Outside of the typical response of no, can there be a lease that makes financial sense? I've tried looking for threads about the leasing terms but I think most of them have been archived.
My natural inclination is to avoid a lease under all circumstances but my wife wanted me to investigate it and at least think about it for our own personal situation (which I'll avoid discussing at this point). We're interested in the Honda Odyssey and right now they're offering this program:
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2010 Odyssey Featured Special Lease $299.00 per month for 36 months. $2,999 total due at signing. Includes down payment with no security deposit. Excludes taxes, titles and fees. For well-qualified buyers.
FEATURED SPECIAL LEASE: Closed-end lease for 2010 Odyssey LX Automatic Transmission (Model RL3H2AEW) for $299.00 per month for 36 months with a $2,700.00 capitalized cost reduction available to customers who qualify for the AHFC Super Preferred credit tier. Other rates/tiers are available under this offer. $2,999 total due at lease signing (includes first month's payment and capitalized cost reduction; total net capitalized cost and base monthly payment does not include tax, license, title, registration, documentation fees, options, insurance and the like). Not all buyers may qualify.
Subject to limited availability. 11/3/2009 through 1/4/2010, to approved lessees by American Honda Finance Corp. Closed end lease for 2010 Odyssey LX Automatic Transmission vehicles (Model RL3H2AEW), for well qualified lessees. Not all lessees will qualify. Higher lease rates apply for lessees with lower credit ratings. MSRP $27,515.00 (includes destination) less the capitalized cost reduction (which may be paid by the suggested dealer contribution) resulting in actual net capitalized cost $24,190.96. Net capitalized cost includes $595 acquisition fee. Dealer contribution may vary and could affect actual lease payment. Taxes, license, title fees, options and insurance extra. Total monthly payments $10,764.00. Option to purchase at lease end $15,408.40. Lessee responsible for maintenance, excessive wear/tear and 15 cents/mi. over 12,000 miles/year for vehicles with MSRP less than $30,000, but for vehicles with MSRP of $30,000 or more, mileage cost is 20 cents/mi. over 12,000 miles/year. See dealer for complete details.
It seems as though they're estimating the value of the vehicle to be 56% of MSRP at the end of the lease and one way to measure whether this is a good deal would be to KBB similar models from 36 months ago with estimated mileage to see what sort of value they hold, right? In this sense as long as it's close to 56% we should come out even? The potential pitfalls include going over on the mileage and what else??? It would be our plan to keep the van for 8-10 years so we'd likely buy it out at the end of the 36 months but leasing it at the front end would help reduce the initial outlay and shift that to the future.
Other things I'd like to know: is that price at all negotiable? What sorts of things can you negotiate when leasing? Free prepaid maintenance? Extra mileage allowance?
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When leasing, everything is negotiable, just like when purchasing (including the purchase price, down payment, etc.). The only things they can't really change (since they are defined by the leasing company) are the residual and the money factor (similar to the interest rate).
If you are planning on keeping it for 6-10 years, you'd probably have the same payments with a 72-month loan (4.75% @ PenFed) as you would with a lease.
Aside from mileage, you also need to be concerned with any damage (scratches bigger than a quarter, dents, etc.) and a turn-in fee. Although all of these (including mileage) should be waived if you decide to purchase at the end of the lease. Also be aware that depending on the financing company, the purchase price at the end of the lease may also be negotiable.
There is a lot of lease info on Edmunds.com (and their sister site InsideLine.com. There are forums where you can see what others have paid (and what they have negotiated) as well as a forum to ask what the current residuals and money factors are.
If you buy the car and plan to keep it 8-10 years leasing usually does not make sense.
1. you get some fees added on (lease inception fee etc.)
2. you pay interest (in a lease its called a money factor) on the cars value
Now the question is how do those calculated compared to a financing deal. A lot of times if a company offers very good lease deals they also have very good financing deals out (e.g. BMW had 0.9% interest for quite a while).
In general a lease only makes sense if
a) you like to buy a new car every 3 years (lets not go there whether this makes financial sense but there are people out in the world who do it)
b) you expect the residual value (the value of the car after the 3 years) being lower then what they actually used in their calculation.
Honestly if you have to lease a car so you can afford it then I would suggest to look at a used car where the previous owner took the hit on the depreciation already. You can get decent used car financing e.g. from Penfed.
Having said that I did lease my wifes BMW 328xi (with European Delivery) but we could have also bought it outright but with their deals at the time our break even was close to 10 years keeping it.
Been about 8 years ago but I got a base Honda Accord lease for $224 per month and nothing down. I drove the car for 36 months and literally did nothing but change the oil. This was a circumstance where leasing "paid off" in my mind. I could give you a typical $2,000 beater and you would likely spend the $224 per month over 3 years just in keeping it running.
In general though, leasing normally doesn't make sense.
albob said:When leasing, everything is negotiable, just like when purchasing (including the purchase price, down payment, etc.). The only things they can't really change (since they are defined by the leasing company) are the residual and the money factor (similar to the interest rate).
If you are planning on keeping it for 6-10 years, you'd probably have the same payments with a 72-month loan (4.75% @ PenFed) as you would with a lease.
Aside from mileage, you also need to be concerned with any damage (scratches bigger than a quarter, dents, etc.) and a turn-in fee. Although all of these (including mileage) should be waived if you decide to purchase at the end of the lease. Also be aware that depending on the financing company, the purchase price at the end of the lease may also be negotiable.
There is a lot of lease info on Edmunds.com (and their sister site InsideLine.com. There are forums where you can see what others have paid (and what they have negotiated) as well as a forum to ask what the current residuals and money factors are.
Good Luck
Ok, so if the residual is 56% (as I calculated it, could be wrong), I could negotiate a lower price but the residual will then be 56% of the new price, correct? This is similar to the common advice about buying a car from a dealer - in the sense that you can email several and try to arrange deals ahead of time? Also, the Honda financing requires top-tier credit - what does this typically equate to? I have a good FICO (~775) but my income has been sporadic this year (in the aggregate it's been good but very spotty - is this problematic or can I just provide year-long income statements/tax returns to qualify)?
Honestly if you have to lease a car so you can afford it then I would suggest to look at a used car where the previous owner took the hit on the depreciation already. You can get decent used car financing e.g. from Penfed.
I agree with you generally. I'm coming out of graduate school and decided to take a one-year fellowship-type position at a reduced salary (50K) instead of an offer for 3X that salary. I've deferred that offer for 12 months and will be going there in September 2011. The position I'm taking will result in long-term benefit as well as a short-term cash boost because I'll receive a bonus for having completed it.
The problem is that we're expecting twins and need to upgrade to a larger car in the meantime. For cash flow purposes it would be good to only pay $300/month for a lease as opposed to the substantially higher cost in financing it. However, I'm also investigating used cars and other ideas, but I wanted to think this one through.
Message edited by: ltcm on 2009-11-05 15:53:31 CST
ltcm said:I agree with you generally. I'm coming out of graduate school and decided to take a one-year fellowship-type position at a reduced salary (50K) instead of an offer for 3X that salary. I've deferred that offer for 12 months and will be going there in September 2011. The position I'm taking will result in long-term benefit as well as a short-term cash boost because I'll receive a bonus for having completed it.A federal court clerkship? That's a very impressive accomplishment, especially in this economy.
The problem is that we're expecting twins...Congratulations! Looks like getting deferred by your firm will be a blessing in disguise, as it wouldn't be too much fun to be a first year associate at a large firm with twin infants at home.
Leases can be great deals, if you know what you're looking for.
If you're going to keep a car for a long time, a lease doesn't make sense - unless you want to bet that your car is worth less at turn-in. I've read reports of people getting great deals when buying their cars at lease turn-in, especially these days.
First, you have to do the math. Look at the cost to buy the car, then run the #s for a lease. In the case there:
$299 * 36 + $2700 = $13,464 / 36 = $374/mo (throw in the extra fees if you like). The same car at MSRP, 5-year, 5% is $519.24/mo. So on the face it's a good deal. However, it's going to be your primary car, so expect more miles. At .15/mile you'd have to do around 2000 miles/month to hit the same cost as financing at MSRP.
In general, don't pay cap cost reduction if you can help it. Also, get the price of the car before you go in, then tell them you want the lease. Lower price of the car = lower lease payments.
The forums at Edmunds.com has a guy that'll tell you all the money factors and residual percentages for a given make/model. The calculator here should help you figure out what the costs/payments would be.
Honda Leases: In my experience, they do not want to negotiate those national deals. They will let you pay more for more mileage or pay the cap cost monthly (plus vig.) or whatever, but beyond that, they pretty much hold the line. Here's the other problem with that lease, that offer is for Odyssey LX. Markets may be different elsewhere, but the LX is a very hard to find vehicle. I have only ever seen about two in the "wild" and I don't think I have ever seen one on a dealer lot. (You can spot them because they don't have the roof racks things and the mirrors are black rather than body color.) So at least around here, it is a tease. We actually went in to look at one, and had to buy an EX because my wife got to drive it.
Second, leases make sense if you are going to be buying a new car every couple of years or to get through a short term period of time where it makes sense.
ltcm said:Ok, so if the residual is 56% (as I calculated it, could be wrong), I could negotiate a lower price but the residual will then be 56% of the new price, correct? No. The residual is based on the expected trade-in value of the car, which will be the same regardless of the price your lease is based on.
Also, check what your state does about taxes. Here in Illinois, the state charges sales tax based on the full price of the vehicle, which you have to either pay upfront or roll into your lease. If you decide to buy the car at the end of the lease, you have to then pay sales tax again on the residual. (The sales tax applies on the value every time the owner changes. The first time the owner becomes the leasing company, the second time the owner becomes you.) This varies widely by state, but could be enough to make the initial out-of-pocket much higher than advertised.
ThePessimist said:ltcm said:Ok, so if the residual is 56% (as I calculated it, could be wrong), I could negotiate a lower price but the residual will then be 56% of the new price, correct? No. The residual is based on the expected trade-in value of the car, which will be the same regardless of the price your lease is based on.
Also, check what your state does about taxes. Here in Illinois, the state charges sales tax based on the full price of the vehicle, which you have to either pay upfront or roll into your lease. If you decide to buy the car at the end of the lease, you have to then pay sales tax again on the residual. (The sales tax applies on the value every time the owner changes. The first time the owner becomes the leasing company, the second time the owner becomes you.) This varies widely by state, but could be enough to make the initial out-of-pocket much higher than advertised.
This is interesting - I live in IL as well so I'll definitely look into it. I'm here as a student so it might be possible for me to buy/title the vehicle where I consider my permanent residence (Ohio, where my current vehicle is titled as well) to be.
geo123 said:ltcm said:I agree with you generally. I'm coming out of graduate school and decided to take a one-year fellowship-type position at a reduced salary (50K) instead of an offer for 3X that salary. I've deferred that offer for 12 months and will be going there in September 2011. The position I'm taking will result in long-term benefit as well as a short-term cash boost because I'll receive a bonus for having completed it.A federal court clerkship? That's a very impressive accomplishment, especially in this economy.
The problem is that we're expecting twins...Congratulations! Looks like getting deferred by your firm will be a blessing in disguise, as it wouldn't be too much fun to be a first year associate at a large firm with twin infants at home.
Thanks! You got it exactly right - I didn't want to say clerkship only b/c it seems like non-legal folks have no idea what a clerkship is (my family thinks I'm volunteering somewhere b/c I can't find a real job).
ltcm said: Thanks! You got it exactly right - I didn't want to say clerkship only b/c it seems like non-legal folks have no idea what a clerkship is (my family thinks I'm volunteering somewhere b/c I can't find a real job).
That's admirable of you to volunteer. A couple things I learned in my last job as a clerk: keep extra copier toner around (don't want to run out) and keep a sheet of paper with the alphabet on it handy ... after a long stretch of alphabetical filing, your brain turns to mush and you'll appreciate the reminder
Message edited by: civ2k1 on 2009-11-05 19:21:14 CST
Leasing works for me. Especially on Honda/Acura. They are the best leasing company. They allow 1500 in wear and tear. Very liberal on tires or over miles. The person who said the national deals are not negotiable is DEAD wrong. I am the king of leasing. I never took one of those national deals.
You want a SIGN and drive lease. Not one with 3K down. This is for many reasons. One is if the car is totalled in an accident, you are out 3k. Same for theft. 400 a month for 36 months for example is better than 300 a month with 3600 down. Only suckers pay down money/cap cost. The dealers laugh about it. The reason most leases are fleeces is that the lublic does not have a damn clue what they are doing. I often negotiable online or on the phone. Generally speaking I go to the dealer to pick up the car. Leases are good on cars with strong residuals like Honda/Acura etc. I have work Accord leases so tight that they cant be beat unless you keep the car 7-8yrs. If you have strong credit and drive 12-15k a year they can make sense if you do your homework. Again Acura/Honda is a super company. I have dealt with them since 1996. Audi lease stinks, BMW beward of thousands in tires and nickel diming. also be aware of bullshit end of lease charges. Some charge 400 to return your car at end of lease. Honda doesnt. Nissan, Infiniti, Audi, BMW, Mercedes do. The Oddesey minivan is a great car to lease.
if you are DETERMINED to drive a new car, and dont like to keep it longterm, some lease deals can be cheaper/better than buying.
Some of the leases dont cost much more (or even less) than the depreciation on the car. There was a BMW m6 convertible lease deal in the HD forum a while back, that while pricey ($1500 a month) was far cheaper than owning due to the extreme depreciation on these cars.
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