Quote:
Originally Posted by Alfisti
Because the numbers don't tally. The residual is usually artificially high to keep the lease payments under control so the buy out is ridiculous. Leasing only works if you're writing it off or will otherwise buy a new car every 3 to 4 years. Otherwise just buy.
Remember every new purchase or lease includes a RAFT of dealer charges and fees, so keeping a car just 3 years then turning it over is financial suicide unless one just doesn't care. I mean $1100 month for a MACH 1, you're talking what, hair under $52K in 4 years and you own NOTHING. 68,700 cash price plus taxes is $77K. No way the Mach 1 is worth $25k in 4 years, it'll be closer to double that.
That's madness.
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Residuals depend on the car. BMW has stupid low residuals, because they internally know their cars won't hold value by and large. Jeep on the other hand has some of the highest residuals I've seen at 64% for a three year term.
But as you rightly point out, residuals are super important - high or low, your lease cost depends on the spread between the MSRP and the residual. That's what you are amortizing over the lease term, plus interest. And so my point is, high or low, what does it matter, you are paying that amount anyways if you financed it...this just lets you get out if you get handed a crap car (or you want to switch every couple years anyways), OR you exercise your option to buy the remaining portion out. Leasing behaves a little like financing, you just have a purchase option at the end. But that purchase option is not any higher because you decided to lease vs finance. So there is no penalty (aside from as I said any differential in interest rates).
The raft of dealer fees and charges aren't honestly that bad, maybe $1K at most, but what I've seen is less, and they apply whether you lease or buy. That's on you though to negotiate the price down. This point is valid though if you plan on flipping vehicles every 3-4 years of course, though in that scenario, if they bought the vehicle instead of leasing, they are still going to incur these charges when they flip. Apples to apples. Can't compare a guy who is absolutely going to flip vehicles every 3-4 years and a guy who isn't and argue that's why leasing is bad.
Lastly, the Mach 1 example, you are assuming they have the cash to buy outright (vs finance). I think you either have to redo the lease payments assuming he pays the lease up front and no interest then to decrease the $1,100 / month to what the cost is before interest, or take into account the finance charges on the MSRP over that same period to conclude.
Plus, going back to original argument, what if you buy basically a lemon and can't return it. You are screwed and you just have to hope you can sell it for what you approximately owe on it. Leasing, you at least get to give it back.