Lease vs. buy - a real life financial comparison
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    1. #1
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      Lease vs. buy - a real life financial comparison

      We just turned in our lease of a 2014 VW Tiguan base model with a manual transmission (I.e. Absolute base model) and I am now an even bigger fan of leasing than I was before. Here is how the numbers break down using our real numbers compared to the numbers if we had purchased it with 100% cash.

      Lease:
      Terms: 36 month lease with 12,000 miles a year for 3 years
      Purchase price: $22,095
      Cap cost reduction: $9,000 - traded in a paid off car and applied the entire amount to the lease (we would take all of the cash next time)
      Monthly payment: $63 ($2,268 over 36 months)
      Additional miles purchased: 12,000 at $0.15 per mile (25% discount for purchasing them early) for $1,800
      Total miles at turn in: 46,635
      Lease end fee: $350
      KBB trade in value (Very Good condition) today: $10,377
      So, total cost during lease: $9,000+2,268+1,800+350 = $13,418

      Purchase with cash:
      Purchase price of $22,095
      Sales tax on $13,095 (22,095 - 9,000 trade in): $1,244
      Total cash paid: $22,095 + 1,244 = 23,339 (plus licensing)
      KBB trade in value (Very Good condition) today: $10,377
      Total cost after trading car in: $23,339 - $10,377 = $12,962

      So, leasing the car only cost us an additional $456 over the 3 years. But leasing gave us the ability to simply walk away at the end without trying.

      If we would have kept the miles at 36,000 the value today would have been $11,025 and the cost to lease would have been $11,618 and the purchase would have cost $12,314.

      So for all of those people that say leasing a car is the most expensive way to buy a car are wrong (at least in this case) and leasing a car just gives you more options if you don't drive a ton of miles and take care of your car.

    2. #2
      In pure financial terms, there should be absolutely no difference between leasing, financing, or paying cash. In real terms, you will have a multitude of personal situations where one option will be better than the other. In terms of new vehicles, there will never be a blanket case of one option being better than the other and anyone who claims otherwise doesn't actually understand the numbers.

    3. #3
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      Keep the car for 10 years instead of 3 and the math changes significantly.

    4. #4
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      Quote Originally Posted by troyguitar View Post
      Keep the car for 10 years instead of 3 and the math changes significantly.
      That is very true, but at the end of the lease, I could have purchased the car for $11,400. If the car is worth less than the purchase option, you give it back. But if the car is worth more than the purchase option (probably pretty rare) you can sell the car for a discounted price or sell it on your own and end up with cash in your pocket.

    5. #5
      Whine Connoisseur WhineMCABasket2.0t's Avatar
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      Yes the delta in lease vs buy is the value of the option contract.
      I'm just a regular Joe, with a regular job. I'm your average white, suburbanite slob.

      Quote Originally Posted by Rabbit5GTI
      You have cornered the entire 'I hate Ford Fusions' market around here
      Quote Originally Posted by Turbio!
      Pure electric vehicles will never fully replace fueled (pure ICE or PHEV) vehicles.

    6. #6
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      Quote Originally Posted by troyguitar View Post
      Keep the car for 10 years instead of 3 and the math changes significantly.
      Who keeps a car for 10 years though?
      I drive a car.

    7. #7
      Whine Connoisseur WhineMCABasket2.0t's Avatar
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      Quote Originally Posted by buumer View Post
      In pure financial terms, there should be absolutely no difference between leasing, financing, or paying cash​.
      Not even remotely true. There's a cost to the maker to be on the hook to take the car in. At times they really want the cars back for preowned stock of certain models at certain planned times but in general it's a cost to them.

      Paying cash has a myriad of up and downsides to a maker and depends a lot on their status as captive financing or not, their offered rate, and their own IRR if they don't give the money net to you in a loan and use it elsewhere in the company. Can't ever say for sure what's better unless you're a cost accountant for the maker.
      I'm just a regular Joe, with a regular job. I'm your average white, suburbanite slob.

      Quote Originally Posted by Rabbit5GTI
      You have cornered the entire 'I hate Ford Fusions' market around here
      Quote Originally Posted by Turbio!
      Pure electric vehicles will never fully replace fueled (pure ICE or PHEV) vehicles.

    8. #8
      Quote Originally Posted by jnm2.0t View Post
      Not even remotely true. There's a cost to the maker to be on the hook to take the car in. At times they really want the cars back for preowned stock of certain models at certain planned times but in general it's a cost to them.

      Paying cash has a myriad of up and downsides to a maker and depends a lot on their status as captive financing or not, their offered rate, and their own IRR if they don't give the money net to you in a loan and use it elsewhere in the company. Can't ever say for sure what's better unless you're a cost accountant for the maker.
      I'm not sure what point you're trying to make. Leasing, financing, and paying cash are all theoretically equivalent, otherwise there would exist a clear arbitrage.

      However, in real terms, there can be stark differences between each option depending on a plethora of factors ranging from regional incentives to global market conditions. Thus, there will never be a single "better" option that will apply across the board.

    9. #9
      Whine Connoisseur WhineMCABasket2.0t's Avatar
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      Quote Originally Posted by buumer View Post
      I'm not sure what point you're trying to make. Leasing, financing, and paying cash are all theoretically equivalent, otherwise there would exist a clear arbitrage.
      Arbitrage? What? Explain that one.....
      I'm just a regular Joe, with a regular job. I'm your average white, suburbanite slob.

      Quote Originally Posted by Rabbit5GTI
      You have cornered the entire 'I hate Ford Fusions' market around here
      Quote Originally Posted by Turbio!
      Pure electric vehicles will never fully replace fueled (pure ICE or PHEV) vehicles.

    10. #10
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      Quote Originally Posted by whalemingo View Post
      Who keeps a car for 10 years though?
      Lots of people do.

    11. #11
      Member OrangeA4's Avatar
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      Who keeps a car for 10 years though?

      Im still driving this 2008 Avant
      '11 TTS Coupe
      '08 A4 Avant 2.0t S-line Titanium
      '01 A4 Avant 1.8t S-line (Sold)
      '90 Coupe Quattro 20v (Sold)
      '95 "Getta" VR6 (Sold)

    12. #12
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      Quote Originally Posted by jnm2.0t View Post
      Arbitrage? What? Explain that one.....
      In non fancy words he means that if there were a real difference in the way that it worked there would be a clear price difference between the two methods of financing that could be exploited for a net gain. Which there isn't.
      I drive a car.

    13. #13
      Member Form Ocean's Avatar
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      Oh my God, it's a mirage
      I'm tellin' y'all it's arbitrage


    14. #14
      Member Avus's Avatar
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      OP try do the calculation again like this

      Total cost in leasing 2 cars in 6 years
      vs
      Buy a new car in cash and keep in for 6 years

      I would not call buy a new car every 3 years "a real life situation".
      “I am not a Mac user unless under duress.” - John Carmack

    15. #15
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      Quote Originally Posted by whalemingo View Post
      In non fancy words he means that if there were a real difference in the way that it worked there would be a clear price difference between the two methods of financing that could be exploited for a net gain. Which there isn't.
      Correct me if I'm wrong, but arbitrage doesn't really apply here because it's impossible to take advantage of an arbitrage situation because of the nature of automotive sales. The manufacturer/bank is the only entity that can provide leasing and/or financing so there is no arbitrage opportunity, even if there was a cost difference between the options that could theoretically be exploited. If a person could walk into a dealership, buy a car with cash, then turn around and underwrite a lease or a loan to another person then that would be an arbitrage opportunity, but that's obviously not possible
      "Plenty of poseurs drive all sorts of sports cars, but poseurs won’t survive the Viper"-Car and Driver

    16. #16
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      Quote Originally Posted by Avus View Post
      OP try do the calculation again like this

      Total cost in leasing 2 cars in 6 years
      vs
      Buy a new car in cash and keep in for 6 years

      I would not call buy a new car every 3 years "a real life situation".
      Why is getting a new car every 3 years not a real life situation? I've never kept one over 5 years (not counting hobby cars)
      I drive a car.

    17. #17
      Geriatric Member J-Tim's Avatar
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      Quote Originally Posted by whalemingo View Post
      Why is getting a new car every 3 years not a real life situation? I've never kept one over 5 years (not counting hobby cars)
      It is not everyone's real life situation, if that makes sense.

      Changing cars every 3 years is a luxury not everyone can afford or simply willing to do so.

      Personally, I'd rather spend those payments on other things.
      🍵 🚴 🍲 💤
      "I've always been mad, I know I've been mad, like the most of us are. Very hard to explain why you're mad, even if you're not mad."

    18. #18
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      Quote Originally Posted by whalemingo View Post
      Who keeps a car for 10 years though?

    19. #19
      Member Travis Grundke's Avatar
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      There are plenty of arguments to be made for leasing, but I kept my last car ten years, paid it off in four. Six years of no car payments yielded me around $30,000 that ended up in my bank, minus around $500/year in maintenance over that period. Had I leased over that same term, i would have been out that money.

    20. #20
      Member VT1.8T's Avatar
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      Quote Originally Posted by whalemingo View Post
      Who keeps a car for 10 years though?
      I do. For the two daily drivers, we finance for 5 years and keep for at least 10, with only one car payment at a time.

    21. #21
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      Quote Originally Posted by Varrr6 View Post
      Arguably at the 10 year point, you've traded car payments for repair costs. The other benefit of leasing is that you always have a reliable car under warranty. As long as you get a lease that extends the length of the bumper to bumper. Personally I've leased three cars over the last 9 years and will continue leasing. I rationalize it as just another utility bill. Only in this case I'm paying monthly for transportation for a product that is not only a practical tool, but also a form of art that I can take pleasure in looking at and piloting each day.

      Honestly everyone rationalizes their choices with data that favors their opinion and life choices. Ultimately no one is smarter than the sum total of all the engineers and all the bankers out there. Sure you could buy a reliable car that lasts ten years with relatively less maintenance costs, but you would probably drive a soul-crushing Camry. But unless you have committed to a life of celibacy and reclusiveness off the grid, you WILL spend money on products that are "frivolous" to others. Ultimately we all have passions and you be crazy to believe that the capitalistic marketing machine doesn't have a way into your soul and your wallet.

      IMO


      Sent from my iPad using Tapatalk

    22. #22
      Member intonation's Avatar
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      Pfft... If you take care of your car then you don't need to lease. Leasing is good if you want to drive the latest and greatest every few years. I'd rather take care of my rides keep them, just add new ones to the stable every few years. Different priorities...

    23. #23
      Member Travis Grundke's Avatar
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      Quote Originally Posted by ocramida View Post
      Arguably at the 10 year point, you've traded car payments for repair costs.
      If you're dumping between $4500-$6000 annually into repair work on a vehicle, something is monumentally wrong. And by that, I mean: Land Rover, Jaguar, Volkswagen and FIAT combined-into-one-kind-of-bad.

    24. #24
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      Quote Originally Posted by whalemingo View Post
      Why is getting a new car every 3 years not a real life situation? I've never kept one over 5 years (not counting hobby cars)
      This I see true for me as well. The lease was also the first car (out of 12) that I had actually kept for a full 3 years. A lot of them, I had only kept for a year or so. Most of the cars were financed (which over 3 years or less is an even worse deal) and I ended up rolling a little bit of negative equity into the next deal. I think our current cars will surpass the 3 year mark though.

      But yes, I agree that if you keep a car for 10 years that leasing 3 cars during this same period would cost a lot more, but I would argue that it could be worth starting your 10 year ownership with a 3 year lease and then buying it out at the end. This might cost you a little more in the long run, but it would make it easier to get something new after 3 years if you end up not liking the car.

    25. #25
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      the better comparison is leasing vs. traditional financing as the lease costs posted by the OP includes an interest charge.

      you need to look at how much interest you've paid for a lease vs. the loan over the same period.

      the 10 year argument needs to look at the lease cost+lease inception X 3 vs. any financing costs+non wear item maintenance.

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