One of my clients, let's call him Jim, owns many car dealerships all over the state. Jim's also a nice guy, and I have really enjoyed working for him. I was never really in the market for a car because I already bought a ridiculous car.
Jim offered me a special lease program for employees through one of his dealerships. This is a super-luxury car brand, so I was skeptical. I told him I would be interested, but that I wanted numbers. Jim brought me numbers, and I was blown away. I need to make sure I am not missing something, so I am going to put this out there in the blogosphere. This really feels like a good deal.
Car #1 is now worth about 25K. Or, we could sell car #2 for 40K, get rid of 30K in debt and cash out 10K in equity. Onward to the math!
Leases are calculated with this formula. Obviously, leases are calculated to make money, or they wouldn't do them anymore (like Chrysler!). The lease's important numbers are the residual value and the money factor.
(Capital Cost (cost of car new) - Residual Value) / Term = Depreciation
(Capital Cost + Residual Value) x Money Factor = Interest
Depreciation + Interest = Base Monthly Payment
The car I am looking at is $49,500 new. The special employee lease has a money factor of .00125 (3%) and special residual of 80%. So, its residual is an incredibly unrealistic $37,125. Its lease is:
(49.5 - 37.1)/24 = $516/month depreciation
(49.5 + 37.1) x .00125 = $108/month interest
Lease = $516 + $108 = $624
Just for comparison, an Audi A4 3.2L convertible has a residual of 61%, .00110 money factor. That car is listed at $48,000, its residual would be $29,280. This money factor translates to 2.64% interest (money factor x 2400). That's not the car I'm looking at, but it's a fair comparison. So, its lease would be:
(48K - 29.28K)/24 = $780/month depreciation
(48K + 29.28K) x .0011 = $85/month interest
Lease = $780+ $85 = $865
I would never BUY a new car, so maybe a better comparison is buying a year-old car and holding it two years. I would do that, in fact I did do that last time. For the car I am considering, I think very realistic figures are that the car is worth $44K after a year, and $28 after two more years. So, the cost to hold:
($44K * sales tax - 28K) / 24 months = $818
Jim's lease really feels like a good deal. The lease includes all the maintenance and such. I might even get better treatment because I have a connection to Jim. If things fell apart with Jim, my maintenance could be done at any dealership of these cars, not necessarily Jim's.
So, my fantastic readers, should I lease the luxury car?
7 comments:
NO - do not lease a vehicle unless the following are true:
1. You plan to trade in the vehicle within 2 to 3 years (because you enjoy driving a new car so often), and
2. The person who is paying for the lease is your employer... or you are leasing the vechile as part of your own business and you are writing the cost of the lease off as a 100% business expense.
Those are the only two reasons you should lease. Otherwise, the numbers are lousy.
(My brother owns a dealership... he leases because he likes to drive new cars - an image thing - and can write the lease off as a biz expense.... and while he makes $$ off of people who lease and finance cars, he tells the rest of us to do differently than the customers who walk into his showroom!)
Nope
NO, NO, NO! Your goal was to pay off your car. Why would you want to incur another monthly payment for a car when you can use that money for one of your other annual goals. Besides, leasing a car is one of the worst things you can do with your money. And as Suze Orman says, if you cannot buy a car with a three-year car loan, you can't afford the car.
I can understand your client wanting you to lease a luxury vehicle as it appears that leases will soon be a thing of the past. Read this recent post by blogger Joel Maxwell and watch the video it's linked to:
http://joelmaxwell.com/2008/07/31/the-end-of-the-auto-lease/
Just because someone offers you a "good deal" doesn't mean you have to take it. Keep your focus on the goals you set for yourself this year and say no to everything else. Don't be an example of the cliche "A fool and his money are soon parted."
Barb1954
NO.
You have debt and spending problems, and quite honestly you need to get over your fixation on having a fancy car.
You need to consider how to save money, not blow it on a depreciating asset. The way to save money is to buy a car, maintain it well, and keep it as long as humanly possible.
The last time I bought a new car was in 1997. It (a new Ford) cost $19,200. Today, it is worth $2,200. I still get 32 mpg highway (EPA estimate of 26). And for it and my newer Camry, I had less than $4500 in expenses last year COMBINED, including fuel, maintenance, repairs, depreciation, registration, and insurance.
(fwiw, the cost was split evenly between the two cars).
That's how you save money. You get over your ego problems and don't use a silly car to pose to others.
I have to agree with the other comments. I don't think you should lease the car. Maybe you should look into still selling car #2 and purchasing a car for $10k.
Leasing a car works for business owners. You can write off the lease.
Have your BF do it. It's actually why my FIL, a very debt averse man, leases his company's cars. There is a reason why companies lease cars.
Think of all the leased cars that companies do. They do it because of write offs, miles, etc. He tried to explain it to me but I zoned out.
Plus a lot of our pharmaceutical sales reps have leased vehicles from the companies. There must be a reasaon.
Leasing sounds awful, especially if you already have a "flashy," as you say, car. Part of what makes a car awesome is getting into it and knowing that you OWN it.
Trust me, when she's a really beautiful car you love, the best thing is knowing there's nobody who can take her away. :) (The only thing better than owning one beautiful car is having two, and I can't wait to add a third to my family.)
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