Lease vs. buy - a real life financial comparison - Page 3
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    1. #51
      Junior Member OceanViews's Avatar
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      Quote Originally Posted by jnm2.0t View Post
      you're in a quasi buyer/supplier contract for a single vehicle. you're more a reseller than anything if you can buy it up and sell for a profit on the market. if you want to claim that every seller of goods is engaged in arbitrage with their suppliers when they sell something for profit fine I guess, but nobody calls that arbitrage.
      The difference is, i'd be taking advantage of a single opportunity that is presenting itself because of the pricing difference. The buyer/seller of goods normally isn't taking advantage of an arbitrage opportunity because they are generally setting the price that their goods are sold at and negotiating a price with sellers to generate those profit margins.

      If my two markets are Audi Financial and the Private market, my financial instrument is my car. There is a pricing inefficiency on my financial instrument between the two markets allowing for an arbitrage opportunity. That same opportunity isn't necessarily available to another owner of a 2015 S4 that is also leasing. Their buyout from Audi may be more than the market value of their particular car and no arbitrage opportunity would exist.

      "Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms."

      The above definition is being satisfied by my real-life scenario. Coming full circle though, I highly doubt that opportunity is available to a majority of people that lease their vehicles. So I agree that arbitrage is not a realistic strategy that is presented in the choice of buying/leasing/financing a car but in rare instances such as mine, it can exist for a very small margin of profit that probably isn't actually worth the effort of executing.

    2. #52
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      Quote Originally Posted by OceanViews View Post
      The difference is, i'd be taking advantage of a single opportunity that is presenting itself because of the pricing difference. The buyer/seller of goods normally isn't taking advantage of an arbitrage opportunity because they are generally setting the price that their goods are sold at and negotiating a price with sellers to generate those profit margins.

      If my two markets are Audi Financial and the Private market, my financial instrument is my car. There is a pricing inefficiency on my financial instrument between the two markets allowing for an arbitrage opportunity. That same opportunity isn't necessarily available to another owner of a 2015 S4 that is also leasing. Their buyout from Audi may be more than the market value of their particular car and no arbitrage opportunity would exist.

      "Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms."

      The above definition is being satisfied by my real-life scenario. Coming full circle though, I highly doubt that opportunity is available to a majority of people that lease their vehicles. So I agree that arbitrage is not a realistic strategy that is presented in the choice of buying/leasing/financing a car but in rare instances such as mine, it can exist for a very small margin of profit that probably isn't actually worth the effort of executing.
      you're really forcing the issue of arbitrage into this. it's not market inefficiency, you have a contract. if you're going to call it arbitrage then every store that sells something is engaged in arbitrage. again, nobody calls it that. even though they buy something from their supplier at $100 and sell it at $125 it's not considered arbitrage because it's not a price the general public has access to. the store has access to $100 through a contract they probably signed to be a reseller of the goods. the term arbitrage is usually used for things like different prices in currency that the broad market has access to and yet an inefficiency still exists, not supplier/store relationships.

      it was also stated it must be the same in theory or a clear arbitrage opportunity would exist. casting aside the improper use of the term, it isn't ever clear up front what the situation will be at the end. in one scenario the purchase price may be $20k and the street value $23k. It could also have a street value of $17k. it's an option contract and one side or the other may benefit, or it may be a push.

    3. #53
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      Quote Originally Posted by Avus View Post
      Are you sure you can get a "new car purchase interest rate" for an off lease car? I don't know your area, but in Toronto (probably in Canada) interest rate for used car is MUCH HIGHER.

      BTW, I would also factor the insurance premium as well. An older car can have cheaper insurance.
      The last used car we purchased has a 2% interest rate and another bank is offering 2.69% on a 2014 and older model car.

    4. #54
      Quote Originally Posted by jnm2.0t View Post


      I know damn well what arbitrage means. Explain how a consumer is going to take advantage of it with a car.
      Doesn't sound like you do...

      A vehicle is an asset. You have multiple ways to acquire the said asset. The only real difference between leasing and financing is the proportion of the asset being included in the transfer contract.

      Price me a lease for the expected life of the vehicle. It will yield the same result as general financing...or lease to purchase....or any other financing contract.

      In the real world, this is complicated by the transaction costs, incentives, alternate investment opportunities, and the list goes on. You will have miss-pricing and people can benefit by walking in on the right side of the transaction. But the fundamentals of each contract are equivalent.

    5. #55
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      Quote Originally Posted by buumer View Post
      Doesn't sound like you do...
      Well you sure don't. Selling a car you have a contract to buy for $x and can sell for $x+1 doesn't indicate market inefficiency.

      Any schmo being able to walk into a car dealer and lease for $x and then turn around and sell it on the market themselves for $x+1 would be arbitrage. That's not at all what's happening here.

      In your lease end S4 example maybe the car maker made a bad contract for end price but that's not market inefficiency.

      As for lease vs buy being the same to a company, not even close. The company takes added risk by guaranteeing to repurchase the car even if the market value is $0. They want to be compensated for that risk, the option contract they are writing to you.
      Last edited by WhineMCABasket2.0t; 04-13-2017 at 11:52 AM.

    6. #56
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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.
      Not if the car was reasonably reliable to begin with.

      These are still all over the place around here:

      ( By IFCAR - Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=4237385 )

    7. #57
      Junior Member OceanViews's Avatar
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      Quote Originally Posted by jnm2.0t View Post
      Well you sure don't. Selling a car you have a contract to buy for $x and can sell for $x+1 doesn't indicate market inefficiency.

      Any schmo being able to walk into a car dealer and lease for $x and then turn around and sell it on the market themselves for $x+1 would be arbitrage. That's not at all what's happening here.

      In your lease end S4 example maybe the car maker made a bad contract for end price but that's not market inefficiency.
      I do not think you understand what it means to have an arbitrage opportunity.

      Right now, the buyout price is less than the price that the private market is fetching, which means I could make a profit on the purchase & sale of my asset.

      In 6 months, my buyout price (which will be different than what it is right now) can be more than what the private market is fetching, no profit could be made on the purchase & sale of the asset and thus I do not have an arbitrage opportunity.

      Finally, in 18 months when my lease is up, I have a predetermined buyout price. In 18 months, the private market could be fetching either more than or less than that predetermined buyout price, so an opportunity for profit would either exist or it wouldn't exist.

      Both my buyout price and the price in the private market are constantly moving throughout the term of my lease. The buyout price in 18 months is not what the buyout price right now is just like the market value of the car right now is not what the market value of the car will be in 18 months.

      You keep bringing up the fact that there is a contract. Normal arbitrage rarely exists in currency trading now because of electronic trading and the spread is so tight. You still get some arbitrage opportunities when you are using forwards and swaps and futures on the spot rates, all of which are contracts that the buyer enters into. If you are going to dismiss my arbitrage opportunity because I have a contract with Audi, then there is no such thing as an arbitrage opportunity in currency since currency contracts are used.

    8. #58
      Member g-man_ae's Avatar
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      Quote Originally Posted by Oliver@triplezoom View Post
      I'm not against leasing at all but not worrying about out of warranty expenses is a poor justification IMO. Unless the car is a complete pile out of warranty repairs are never going to approach the cost of lease payments.
      Quote Originally Posted by intonation View Post
      Pfft... If you take care of your car then you don't need to lease.
      Some cars are babied and still turn themselves into mechanic's specials. Others can be lease returns from the Taliban and still run forever. It's a crapshoot that obviates your statements. E.g. our 2000 New Beetle was one to "avoid" according to Consumer Reports, but it pretty much ran forever with very little work, even with my wife's neglect. OTOH my babied 2008.5 MS3 started eating itself at 36,100 miles and didn't stop for 20,000 more miles until I finally dumped it.

      Can someone explain why TCL gets its panties in a knot whenever leasing comes up? Diff'rent strokes for diff'rent folks. Leasing makes sense in plenty of cases. I'd still lease my daily if changes of home and job didn't yield over 15k miles/year: fixed monthly payment, no repair bills, just slap on a set of tires when done - in the context of a daily (and the reliable transportation it must provide), why is this so hard for some of you to understand?
      Last edited by g-man_ae; 04-13-2017 at 12:50 PM.

    9. #59
      Quote Originally Posted by Elite_Deforce View Post
      Would you like a source?

      As a result, IHS said the average length of ownership for a new vehicle has been extended even further. On average, buyers hold onto their new vehicle for 6.5 years. That compares to 2006, when new vehicles were held for an average 4.3 years.
      http://www.cnbc.com/2015/07/28/ameri...than-ever.html

    10. #60
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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.
      I ran the numbers on my GTI after 6 years of ownership and once you hit year 5, the numbers really start working in favor of buying over leasing.
      Quote Originally Posted by jamie@vwvortex View Post
      This forum is more and more of an embarrassment every day...

    11. #61
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      Quote Originally Posted by whalemingo View Post
      Who keeps a car for 10 years though?
      My dad's going on 15 with his '02 Ranger, so... my dad.

    12. #62
      Quote Originally Posted by chucchinchilla View Post
      I ran the numbers on my GTI after 6 years of ownership and once you hit year 5, the numbers really start working in favor of buying over leasing.
      The problem with this, and here's where leasing really makes sense, is this is a car enthusiast forum. In general and as a blanket statement, very few of us keep cars longer than 3 years.

      In my personal case, I was trading cars in every 2 - 4 years like clockwork, leased, purchased, or paid off. My needs changed, I got bored, the car started nickel and diming me...whatever.

      FOR ME....leasing makes an inordinate amount of sense given the above. That's why leasing is a personal choice. I would rather put the money into a new car that I trade in every 3 years.

      YMMV...and likely will.
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    13. #63
      Senior Member Sporin's Avatar
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    14. #64
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      Quote Originally Posted by Maximum_Download View Post
      The problem with this, and here's where leasing really makes sense, is this is a car enthusiast forum. In general and as a blanket statement, very few of us keep cars longer than 3 years.

      In my personal case, I was trading cars in every 2 - 4 years like clockwork, leased, purchased, or paid off. My needs changed, I got bored, the car started nickel and diming me...whatever.

      FOR ME....leasing makes an inordinate amount of sense given the above. That's why leasing is a personal choice. I would rather put the money into a new car that I trade in every 3 years.

      YMMV...and likely will.
      Same here...which is part of the reason I really can't understand all the hate leasing gets around here. It is nice having a car always under warranty, especially since I had a few dealings with the flip side and don't care to revisit that, but ultimately it's due to the above reasons for me. Mainly, I know in my mind that I will not keep a car for a long period of time, so why would I finance?? I'll just be upside down, without some huge down payment, and I'll pretty much always have a car payment. In my mind, as long as the payment is manageable and not outrageous, I'm okay with it.

      I hear from people all the time (my own family included) who are VERY anti-lease say things like "Well when you lease, you don't even own your car! You're just renting it!" This statement coming from people who finance, so it's even more ridiculous. When you finance, you don't own your car either. The bank does, and you're paying them to drive your car each month. Don't pay? Repo'd. So no, you don't own your car either. Only people who do are people whose car is 100% paid off, or pay cash. Plus, cars depreciate so heavily in value that unless you truly are someone who will ultimately keep the car until "the wheels fall off" financing makes basically zero sense.
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    15. #65
      Quote Originally Posted by StlVDub View Post
      Same here...which is part of the reason I really can't understand all the hate leasing gets around here. It is nice having a car always under warranty, especially since I had a few dealings with the flip side and don't care to revisit that, but ultimately it's due to the above reasons for me. Mainly, I know in my mind that I will not keep a car for a long period of time, so why would I finance?? I'll just be upside down, without some huge down payment, and I'll pretty much always have a car payment. In my mind, as long as the payment is manageable and not outrageous, I'm okay with it.

      I hear from people all the time (my own family included) who are VERY anti-lease say things like "Well when you lease, you don't even own your car! You're just renting it!" This statement coming from people who finance, so it's even more ridiculous. When you finance, you don't own your car either. The bank does, and you're paying them to drive your car each month. Don't pay? Repo'd. So no, you don't own your car either. Only people who do are people whose car is 100% paid off, or pay cash. Plus, cars depreciate so heavily in value that unless you truly are someone who will ultimately keep the car until "the wheels fall off" financing makes basically zero sense.
      Leasing gets hate because it's been tarred and feathered for decades. The reason why THAT happens is people do not understand the nuts and bolts of leasing....when to use it, why it makes sense, and how to calculate the payment and know you are getting a good deal.

      Further, you have a large section of the population who likely identify as "conservative". I.e. - buy a car used, pay it off, and run it till the wheels fall off. They were taught this young, and they view it as the only way to be smart about it.

      Me? I gave up "being smart". I am gaming the system to my needs and wants, and once you learn that a car is an expense, you treat all the expenses with the same lens. And that's when I started saying things like "I'd rather pay my expense on a new car than a used car."

      Is it more expensive over time? Yeah, probably. But I am willing to bet it's not significant. I am also willing to bet that you would look at that difference, and then realize that's the price you pay for having new cars every few years....and suddenly that cost won't look that bad when you drive by and see your neighbor on an 85 degree night under his paid for car, changing the oil and trying to trouble shoot a bad O2 sensor.

      Leasing is a car financing tool. That's all it is, and like buying with a car loan. And like all tools, it's best to know when, why, and how to use it.

      It also helps to know what your time is worth. Back in my 20s, I had time to kill fixing and tinkering with cars. I am now married, 40, with a 3 year old and a demanding career. I have zero time and even less patience to deal with fixing cars. I am lucky to get maybe an hour of personal time to myself these days.
      Last edited by Maximum_Download; 04-13-2017 at 02:14 PM.
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    16. #66
      Quote Originally Posted by Maximum_Download View Post

      Is it more expensive over time? Yeah, probably. But I am willing to bet it's not significant. I am also willing to bet that you would look at that difference, and then realize that's the price you pay for having new cars every few years....and suddenly that cost won't look that bad when you drive by and see your neighbor on an 85 degree night under his paid for car, changing the oil and trying to trouble shoot a bad O2 sensor.
      This is true, but 4, 5, 6, 7, 8 year old cars are still quite reliable when maintained...or even when not maintained if they are Japanese. The argument would be much better if cars became piles after three years, which just doesn't happen anymore.

    17. #67
      Quote Originally Posted by puma1552 View Post
      This is true, but 4, 5, 6, 7, 8 year old cars are still quite reliable when maintained...or even when not maintained if they are Japanese. The argument would be much better if cars became piles after three years, which just doesn't happen anymore.

      IN general, yeah. But it;s not an absolute, and carmakers like MINI, BMW, VW, and FCA are still major risks. So you're giving blanket statements to a problem that requires more detail.

      ANd when the cars I mention go bad, they are REEE-HEEEE-HEEEEALY expensive to fix. There is a damn good reason why luxury cars are, for the most part, leased. And the people who can afford those cars aren't exactly stupid.

      So no thank you, those cars will be leased if I am interested in one. If you want something like a Honda, sure, buy it and pay it off.....but the lease deals on Accords right now are so good....WHY?
      Matt
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    18. #68
      Quote Originally Posted by Maximum_Download View Post
      IN general, yeah. But it;s not an absolute, and carmakers like MINI, BMW, VW, and FCA are still major risks. So you're giving blanket statements to a problem that requires more detail.

      ANd when the cars I mention go bad, they are REEE-HEEEE-HEEEEALY expensive to fix. There is a damn good reason why luxury cars are, for the most part, leased. And the people who can afford those cars aren't exactly stupid.

      So no thank you, those cars will be leased if I am interested in one. If you want something like a Honda, sure, buy it and pay it off.....but the lease deals on Accords right now are so good....WHY?
      Oh believe me I know about BMW costs, owned two myself and one was fine and the other was the biggest mechanical assh0le I've ever owned. That said, I still think a modern BMW wouldn't be tooooo bad for 4-6 years if maintained.

    19. #69
      Member StlVDub's Avatar
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      Quote Originally Posted by Maximum_Download View Post
      Me? I gave up "being smart". I am gaming the system to my needs and wants, and once you learn that a car is an expense, you treat all the expenses with the same lens. And that's when I started saying things like "I'd rather pay my expense on a new car than a used car."

      Is it more expensive over time? Yeah, probably. But I am willing to bet it's not significant. I am also willing to bet that you would look at that difference, and then realize that's the price you pay for having new cars every few years....and suddenly that cost won't look that bad when you drive by and see your neighbor on an 85 degree night under his paid for car, changing the oil and trying to trouble shoot a bad O2 sensor.

      Leasing is a car financing tool. That's all it is, and like buying with a car loan. And like all tools, it's best to know when, why, and how to use it.

      It also helps to know what your time is worth. Back in my 20s, I had time to kill fixing and tinkering with cars. I am now married, 40, with a 3 year old and a demanding career. I have zero time and even less patience to deal with fixing cars. I am lucky to get maybe an hour of personal time to myself these days.
      Exactly. Especially the bolded part. Same here. My wife and I are 30, we both have demanding full-time jobs and we have a 3-year old as well...and you hit the nail for sure. We're LUCKY to ever have an hour of free time anymore.
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    20. #70
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      Quote Originally Posted by puma1552 View Post
      Oh believe me I know about BMW costs, owned two myself and one was fine and the other was the biggest mechanical assh0le I've ever owned. That said, I still think a modern BMW wouldn't be tooooo bad for 4-6 years if maintained.
      Considering that new BMW's come with 4/50 bumper to bumper and 3/36 free maintenance, no reason for them not to be maintained. Problem with BMW's is 3rd owner syndrome:

      First owner - leases car, performs all maintenance, & keeps it in good shape for lease end
      Second owner - beats the living bejeezus out of the car. Shoddy maintenance, if any. Sells it when stuff starts to go break.
      Third owner - gets stuck with repairing all the issues that were not addressed on a timely basis by second owner.
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    21. #71
      I can think of two good reasons to lease:

      1. You want an electric car that will have huge depreciation like the Leaf or I3. The money saved in gas could justify the cost of the lease.

      2. You expect your income to go up significantly in 2-3 years and want to drive a nicer car than you could otherwise afford, like a college student.

      Otherwise, I think you usually are better off with traditional financing.

    22. #72
      Member RENOG's Avatar
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      Quote Originally Posted by g-man_ae View Post
      Can someone explain why TCL gets its panties in a knot whenever leasing comes up? Diff'rent strokes for diff'rent folks. Leasing makes sense in plenty of cases. I'd still lease my daily if changes of home and job didn't yield over 15k miles/year: fixed monthly payment, no repair bills, just slap on a set of tires when done - in the context of a daily (and the reliable transportation it must provide), why is this so hard for some of you to understand?
      This^^

      Really all the basic points have already been covered, at this point its just debating over which you like better and why you should too. This subject is now dead.

    23. #73
      Quote Originally Posted by Porkchopexpress View Post
      I can think of two good reasons to lease:

      1. You want an electric car that will have huge depreciation like the Leaf or I3. The money saved in gas could justify the cost of the lease.

      2. You expect your income to go up significantly in 2-3 years and want to drive a nicer car than you could otherwise afford, like a college student.

      Otherwise, I think you usually are better off with traditional financing.
      Or the car has artificially propped up residuals to move them
      Or the person owns a business and it's a 100% write off
      Or likes hassle-free changing of cars every 2-3 years
      Or many other reasons.

      These threads are annoying as people try to equate everyone else's situation to their own. If leasing doesn't fit YOUR situation, fine. STFU about others.

    24. #74
      Quote Originally Posted by Porkchopexpress View Post
      I can think of two good reasons to lease:

      1. You want an electric car that will have huge depreciation like the Leaf or I3. The money saved in gas could justify the cost of the lease.

      2. You expect your income to go up significantly in 2-3 years and want to drive a nicer car than you could otherwise afford, like a college student.

      Otherwise, I think you usually are better off with traditional financing.
      Way to generalize there, sporty.
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    25. #75
      Quote Originally Posted by surefooted View Post
      Or the car has artificially propped up residuals to move them
      Or the person owns a business and it's a 100% write off
      Or likes hassle-free changing of cars every 2-3 years
      Or many other reasons.

      These threads are annoying as people try to equate everyone else's situation to their own. If leasing doesn't fit YOUR situation, fine. STFU about others.
      ^

      This guy gets it.

      There's a million reasons to lease....IF it fits you, AND you know what and why you are leasing/getting into.

      If you're just doing it to lower your car payment, you probably didn't think this through very well. Leasing is a strategy.
      Matt
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