"nermal" (nermal)
08/25/2015 at 18:40 • Filed to: rants, i can do math good, depreciation, accounting principles, that's a pretty vee dub, OMG I WANT IT NOW
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"nermal" (nermal)
08/25/2015 at 18:40 • Filed to: rants, i can do math good, depreciation, accounting principles, that's a pretty vee dub, OMG I WANT IT NOW | 2
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Needs repeated any time the subject of cash vs leasing vs loans come up:
Option 1: You buy a new car with cash. It depreciates, and is worth less over time.
Option 2: You lease a new car. It depreciates, and is worth less over time.
Option 3: You buy a new car with a loan. It depreciates, and is worth less over time.
There are obviously exceptions, if you happened to buy a BMW 1M or a McClaren F1. Otherwise, your new car will be subject to depreciation. It will depreciate at the same level, regardless of how you pay for it. In other words, the method that you use to finance you new car has ZERO effect on how much it depreciates.
This depreciation needs to be factored into Total Cost of Ownership (TCO). Other things that factor into TCO are financing charges, maintenance, fuel, insurance, etc. Your method of financing your new car MAY change the TCO, but it WILL NOT change the depreciation.
Buying cash means that you will save on interest expense, but you will tie up cash that may have been used for something else, that may either make or save you more cash. Leasing means that you agree to pay just the projected depreciation amount for a set term, plus interest and fees. Doing a loan means you pay a little bit per month, plus interest, until the car is paid off.
Which method is right for you depends on multiple factors, such as: How much cash you currently have, your budget, risk tolerance, how much you drive, how long you plan to keep a car, what car you want, your tax situation.
Twinpowermeansoneturbo
> nermal
08/25/2015 at 18:56 |
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With a lease the depreciation you pay for is predetermined. It is far less risky than purchasing or financing. Say gas prices spike and suddenly your HUMMER is worth next to nothing on the used market (as it happened in the late 2000’s), that becomes the leasing company’s problem, not yours. Alternatively, you get into a major accident but the car isn’t totaled. Insurance pays out and the car is repaired to its previous state. The leasing company is now the one stuck with the car which has severely diminished value. It is not as cut and dry as you make it out to be.
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nermal
> Twinpowermeansoneturbo
08/25/2015 at 19:14 |
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You are correct - that’s why I mentioned risk tolerance in the last part. If you don’t want to carry the risk that your Hummer will drop in value due to rising fuel costs, or because some jagoff smashes into it, then there are advantages to leasing.
BaconSandwich is tasty.
> nermal
08/25/2015 at 20:14 |
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I prefer Option 4: Buy used (assuming the normal depreciation).
Also, one thing to consider with leasing: isn’t the buy-out price at the end usually above market value, meaning that if you want the car after the lease is up, you are paying more than if you were to buy a used one elsewhere?
Clown Shoe Pilot
> nermal
08/25/2015 at 20:55 |
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McClaren?
theloudmouth
> nermal
08/25/2015 at 22:24 |
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Leasing, technically speaking, is the least risky purchase decision of all, given the sole exception of interest rates spiking to the atmosphere between the time you start and end the lease.
Everyone seems to forget you can always buy out a lease. Case in point for Jalops, if you get an enthusiast anything it doesn’t lease the best because people rag on them in some proportion, but then you can buy it out if it was a solid example you took good care of and A: flip it and upgrade or B: hold onto it. If you bought it in the first place and there was a bunch of things wrong with it (warning lights... looking at you VAG), you got into an accident, etc, you are off the hook.
I’ve just done my first lease and have to say after all the research it became a very easy decision.
There’s only one caveat, which is the used car, of course.
Saracen
> nermal
10/06/2015 at 14:30 |
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I buy a new car with a loan because my credit is so good that I can always qualify for low interest rate incentives. The money that would pay for the car cash gets much higher returns than the auto loan interest rate when invested.
And I never lease because I drive well over 20,000 miles per year.