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    Default Teach me about leasing

    Due to always switching cars, I feel like leasing might be my best option for the next vehicle. What do I need to look for?

    I see that people are talking about residuals, but honestly have no clue what that means when it pertains to vehicle leasing.

    I think it just makes more sense for me, since I get rid of vehicles usually before 2 years and drive maybe 12k a year.

    Opinions and advice would be appreciated.

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    Residual is what the car is projected to be worth at the end of the lease.

    The lease is a payment plan stringing the purchase price of the vehicle down to the residual value, including interest.

    Typically there are rules governing the state of the vehicle when you return it, damage Killometers etc, otherwise you pay penalties.

    Leases only really make sense if you are buying new vehicles and getting rid of them after a few years. Buying used and selling a couple years later is likely much cheaper than leasing. Leases arenít cheap, but at least they are very heads up about exactly what the car is going to cost you over life and no guessing what it will be worth. Payment is the payment. Interest on a lease is generally higher than finance interest rate, which generally reflect the risk the lease company takes in that they overestimated residual and as such they end up with a car worth less than they thought.

    Anything specific you are interested in?
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
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    Quote Originally Posted by 03ozwhip View Post
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    Due to always switching cars, I feel like leasing might be my best option for the next vehicle. What do I need to look for?

    I see that people are talking about residuals, but honestly have no clue what that means when it pertains to vehicle leasing.

    I think it just makes more sense for me, since I get rid of vehicles usually before 2 years and drive maybe 12k a year.

    Opinions and advice would be appreciated.
    In your situation, with "always switching cars", the residual is important because it will determine your equity position at the end of each lease and the ease with which you can get into the next one.

    People talk about residuals because they are hugely important to any lease, because they will a) determine the payments relative to the price of the vehicle and b) factor into whether or not you should lease a particular car.

    When you lease, you're technically financing the depreciation of the car over a given period, say 24 or 36 months. The residual is the value at the end of the term, so your lease payments are roughly based on the difference between the MSRP and Residual, divided by the lease term (plus the interest rate to carry the asset over the term).

    Most new vehicle leases are "closed-end", meaning the leasing company is guaranteeing the value at the end of the term. This is obviously beneficial from the consumer / lessee perspective, as the risk of that value being higher than the market value falls onto the lessor (car financing company). Especially since 2008, lessors tend to be a little more conservative in the residual values (you don't want to be wrong by even a $1,000 on a lease portfolio of 10s of thousand of vehicles!). That said, this risk aversion can work in favour of the consumer if they make the right choice - for example, if you do your research and know that a particular vehicle has an exceptionally high resale value after 3 years (say, like a F150 Raptor or Mercedes G-class), then even though the lessor has based the lease on a typical residual (usually ~50% over 36 months), there's an opportunity to have a massive amount of equity in the vehicle at the end of the term, effectively lowering your total cost over the term of the lease.

    On the other hand, there are plenty of vehicles that will be "upside-down" at the end of the term and the lessor can simply turn them back in to the dealership and let the finance co. worry about the negative equity (it's factored in anyways as a "cost of doing business").

    If you can do some market research and find vehicles with strong resale values after 24-36 months, it will make your lease turning much easier & less expensive.

    Fun anecdote - I have a friend that has basically "rolled" his downpayment from a lease starting in 2011 to his current ride. By picking the right vehicles, he's managed to stay in an equity position through probably a dozen cars and ended each lease with at least the original equity and often more that he considers an offset to his payments (again, effectively lowering his TCO). This works particularly well if you have good connections at dealerships that get you very early deliveries of new model import (mostly) SUVs that are in high demand and depreciate very little in the first 6-12 months of a new model being released... It all started with a 2011 Porsche Cayenne Turbo, then a series of Range Rovers, GLs, and currently sits in an X7...
    Last edited by you&me; 07-25-2019 at 09:29 PM.

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    It’s all about the total cost of ownership to determine if leasing is right for you. With lease you’re paying for a fixed depreciation of the vehicle for a set amount of time and mileage. I wrote a comparo years ago that compares lease vs purchase vs finance.

    https://forums.beyond.ca/threads/339...96#post3747596

    The residual is what the manufacturer is banking on the worth of the vehicle at the end of the lease. The higher the residual, the less depreciation you’re financing. The interest is on the depreciation that you’re financing (msrp - residual).

    There are a lot of tricks to maximize a lease. I take advantage of the early termination clause, basically I can get out of a lease 6 months before it’s over if I move into another lease without penalty (why I’m “locked” into Mercedes). The sweet spot for residual rates are 36 month leases, while 24 is pretty poor. By moving 6 months early, I’m effectively getting a 36 month residual rate at 30 month terms.

    End of the day you need to get quotes on the different lease terms, calculate your TCO for the duration, and compare if you bought and sold the car how much you’re in for and see if it’s close or favorable.
    Originally posted by SEANBANERJEE
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    Also leasing makes sense if payments can be written off under a corporation or something. Porsches and RR's generally end up putting you in positive at the end of lease. Particularly if you have the more desirable models.

    In your situation if you're going to be changing cars every 2 years, it's likely better to only lease for 2 years or else you will be stuck with the same brand for a long time OR take a big hit in the end. This was sort of the reason why I went through 6 BMW's in 4 years before ultimately just saying fuck it and getting out of BMW this time around.

    Also it typically ends up being more expensive to lease (payments wise) over financing if going for a brand new car. With financing a year or two old used model you can get a better car for similar payment as leasing a brand new (lesser model) vehicle. Big dealers don't typically lease used vehicles at all.
    Last edited by shakalaka; 07-25-2019 at 11:35 PM.

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    Quote Originally Posted by shakalaka View Post
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    Also it typically ends up being more expensive to lease (payments wise) over financing if going for a brand new car.
    Not sure I agree with you on this. Apples to apples, unless the interest rate is completely whack with a near 0 residual, finance payments will almost certainly be higher than lease payments. You are amortizing a way larger amount of money when you finance than when you lease. But with financing at least you own something at the end of your term.
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
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    Good information so far, but there's a few comments here that are either incorrect or unclear.

    "Leases are expensive"- That's a misnomer to say the least. You can compare a dealerships lease vs finance rates. In my experience lease rates are the same or better than full finance. And you're paying the same price for the car regardless, so I am not seeing how a lease is "expensive" in comparison to a finance? Monthly payment wise it is definitely cheaper as you're financing only part of a car. And if you decide you want to buy out the vehicle at the end of lease, you can simply finance the residual for continued lower payments. One place they can become expensive, is if you have KM overages at the end. 20cents a KM adds up if you're way over.



    "residual is important because it determines the ease with which you can get into a new one at the end" - Not so much. If you leased. period. It will be super easy to get into a new one at the end of term. You know exactly what the terms are, you make your payment for 36 months or whatever term you choose, you go in and hand them the keys and then pick a new one. It's that simple. You don't have to haggle the trade in value, or deal with tire kickers off kijiji. Oh you crashed the car and it has 10 grand worth of depreciated value? Big whoop, dealer guaranteed you the residual value, so drop it off and it's their problem, then pick a new one.

    As mentioned, if you pick something with great residual value, you can sell private for more than dealership residual value and pay out the lease, pocket the difference. Lexus vehicles are well known for this, doesn't have to be something crazy like a G wagon. This is actually what I did with my first Lexus lease. I was way over on KM, was looking at a 5000$ penalty to give it back. I listed it on kijiji and sold it for what the residual value was and just paid out the residual. Saved myself the 5000$ penalty. They would've waived the penalty if I signed a new lease with them, but I wanted something different. However this is still a timing issue, and may not always work. Our used market is very soft right now as our economy is in the shitter. Sometimes it can take months to sell a used vehicle, which is months you don't necessarily have when it comes to the end of the lease. If you don't find a private buyer by the end of your term, you have to either turn it in or buy it out yourself while you wait to find a buyer.



    There is a few hidden benefits of a lease that nobody really talks about. Because you have a fixed residual value, you can pseudo save thousands in a crap situation. For example, you finance a vehicle you're likely to sell in 3 years to get something new anyway, someone hits your vehicle and it is now tainted with a collision on the carproof. When you go to sell most people won't be interested, and those that are interested will lowball the shit out of you due to the accident claim. If you had leased, you lose no value because the residual value is decided at start of purchase not the end. For this reason alone I will always lease.

    Hasn't been mentioned yet, but I'm sure it will be. People will say it is stupid to put money down at the start of a lease. I would argue that is incorrect and based purely on your situation. Personally I don't like huge monthly payments. So when I leased my Mercedes, I put 20k down up front. All this did was decrease the amount I am financing. Residual amount stays the same, so instead of financing 50k of the vehicle, I knocked it down to 30k and got a much lower payment instead. I would've paid that 20k regardless, it was just a matter of whether it was drawn out monthly over the 48 month term, or cash up front.

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    Quote Originally Posted by killramos View Post
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    Not sure I agree with you on this. Apples to apples, unless the interest rate is completely whack with a near 0 residual, finance payments will almost certainly be higher than lease payments. You are amortizing a way larger amount of money when you finance than when you lease. But with financing at least you own something at the end of your term.
    Yeah, you can think of financing as a lease with a residual of $0. Lease payments should be lower for similar term in every case, shouldn't they? (Note, I've never leased a car, and only financed one, so I'm no expert)

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    Quote Originally Posted by ExtraSlow View Post
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    Yeah, you can think of financing as a lease with a residual of $0. Lease payments should be lower for similar term in every case, shouldn't they? (Note, I've never leased a car, and only financed one, so I'm no expert)
    Yup. Again as long as the interest rate isn’t wack. Like say 0% finance and 6% lease rate for some reason. Even then, lease still probably has lower payments.
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
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    Quote Originally Posted by Misterman View Post
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    As mentioned, if you pick something with great residual value, you can sell private for more than dealership residual value and pay out the lease, pocket the difference. Lexus vehicles are well known for this, doesn't have to be something crazy like a G wagon. This is actually what I did with my first Lexus lease.

    Hasn't been mentioned yet, but I'm sure it will be. People will say it is stupid to put money down at the start of a lease. I would argue that is incorrect and based purely on your situation. Personally I don't like huge monthly payments. So when I leased my Mercedes, I put 20k down up front. All this did was decrease the amount I am financing. Residual amount stays the same, so instead of financing 50k of the vehicle, I knocked it down to 30k and got a much lower payment instead. I would've paid that 20k regardless, it was just a matter of whether it was drawn out monthly over the 48 month term, or cash up front.
    You're literally loaning money for free in these 2 cases.
    Originally posted by SEANBANERJEE
    I have gone above and beyond what I should rightfully have to do to protect my good name

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    Quote Originally Posted by rage2 View Post
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    You're literally loaning money for free in these 2 cases.
    Presumably you save on interest?
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
    fact.

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    Pick up my first lease today, definitely didn't put much this much thought into it haha.. Just got what i wanted.

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    Quote Originally Posted by JfuckinC View Post
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    Pick up my first lease today, definitely didn't put much this much thought into it haha.. Just got what i wanted.
    Gotta live your life bro. Whatcha get?

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    Quote Originally Posted by rage2 View Post
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    You're literally loaning money for free in these 2 cases.

    That's the other way to look at the first scenario. If lexus just offered you a better residual value, you'd pay less through your lease.

    You're not loaning free money when you put a downpayment on the front of a lease. You're reducing the amount you pay interest on. But by all means one could make the argument that I could've invested that 20k and make more ROI than I would save on interest by using it as downpayment. As I mentioned, it is based on your personal situation.

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    Lots of companies doing the finance with a balloon payment at the end. Now that I don't get..
    Quote Originally Posted by Gestalt View Post
    Im the one with a learning disability....

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    Quote Originally Posted by dirtsniffer View Post
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    Lots of companies doing the finance with a balloon payment at the end. Now that I don't get..
    I'm guessing you don't have the option to give it back at the end? Then when most people can't pay the residual off at the end, they can finance you for it and make money on the financing. Or they low ball you a trade in and roll your negative equity into a new vehicle.

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    What happens if you get in a accident? Does it get repaired and then returned at the end of the lease without a penalty?? Wear and tear items, like glass and tires what condition do they need to be?

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    Quote Originally Posted by Misterman View Post
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    I'm guessing you don't have the option to give it back at the end? Then when most people can't pay the residual off at the end, they can finance you for it and make money on the financing. Or they low ball you a trade in and roll your negative equity into a new vehicle.
    BINGO! This is how the finance companies get to charge you interest for 8-10 years assuming you keep the car, which most people don't. We see SOOOO many people rolling negative equity into the next deal it makes me want to barf. The proverbial out of the pan and into the fire situation.
    "Masked Bandit is a gateway drug for frugal spending." - Unknown303

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    Quote Originally Posted by danno View Post
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    What happens if you get in a accident? Does it get repaired and then returned at the end of the lease without a penalty?? Wear and tear items, like glass and tires what condition do they need to be?
    Yup. This is one of the biggest reasons (of many) why leasing is so good IMO. There are a few conditions on return, but they are typically very generous - glass and tires are usually the non-negotiable parts.

    You can crash you $100,000 car, with the repair estimate $1 below what the insurance company will declare a write off, and the dealership has to take back your disaster of a repaired car that nobody wants that you'd have to practically give away otherwise. You're just out the deductible, same as if you owned the car. Same with hail damage, and often a surprising amount of day-to-day damage is OK too (like golf ball to credit-card size dents depending on the brand). On top of this, if you want, you can just do the bare minimum looking after the car - no need to wash it, plug it in for the winter, doesn't matter if you park outside, etc. Just use it like a rental and return - as long as tires are above 50%, windshield isn't cracked, and there is no major unrepaired damage, that has you covered in most instances. Leasing a van while you have kids for example would be ideal - they can practically destroy it and then you just hand it back.

    My lease the agreement says I am allowed 15 rock chips per panel on the front, 5 on each side panel, unlimited scuffs/light scratches and up to 3 significant dents per panel. On the interior, I am allowed unlimited scuffs, cracks, tears and singes (burns) to seats & trim as long as they are 1.5cm diameter or less. Scratches/scuffs in leather are unlimited as long as it's not punctured. Curb rash up to 7.5cm strips is unlimited. It even says you can have 2 different brands of tires on the car.

    I don't think I'll ever finance/purchase again - there is almost no upside IMO, assuming similar deals/promotions. My #1 rule though is if you have to put money down to afford the monthly payment, you can't afford that car - in most cases it's a bad idea to do anything other than $0 down because anyone can make more than the 1.9% or whatever the lease is with simple investments, and nobody wants to give the dealer an interest free loan.

    I would never buy a previously leased car though, precisely for all the reasons leasing is so attractive.

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    Quote Originally Posted by killramos View Post
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    Not sure I agree with you on this. Apples to apples, unless the interest rate is completely whack with a near 0 residual, finance payments will almost certainly be higher than lease payments. You are amortizing a way larger amount of money when you finance than when you lease. But with financing at least you own something at the end of your term.
    I was more thinking of scenario where the maximum allowable terms for leasing are 3-4 years whereas you can finance for up to 7-8 years. Or even better say balloon financing over 5-6 years with a residual in the end. In those cases financing payments are going to be lower than leasing payments. I guess I should have elaborated. Residuals of course play a big role in determining what the payment on a lease will be.

    Also in regards to giving a large down on a lease, sure you can do it and bring the payment down but I think that defeats one of the most important purpose of a lease. The scenario mentioned above - if you get into a crash and take a big hit on the value of the vehicle, do you just want to give it back to the dealer at the end then and lose your large downpayment? Giving a large down on a lease makes sense when you KNOW you're gonna end up either keeping the car, or buying it out and sell it privately and you're not worried about accidents, hail etc claims diminishing the value of the car. If the plan is to return it to the dealer at the end of the term or trade it in before the end, I don't think a down makes sense on a lease - unless you can't afford the monthly payments, in which case well I won't 89coupe it.
    Last edited by shakalaka; 07-26-2019 at 09:32 AM.

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