[Grover432]

Originally Posted by ezmaass

And this is what's completely dangerous and what leads to disasters like we saw in 2007/2008 when the markets began to melt down. Buy now, pay later... or the idea that as long as someone allows you to lease or finance something, that it's financially feasible. As we saw with the housing and credit crisis, many millions of Americans were way in over their head... and each and every time, the bank said, "yes" to the loan.

When someone is driving around a car that's worth 2x their salary (and they're making minimum wage), it's evident that the system is still broken, and banks are still allowing unreasonable amounts of credit to be extended - maybe because they've now learned that Americans will print trillions of dollars and go further into debt as a nation in order to bail them out of their bad loans. It's really not the "beauty" of America, it's the stupidity of America to be quite honest. Apparently we learned very little from this past "great recession" about over-extending and "buy now, pay later" mentality.

I can respect that people have priorities, and some will spend more on cars versus houses or vacations, etc - perfectly cool. However, at levels this extreme (above), it's not a matter of priorities any longer... it's a matter of common sense.

The spend now pay later mentality is only part of the problem. Wall Street greed and the governments control by Wall Street and big business dictate the laws that let the little guy fail and the taxpayers (again the little guy) bail them out. It is all a big game. We vote every 4 years, but really, what changes??

As to the buy now pay letter model, without it the consumer purchase driven economy would crash.

[ezmaass]

Originally Posted by Noggie

Just an open question to all you US citizens.

Do most Americans buy a car cash in hand, or do you finance part of it?

Also. it appears leasing a car is common in the US, something it is not in my country.

Leasing has exploded in the past two decades here in the US. Prior to that, it was uncommon. A popular financial talk show radio host here in the US refers to it as "fleecing" versus leasing since, for most, it's not the best option. In my personal opinion, leasing tends to work out better for people who are able to benefit from it financially - such as small business owners where the US tax code provides write-off incentives. For most other guys you find leasing in the US, aside from business owners with tax incentives, they're mainly driven by the mentality of (a) it's cheaper in the here-and-now, and (b) I'll likely want a new car soon anyway.

All in all, you'll find arguments on both sides of the isle for and against leasing. But I'll maintain the position that they're NOT in the best interest of most consumers. We can argue the minor details, and again you'll find legitimate points on both sides - some financial and others lifestyle driven - but at the end of the day, leases have been made largely popular by the auto companies here because they're PROFITABLE for them. They allow auto manufacturers to get more expensive cars into the hands of people who wouldn't otherwise afford them (or wish to afford them) as conventional purchases... that's a plus. It helps them push more product and boosts the bottom line of number of units sold each year. Next, it allows them to capitalize on a now very popular secondary market - CPO. CPO is really just another fancy word for "used car." It's most popular feature comes in the form of a warranty, but it costs a premium over just a vanilla "used" car of equal specs. The auto companies have no largely created this market off the backs of leases, where relatively young 3 year old cars are returned with ~30k - 45k miles, and the company needs to remarket them. There are HUGE profits in the CPO market... not to mention huge demand.

Lastly, if you calculate the actual interest rate on a lease, then sprinkle in the details regarding the residual value (versus actual residual market value), etc, etc... you start to see why it's also financially promising for the auto manufacturers. You've essentially bought and sold a vehicle in one transaction, and the delta, if you stick to the "planned" mileage, is guaranteed to be a winner for the leasing company (which is normally the auto manufacturer's own bank). Car companies are just as much banks these days, which is a whole other topic... but leasing really makes much of that possible and profitable for them.

I don't want to make it sound like leases are all bad, though. There are some great reasons to lease (like tax deductions for businesses)... but there are also some terrible reasons (like over-extending). Aside from financial considerations, some people choose to lease simply because they like the simplicity of trading into a new car two or three years like clockwork, and they don't mind paying a bit more to do it... that's a lifestyle choice, not a financial one.

I'll also point out that some auto companies are also more aggressive with their leasing programs. BMW is one of them - they have very alluring lease rates. Try to lease an Audi? Not so much... the lease rates are typically terrible. But, in general, leases are extremely popular in the US. As a case-in-point, when you see TV ads here for cars, they typically conclude with something like, "own a XYZ model for only $XXX/mo." No longer do many ads or companies even speak to the MSRP of vehicles... just the cost to borrow one on a monthly basis. Quite a shame, I think. Which is exactly to their advantage, since they want buyers to come in and negotiate monthly prices that fit their budget versus the actual cost of the car.

[noixd]

Leasing is essentially a marketing deception. People see the lower rates and think its a win-win situation but you're essentially renting a car with payments till you hit the grave. If you got $$$$$ that comes out of your ass then leasing makes sense but if you can't finance a BMW and think you're saving with a lease then you need a financial advisor.

[The X Men]

Originally Posted by Noggie

Ok, makes sense.
For us the interest rate on a car loan is typically 5-10% depending on how much you put in, and the length of down payment.
Some just include the car loan in their house loan if they have available capital in the house (if you own say 50% of the house , you can easily get reduce that to 40% to pay for a car)

Interest rate here in the US is below 2% for those with good credit.

[jackaleyess]

Earning RM480k per year. Roughly USD150k. My car cost almost the same amount of my yearly income. Lol...

[mundo74]

leasing is just an alternate means of finance. Unless you pay cash for the car it's not yours and you are renting from the finance company. Unless you take out a 4yr or less loan you may be upside down in 3 yrs. You can buyout a lease anytime you want. Even if you own the car, high miles and dents will depreciate your car. If you keep your car 6 years and above then leasing is not for you. But every month the car will still depreciate (albeit less) and you will get the occasional $$$ repair bill.

Finance vs lease is a personal decision none is inherently better than the other IMO. If you really want to be fiscally responsible forget Bmws and take public transportation or worse get a used corolla.

[badblack550xi]

I think affording any car when you make 50k is possible as long as you live with your parents and they pay for everything else.. while you drive a nicer car than them.

[Noggie]

Originally Posted by ezmaass

Leasing has exploded in the past two decades here in the US. Prior to that, it was uncommon. A popular financial talk show radio host here in the US refers to it as "fleecing" versus leasing since, for most, it's not the best option. In my personal opinion, leasing tends to work out better for people who are able to benefit from it financially - such as small business owners where the US tax code provides write-off incentives. For most other guys you find leasing in the US, aside from business owners with tax incentives, they're mainly driven by the mentality of (a) it's cheaper in the here-and-now, and (b) I'll likely want a new car soon anyway.

All in all, you'll find arguments on both sides of the isle for and against leasing. But I'll maintain the position that they're NOT in the best interest of most consumers. We can argue the minor details, and again you'll find legitimate points on both sides - some financial and others lifestyle driven - but at the end of the day, leases have been made largely popular by the auto companies here because they're PROFITABLE for them. They allow auto manufacturers to get more expensive cars into the hands of people who wouldn't otherwise afford them (or wish to afford them) as conventional purchases... that's a plus. It helps them push more product and boosts the bottom line of number of units sold each year. Next, it allows them to capitalize on a now very popular secondary market - CPO. CPO is really just another fancy word for "used car." It's most popular feature comes in the form of a warranty, but it costs a premium over just a vanilla "used" car of equal specs. The auto companies have no largely created this market off the backs of leases, where relatively young 3 year old cars are returned with ~30k - 45k miles, and the company needs to remarket them. There are HUGE profits in the CPO market... not to mention huge demand.

Lastly, if you calculate the actual interest rate on a lease, then sprinkle in the details regarding the residual value (versus actual residual market value), etc, etc... you start to see why it's also financially promising for the auto manufacturers. You've essentially bought and sold a vehicle in one transaction, and the delta, if you stick to the "planned" mileage, is guaranteed to be a winner for the leasing company (which is normally the auto manufacturer's own bank). Car companies are just as much banks these days, which is a whole other topic... but leasing really makes much of that possible and profitable for them.

I don't want to make it sound like leases are all bad, though. There are some great reasons to lease (like tax deductions for businesses)... but there are also some terrible reasons (like over-extending). Aside from financial considerations, some people choose to lease simply because they like the simplicity of trading into a new car two or three years like clockwork, and they don't mind paying a bit more to do it... that's a lifestyle choice, not a financial one.

I'll also point out that some auto companies are also more aggressive with their leasing programs. BMW is one of them - they have very alluring lease rates. Try to lease an Audi? Not so much... the lease rates are typically terrible. But, in general, leases are extremely popular in the US. As a case-in-point, when you see TV ads here for cars, they typically conclude with something like, "own a XYZ model for only $XXX/mo." No longer do many ads or companies even speak to the MSRP of vehicles... just the cost to borrow one on a monthly basis. Quite a shame, I think. Which is exactly to their advantage, since they want buyers to come in and negotiate monthly prices that fit their budget versus the actual cost of the car.

Agree with you on this.
Companies lease cars in my country too.

On my 2012 550d I bought last month I went in 40%, and loaned 60%, I do intend to make larger downpayments, and my the time I sell i 1,5-2 years I will own 80% of it. I dont expect it to depreciate more than 20% in that time. Leaving me with a lot of money for my next car when this one is sold.

Originally Posted by The X Men

Interest rate here in the US is below 2% for those with good credit.

On my car I have a 4.6% interest, that is the best they could give me as I went in with 40% myself.
My mortgage has an interest of about 3,7%, however this vary, so it can change, a few years back it was 1,5%, climbed to 7%, before it dropped again, in the late 80s it was 14%, though 4-7% is considered the norm.

Credit rating here simply means if you get the loan or not, what determines the interest is how much of what you are buying you have to loan. A 100% loan is expensive, and a 50% loan is much cheaper.

[slingxshot]

Originally Posted by bkM3

412.55/month 36 months 30k miles 0 down ny taxes in the payment

That is impossible, may be for a 3 series, not the 5 series...

[S4CH]

There is a big difference in cost of living across the country and there is also a big difference in the cost of a 528i vs a 550i, which this survey doesn't capture.

[slingxshot]

I have leased, partially financed and fully paid out at the dealer.
In my opinion fully owning a car not going to work for me. All these cars I had past 10 years, I couldn't hold on to one more than 3 years. So I returned back to leasing...

Also another problem I have is owning a car is the huge 50K transaction. Your bank account suddenly is 50K less and as soon as you drive out of the dealer lot, the car price is already much lower.... since it is already "used".

And financing is stupid in my opinion, last time I financed the interest was somewhere 8%. It was stupid.... so instead of paying for the interest, I made a huge payment and emptied my bank accounts.

Leasing is great for people who don't want to be in shock that they just agreed to in insane finance or shelled out 50K....

Paying 1200$ a month to finance vs 600/month lease... for 3 years... OR paying may be 600/month finance for the next 6 years... in 6 years the car is worth nothing!!!! What is the point???

[noixd]

First of all you shouldn't be financing a car with 8% interest. That's just ridiculous and it shows what people will do just to get something that they can't afford. And second of all you shouldn't be purchasing cars or homes with the intent to profit from it. At that end of the day the payments are a lot cheaper for a lease but you have nothing for it. You'll be stuck with car payments for the rest of your life. At least with a purchased car you can recoup something with a trade on. I just don't find the benefits to rent anything. Why rent homes? Just doesn't make sense in my books. People should be living below their means. Stop trying to be something your not and stop trying to keep up with the Jones!

[Noggie]

Originally Posted by slingxshot

Paying 1200$ a month to finance vs 600/month lease... for 3 years... OR paying may be 600/month finance for the next 6 years... in 6 years the car is worth nothing!!!! What is the point???

Things are different around the world.
I guess since this is a US majority forum this is what most people know.

In my country cars are 3-4 times what they are in the US, and depreciation is much different.
I came from an e46 M3, I had a 2004, that I paid $100.000 for in 2008, the price for a well kitted e46 M3 new, was about $180.000.
i just sold my M3 after 6 years for $58.000.
$58.000 for a 10 year old M3 probably sounds crazy to you guys, but that is how things are where I live.
05 M5s are still sold around $90-100.000 today.
Despite having lost 42.000 in depreciation, I had 58.000 when it was gone, with a lease I would have had nothing, as I am sure my downpayment and monthly lease over 6 years would have been at least 42.000.

When I look at the US, I see automotive paradise.
Cars are dirt cheap compared to what I'm used to.
Having lived in the US I would have gone nuts buying cars I can just dream of today.
Not sure what a Lamborghini Aventador is in the US, but I'm sure it's far from the $1million it is where I live.
I guess $350.000 for a new M5 is a bit more than in the US too.

[The X Men]

Originally Posted by Noggie

Not sure what a Lamborghini Aventador is in the US, but I'm sure it's far from the $1million it is where I live.

Its cost less than half of that here in the USA.

http://www.cars.com/lamborghini/aven...=USC30LGC041A0

[bkM3]

Originally Posted by slingxshot

That is impossible, may be for a 3 series, not the 5 series...

i should mention it was a dealer demo with 3k miles on it but you dont need to believe me. i know what im paying and what car i have.

[skalberti]

Everyone has different ideas of what's best for them. For me, I don't lease. I don't like constantly making payments and in the end you have no equity or anything in hand. I don't buy anything I can't pay off in a years time. Paying 5-6 years on a car is a huge waste of money. The depreciation is bad enough, then tack on a couple grand in interest. Now if you get 0% or 0.9% for 5 years, that's a different story. I bought a loaded 2012 X5 and paid for it in 11 months. Now 2.5 years later I have $44K in equity as I just sold it. SO I take that $44K and put as a down payment on my new 2015 which stickered for $75K -$3500 discount from dealer. Now I only have $27,500 and I can pay that off in 7 months. For me, the best way is to buy not lease and pay off quickly.

[Ben2k9]

leasing is good under the following conditions:

1. you want a new car.
2. you want a different car in 3 years
3. you don't drive enormous miles per year
4. you can afford it

With leasing, all you're doing is financing the depreciation. So if a car is $70k new and going to be worth $40k in 3 years, you're going to pay for the difference of $30k, which will be financed and paid for in monthly installments over the 3 year period.

If you bought a car new and then sold it in 3 years, you're still going to be out of pocket the same amount of money, since you'll be selling around the $40k mark. Either way, you're out $30k.

I personally think the best bang for the buck is buying a 3 year old car with low mileage. It still looks and drives like its brand new, and yet you saved that $30k in depreciation.

Leasing works out for both parties. The dealer gets to sell a $70k car to someone who can afford the monthly notes on $30k car. The person leasing gets to drive a $70k car for the payments on a $30k car.

It's nothing more nefarious than that.

[Noggie]

Originally Posted by skalberti

Everyone has different ideas of what's best for them. For me, I don't lease. I don't like constantly making payments and in the end you have no equity or anything in hand. I don't buy anything I can't pay off in a years time. Paying 5-6 years on a car is a huge waste of money. The depreciation is bad enough, then tack on a couple grand in interest. Now if you get 0% or 0.9% for 5 years, that's a different story. I bought a loaded 2012 X5 and paid for it in 11 months. Now 2.5 years later I have $44K in equity as I just sold it. SO I take that $44K and put as a down payment on my new 2015 which stickered for $75K -$3500 discount from dealer. Now I only have $27,500 and I can pay that off in 7 months. For me, the best way is to buy not lease and pay off quickly.

Thas is exactly how I look at it, though, I give myself a little more than one year to pay them off.

[Ben2k9]

I don't want my capital tied up in a depreciating asset, it's better to be working in the market earning a higher rate of return than i'm paying on interest on a loan. I just got a 2.19% loan on my recent purchase. If I earn 8% return on that $70k I would have spent, then that's $5,600 a year in profit versus the roughly $1,500 in interest I pay on the loan, leaving me better off net $4,100 per year.

[SoDigito]

Originally Posted by Ben2k9

leasing is good under the following conditions:

1. you want a new car.
2. you want a different car in 3 years
3. you don't drive enormous miles per year
4. you can afford it

With leasing, all you're doing is financing the depreciation. So if a car is $70k new and going to be worth $40k in 3 years, you're going to pay for the difference of $30k, which will be financed and paid for in monthly installments over the 3 year period.

If you bought a car new and then sold it in 3 years, you're still going to be out of pocket the same amount of money, since you'll be selling around the $40k mark. Either way, you're out $30k.

I personally think the best bang for the buck is buying a 3 year old car with low mileage. It still looks and drives like its brand new, and yet you saved that $30k in depreciation.

Leasing works out for both parities. The dealer gets to sell a $70k car to someone who can afford the monthly notes on $30k car. The person leasing gets to drive a $70k car for the payments on a $30k car.

It's nothing more nefarious than that.

+1

[twelve535i]

Originally Posted by SoDigito

+1

+2

[ipso_facto]

Originally Posted by ezmaass

Leasing has exploded in the past two decades here in the US. Prior to that, it was uncommon.
[...]
Which is exactly to their advantage, since they want buyers to come in and negotiate monthly prices that fit their budget versus the actual cost of the car.

Very well written. You are absolutely right about the pro's and con's of both lease and ownership.

The marketing of leases is an identical situation in the UK. The current marketing model of "ever decreasing circles" for this is : the decreasing annual mileage.

The quoted monthly headlline cost looks great. Then there is the mileage limitation attributed to this cost - around 3 years ago, it was 12k annual miles tucked away in the fine print of the advert, then 10k annual miles .. now, with ever greater frequency, it is stated as 8k annual miles. Seemingly, the monthly cost stays the same, or even decreases slightly - but in reality the terms of the deal are distinctly different.

I leased three cars, a 5 series, then an Audi A4 and then another 5 series. All very good rates through a scheme at my employer, and suiting my needs at the time. I have enjoyed all three, but decided it was time to buy my third lease in November last year. I am now going to keep my car for probably 4 more years and then look to buy an approx 2.5 to 3 year old BMW with low mileage. As another poster stated, a large portion of the depreciation has occurred at this point. I think a just under 3 year old car is ideal, because there is still time to claim on warranty, if there are any problems with the car.

You are absolutely right about the lease being largely about a lifestyle choice. Once this cycle is started, it is very difficult to opt out : for financial reasons, but also for the "personal comfort" that one gets accustomed to, having experienced that item.

In life, if you have not experienced a specific "good thing", then you will not miss that thing. However, if you have had that "good thing", then it is incredibly difficult to settle for something less. Applies to any consumer product or service; a car, a bike, a music system, a good quality restaurant or a simple t-shirt! I think that the leasing model of car "ownership" also subconsciously relies on this human trait.

Anyway - thanks for your post - a really good read.