apples to oranges.

quote:


-If you're gonna own the car for its whole life, paying for it in cash is the best option, and getting a very good financing deal is second-best. Leasing it can be competetive on price, but often not, especially if there is a chance you'll go over the mileage limits.


Leasing is the better option even if you keep the car forever.

Throatwarbler fucked around with this message at 20:56 on Jun 12, 2010

moana
Jun 18, 2005

one of the more intellectual satire communities on the web


Throatwarbler posted:

The comparison is between buying a new car and leasing a new car because that's the apples to apples comparison. Comparing leasing a new car to buying an old car is apples to oranges.
All he is doing is bringing up a separate point that had gotten lost in the discussion of leasing vs buying new. Some people in this thread might be interested in oranges, after all. Tone down the hostility.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

^^^ Sorry.

moana posted:

Isn't this a losing proposition to begin with? I mean, car dealers ostensibly are calculating expected depreciation, then increasing that a bit in order to not lose money. Like insurance - you are always going to have negative expectation SIMPLY BECAUSE they need to be making money off of you. To decrease that variance, you're paying a premium. Isn't it the same with a lease?


Again, this is making unfounded assumptions about the carmaker's cost structure. They are not selling you pork bellies, there are many costs associated with the cost of a car that are far beyond yours or mine ability to comprehend, how do YOU know that there is always a "premium"? If carmakers were perfectly rational, then they would never lose money on any cars they sell, because otherwise, they would just keep losing money until they go bankrupt and are taken over by the government, and that obviously can't happen, right?

Don't worry about what this or that costs the car maker. They sell you what they are willing to sell, you buy what you are willing to buy. That's all there is to it.


quote:

- paying the premium to reduce risk is a financially wise option (something that I disagree with for many types of insurance for the same reason as stated above)
- that returning your leased car after a few years and buying a used one on the market is equivalent to keeping a car that you bought new. In the latter case, there is much less risk in terms of knowing what has been done to the car.

1) As I explained, there isn't necessarily a premium.

2) You are not clear on exactly what you are comparing here. Take a step back and think about this. Your scenario is basically saying that at the end of the lease term, the cost of a 3 year old car identical to your leased model may be lower than the buyout cost, in which case you would want to return your lease and buy the use one, right?

The bit you are missing is that your lease payments are composed of a financing charge (which we will ignore here) and a monthly payment for the depreciation. If your identical car has a higher buyout value at the end, it must necessarily mean that you paid less in depreciation. So comparing your situation to that other sucker, he bought the identical car outright and now needs to unload it for less than your buyout value, meaning that he has paid *more* in depreciation than you have. You've already WON.

Now you are correct that you can gain even further by returning your car and buying his used model, and you are correct that there is more risk, but consider that at the end of the lease, his car will basically have just reached the end of the warranty period, during which he would have every incentive to keep the car properly serviced.

Throatwarbler fucked around with this message at 21:00 on Jun 12, 2010

shredswithpiks
Jul 5, 2006
Blast! I need a goon account!

Faceless Clock posted:

Come on. I don't want to have to repeat myself. I already listed why it is better to lease even if you can pay cash for a new car. So have other posters.

Besides, have you actually looked at car prices? You're not going to get much of a new car for $15k.

Ok, then lets save real hard for a year and a half and buy a ~$20k car. Isn't the idea that leasing is the better decision assuming that the actual depreciation of the car is more than expected, and that your use of the vehicle with conform to all the bureaucracy of the lease terms, and that there's not much opportunity cost of losing $monthlyLeaseAmount from your cashflow, and neglecting the risk of signing yourself up for a $180/month contract? If you pay for your car outright and lose your job at least there's no guy ready to come kick you in the balls because you couldn't give him his money this month.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

shredswithpiks posted:

Isn't the idea that leasing is the better decision assuming that the actual depreciation of the car is more than expected, and that your use of the vehicle with conform to all the bureaucracy of the lease terms,

No, if the actual depreciation of the car is less than expected, you can sell the car for that amount and pay out your lease, and come out ahead(well, not lose as much).

quote:

and that there's not much opportunity cost of losing $monthlyLeaseAmount from your cashflow, and neglecting the risk of signing yourself up for a $180/month contract? If you pay for your car outright and lose your job at least there's no guy ready to come kick you in the balls because you couldn't give him his money this month.

I don't understand what you are saying here. Yeah, the guy coming to kick you in the balls is doing so because you got the car but didn't pay for (all of)it. Yes if you pay for all of it up front, he won't kick you. On the other hand if you don't give him all your money up front, you have more of it left in your pocket. Do you like having money in your pocket?

Throatwarbler fucked around with this message at 21:23 on Jun 12, 2010

shredswithpiks
Jul 5, 2006
Blast! I need a goon account!

Throatwarbler posted:

I don't understand what you are saying here. Yeah, the guy coming to kick you in the balls is doing so because you got the car but didn't pay for (all of)it. Yes if you pay for all of it up front, he won't kick you. On the other hand if you don't give him all your money up front, you have more of it left in your pocket. Do you like having money in your pocket?

I'm saying that...

artard posted:

I live well under my means but don't have much savings at the moment because I recently finished paying off my credit card and student loan debt.

...in reality land the type of people that get into car leases do so because they don't have a lot of cash in their pocket. Signing up for a monthly payment represents risk. Signing up for a monthly payment when you don't have lots of money in savings represents more risk.

If you've got enough money to buy yourself out of the lease whenever you feel like then it's just a theorycrafting debate on whether it's better to have a little risk with the lease and invest a lump sum now while paying a monthly payment, or if it's better to have less risk and pay for the car with a lump sum and invest those monthly payment. Since either scenario is marginally close anyway, it's probably a moot point.

But are we really going to sit here and tell someone without a proper EFund to go lease a brand new car just because $180/month is small compared to $4000/month? I thought BFC was all about huge cash reserves to protect your rear end.

moana
Jun 18, 2005

one of the more intellectual satire communities on the web


Throatwarbler posted:

The bit you are missing is that your lease payments are composed of a financing charge (which we will ignore here) and a monthly payment for the depreciation. If your identical car has a higher buyout value at the end, it must necessarily mean that you paid less in depreciation. So comparing your situation to that other sucker, he bought the identical car outright and now needs to unload it for less than your buyout value, meaning that he has paid *more* in depreciation than you have. You've already WON.
Thanks for explaining this thoroughly. I've never considered leasing a car before, so these are a lot of new ideas that I'm still trying to absorb. Do you think there is there any situation where it would be better to buy a new car than to lease?

I mean, you say in your previous post that "If you are willing to drive a 5 year old car 5 years from now, why aren't you willing to drive a 5 year old car RIGHT NOW?" In my case, I was thinking that it would be nice to buy a new car and keep it forever because I don't mind driving a used car. The main concern I have with driving a used car is not knowing its entire history. I'd love to be able to get a car and maintain it properly without having to worry about any hidden issues and just drive it into the ground (or give it to one of my future kids). At least for me, this is the main point of contention between buying a new car and buying one that's a few years old, not being willing to drive an old car or not.

Faceless Clock's reply to Leperflesh seemed to indicate that buying a new car, then running it into the ground would be less expensive than leasing it forever (until it's paid off).

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

moana posted:

Thanks for explaining this thoroughly. I've never considered leasing a car before, so these are a lot of new ideas that I'm still trying to absorb. Do you think there is there any situation where it would be better to buy a new car than to lease?


In strict financial terms, not really. I guess the thing to keep in mind is that you are negotiating on price on a lease just like you are on a purchase, so it's a fair point that one could certainly get sucked into a very expensive lease deal, but I would maintain that if you fall into a bad lease deal, it is likely that you wouldn't have done any better with a purchase deal. Could the seller offer you a better purchase deal than a lease deal? Sure, but there isn't really any intrinsic reason for him to do so. I was listening to the Autoline Detroit podcast where they interview an ex new car dealer, and he was advising all new car dealers to do as many leases as possible, because a leased customer in 3 years is at least another POTENTIAL repeat customer, where as with the way the economy is going, a purchase customer in 3 years is almost certain to be underwater on his loan to the extent that he would be very reluctant to take on more debt.

quote:


I mean, you say in your previous post that "If you are willing to drive a 5 year old car 5 years from now, why aren't you willing to drive a 5 year old car RIGHT NOW?" In my case, I was thinking that it would be nice to buy a new car and keep it forever because I don't mind driving a used car. The main concern I have with driving a used car is not knowing its entire history. I'd love to be able to get a car and maintain it properly without having to worry about any hidden issues and just drive it into the ground (or give it to one of my future kids). At least for me, this is the main point of contention between buying a new car and buying one that's a few years old, not being willing to drive an old car or not.


On the subject of used cars, on the one hand, modern cars are generally quite well built, and since we are talking about 2 or 3 year old cars, they would at least still be in the warranty period, and thus the previous owner would have every incentive to keep up with maintainance. One could look at maintainance records, of course, and also hire a mechanic to properly inspect the car to ensure everything is kosher. On the other hand, of course there's not a 100% guarantee that the PO didn't do anything stupid, and certain kinds of cars, i.e. sports cars popular with young men, tend to be driven harder and dumber than others.


I guess I would put it as a general principle that you can either spend time, or spend money. If you have more time than money, you can take time to read up on problems specific to certain car models, post threads in AI to better understand things, read more on cars and generally educate yourself about what to look for. I think if you have a good idea of what to look for, the common problems associated with a car model, and a good handle on what market prices are, you will do fine with used cars. I appreciate that it's not necessarily for everyone, though.


quote:

Faceless Clock's reply to Leperflesh seemed to indicate that buying a new car, then running it into the ground would be less expensive than leasing it forever (until it's paid off).

I would submit this is not the case, because a lease with the intention of buyout at the end of the lease does not cost more, in NPV terms, than a purchase, and even if you intend to buy the car out at the end, you should still lease, because there is no downside.

This is confusing for most people because the payment structure of a lease is different from that of a financing agreement, which makes the comparisons a little difficult. A financing deal is where you take out a loan, buy the car, and pay off the loan in 3 years, which is fairly easy to understand. A lease is where you take out a loan, buy the car, and then every month pay an amount equal to the depreciation, plus the interest accumulated on the loan balance, which is being reduced every month by the amount you are paying in depreciation. Without going into exact calculations, it is a given that in absolute terms, you are paying more in interest in a lease than in the financing deal, because in the financing deal, you pay off the entire loan amount in the term, while in the lease you are only paying off the depreciation. So in a lease, you pay more interest because you are paying less up front. This is why I say that if you net everything out, including the opportunity cost of the difference between the principle payments on the financing loan and the lease loan, you will come out to the same figure.

Tragic Otter
Aug 3, 2000



The dealer in that Autoline Detroit podcast was Mark Ragsdale, and he has a book called "Car Wreck" with is basically just him bitching about how the auto industry is putting everyone underwater on their car loans and car manufacturers gently caress over-dealers regularly. It is interesting bitching, however, because you don't usually get to hear the dealer's side of the story.

Chapter 7 is where he explains why he thinks leasing is better than buying, even if you can buy with cash. If you're interested in leasing you should read it.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Just to drive the point home, maybe you're wondering if leasing is such a good deal for us, who is paying for it?

http://www.businessweek.com/magazine/content/08_31/b4094064675897.htm?chan=top+news_top+news+index_news+%2B+analysis

http://www.thetruthaboutcars.com/gm-on-the-hook-for-up-for-1b-in-gmac-lease-losses/

If you leased a BMW or other German luxury SUV, you've done well, because you're costing them hundreds of millions in losses. If you leased a GM or Chrysler SUV, you've also done well, because all their losses have been absorbed by the government and taxpayer, through the GM nationalization and TARP assistance to GMAC. IF you BUY a car, then you're just a bag holder.

Tragic Otter
Aug 3, 2000



Yeap. Which is why you can't just go and get a lease on any car you want. Only some manufacturers offer leases and only on certain models.

Arzakon
Nov 24, 2002

"I hereby retire from Mafia"
Please turbo me if you catch me in a game.


Faceless Clock posted:

If you put more mileage on a car you buy you have to pay for it through additional depreciation. That is why leases have the mileage limits in the first place.

But what if I don't care about depreciation and understand that the maintenance on an extra 1000 miles will be minimal compared to $.10-15/mi direct cost of going over on my lease.

Throatwarbler posted:

Leasing is the better option even if you keep the car forever.

Let's say I buy a base Mazda3 for $16K (Edmund's invoice price) at 0% and pay $267 for 5 years.

Or I can lease the same car on special for $199 for 36 months.

Purchasing the car cost me $16K and I will get to drive it for at least 12 years.

Leasing will cost me $7200 and then I either have to buy out the lease or find a new car. If the buyout is less than $8800 than hooray I just made money because a dealer wrote a lease with absolutely no upside for him. If the buyout is more than $8800 then you just paid more than you could have bought it outright for. Lets say that you decide to lease again because you didn't have a magical buyout price, and that you won't get one either for your next 3 cycles.

12 years = 4 leases = $28800. You paid a premium of $12800 to get a new car every 3 years for 12 years. Not to mention my 12 year old car is still worth $2-3K if I took care of it. Drop all of this to a 6 year time scale and you still paid $14400 to swap cars every 3 years where-as I own a 6 year old car that is still worth $4-5K and I only paid $1600 more than you.

So yeah if I buy/sell often I'll probably break even with a lease in 5-7 years depending on my depreciation. After that buying crushes leasing when you are talking cheap cars.

Throatwarbler posted:

Again, this is making unfounded assumptions about the carmaker's cost structure. They are not selling you pork bellies, there are many costs associated with the cost of a car that are far beyond yours or mine ability to comprehend, how do YOU know that there is always a "premium"? If carmakers were perfectly rational, then they would never lose money on any cars they sell, because otherwise, they would just keep losing money until they go bankrupt and are taken over by the government, and that obviously can't happen, right?

And can we drop the ludicrous notion that car manufacturers went bankrupt because their independent dealers were not good at math when writing leases rather than because US auto manufacturers had nothing to offer a changing market with increasing gas prices and their own growing labor and benefits costs?

Throatwarbler posted:

If you leased a BMW or other German luxury SUV, you've done well, because you're costing them hundreds of millions in losses. If you leased a GM or Chrysler SUV, you've also done well, because all their losses have been absorbed by the government and taxpayer, through the GM nationalization and TARP assistance to GMAC. IF you BUY a car, then you're just a bag holder.

I already conceded the point that if you lease an expensive SUV or European car than you have come out way ahead. I am focusing on "Hey I am making a little money now and I think I want to buy/lease a reasonably priced automobile" and not "Hey I'm either rich or retarded and want to know how to lose only $40K instead of $60K on my baller vehicle".

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Arzakon posted:

But what if I don't care about depreciation and understand that the maintenance on an extra 1000 miles will be minimal compared to $.10-15/mi direct cost of going over on my lease.

We have already covered this multiple times. If you feel your total cost (the paid up depreciation + extra mileage) exceeds the actual depreciation, you can sell your car for your actual value.

quote:

Let's say I buy a base Mazda3 for $16K (Edmund's invoice price) at 0% and pay $267 for 5 years.

Or I can lease the same car on special for $199 for 36 months.

Purchasing the car cost me $16K and I will get to drive it for at least 12 years.

Leasing will cost me $7200 and then I either have to buy out the lease or find a new car. If the buyout is less than $8800 than hooray I just made money because a dealer wrote a lease with absolutely no upside for him. If the buyout is more than $8800 then you just paid more than you could have bought it outright for. Lets say that you decide to lease again because you didn't have a magical buyout price, and that you won't get one either for your next 3 cycles.

12 years = 4 leases = $28800. You paid a premium of $12800 to get a new car every 3 years for 12 years. Not to mention my 12 year old car is still worth $2-3K if I took care of it. Drop all of this to a 6 year time scale and you still paid $14400 to swap cars every 3 years where-as I own a 6 year old car that is still worth $4-5K and I only paid $1600 more than you.

So yeah if I buy/sell often I'll probably break even with a lease in 5-7 years depending on my depreciation. After that buying crushes leasing when you are talking cheap cars.


I have no idea what you are trying to get at here. Are you trying to say that old cars are worth less than new cars? I knew that already.

quote:

And can we drop the ludicrous notion that car manufacturers went bankrupt because their independent dealers were not good at math when writing leases rather than because US auto manufacturers had nothing to offer a changing market with increasing gas prices and their own growing labor and benefits costs?

Leases are not written by independent dealers, they are done mostly through the captive financing arms of the manufacturers who then package them into CDOs to be sold to other investors. I never said that was the ONLY reason they went bankrupt, I was addressing the point about how car makers could not possibly write a deal that did not benefit them. What exactly is your point here?

quote:

I already conceded the point that if you lease an expensive SUV or European car than you have come out way ahead. I am focusing on "Hey I am making a little money now and I think I want to buy/lease a reasonably priced automobile" and not "Hey I'm either rich or retarded and want to know how to lose only $40K instead of $60K on my baller vehicle".

Okay? So because you make a little money, $20k isn't real money?

kimbo305
Jun 9, 2007

He is I, and I am him



Faceless Clock posted:

quote:

that there is a sweet spot of price versus reliability

I don't know what to say about this because it basically sounds like an old wives tale. It sounds like something which might be true, but there is no actual evidence to support it.
Cars' reliability can be modeled roughly with a bathtub curve for frequency of problems. Additionally, they all tend to follow a well defined resale depreciation curve.
So the sweet spot would be when the initial plummet of depreciation has passed and any time during the middle of the bathtub curve. My guess is something like 3 years is a good place.

Faceless Clock posted:

Besides, have you actually looked at car prices? You're not going to get much of a new car for $15k.

There are many completely serviceable $15k vehicles for people looking to buy new and getting the benefit of a warranty.

Arzakon
Nov 24, 2002

"I hereby retire from Mafia"
Please turbo me if you catch me in a game.


Throatwarbler posted:

I have no idea what you are trying to get at here. Are you trying to say that old cars are worth less than new cars? I knew that already.

I'm saying that buying a car and driving it for 12 years costs you less than taking out 4 leases over a 12 year period. You said otherwise. I showed that not to be the case on base model vehicles to the tune of $12,000+cars value, minus the minimal levels of maintenance a car under 150K miles will need.

Throatwarbler posted:

Leases are not written by independent dealers, they are done mostly through the captive financing arms of the manufacturers who then package them into CDOs to be sold to other investors. I never said that was the ONLY reason they went bankrupt, I was addressing the point about how car makers could not possibly write a deal that did not benefit them. What exactly is your point here?

My point is you are trying to say that auto manufacturers leasing SUVs then having gas go to $4/gallon, destroying their residual value caused them to go bankrupt. At the very least you were implying that it was more than a minimal factor. One of your links gave a $1b loss for GM and mentioned SUVs/trucks as the cause. Their bailout was $49.5b. A drop in the bucket and by no means does it mean leasing a small automobile is a good idea.

Throatwarbler posted:

Okay? So because you make a little money, $20k isn't real money?

No, I'm saying its completely irrelevant to the person originally being given advise asking if they should buy or lease a base model Impreza. Unless they are getting an WRX STi for $180/mo then they should jump on that.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Arzakon posted:

I'm saying that buying a car and driving it for 12 years costs you less than taking out 4 leases over a 12 year period. You said otherwise. I showed that not to be the case on base model vehicles to the tune of $12,000+cars value, minus the minimal levels of maintenance a car under 150K miles will need.

My point is you are trying to say that auto manufacturers leasing SUVs then having gas go to $4/gallon, destroying their residual value caused them to go bankrupt. At the very least you were implying that it was more than a minimal factor. One of your links gave a $1b loss for GM and mentioned SUVs/trucks as the cause. Their bailout was $49.5b. A drop in the bucket and by no means does it mean leasing a small automobile is a good idea.

No, I'm saying its completely irrelevant to the person originally being given advise asking if they should buy or lease a base model Impreza. Unless they are getting an WRX STi for $180/mo then they should jump on that.

You must be confusing me with someone else, because I said none of these things and as such have no response. Maybe you should go back and read it again. I find this style of argumentation tiresome and unproductive.

Tragic Otter
Aug 3, 2000



This is ridiculous. One guy is talking about owning a car for twelve years. Another thinks we should be happy with the "perfectly serviceable" vehicles we can buy for 15k.

The thing is, people don't keep vehicles for twelve years. Nor do they always buy 15k vehicles. Nor should they, if they can afford to purchase a more attractive vehicle or afford to purchase vehicles more often.

We can talk all day about theoretical situations where people buy economy cars and keep them forever, but if we're having a general discussion about buying new vs. leasing these examples are meaningless because generally speaking, people don't behave that way.

Arzakon
Nov 24, 2002

"I hereby retire from Mafia"
Please turbo me if you catch me in a game.


Throatwarbler posted:


Leasing is the better option even if you keep the car forever.

You even bolded it. Unless you are saying paying thousands extra to lease a car for three years then buy it out would somehow be a better financial decision. Can you show me a lease agreement where the lease payments + buyout would be anywhere close to just buying the car with 0% financing?

You are saying I should pay extra to hedge my bet that the car will be worth more at the end of the lease than I am paying to then buy out the car. You are missing the point that the cars value at 36 months is irrelevant in the purchase scenario because I plan on driving the car into the ground then junking it.

Arzakon
Nov 24, 2002

"I hereby retire from Mafia"
Please turbo me if you catch me in a game.


Faceless Clock posted:

This is ridiculous. One guy is talking about owning a car for twelve years. Another thinks we should be happy with the "perfectly serviceable" vehicles we can buy for 15k.

The thing is, people don't keep vehicles for twelve years. Nor do they always buy 15k vehicles. Nor should they, if they can afford to purchase a more attractive vehicle or afford to purchase vehicles more often.

We can talk all day about theoretical situations where people buy economy cars and keep them forever, but if we're having a general discussion about buying new vs. leasing these examples are meaningless because generally speaking, people don't behave that way.

Sorry, this is the financial sub-forum. People here are focused on saving money for retirement and getting what they want for the least amount of money. Doing "what everyone else does" isn't even a consideration. A majority of the country may upgrade cars every 5 years but most of those people aren't saving for retirement and likely have a negative net worth.

Many of us here have no qualms about driving an economy car for 10+ years, even more prefer to buy 5 year old vehicles and drive them till they die. If you are looking to drive a new car every 3-4 years then you really don't need any more instruction other than get whatever you want on a lease for whatever payment you can afford. If you have any advice on how to get the best deal on leases for certain cars or brands, then by all means share. Don't act like leases are the best financial decision when they are really paying extra for a luxury (driving a new car) that most people in this sub-forum don't care about and most people starting out financially shouldn't care about.

Tragic Otter
Aug 3, 2000



I think it is unreasonable to expect a person to buy a new car and expect it to be their only car for twelve years, or even five years, and that basing financial advice on the assumption that a person actually will do that is not the best thing to do.

However, we're not really taking about leasing vs buying at this point, or really buying cars at all, and I do see where you're coming from, so I will leave it at that.

Leperflesh
May 17, 2007






I'm really sorry that this became an in-depth discussion of the difference between leasing and buying a new car.

My point to the original guy asking his question was that, if you have no cash savings at all, that strongly implies that, regardless of your current monthly income, it is not a good time for you to go get a brand new car.

I might be wrong. It could be the case that that guy is extremely financially responsible, or has a substantial non-cash safety net and no serious personal obligations, and really can take on the risk of a contracted monthly payment while having no cash reserves. But absent any particular evidence of that, I think it's poor advice to talk about getting a new car.

Jumping in to defend leases misses the point. I may have said "don't get a lease it's a terrible financial decision" or something to that effect, but what I meant was "don't get a new car". The only reason I didn't say "don't get a new car" is because it was already a given that that guy couldn't finance a new car, because he had no cash for a down payment and therefore it was very unlikely he could get reasonable terms for an auto loan (and he said as much).

The entire discussion is therefor a tangent. My advice was to seek out a reliable used car. That guy seemed to be presenting the rationalization that because he was planning some summer trips, anything he could buy outright for whatever tiny amount of cash he could scrape up this second would be too unreliable. I have pointed out that actually you can get a loan on a used car, and a $5-6k car would hold most of its value, could be financed for very little down and a very small monthly payment, and once 6-9 months later he'd managed to save up a reasonable cash buffer, he could then afford to pay for a new car (I assumed normal financing but a lease would be an option at that point too).

This is a good idea for three reasons:
-A used car in the $5k zone has usually already gone through the steep portion of its depreciation, so it can be re-sold for the same or nearly the same as it was purchased for, 9 months later or whatever
-A used car in the $5k zone is usually also still reasonably reliable. There are lots of exceptions of course (you could buy a $5k lamborghini) but with a reasonable amount of research and attention to reliability ratings that are freely available on the net, there are dozens of good models out there that will handle road trips and be quite unlikely to break down.
-Almost everyone should have cash savings. Having just paid down a lot of debt, getting into a habit of saving up money for expensive things before buying them is probably a very good psychological habit. I made a possibly unfounded inference that this guy maybe got into some debt and had some bad buying habits but was on the road to recovery; my suggestion reinforces that direction while getting a brand new car when you have no cash savings runs generally counter to it.

So yeah, others are interested in the lease vs. buy discussion and I'm certainly open to the idea that leases can be a good idea for some people. But just as "you should always pay cash up front for a new car" is unreasonable advice, "you should always lease and it's a great idea for this guy to lease right now because he makes enough money and it's only $180 a month" is also not really great advice.

If I indulge my hunch, I kind of think one or two folks have a pro-leasing axe to grind here. Which is fine, everyone has their pet peeves, and maybe this is just a perceived opportunity to improve the tarnished image of certain financial arrangements or something but come on, please let's try to give people who come to BFC for financial advice something other than a series of lengthy tirades about the injustices wrought by the ignorant anti-lease masses.

Edit:

Faceless Clock posted:

I think it is unreasonable to expect a person to buy a new car and expect it to be their only car for twelve years, or even five years, and that basing financial advice on the assumption that a person actually will do that is not the best thing to do.

There is a difference between what we might expect a person to do, and what we can advise a person is the best financial plan. People will trade off expense for perceived value, and having a nice new car can be a huge perceived value.

That doesn't mean we shouldn't clearly spell out why keeping your new car for 12 years saves money over buying a new car, or even a slightly used car, every four years.

Leperflesh fucked around with this message at 07:17 on Jun 13, 2010

kimbo305
Jun 9, 2007

He is I, and I am him



Faceless Clock posted:

Another thinks we should be happy with the "perfectly serviceable" vehicles we can buy for 15k.

Nor do they always buy 15k vehicles. Nor should they, if they can afford to purchase a more attractive vehicle or afford to purchase vehicles more often.

Speaking to artard's situation, yes he could probably finance (or lease) a new car for more than $15k. But you were the one who brought up the $15k threshold. From a BFC perspective, it isn't good advice to say you can't buy much of a new car for $15k. That's basically giving zaurg's wife the go ahead to think bigger than her budget.

Leperflesh
May 17, 2007






Yeah.

The 2010 Ford Focus Sedan starts at $16k and it is an excellent car.

The Hyundai Accent starts at less than $14k and it is an excellent car.

The Toyota Yaris starts at less than $13k and it is a very good car, bordering on excellent.

And the Toyota Corolla starts at about $15,400, and it is an excellent car.

These are all MSRPs, too; e.g., reasonably negotiable. Just four excellent cars off the top of my head. I'm sure it's just the tip of the iceburg.

There are plenty of fantastic cars for $20k and $30k too, but let's not sneer at the $15k price bracket.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Arzakon posted:

You even bolded it. Unless you are saying paying thousands extra to lease a car for three years then buy it out would somehow be a better financial decision. Can you show me a lease agreement where the lease payments + buyout would be anywhere close to just buying the car with 0% financing?


1) Read the following quote and ensure you understand it exactly.

Throatwarbler posted:

This is confusing for most people because the payment structure of a lease is different from that of a financing agreement, which makes the comparisons a little difficult. A financing deal is where you take out a loan, buy the car, and pay off the loan in 3 years, which is fairly easy to understand. A lease is where you take out a loan, buy the car, and then every month pay an amount equal to the depreciation, plus the interest accumulated on the loan balance, which is being reduced every month by the amount you are paying in depreciation. Without going into exact calculations, it is a given that in absolute terms, you are paying more in interest in a lease than in the financing deal, because in the financing deal, you pay off the entire loan amount in the term, while in the lease you are only paying off the depreciation. So in a lease, you pay more interest because you are paying less up front. This is why I say that if you net everything out, including the opportunity cost of the difference between the principle payments on the financing loan and the lease loan, you will come out to the same figure.

2) Go to Madza's site and look at the current offers.

You have 0% APR financing with downpayment and approved credit. When I press the calculate button the default is a downpayment of $2000. This is reasonable so we will use it in our assumption. The MSRP , also shown on the lease calculation, is $17,855. Using Excel's NPV function, a discount rate of 4.25%, monthly payments of $264.24 for 60 months, the NPV of your total outlay works out to $16,261.

You have the $199 lease deal, for the same car MSRP $17,855. Note here that the actual amount financed turns out to be $16,400(see small print), because that's the lease offer ($1,550 off MSRP). This is equivalent to the 0% APR financing deal, since you are not getting 0% leasing, they give it back to you somewhere else. These 2 deals are equivalent. You can of course do better or worse in person, in either case. Using the same Excel NPV function, same discount rate, total payments of $8159(see small print) with 0 due at lease signing(which confusingly makes it actually 41 payments of $199, not 42, but that's what it says there), the NPV of your total outlay works out to $16,260.84.

I picked the discount rate of 4.25% because that seems to be the break even point for these 2 particular deals. The implied interest rate on the lease works out to about 4.6%, which is consistent. With a higher discount rate, leasing is cheaper, with a lower discount rate, buying is cheaper. Note that if your discount rate is lower than the lease rate, you can always pay more initially to offset the rate differential.

quote:



You are saying I should pay extra to hedge my bet that the car will be worth more at the end of the lease than I am paying to then buy out the car. You are missing the point that the cars value at 36 months is irrelevant in the purchase scenario because I plan on driving the car into the ground then junking it.

I am saying that you can't predict the future. If you knew exactly what will happen in 3 years, you'll be rich. What if the car is a lemon? What if the car turns out to have a serious manufacturing flaw that renders it worthless, like happened with the automatic transmissions of the 2000-2002 Honda Accord? Or if the car company comes out with a substantially improved model 2 or 3 years on, as happened with the current Ford Mustang? It happens more often than you think.


Leperflesh posted:

If I indulge my hunch, I kind of think one or two folks have a pro-leasing axe to grind here. Which is fine, everyone has their pet peeves, and maybe this is just a perceived opportunity to improve the tarnished image of certain financial arrangements or something but come on, please let's try to give people who come to BFC for financial advice something other than a series of lengthy tirades about the injustices wrought by the ignorant anti-lease masses.

No one posted anything about it until you made the following factually incorrect statement:

quote:


The reason a lease is almost always a terrible idea is because you are paying almost what you'd pay to buy the car, but at the end of the term you don't own the car. And you have to pay extra for any extra miles you drive.


Throatwarbler fucked around with this message at 14:16 on Jun 13, 2010

Leperflesh
May 17, 2007






Throatwarbler posted:

No one posted anything about it until you made the following factually incorrect statement:

Fair enough. I feel that if you had focused your substantial efforts on refuting just that one statement, we'd all have saved a lot of effort. While you haven't convinced me that leases are a good idea for most buyers, you have convinced me that they are not always much more expensive than buying a car. Well done.

Throatwarbler posted:

I am saying that you can't predict the future. If you knew exactly what will happen in 3 years, you'll be rich. What if the car is a lemon?

Then you'd be covered by the lemon laws and you could be rid of your lemon.

quote:

What if the car turns out to have a serious manufacturing flaw that renders it worthless, like happened with the automatic transmissions of the 2000-2002 Honda Accord?

Then you'd be covered by your warranty, and you could get the issue fixed.

quote:

Or if the car company comes out with a substantially improved model 2 or 3 years on, as happened with the current Ford Mustang? It happens more often than you think.

That's really the point, isn't it? You seem to place a very high value on having the option of easily getting rid of the car after the lease term is up. I think I, and perhaps a lot of other BFC types, put a low value on that (because financially it is almost always an expensive thing to do, compared to keeping your bought-new car for a lot longer).

But if I think I'm likely to only want to own a car for three years, I'll be a much richer man 12 years from now if I make a habit of buying 2 year old cars, owning them for another three, and then selling them, than if I engage in a series of three-year leases.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Leperflesh posted:


Then you'd be covered by the lemon laws and you could be rid of your lemon.


Then you'd be covered by your warranty, and you could get the issue fixed.




Those problems with the Honda continued beyond the warranty. The owners had to launch a class action against Honda to get anything, and even then not everyone did - many models that had similar problems were not covered. How about the leaking LIM gaskets on the GM 3.1/3.4l V6? The owners eventually won the law suit just in time for GM to be nationalized and all their obligations written off.

quote:

That's really the point, isn't it? You seem to place a very high value on having the option of easily getting rid of the car after the lease term is up. I think I, and perhaps a lot of other BFC types, put a low value on that (because financially it is almost always an expensive thing to do, compared to keeping your bought-new car for a lot longer).

NO. The option to rid yourself of the car CAN be worth a lot, but as I have shown above, even if you don't exercise it, you still don't end up spending any more money in NPV terms than you do with a purchase. There really is no reason to buy a car versus leasing it. None.

quote:

But if I think I'm likely to only want to own a car for three years, I'll be a much richer man 12 years from now if I make a habit of buying 2 year old cars, owning them for another three, and then selling them, than if I engage in a series of three-year leases.

I don't even know how to respond to this anymore without snark. Yes, 2 year old cars are cheaper than brand new cars, I get it. If you don't want a brand new car, don't buy one. Move on.

Leperflesh
May 17, 2007






Throatwarbler posted:

I don't even know how to respond to this anymore without snark. Yes, 2 year old cars are cheaper than brand new cars, I get it. If you don't want a brand new car, don't buy one. Move on.

Everyone knows used cars are cheaper than new cars. Everyone doesn't seem to know just how much cheaper, and one of the main reasons for this thread is to help explain exactly how much. We're not "moving on" because it's a point that needs to be made clearly and repeatedly to a lot of people who make bad decisions about cars.

You seem to only want to talk about buying new cars, but in my opinion a BFC car financials thread should mostly not be about buying new cars.

quote:

NO. The option to rid yourself of the car CAN be worth a lot, but as I have shown above, even if you don't exercise it, you still don't end up spending any more money in NPV terms than you do with a purchase. There really is no reason to buy a car versus leasing it. None.

I'm not convinced "NPV terms" are the best way to asses cost, when it comes to the purchasing decisions of individual people. I've only ever seen this term used with regards to capital outlays for businesses. Maybe if you're not already completely sick of the discussion, you could go into why exactly the Net Present Value is a good way for ordinary people to evaluate cost?

BlackRider
Dec 28, 2004


I was confused for two pages until I finally realized the point that was being made was:

Leasing a BRAND NEW loving CAR is better than buying a BRAND NEW loving CAR.

Okay, great.

I'm with Leperfish on this one. Most people don't care enough about driving a new car even if they can afford it. Considering that most families are more concerned about how they are going to get their kids through school or even make ends meet, a new car isn't ever a good financial decision. Most people in this forum are in school, just graduated, or early in their career where a new car is a terrible financial decision.

Good information on leasing though - I think it's widely misunderstood and as you've proved, it's not inherently bad if you're in a situation where you want a brand new vehicle.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Leperflesh posted:

asses cost



Yes, you should run your finances like a business. Why not? I personally run my life like Goldman Sachs and literally beat up and rob widowed pensioners and children on my way home from work.

Leperflesh
May 17, 2007






I get the sarcasm but to answer seriously: because depreciation of assets has a tax-consequence for businesses where it generally doesn't for individuals. For starters.

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

I meant more in the vein of "don't spend money on dumb poo poo, spend it on making more money".

What would you use to assess the cost? Do you assume that your own personal cost of capital is 0%? If so, I suppose you should just buy everything with cash, or maybe start your own car dealership.

Lyesh
Apr 9, 2003



Throatwarbler posted:

Those problems with the Honda continued beyond the warranty. The owners had to launch a class action against Honda to get anything, and even then not everyone did - many models that had similar problems were not covered. How about the leaking LIM gaskets on the GM 3.1/3.4l V6? The owners eventually won the law suit just in time for GM to be nationalized and all their obligations written off.


NO. The option to rid yourself of the car CAN be worth a lot, but as I have shown above, even if you don't exercise it, you still don't end up spending any more money in NPV terms than you do with a purchase. There really is no reason to buy a car versus leasing it. None.


I don't even know how to respond to this anymore without snark. Yes, 2 year old cars are cheaper than brand new cars, I get it. If you don't want a brand new car, don't buy one. Move on.

You're assuming that the dealer's depreciation follows market depreciation. A 2007 Honda Civic DX runs around $10,300 from a dealer (according to edmunds). A 2010 Civic DX runs $17,200 MSRP. That means that depreciation on a Civic DX across 3 years is around $6900 at most (since your price for a new one is going to be below MSRP). They list the lease at $347.44 for 36 months, which is $12,400 total. 3 years interest on the loan (assuming 5% across 60 months) is around $1,900. $1,900 plus $6900 is NOT greater than $12,400. Guess what the extra's for.

Hint: it's the risk premium for the dealer. Which yes, they do gently caress up. But not every single time.

Edit: then again this does depend on the buyout price. Anyone actually have data on that?

Lyesh fucked around with this message at 19:37 on Jun 13, 2010

shredswithpiks
Jul 5, 2006
Blast! I need a goon account!

Lyesh posted:

You're assuming that the dealer's depreciation follows market depreciation. A 2007 Honda Civic DX runs around $10,300 from a dealer (according to edmunds). A 2010 Civic DX runs $17,200 MSRP. That means that depreciation on a Civic DX across 3 years is around $6900 at most (since your price for a new one is going to be below MSRP). They list the lease at $347.44 for 36 months, which is $12,400 total. 3 years interest on the loan (assuming 5% across 60 months) is around $1,900. $1,900 plus $6900 is NOT greater than $12,400. Guess what the extra's for.

Hint: it's the risk premium for the dealer. Which yes, they do gently caress up. But not every single time.

Edit: then again this does depend on the buyout price. Anyone actually have data on that?

Can we assume we don't take out a loan to buy the car so we can ignore that $1900 as well?

Throatwarbler
Nov 17, 2008

Oct 3, 2016 00:06: SO I'm also in 1st year classes and it's going pretty well I think.

Dec 9, 2016 15:46: Well I just took my first law school final exam. I think I've made a huge mistake.

Lyesh posted:

You're assuming that the dealer's depreciation follows market depreciation. A 2007 Honda Civic DX runs around $10,300 from a dealer (according to edmunds). A 2010 Civic DX runs $17,200 MSRP. That means that depreciation on a Civic DX across 3 years is around $6900 at most (since your price for a new one is going to be below MSRP). They list the lease at $347.44 for 36 months, which is $12,400 total. 3 years interest on the loan (assuming 5% across 60 months) is around $1,900. $1,900 plus $6900 is NOT greater than $12,400. Guess what the extra's for.

Hint: it's the risk premium for the dealer. Which yes, they do gently caress up. But not every single time.

Edit: then again this does depend on the buyout price. Anyone actually have data on that?

1) Source your numbers. A few clicks over to honda's website gets me a lease offer of $159/month (albeit it looks like there's a downpayment) for 36 months.

2) I think that even if you found the right numbers, you've still missed the wider point. The buyback doesn't have to follow actual depreciation, because if the buyback was significantly less than the depreciation, you could just buy it out and sell the car.

EDIT: You didn't lease a Civic DX for $347/month, did you?

Throatwarbler fucked around with this message at 19:55 on Jun 13, 2010

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Lyesh
Apr 9, 2003



shredswithpiks posted:

Can we assume we don't take out a loan to buy the car so we can ignore that $1900 as well?

No, because you have to find the value of the use of that $17000. The financier could have loaned out their money and gotten $1900 instead of what they're getting from the lease.

source: go here, click the DX automatic, and click the "Monthly Payments" button.

If you use the special offer you're assuming that you'll qualify, you also have to figure out how the capital cost reduction figures in (not that much, probably about $2000 after three years at a 5% discount rate), and you probably face restrictions in terms of what model you can get. Additionally, the buyback is a vital number.

I actually agree that leases can be great if you like new car smell a lot; my issue is with the assertion that the depreciation a dealer charges is going to always be less than the market depreciation.

edit: gently caress no, I've had my (used) car for about four years and am planning on keeping it for at least four more.

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