If you purchase at the end of a lease based on the residual value, you have normally paid more than you would have if you would have bought the car outright. Unless you are savvy enough to negotiate your money factor or the car's lease price, the average consumer will get screwed on a lease. I am assuming that since this girl feels that the residual value can be used as a trade in for a new car, she probably was not savvy enough.

 

residual vlue /= trade in value... but usually trade in value > the residual. Someone must of explained that to her and she didnt understand...

You are also not considering alot of other factors, first payment when you are buying a car it usually higher, also taxes are an issue when you lease a car you can in some case spread the taxes on the term of the lease and lots more. If someone want to get a new car every 48 month leasing is a great opportunity...

http://www.infoplease.com/ipa/A0193143.html

 

the average consumer gets suckered into leases. doesnt mean all leases are bad though. something tells me this girl got screwed though h:

 

On the surface people see the lower payments of a lease and get excited but it ends up hurting people more than it helps.

First of all, you are paying financing costs on your lease of about 7-10% versus what you can get for financing (0%-3%). These costs are on TOP of what you pay for the depreciation cost for using the car. Perhaps if you are figuring only on the depreciation expense it may work out for the best as it is a pretty simple formula; (lease cost [net of any fees/trade in/etc]- residual value)/term. So, say you have a car that you "buy" for $15,000, a residual cost of $7,500 and a term of 36 months. Right there is a depreciation payment of $208.33 just for the depreciation expense.

Now, the financing charges are based on the net lease cost + the residual value (which is the total amount of funds being tied up by using the car) X the money factor. Now this may show up on a lease as a "lease charge" which is basically the sum of this figure for the entire lease, divided by the term. Now, a money factor is not an interest rate. The interest rate is the money factor X 2400 (why I am not sure). So, lets use our example. $15,000+$7,500 = $22,500. Say we are going to have an interest rate of 7%, the money factor would be 7% (the whole number not the decimal) divided by 2400 = .00291. So to calculate our finance charge we use the multiply the $22,500 by .00291 = $65.48. We add this on top of the $208.33 and our payment is now $273.81

Lastly, we have to add sales tax. That is just your sales tax rate (lets say 5%) multiplied by the lease payment and that amount is added to the lease payment. So on our theoretical lease payment of $273.81, a 5% sales tax would be $13.69 which brings our lease to $287.50 per month.

So for arguments sake lets say that there were two options; leasing the car as was shown above and purchasing at the residual value at the end of the lease or purchasing it outright at the beginning for the same price at a 2.9% interest rate over 3 years.

For the lease over 36 months you pay $10,350 ($287.50X36) + $7,500 for a residual value for a grand total of $17,850.

For the purchase lets say you finance the car ($15,000) plus the sales tax (since I added it to the lease payments), which is 5% ($750) your purchase price is $15,750. If you finance this for 36 months at a rate of 2.9% to be conservative your monthly payment is $457.34 for 36 months for a grand total of $16,464.24. That includes the principal of $15,750 and interest for the three years of $714.24. For this scenario that is a difference of $1,386 for where the lease costs more money.

Yes, the monthy payment is high for the 36 month car loan but it was meant as a demonstration to how you pay more money for a leased vehicle versus buying it outright. I did nto include fees as they are going to be very similar for each option. Also, I used a low money factor for the lease and a high interest rate for the car payment so actual results may be a larger margin.

Give me another scenario and I can show you how it is cheaper to finance versus lease.

 

dude... i am not arguing that it doesnt come more explensive... however it does make a lot of sense for a lot people to lease instead of buying. Go on honda.com, look at a accord LX sedan AT 2000$ down, lease for 48 months = 324/month* (total 15552$). To buy at a interest rate of 8%/48 months it comes to 490/month(total 23500$). now total that up and the difference is 8000$ cheaper to lease...

yes you dont own anything but monthly payment are less dont need as much of a good credit to lease(car is not yours) and many people want to just change cars after the 4 year with no hassle. you have to understand that for alot of people that 8K(with will porbably put down to 7K because of trade in value...) is worth it.

 

i paid no down with an interest rate of 1.7%. residual was 59%. how's that?

and oh yeah...the lease was based on invoice price.

 

Well if you know what you are doing you can swing a good lease :fawk:

The problem is that with the worse your credit is, the higher your money factor is going to be. It is a higher risk for the leasing company to allow you to drive their car. So, the worse your credit the more you will pay. If your credit is bad enough to be paying 8% on a new car loan, your money factor will be really high or you may not qualify for a lease at all.

Trust me, I know that sometimes leasing is better. My uncle leases all of his cars through his business which gives his overhead a much lower hit. However, leases for a normal consumer usually screw them.

 

hahahahah

 

now that i dont drive ridiculous miles a year like i used to, im going to lease my next cars. i get bored of cars way too quickly to be buying them on 5yr plans... but then since i drive like 3times more than the average person, its better that i buy and trade-in :happysad:

porsche cayman here i come!

 

In my defense I did mention that earlier in the post saying that if you could do well but that if this person doesn't know how a lease works, she probably got screwed