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Logic of leasing
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05-21-2007, 09:39 PM | #45 |
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Keep giving away $3-$4-$5K over a dozen years and you'll never have REAL money.
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06-14-2007, 12:50 PM | #46 | |
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06-14-2007, 12:54 PM | #47 | |
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As far as the comment about gap insurance isn't that no longer an issue since they are guaranteed residual values? |
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06-14-2007, 12:57 PM | #48 |
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That one guy you said was making XX on his 90K in the bank, well you calced it incorrectly. Yes the first month he will make his 9% on 90k, but the second month he will make 9% on 90K - the payment he draw out of it. It goes down every month, and in the end he won't have made that 9% on 90K for three years at all. You could easily amortize it in Excel to see what he really makes over the three years.
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06-14-2007, 01:28 PM | #49 | |
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06-14-2007, 01:57 PM | #50 |
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Many articles have been written on this...
Check, money magazine, msn, cnn, forbes etc.
If you change cars every 3-4 years, deduct the payment(like real-estate agent as part of business expense), drive close to the lease terms usually 12k/15k a year then lease make sense. Anything else buy makes more sense. To use the money invested to gain 9% (like the above posts) is just gambling. If you think that makes sense, why not go further, take out equity home loan at around 7% right now and buy stocks which on average return 12% over the last 30 years. You may live in your leased car before long if you do. ![]() On the story about 5 mil bank account and financing, is that Paris Hilton by any chance. It just show some people with alot of money is not very smart. "Oh I need cash flow so I finance my car, but I have 5 mill in the bank ![]() |
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06-14-2007, 02:15 PM | #51 |
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I never want to fully own a car unless it is a collector's item of some sort. I'd rather lease and someday OWN my home. It is so hard at least in California to come out ahead when you sell car on your own.
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06-14-2007, 02:24 PM | #52 |
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Besides the numbers I like leasing because if your car is in an accident you can turn it in at the end of the lease after repairs and not have to worry about trying to sell a car that doesn't have a clean carfax. No one will buy a used car that's been in an accident for that much money, they'll just find one that hasn't.
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06-14-2007, 02:59 PM | #53 | |
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In your example, you are essentially setting the terms of the lease to have the depreciation portion of the payment be zero (by paying the 20k depreciation), and the "rent charge" portion would be (cap cost + residual) * money factor. Don't forget the lease payment formula: payment = ((cap cost - residual)/term) + ((cap cost + residual) * money factor) The first part of the payment is called the "depreciation charge" and the second part is called the "rent charge" (essentially the "interest" paid). Prepaying the lease is completely different to making a giant downpayment to lower the cap cost on which the lease based (and hence reducing the depreciation portion of the lease payment). The difference is that in the lease prepayment scenario, that comes _after_ you make whatever cap cost reductions (down payments) and the terms of the lease have been set. In the "huge cap cost reduction" scenario, the terms of the lease are being modified and the lease payments haven't been calculated yet. Under lease prepayment scenario, if your car were to be totalled or stolen: If you were to prepay a lease on which you made no (or a very minimal cap cost reduction), you would certainly be entitled to a prorated portion of the lease prepayment in the amount of the number of monthly payment * months remaining on the lease. Under large cap cost reduction scenario, if your car were to be totalled or stolen: If you simply make a large cap cost reduction in order to reduce the monthly lease payment, you will _never_ see that downpayment money ever again. I hope I was able to explain myself clearly enough. -MrB
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06-14-2007, 03:04 PM | #54 | |
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06-14-2007, 03:12 PM | #55 | ||
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06-14-2007, 03:13 PM | #56 |
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Side note,
The fact auto financing companies even exist disputes the idea that it's always smarter to lease and invest your money elsewhere. Perhaps we should call Capital One and tell them that they could get a much better ROI if they stopped lending for auto loans at 6% and instead invested their money like the average e90post member? ![]() |
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06-14-2007, 03:13 PM | #57 | |
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-MrB
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06-14-2007, 03:15 PM | #58 |
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That's what I meant by "which is actually less than 6% after taxes."
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06-14-2007, 04:11 PM | #59 |
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06-14-2007, 04:17 PM | #60 | |
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06-15-2007, 03:49 AM | #61 |
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I'm really quite amazed at this thread as far as how it started out in unanimous agreement on the merits of leasing, one would think that leasing is smart and buying is dumb. I must have flunked high school math since I put nearly 50% down and financed at 5.5%.
![]() The folks at BMWFS must be so dumb that they wrote their leases in the favor of the lessees! |
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06-15-2007, 04:00 AM | #62 | |
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But I like your logic and analogy to CapOne. In my case, Bank of America is accepting 5.5% from me for 60 mos., why would they do that instead of doing what these e90post members are doing? Finally, even if a person still thinks leasing is in their favor, less is still better, so why not lease a Honda Accord? Because whether they want to admit it or not, they're only looking at the difference between the $550 and the $299 per month, i.e. the monthly payment. Even a convenience store clerk can afford $550/mo. if he really wants to. What he can never realistically achieve on that salary if he also has living expenses, is ownership of a BMW. |
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06-15-2007, 04:11 AM | #63 | |
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06-15-2007, 08:45 AM | #64 | |
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For example, if you had a million dollars in the bank and wanted to buy a million dollar home, the question of whether to pay cash or to take out a motgage depnds a lot on what you can get as a mortgage rate, and what the associated costs of the mortgate are. If you could get a $1 million, 30-year mortgate for 5%, you would be a fool to pay cash for the house. If the mortgage was 8%, things might be different. If you are scared of leverage, then a 15-year mortgage might be more to your liking, in which case the calculus changes yet again. The decision to lease vs. buy is not a theoretical one, which is why the advice you get in Forbes magazine is wrong more often than it is right. An individual's personal financial situation can change the calculus substantially. For example, if a car costs $50,000, but I only have $20,000, my choice is not between paying cash and leasing. My choice is between leasing and investing $20,000, and financing with a $20,000 down payment. Similarly, if I can only afford to pay $500 per month, I am not deciding between a 3-year lease and a 3-year finance, because the payment on a 3-year finance program is probably going to be too high for me. It's more likely that I'm deciding between leasing for 3 years or financing for 5 years, which is a much different calculus. In that scenario, after 5 years, I will probably pay less out of pocket if I buy, but I might have more cash in my pocket if I lease, invest, and buy the car at lease end. And this is all before breathing a word about depreciation. And, what if I have a second car that isn't paid off yet? Instead of pouring $20,000 into a down payment, I could lease a new BMW, pay off my other car, and invest whatever is left from my $20,000. In this scenario, I would actually own one car instead of owning zero cars, as I would if I "bought" the BMW, and I still have cash left over to invest. And finally, what about retirement savings? Let's say I'm 25 years old. If my choice is between financing a car with $5,000 down or leasing with $0 down and putting the $5,000 in a Roth IRA, where it will grow tax-free at an average 9% annualized rate for the next 40 years, guess which is going to be the smarter choice? What you and everyone else needs to understand is that there is no one-size-fits all answer to the lease vs. buy decision. It is not a theoretical decision- it depends on the actual choice that an individual has before him or her at the time, based on actual, not theoretical, numbers. Leasing is not best for everyone, but neither is buying.
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06-15-2007, 08:46 AM | #65 |
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If you think Capital One or Bank of America is making its money off of car loans, you know very little about the financial services industry.
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06-15-2007, 09:45 AM | #66 | |
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Where are all the lessee's now boasting about their big wins in real estate, especially in Miami and Phoenix? Imagine leasing a BMW and using the so-called cash flow to invest in Miami real estate last year. Talk about a wake up call in June 2k7. Or Boston for that matter, poor return since 2k2 and high initial investment. There always has to be something very real justifying valuation over the long run. Leasing a car is no bargain, but often it's the only practical way to get that much car for that little cash flow. |
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