[HPIA4v2]

was thinking... say I lease a car, 3 year deal, the buyout in the end is 24,000 or so. The total cost of the remaining cars worth, plus payments, is $800 more than the cost of the car. So it seems that it would make sense to lease for three years (basically pay $800 of interest on about $24,000) and then finance or pay off the other $24,000. Then it is like getting half of the cost financed interest free... is this right?

No the monthly payment of leasing covers both the depreciating and rent aspect of the car. That's why there is CAP cost not just the price of the purchase car. No way the lessor, gives you free interest money on the residual amount of the lease!

Leasing is not best for everyone, but neither is buying.

Isn't it rather oxymoron talking investment and yet finance a luxury depreciating asset, at the same time?

Honestly, I am learning all this still, so it's all good.
Though, my rule of thumbs in finance: "I want good debt but not bad debt", so a person decide which one falls under which and drink more beer

[DCJAX]

Originally Posted by Lassaxi

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.

I'm not understanding you there. Are you suggesting that they hold auto loans only to hedge their portfolio?

Originally Posted by HPIA4v2

Though, my rule of thumbs in finance: "I want good debt but not bad debt", so a person decide which one falls under which and drink more beer

On that note.

Here is some important financial advice if your looking for investment opportunities:

If you had purchased $1,000.00 of Nortel stock one year ago, it would now be worth $49.00.

With Enron, you would have had $16.50 left of the original $1,000.00.

With WorldCom, of $1000.00 you would have had less than $5.00 left.

But, if you had purchased $1,000.00 worth of Beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling REFUND, you would have had $214.00. Based on the above, the best current investment advice is to drink heavily and recycle....It's called the 401-Keg Plan. Plus as Frank the Tank would say "Fill it up again! Fill it up again! Once it hits your lips...it's so good!"

[John 070]

Originally Posted by DCJAX

I'm not understanding you there. Are you suggesting that they hold auto loans only to hedge their portfolio?



On that note.

I'm not understanding him either, but he's on my ignore list. Why would CapOne send junk mail trying to solicit a car loan if it's a way to lose money? The way I see it, is generally in business, companies have a model, and they try to apply it across multiple product lines. When a car loan can be serviced via web and the borrower never has to talk to a person, the costs seems low to me. Why would HSBC and E*Loan also follow CapOne's suit?

Not sure who mentioned Nortel, but I have a couple thousand shares of Avaya, that I bought in the $11 range. It looked pretty bad when it went into the 7's, I was considering bailing if it could come back up into the 8's or even 9. Now I'm waiting for the tender offer so I made a few pennies. Whether I won or lost, and I've lost my share of times, has nothing to do with my day to day spending and buy decision on a car, house, etc. My salary determines that. Leasing makes it so salary is not important--who can't lease a 328i for $329 with $2500 down? Anyone making minimum wage can consider that. Who can't buy a 328i with only $2500 down? Many cannot as the loan payment would be sufficiently high, maybe in the $730 area. $400/mo. difference--sure, try to invest it, difficult to win over the long run.

[Lassaxi]

Originally Posted by DCJAX

I'm not understanding you there. Are you suggesting that they hold auto loans only to hedge their portfolio?
.

No, I'm suggesting that this not where the bulk of their margin comes from. Let me ask you this: how do you think financial institutions can offer sub-prime rates on home and auto loans? Do you think that would be possible if they relied solely on their customer's interest payments for their cash flow?

Actually, here is an even more fundamental question: do you think Cap One or BOA is actually the party that is getting the money you pay them every month? The answer is almost certainly no. As soon as your loan was set up, it was probably sold to an institutional investor as a bundle of asset-backed securities. Are you familiar with asset-backed securities? For very basic reading, I'd suggest doing a wikipedia search.

The use of asset-backed securities is just an example. The point I am trying to make is that form the bank's viewpoint, a loan is a very sophisticated transaction that is aggregated and manipulated on the financial markets to maximize revenue (and, more importantly, cash flow) to the bank while minimizing risk. They make money off of far more than the $500 check you send them every month, and they have the ability to strucutre lending arrangements in a wide variety of different ways, which means that they can make money off of loans and lease arrangements that make no sense to customers like us.

If anyone thinks that leasing makes no sense for customers just because banks offer leases (and banks, after all, must be trying to rip us off, right?), or becasue leasing tends to be used by the wrong customers for the wrong reasons, you are sorely mistaken.

I would have thought I said this enough, but apparently people are reading right past it, so I think it bears repeating: Leasing is not always the right answer. Buying is not always the right answer. The right answer depends on the coice you actually have to make at the time, based on REAL numbers, not theoretical, one-size-fits all advice you read in some financial magazine.

[Lassaxi]

Originally Posted by John 070

I'm not understanding him either, but he's on my ignore list. Why would CapOne send junk mail trying to solicit a car loan if it's a way to lose money? The way I see it, is generally in business, companies have a model, and they try to apply it across multiple product lines. When a car loan can be serviced via web and the borrower never has to talk to a person, the costs seems low to me. Why would HSBC and E*Loan also follow CapOne's suit?

Not sure who mentioned Nortel, but I have a couple thousand shares of Avaya, that I bought in the $11 range. It looked pretty bad when it went into the 7's, I was considering bailing if it could come back up into the 8's or even 9. Now I'm waiting for the tender offer so I made a few pennies. Whether I won or lost, and I've lost my share of times, has nothing to do with my day to day spending and buy decision on a car, house, etc. My salary determines that. Leasing makes it so salary is not important--who can't lease a 328i for $329 with $2500 down? Anyone making minimum wage can consider that. Who can't buy a 328i with only $2500 down? Many cannot as the loan payment would be sufficiently high, maybe in the $730 area. $400/mo. difference--sure, try to invest it, difficult to win over the long run.

Yeah, it's true that leasing allows you to buy more car than you can afford, but the fact that you CAN make a stuipid decision with leasing does not prove that it is ALWAYS a poor financial decision.

It's unfortunate that you've chosen to ignore farily basic common sense (and my posts), but if you have your own "the way I see it" conceptions about how the lending industry works, and you think that my comments about beating a loan interest rate through investing have anything to do with timing the real estate markets in Miami or Boston, or on how to pick individual winning stocks, you need a lot more help than I could ever possibly give you.