LongRun
Senior Member
- Joined
- Aug 19, 2017
- Threads
- 21
- Messages
- 151
- Reaction score
- 80
- Location
- California
- Vehicle(s)
- 2017 Civic Type R
I really appreciate you posting the lease contract. That was enormously helpful and a bit brave. Thank you!
Yeah, it's long, but you seem to have gotten the gist.
If you get money back at the end of the lease, it is your money, but that is exactly like if you get money back at the end of a loan it is your money. The only way to get money back is to sell the car for more than you owe on it. Because you get less money back at the end of a lease than at the end of the loan, I say it is not a win for a lease.
Start with $100,000 in a tax-free money market account, go through all the financing math and transaction costs, including the stupid tricks the finance manager plays (e.g. giving you zero percent interest by applying a rebate to the interest you owe instead of to the purchase price of the car) and the cost of selling the used car, and see how much money you have left. The only real-world way you end up with more money in your account at the end of a lease as opposed to a loan is if the car is worth significantly less than your agreed residual value (the bank under-estimated the depreciation). The pretty-much-never-happens ways you could have more money leasing is if your money market pays you higher interest than the true non-gimmicky interest rate you are paying on the lease, or if the lease interest rate is enough lower than the loan interest rate that it makes up for the higher loan amount.
However, just because you are usually paying more for a lease does not mean it is a bad deal. You usually pay more for insurance of any kind than you receive in cash benefits, but insurance protects you from random chance and surprises. You can think of a lease as a combination of a new car loan and an insurance policy that guarantees the car will be worth the residual amount at the end of the lease. A lot of lease vs. loan bias comes from how valuable you perceive that insurance policy to be for you.
The other big bias is that a lease lets you enjoy the benefits of future earnings to a greater degree than a loan does. Most people run their finances on a monthly cash flow basis, meaning what matters to them is how much they pay out each month versus how much they earn. They can either get twice as much car for the same amount or pay half as much per month for the same car when they lease versus buy. For someone who earns money from their car, getting a better car can actually more than make up for the increased finance costs. For someone who needs reliable transportation to get to work, leasing a new entry level car can pay off in not getting fired for being late or missing work due to transportation issues that might come from not having a car or driving a used car with no warranty that needs expensive repair. For someone who chooses to pay less per month for the same car, if they take the difference in payments and put it, say, in an IRA or towards buying a home, they might not be better off at the end of the lease, but they could be better off 10 years down the road.
Yes, it is very complicated. I agree with your choice to lease in your situation.
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