To Jim: lease vs purchase

Discussion in 'Credit Talk' started by ShyGuy, Feb 22, 2001.

  1. ShyGuy

    ShyGuy Well-Known Member

    In one of the BK seminar threads, you said you would start another thread about leasing vs. purchasing a car. Well, I saved you the trouble.

    I have a Red Carpet lease. I would have preferred to buy, but I took what I could get to get the car we wanted. The APR is 4.9 percent -- at least, that's whatever the lease equivalent of a finance charge is. I guess I'd rather have that than purchasing through a finance company or subprime lender at double-digit rates.

    Adding the total of the payments plus the purchase price at lease end (when I can better afford to buy the vehicle) isn't that much more than the original price of the car, so it still seems like a pretty good deal. Again, it's seems like a lot less than what I would have paid if I had bought a car using a subprime lender. (Of course, purchasing with a good lender would have been even better.)

    Also, my credit report lists the car's price as my tradeline.

    Curious for your thoughts and insights. Thanks in advance.
  2. mvfl

    mvfl Guest

    Do you know your credit scores by any chance? When I bought my car they told me your credit has to be much better for a lease than to buy. Also, the better your credit the lower the monthly lease payments. I want to trade my car in next year and am hoping to get a lease.
  3. Jim

    Jim Well-Known Member

    Shyguy. Lease - Some positive

    First, my concern for Marie was that the Ford credit manager was spinning a lot of numbers in front of someone who is not lease savvy and would make it appear that a Ford lease would be better for her than a Ford purchase at the factory subsidized apr. At no time did I mean to compare a Ford lease with purchasing from a subprime lender. If your choice was between a Ford lease and buying with a subprime loan; all I can say is CONGRADULATIONS!! on the lease.

    Second, you make an important point about the "lease factor". This is the equivalent of the apr. on an interest loan. The lease factor can be calculated by knowing a simple formula found on the internet or contained in books on leasing. Many people who lease do not know how to calculate the lease factor into an equivalent of apr. In my opinion, a significant number of these people who lease get shafted because of this.

    Third, I have some good news for you. When each of my Mercedes lease(s) were coming to an end, Mercedes offered me an opportunity to purchase the car at a price LOWER than the "residual value". This was convenient for Mercedes for if I bought the car they would not have to deal with the expense of selling the car at auction, rehabilitation etc. Ford may make you a similar offer.

    Fourth, you sound like you don't mind driving your car for say 7 years with payments (lease payments + auto payments).

    I agree in your case the lease may have made sense.
  4. Jim

    Jim Well-Known Member

    And Some negative notes.

    Shyguy, let's ignore your lease which suited your particular circumstances.

    My objections to leasing when compared to buying at a factory subsidized rate( say 0% or 2.9%) are:

    1. Ford's depreciate fast. The lease payment will be high because the lender calculates the payment on the drop in value from point of sale to return at the end of the lease. Mercedes depreciate slowly. So they are better cars for leasing.

    2. When I heard the obligatory Ford credit manager speech about the joys of leasing he couln't (wouldn't???) tell me the lease factor conversion formula. As a
    matter of fact the conversation died as soon as he realized I was aware of it.

    3. Did Ford offer to waive the excess damage inspection on your car at time of trade in in exchange for a $8-12 fee per month? I hope they did because here in California it is not uncommon to get socked with a few hundred to a few thousand dollars in excess damage charges. That is why Ford now offers the fee. Excess damge charges have been severely hurting resales on Ford products.

    4. I don't like the idea of perpetual car payments now that I am not incorporated. No tax break.

    5. If you try to break the lease, may the Lord have mercy on you. Prepayment penalties apply.

    6. Fixed mileage per year. this is not flexible enough.

    Anyway, I am a little pressed for time today. So these are just a few of my thoughts.

  5. ShyGuy

    ShyGuy Well-Known Member

    RE: And Some negative notes.

    I hope to be in good shape to buy the car -- maybe even for cash -- at the lease end. (With the bankruptcy behind me and a change of jobs, our financial situation is improving.)

    We like the car and hope to keep it after the lease, so I didn't worry too much about the excess mileage and damage charges. I wouldn't want to deal with them if we didn't plan to keep the car. (I had my last car for 14 years; it was a Honda.)

    Ford didn't say anything about the damage waiver. But that's good to know for the future.

    The business manager did say if I wasn't late with any of my bill payments during the lease term, I wouldn't have a problem buying my car or a new Ford product (which includes Madza, Volvo, etc.) at lease end. Snyder said the same at his seminar.

    The lease payments don't appear to be too bad, and the total cost seems to be OK. But you understand leases better than I do.

    Still, I would have preferred to purchase, but I think this was the best deal for me at the time.
  6. Jim

    Jim Well-Known Member

    Other lease comments.

    Sorry for 3 responses Shyguy but I thought it would be easier to keep control of the lease issue. Also, I had an appointment to keep with a student here. Now that I am back all I want to add is that:

    As a car buyer I am glad I do not have to deal with:
    Gap insurance

    Loan origination fee ($500 on my last Mercedes)

    Using the dealer for maintenance (what a ripoff). My mechanic works for 1/3 the dealer rate.

    I am intrigued that that your car's price is your tradeline. I imagine that your credit is harmed by the appearance of owing the whole value of the car instead of the increment between sale price and residual value. What irritated me about Marie's experience was that the credit manager appeared to realize that Marie is excited about having a low interest installment loan and was promoting the benefit of having a $10K lease show as a $25K loan as if it is leverage on a house. Talk about deception.

    Anyway, I will shut up now and look for your response.

    Thanks Jim
  7. ShyGuy

    ShyGuy Well-Known Member

    RE: Shyguy. Lease - Some posit

    Yes, a recent Consumer Reports said leases are bad deals for almost everyone who didn't have a business write-off. In my situation, it seemed to be the best deal at the time.

    Maybe Ford will make me a deal on buying the car at lease end -- that was encouraging to read. We hope to buy the car then, and I wouldn't mind driving it for a while. I drove my last car for 14 years. My sister drove her Taurus for at least a decade.

    Plus, after we buy a house, we plan to become a two-car family. This lease should help us buy next time. (Ford is supposed to come out with a gas/electric hybrid Escape in 2003, and that would be way cool.)

    I'll look over my lease tonight to see if I have any other questions for you.
  8. ShyGuy

    ShyGuy Well-Known Member

    leases: harder or easier

    All of the car dealers told me it was easier to get a lease with damaged credit because the bank/finance company owns the car instead of just having a lien on it. Don't know if this is true, but that's what they told me.
  9. once38

    once38 Well-Known Member

    RE: Other lease comments.

    I have a B of A lease and they report the whole car price. I prefer to buy but I had a lot of negative equity in my trade in so it was the only way to put a deal together with very little money down.
  10. Angela

    Angela Guest

    RE: Other lease comments.

    Do you consider this good or bad? If I have a lease worth 10,000 I don't want it to show 25,000. Those darn FICO scores can consider you overextended.

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