Used Car vs. New Car with 0% APR and other incentives

My car's (VW Passat) lease will come to an end in a few months. I know it seems popular to label leases as some kind of scam for suckers... but I got my lease at below invoice and with a money factor (lease interest) of almost 0% (obviously, a factory subsidized lease).

Anyway, with the lease coming to an end, I am trying to determine whether to buy it out or turn it in. The buyout is $13500 ($12,500 + $1000 for sales tax).

To purchase a brand new similarly equipped model, I estimate that my cost would be around $22300. This takes into account that this model is selling for around invoice (based on my investigation), but there is also currently $2500 in factory to dealer and customer loyalty incentives. In addition to these incentives, you can also get 0% APR for 36 months.

So a brand new model would be about $24,100 out the door (including sales tax). However, unlike the used model, I would have 0% APR, and the $13500 I would have otherwise spent on a cash purchase can stay in a 5% interest savings account.

Then there's the fact that the brand new model comes with a fresh warranty. The used model, at 3 years, will start to incur additional expenses like tires, brakes, etc., and you hope nothing major happens to the turbo engine.

That said, I am not totally sold on the idea that the new model is the more thrifty and prudent approach. Am I missing something here in my calculations?

kai2007 said: My car's (VW Passat) lease will come to an end in a few months. I know it seems popular to label leases as some kind of scam for suckers... but I got my lease at below invoice and with a money factor (lease interest) of almost 0% (obviously, a factory subsidized lease).

Anyway, with the lease coming to an end, I am trying to determine whether to buy it out or turn it in. The buyout is $13500 ($12,500 + $1000 for sales tax).

To purchase a brand new similarly equipped model, I estimate that my cost would be around $22300. This takes into account that this model is selling for around invoice (based on my investigation), but there is also currently $2500 in factory to dealer and customer loyalty incentives. In addition to these incentives, you can also get 0% APR for 36 months.

So a brand new model would be about $24,100 out the door (including sales tax). However, unlike the used model, I would have 0% APR, and the $13500 I would have otherwise spent on a cash purchase can stay in a 5% interest savings account.

Then there's the fact that the brand new model comes with a fresh warranty. The used model, at 3 years, will start to incur additional expenses like tires, brakes, etc., and you hope nothing major happens to the turbo engine.

That said, I am not totally sold on the idea that the new model is the more thrifty and prudent approach. Am I missing something here in my calculations?

Not sure what you are upto... sounds like you want US to sell you on the idea of buying a new car.
Regardless, if I read you right, no matter what we say you will end up with buyers remorse any way... LOL!!!!
j/k

only thing dumber-acting than buying a new car is buying your lease after it terms-out.

no win scenario for you buddy.

Some leases are great.
A friend of mine got a brand new toyota pickup last year on a four year lease for 269 a month, she gets free tires, oil changes and tuneups,service inspections every 6 months. She literally doesn't have to do anything but put gas into it.
But with the 0% loans going on it's hard to pass up on many of the new cars and trucks.
Why buy a 1 or 2 year old car at 8-12%, when you can get new at 0% and end up paying nearly the same.

" only thing dumber-acting than buying a new car is buying your lease after it terms-out."

That use to be true but with all the chaos the industry has been in, not anymore. Unless you can't qualify for the 0%, then it's still true.

vaylon said: Some leases are great.
A friend of mine got a brand new toyota pickup last year on a four year lease for 269 a month, she gets free tires, oil changes and tuneups,service inspections every 6 months. She literally doesn't have to do anything but put gas into it.
But with the 0% loans going on it's hard to pass up on many of the new cars and trucks.
Why buy a 1 or 2 year old car at 8-12%, when you can get new at 0% and end up paying nearly the same.

" only thing dumber-acting than buying a new car is buying your lease after it terms-out."

That use to be true but with all the chaos the industry has been in, not anymore. Unless you can't qualify for the 0%, then it's still true.

Without the details of your friend's lease, there is no way to evaluate if it is any good. Having said that, I question your logic on the 0% financing. These programs are not new and it is a significant factor in the erosion of value in the used market. Without question, your best value is purchasing a used car privately for cash. There are some very specific examples that I can think of that are truly unique (ie. the 2004 Pontiac GTO selling for 18-19k new and the Saab 92X which has also had insane deals at various points). The regular 0% deals are not sufficiently compelling to offset the savings of buying used.

EricGo07 said: OP, this is not exactly an answer to your question, but which would have been cheaper:

Your total lease cost plus lease purchase now, or
Buying the car outright a couple of years ago ?

Assuming I paid cash for the initial purchase and cash on the lease buyout? Very little difference. This particular lease deal had almost 0% interest (called money factor). Lease payments are depreciation + interest.

then you should take the $770 gain and pay your tax on it and be done with it.

the lease return inspector is going to notice every little thing to nickle and dime you and I guarantee no dealer will offer more than carmax.

It would be a rare case if you actually get the $770. Most people are near upside down. (especially if their car didn't come with free maintenance).

You do the timing belt on your passat yet? The TCO becomes very high on the vehicle if you keep it.

Reason i generalize is because you are paying $13500 + Lease terms payments + Lease downpayment for the vehicle? Would you have bought it straight out at tht time for all of the above and maintenance coming up?

i love vw's but they are hella expensive once they start to get tired. They are not honda's. The quality has gone way down, even the german bred models.

best way to buy is used from a enthusiast who just isn't in the right situation around here. We do not pay tax on used car sales (GA) from person to person.

kai2007 said: rigor said: CarMax offered $14k for my car just last week, and its current buyout price if $13,300.

So if the buyout price is wholesale or below, why are people telling you to buy somebody else's (unknown to you) used car for private party value instead of buying your own car (which has been reliable or you wouldn't be looking to keep it) for wholesale?

On the buy new vs buyout lease:
You're talking over 10k in OTD pricing to upgrade three model years and xx,xxx miles, when the car's effective lifespan is likely 10 years or 2xx,xxx miles. I'd just open a new CC that comes with 0% BT checks (like Chase) and stick $400 a month into high interest savings account + CC payments. Hopefully you can keep the 0% going until the savings account equals the CC balance.

kai2007 said:
To purchase a brand new similarly equipped model, I estimate that my cost would be around $22300. This takes into account that this model is selling for around invoice (based on my investigation), but there is also currently $2500 in factory to dealer and customer loyalty incentives. In addition to these incentives, you can also get 0% APR for 36 months.

If you can get $22300 - 2500 incentive, i think you should let your old car go.

MaxRC said: As others have touched on, the problem with the OP's situation is that he entered into a lease on which the car's residual is 50% of the purchase price of a comparable car. Given the residual is based on MSRP, it would seem that the residual in the original lease would have been something horrendous like 40% or less, for 3 years. The quality of a lease is proportional to the residual value: higher residual = higher lease quality, and vice versa.

That said, if CarMax "trade-in" value is already higher than the lease buy-out, simply buy the lease out, clean the car up, and put it on craigslist for the KBB "private party" value. The OP should be able to sell it at that price at a reasonable time.

In the future, I suggest the OP stay away form vehicles with horrible depreciation problems, such as VWs.

The residual is about 50% of MSRP. The effective depreciation rate is less since I paid invoice.

By the by - between a lease with a high residual, and a high money factor, or a lease with a low residual, but next to no money factor, I think you'll always be better off with the latter.

Personally, if I were to buy a VW, it would be on a lease ... so that I could get rid of the vehicle after three years when it begins to fall apart.

swandown said: clearanceman said: If I was in his position, I'd turn the car in then buy a 1997 Honda Accord when the new 2008s come out.

Probably just a typo, but I think most FWers would be perfectly happy with a 1997 Accord as well.

Right on both counts!

MaxRC said: Well, you don't know with 100% certainty, but you can have a pretty darn good idea where things are going to be at. What are the chances that a $20k accord will only be worth $10,600 after 3 years? How much are 2004 Accord LX Automatic with 36k miles selling for? That car stickered for about $20k when new and KBB thinks it is worth $14k now in "Good" condition for private party sales. The local CarMax is selling one with 37k miles for $16,098. Given these data points and the fact that the Honda Accord has been an extremely consistent performer in the market, I would wager that a 53% residual on an 3-year Accord lease would result in a buy-out at the end. Would you walk away from $3500 to $5500 of value if you were in such a position?

This is a poor lease deal, in the sense that you "HAVE" to buy at the end of the lease in order to negate the inflated monthly payments.

Realistically the accord should hold its value well, like you said, in which case you shouldn't have to pay the high monthly payments that come with using a 53% residual value. Using 53% REQUIRES you to buy, unless you like throwing away money.

The best lease is one in which the residual value is very realistic, since this will give you a good option after 3 years of buying the car or returning it at the end of the lease.

The residual is typically based on "wholesale" value, so even if your is residual is 10k, and fair market wholesale is $9.5k, you're still going to do okay buying the car, because private and dealer sales are often up to $1500 to $3k over wholesale.