Posts
4425
Joined
12/5/2011
Location
Philadelphia, PA, USA
Edited Date/Time
9/11/2012 6:25am
I have been putting a lot of thought into this, and my head is starting to hurt, so I need a 2nd or 3rd opinion.
Im in the market to buy a automobile.
In the past, I have always owned my vehicles outright. Paid cash. Never had a payment in my life. But Im not so sure that is the way to go. It seems like "dead money" just sitting there.
If I spend $40k cash for a vehicle. I save a few thousand on not paying interest, but how much did I lose by not having that liquid money available to invest?
I have tier 1 credit. I can go get a vehicle for zero down at around 2-2.5% interest from my credit union. So for a vehicle that is $40k, if Im driving off the lot paying just around $800 a month in payments, I still have $39,000 in my pocket to work with. If I can just show a very low 2% return on my money, the fact that I held onto my money should pay for the car shouldnt it?
So that is my first question. Am I seeing this correctly? It seems like for someone like me who uses his money, owning a vehicle outright was a mistake in the past.
Now that Im leaning towards financing, I began looking into leases. For much less than the car payment, I can lease a new vehicle. Paying basically for the depreciation. I was thinking about going this rate until I began looking into buying used. Because the depreciation is the worst part about buying a new vehicle. They lose value so sharply the moment you drive off the lot. But after a couple years, the depreciation rates slows down a bit to be more reasonable.
So now Im looking into buying that same $40k car that is 2-3 years old with minimal miles for much less than $40k. It takes a ton off the total loan cost, the payments are about the same as if I was leasing a new car of the same model, and at the end of the term (60 months) I have a car that I can sell for about $10-15k.
The bottom line as I see it, Im going to be making a car payment of $400-800 a month no matter what. With leasing it is new, but with a slightly used one, I get a $10-15k kickback every 5 years, while holding onto liquid cash allowing me to invest it.
On paper, this seems like a no brainer. Buying used seems smarter than buying new or leasing new. But everyone that I know that is hyper-successful (7 figure income) all either lease or own their vehicles outright. Which makes me wonder, what do they know that I dont?
Thanks for the help.
Im in the market to buy a automobile.
In the past, I have always owned my vehicles outright. Paid cash. Never had a payment in my life. But Im not so sure that is the way to go. It seems like "dead money" just sitting there.
If I spend $40k cash for a vehicle. I save a few thousand on not paying interest, but how much did I lose by not having that liquid money available to invest?
I have tier 1 credit. I can go get a vehicle for zero down at around 2-2.5% interest from my credit union. So for a vehicle that is $40k, if Im driving off the lot paying just around $800 a month in payments, I still have $39,000 in my pocket to work with. If I can just show a very low 2% return on my money, the fact that I held onto my money should pay for the car shouldnt it?
So that is my first question. Am I seeing this correctly? It seems like for someone like me who uses his money, owning a vehicle outright was a mistake in the past.
Now that Im leaning towards financing, I began looking into leases. For much less than the car payment, I can lease a new vehicle. Paying basically for the depreciation. I was thinking about going this rate until I began looking into buying used. Because the depreciation is the worst part about buying a new vehicle. They lose value so sharply the moment you drive off the lot. But after a couple years, the depreciation rates slows down a bit to be more reasonable.
So now Im looking into buying that same $40k car that is 2-3 years old with minimal miles for much less than $40k. It takes a ton off the total loan cost, the payments are about the same as if I was leasing a new car of the same model, and at the end of the term (60 months) I have a car that I can sell for about $10-15k.
The bottom line as I see it, Im going to be making a car payment of $400-800 a month no matter what. With leasing it is new, but with a slightly used one, I get a $10-15k kickback every 5 years, while holding onto liquid cash allowing me to invest it.
On paper, this seems like a no brainer. Buying used seems smarter than buying new or leasing new. But everyone that I know that is hyper-successful (7 figure income) all either lease or own their vehicles outright. Which makes me wonder, what do they know that I dont?
Thanks for the help.
But cars are often more of an emotioinal decision than they are a logical decision.
As for the purchasing method, I want to be as logical as possible.
If I could rent/lease a used vehicle I would but the banks give horrible rates for such a deal. Renting/leasing new just doesnt seem to make as much sense as financing used. No matter what, the auto is going to depreciate. In one scenario I get some money back, in the other I dont. The only benefit to leasing seems to be that Im driving a brand new car, which I dont care about.
So until Dec. 31, you could lease a used 2012 for a pretty big discount. You might have to search around for a dealership who uses this technique, though. They generally have to use leasing companies other than just the manufacturer's financing offers. If they do a lot of leases, they'll have plenty of sources.
As for waiting til Dec 31st. All the dealerships that Ive contacted are switching to the 2013 leasing programs at the end of this month. Although, Im not positive that it would affect what you have suggested.
Im interested in what you are suggesting though. How big of savings are we talking here? Give me a ballpark example of some numbers?
The Shop
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Luxon 4-Post Bar Mounts
$189.95 - $239.95
I've always financed through my bank so I can negotiate the best deal at the dealer as if I'm paying cash. DEalers will throw all sorts of shitty payment deals at you. Figure out what you want to pay per month and then see what you can finance through your bank before you go out looking for a vehicle.
At least that's how I look at it.
If you get a used 2012 that already has 12K miles on it, and you work out a 4yr, 48,000 mile lease, the residual at the end shouldn't be all that different. You might get that car for 30K. That means you pay interest on 10K less for the first component, and then you look at the "rent". If you are looking at something like a Yukon Denali, the difference between the value of a 2008 with 48K miles and 60K miles is only around $2K, so if you were to lease the "used" one with a price $10K less than the "new" 2012, you'd not only pay less in interest, but also about $8K less in "rent".
That's the basics, but lease calculators are fairly complex. Most F&I guys don't like to convert the money factor to the interest rate, so go over the numbers with a fine tune comb.
I just was looking for a second opinion to poke possible holes in the theory. I need to read Rich Dad/Poor Dad again lol.
So by your rough example, its possible to be looking at as much as a 25% savings on the interest.
The problem I encountered when stretching out the lease to 48 months or talking used in the past is that any savings I had on rent, I quickly lost on the money factor as the leasing companies drop the residual from 60% to 50% or lower as well as jacking up the money factor to .002 and higher.
I mean, I fully get why leasing beats the snot out of buying new. Buying new makes no sense at all. But I cant seem to find any real savings when comparing the scenario of leasing new vs buying used. The issues Im running into with leasing used may just be the problem with the mfg's leasing companies that Im going thru.
For the record, Im looking at a BMW. Which from what Ive read around the net, have some of the highest residuals in the market.
Ive been using the Edmunds.com leasing calculator while going back and forth with the dealerships. So far, the fleet managers have been pretty forthright with any numbers or info Ive asked for.
When I returned it they hit me with so many bull shit fees it would've almost been better just to buy the damn thing.
Now I go by the rule if I can't save enough to pay for the car/vehicle I just don't need it.
I've considered refinancing a townhouse that is paid off and using the money to pay cash for a vehicle. You can then deduct the interest on the townhouse.
Leases? It's all about the fees. What's due at signing and what's due when you turn it in. If it gets wrecked during the lease, you may be responsible for dimished value regardless of how well it was repaired. If it's totalled out during the lease, that a whole different story.
I recently had a customer whose leased Hyundai SUV was totaled. The insurance company covered the total loss damages to the front and paid out enough to cover the value of the vehicle and satisfy the lease. Should have been end of story. But there was previous minor damage to the rear of the vehicle that the customer had never bothered to have repaired. The lease company made the customer file another claim to cover the rear bumper damage!
At 59% residual the new would be $29,500 for the new and at 50% the used would be $20,000 hypothetically. Maybe Im doing something wrong here but when I punch those numbers in, the payments come out nearly the same.
I punched in your residual values and it causes the payments on the new car to go WAY up. But barely affects the payment of the used. 780ish. I think this is where the discrepancy lies.
Like I said, BMW's have a very high residual rate compared to most (or at least that is what I read), so it doesnt make for any savings to lease used from them.
But again, I could be doing something wrong. Let me know.
BMW is pretty straight up from what Ive read online with their leases, they have one of the highest ratings when it comes to customers being happy and continuing to lease with them. Honda believe it or not has one of the worst.
So far, there arent any BS fees with BMW financial that Ive come across. But there is always a chance I miss some of the fine print.
While leasing used might make more sense than leasing new. What Im trying to figure out is why leasing new or used makes more sense than buying used? At the moment, Im still thinking that buying used trumps all the rest.
The interest rates the dealers have been throwing at me are:
2.99 over 60mo's
2.9 over 66 (2009 and they'll pay 3 of the payments)
3.9 over 66 (2010 and they'll pay 3 of the payments)
See what they did there? Hahahaha.
I just want to make sure the "buying used" route is the way to go, and then Im done talking to the dealerships for a minute. Gonna focus my attention on credit union financing and then do exactly what you suggested.
Pit Row
Yeah the 50k free maintenance is still in effect. I think Jaguar is the only other brand that does the same sort of thing. On my last beemer they threw in a 30k extension on the free service for me for free.
The worst thing about a BMW I found was that they go thru tires like a dirtbike. The camber is so agressive and then the way I drive doesnt help either.
The 15k miles and 59% residual is only for new and 36 months. At 12k they raise the residual to 61%. They lower the residual to 50% if I try and go used with the lease or if I stretch the new lease to 48 months and 15k miles.
If I rework the numbers to reflect that, there is still a substantial savings of about $100 by leasing used. 13% savings over leasing new. But not big savings over buying used. And with used I get that kickback at the end of the 60 months.
But to your credit, I wasnt really trying to lease a "used" 2012. I never really thought of it for the simple fact that they offered me the vehicle sale price on the lease at about $5k off the MSRP which pretty much put the car at near used pricing.
Any used car with 10k miles or more on it just takes a beating residual-wise according to the finance guys. They cant fuck with the lease numbers. It's set by BMW Financial in Germany. Ive been in negotiations with 3 different dealerships and I havent caught one not giving me the straight numbers.
The only thing they can play with is the sales price. The money factor, residual, and acquisition fee are all out of their hands. Any other BS fees they wanna throw on their they can but they didnt even try to bullshit me with that stuff.
BMW just factors in the high residual, free maintenance, and other "subsidized" goodies into the initial price of the car from the factory I would assume.
I remember a few years ago, when SUVs were still flying high and Suburbans were holding their value really well, you could save a ton leasing a current year "used" model over a new one, especially importing the Canadiam models. Same with trucks at the time. Lease laws in Canadia used to be pretty favorable for really short term leases, so we'd import their practically new lease returns, change the clusters so they would read miles instead of kilometers, and make huge money on each unit. And the customer would save hundreds a month on the exact same vehicle.
But the leases were usually through USBank or BofA, not the manufacturer. Your BMW dealer might not lease with outside banks, especially if the manufacturer is offering such good financing on new and certified.
It'd be interesting to see what sort of offer you might get from a non-BMW dealer if you told them you wanted to lease a 2012 BMW that they could get from auction......
Buying used is the way to go. And not from a dealer either, as he's got to make a profit from you. A lease company has to 'own' the vehicle and take in more money from you than the vehicle loses, while it's leased out. How can that ever be a good deal for the leasee?
While a high residual value brings down the lease cost of a BMW, surely it puts up the cost of buying second hand for you? Perhaps you should look at a car you like that has a really low residual value - letting somebody else take the big hit !
BTW Have you got a plan for investing the $40k? cos if not, it's not going to make you anything sitting in a bank account and you might as well spend it. ( maybe you could invest it in some surefire growth industry - I dunnow, maybe surveillance
PS Newman, Can you really, truly, buy a 2 bed house that'll rent out for $750 pm for $40k???? To get that return here would cost at least $150k
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