Auto leasing... question.

Discussion in 'Archived Threads 2001-2004' started by Scott Wong, Mar 5, 2003.

  1. Scott Wong

    Scott Wong Second Unit

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    I did a search on this but just didn't come up with an anything that applied to my scenario.

    I'm currently leasing a 2001 Lexus IS300 that is fully loaded with all the toys. It's flawless. I'm under my mileage allowance (12,000 miles annually) and my lease is up next March so I'm preparing.

    It's an excellent car and a blast to drive. I've had my fun with it but I'm not planning on buying the car out right at the end of the lease. Due to many unforseen circumstances (change of employment, divorce, etc, etc.) I simply want to get rid of the car and get into something that should offer me a lower monthly payment (which won't be easy after spending so much time in my IS300).

    I'm in a 39 month lease. I put down $3,000 and my monthly payment is $450.25 The residual value on this car per my lease shows as $22,393.04 which seems awfully high to me. I have this unsettling feeling as though I got taken for a ride by a salesman who was supposedly giving me a really good deal on this vehicle. On top of that, after contacting Lexus Financial Services today, the buy out on this car is $25,xxx.xx... and according to Kelley Blue Book, this same car in my area (with comparable mileage) can be had for around $20,800 - $21,000. That scares me. I realize the residual amount is negotiable but my first question is, I'm wondering if the residual value is even relevant to me if I plan on turning in the car at the end of the lease term?

    Lastly, is it just a matter of me driving the vehicle back to the dealership I bought it from and walking away with nothing? I'm assuming I get back my security deposit (contingent upon normal wear and tear of the vehicle)??

    I'm convinced leasing simply isn't for me. I feel so unsatisfied. I mean, I know I've been driving around a nice car for the last couple of years. But I've been paying a hefty car payment each month on time and the only thing I'm going to have to show for it is my lousy security deposit. I suppose this is sort of like the difference between renting an apartment and buying a home and having equity. [​IMG]

    Scott.
     
  2. Don Black

    Don Black Screenwriter

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    It doesn't sound like leasing was a good option for you. I leased a fully optioned (e.g., NAV unit, etc.) 2001 BMW 330i for 36 months with a 15,000 annual mileage allowance. I paid a money factor equivalent to 2.2% with a residual value of 64%. I also had nothing due at signing beyond my initial security deposit (fully refundable).

    My monthly pre-tax payment is $459.06 which my company writes mostly off. I'm very satisfied with my lease and I worked very hard to get the terms that I did. I like swapping cars every few years and don't like investing in depreciating assets (let the flames begin). =)

    The unfortunate bottom line is that all of these variables were factored in at the time you initially leased your car. They are what determine your monthly payment. They mean nothing now unless you plan to buy out the car from your bank. In the future, going into a lease, you need to negotiate the lowest price for the car, the lowest money factor (interest rate), and the highest residual value for the most amount of use (e.g., the highest mileage allowance).

    The IS300 is a good car though and I'm sure you had a great 39-month run. Look at it as a learning experience and zealously fight for better terms on your next car purchase or lease.
     
  3. CameronJ

    CameronJ Stunt Coordinator

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    Scott,

    Don't confuse buy-out with value. The buy-out on the car is simply the residual value (per the lease) plus the sum of the remaining payments.

    With leasing, a higher residual value results in lower monthly payments. If the residual had been lower, your payments would have been more. If the value of the vehicle is indeed well below the residual, you walk away and the leasing company loses money.

    Unfortunately, it's not so easy as just walking away. When we were going to turn in my wife's Corolla last year, they were going to completely nickel and dime us on items that they considered over "normal wear and tear." They wanted to charge us for every single little ding, scratch, and blemish on the car (this for a car that was 5 years old). Add that to the fact that we were over miles, it was more cost effective to buy the car and then sell it to a private party. We were still out about $1,500, but it was less than it would have been if we turned it in.

    Bottom line on leasing -- the car dealer isn't going to do anything that brings them less revenue. If you can get a high residual, will drive under miles, and keep the car in great shape leasing may work. Otherwise, I think people get screwed.

    Edited to add: Depending on the leasing company, the residual value may or may not be negotiable. Technically it's not, as it's laid out in the leasing agreement. However, if the car has a residual higher than the current value, the leasing company will agree to sell it to you for a smaller amount. If they don't they have to take it back and sell it for a lesser amount to someone else. By selling it to you they eliminate transaction costs (and also sell it at retail, where if they take it back they won't get retail). A friend of mine was successful with this, we weren't.
     
  4. Angelo.M

    Angelo.M Producer

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    My philosophy on lease versus purchase is probably similar to Don's: the minute you're out of the showroom, your investment begins depreciating in value. There is no direct analogy with the "rent vs. buy" decision in shopping for a home, as I see it.

    And Cameron is absolutely correct. The residual value of the vehicle is meaningless at lease termination if you don't plan on purchasing the vehicle. It is particularly meaningful at lease initiation since the higher the residual value, the lower your monthly payments. That's why it doesn't pay to lease an inexpensive, stripped-down vehicle; your best deals will almost always be on premium, loaded vehicles.

    My two cents...
     
  5. Ted Lee

    Ted Lee Lead Actor

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  6. Philip Hamm

    Philip Hamm Lead Actor

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    Leasing is attractive because it means low payments, and lots of people shop for cars based on payments. Personally I don't like making payments all that much, take care of my vehicles, and don't mind driving an older vehicle, so leasing is not for me. A car is not an investment it's a tool (or toy depending on your POV). So I keep my car about 7 years or so and I have a couple years payment free and with low insurance. Yippie!

    Leasing is very complicated and there are a lot of ways that companies can take advantage. Edmunds has information about leasing. www.edmunds.com - They may also have information on what to do in your situation.

    If you don't plan on keeping a car for more than 3-4 years at a time, don't mind never-ending payments, or have other reasons (such as you know you'll be in an area for only two years and don't want to deal with selling a car at the end of it), leasing can make sense. It is almost always more expensive than buying.
     
  7. Scott Merryfield

    Scott Merryfield Executive Producer

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    One other advantage to leasing (in addition to Philip's list) is if you have a business which you can write off some or all of the lease payments to.

    Personally, my situation is similar to Philip's. We keep our vehicles for quite awhile (I kept my last Toyota for 10 years), which is probably the most cost-effective way to pay for a vehicle. We get several years with no car payment and lower insurance costs. The savings can then be rolled into a decent sized down payment on the next vehicle purchased, thereby keeping the monthly payments lower.

    My wife's van will be paid off in a few months, and then I will double up payments on my one year old car to get it paid off in another year. Then we will be payment-free for a few years. [​IMG]
     
  8. Brian Perry

    Brian Perry Cinematographer

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  9. CameronJ

    CameronJ Stunt Coordinator

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  10. Don Black

    Don Black Screenwriter

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    The financial services companies (at least in BMW's case) publishes a monthly/quarterly booklet for their dealers. The rates in these booklets are fixed (E.g., X residual for Y number of miles). However, dealers mark these rates up for obvious reasons (the BMW dealers didn't play with the residual, just the money factor). The trick is knowing in advance what those non-negotiable base rates are and demanding that they stick to them with no markup.
     
  11. Scott Wong

    Scott Wong Second Unit

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    Thanks everyone for the replies. I do appreciate it.

    From the looks of it, leasing seems to be best suited for those individuals who own their own business. Writing off a lease payment on a new luxury car seems like a good deal. But... I somehow feel so "jipped". I mean, I know I got to use this nice car for 3+ years... (39 months total once the lease ends) but somehow feel so unsatisfied. I know I don't wanna buy the car at the end of the lease. I can only hope that when I turn it in, I get to just walk away without incurring any other expenses.

    Scott.
     
  12. DonRoeber

    DonRoeber Screenwriter

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    Yep, I'm nearing the end of my lease too. I'm currently leasing a 2000 Mustang convertable, and I love the car. I really could see myself driving it for another few years. I need to take it in for the pre-end of lease inspection soon. I'm planning on buying a new explorer (buying this time, not leasing), and my Dad wants to buy the mustang at the end of the lease. Hopefully I'll get a good deal from the dealership by buying two cars at the same time. And I'm sure they'll be happy about not having to deal with selling the mustang.
     
  13. Charles J P

    Charles J P Cinematographer

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    I dont bag on leasers, but it just doesnt make sense for me. First of all I could never stay under the mileage limit (I have a six month old Mazda with 11,000 miles on it). Secondly, I didnt buy it new, but I kept my last car until it was 15 years old and had 180,000 miles on it. We paid $4000 for that car, I drove it for 5 years and then got $1500 in trade for it (I may have had $1000 in maintenance that I wouldnt have had on a newer car). So it cost me $700 a year to drive vs making 12 $300+ lease payments a year. My current car is brand new, but I think my next car may be at least a year or so used. Let someone else take that 15% a year loss in value over the first two years.
     

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