Affordable daily - Lease questions and options

[originalgoods13]

I am a newbie when it comes to leasing.

This will be my first time leasing a vehicle.

What are my options for negotiating? Which area should I negotiate?

Ford won't budge on the 4.49% and Subaru is great with 1.49% and a very high residual value of $34,666.75 vs. $29,130 for the Mustang.

The two vehicles are Subaru STI and Mustang Mach 1. They are completely different categories but both can be considered enthusiast vehicles.

I have attached the two-screen captions of the lease plans on the website with 0 down.

I have no experience with either Ford or Subaru products, both are dinosaurs when it comes to tech and engine, both sound great, the V8 with the GT350 exhaust is intoxicating.

Pros and Cons?

Thank you.

2021 Mustang Mach 1 Base 6 Speed Manual


2021 Subaru STI

[Mintsopoulos]

Quick question...why do you have the mustang at 48months and the sti at 24 months? It doesnt seem that you are doing a direct comparison based on the inputs...

[Alfisti]

I'll be the first to say it, why not just buy one? Used values will continue to hold moving forward so leasing seems like a lot of coin.

[Joekerr]

Originally Posted by Alfisti

I'll be the first to say it, why not just buy one? Used values will continue to hold moving forward so leasing seems like a lot of coin.

Long as you are ok with the built in interest charge (vs whatever you would pay in interest to finance it), why not lease?

You have the option to buy it out at the end at the residual value after all, and leasing allows you a few years to determine if your vehicle was built on a Friday, or by a person who simply couldn't give a crap when they were assembling it...if you got a lemon (that isn't sour enough to get it returned under any lemon laws), well, here you go Mr. Dealer, it is yours again at the end of the term.

But if it is a good vehicle, then you can choose to buy it if you like - not out anything much but the change in interest rate differentials over that term between lease / finance.

[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.

[spazzyfry123]

So let me get this straight.

You want to pay roughly $52k over four years for a $66k Mustang to just hand the keys over at the end of the term?

I mean you can go buy a used GT350 for that kind of money and you get to keep it!

[Alfisti]

I was literally gonna say just get a lightly used GT350. THey are 80K here with taxes though.

[dreamingat30fps]

Originally Posted by Alfisti

I was literally gonna say just get a lightly used GT350. THey are 80K here with taxes though.

As far as I know you can negotiate the price of the vehicle on a lease just like when you finance. I believe there is only 1 thing you can't negotiate that's set by the manufacturer.

That being said I've never leased so. I always buy slightly used. Has always seemed to make more sense $$ wise. Especially right now. Drove our 2020 corolla for a year and dumped it a couple months ago I think I made $1k. But even in the before times if I bought and sold it right I might be out $1-2k if I didn't maybe $5k. Still a lot less than buying new or leasing. Most people can't even tell they are used.

[Joekerr]

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.

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.

[Alfisti]

Originally Posted by spazzyfry123

So let me get this straight.

You want to pay roughly $52k over four years for a $66k Mustang to just hand the keys over at the end of the term?

I mean you can go buy a used GT350 for that kind of money and you get to keep it!

To be fair it is 52K on a $77K Mustang.

[Maitre_Absolut]

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.

You just contradicted yourself, which is it. Is the residual too high or too low?

If the Mach 1 is worth 50k in 4 years and his residual is lower then he can sell and pocket the difference, no different outcome than if he bought the car.

Back to the OP, you are comparing a 24 month lease on the STi to a 48 month on the Mustang, so of course the 24 will have a higher residual. You also have a significant MSRP difference so the mustang should be more expense to lease all else equal.

[Alfisti]

No I am assuming he is personally financing, rate should be in the mid 2% range on a HELOC.

I agree with some of your points re. leasing and lemons but that is what a new car warranty is for, after 3 years, you are basically forced to start over again as the buy out usually makes no sense if the monthly payments were juiced to get the number low.

I can't make sense of it. I mean we lease our Stelvio but it's for the wife's business so it is just so much easier with the tax man to do a lease.

These cars though, well especially the Mach 1, it will hold value, why lease it?

[Joekerr]

Originally Posted by Alfisti

No I am assuming he is personally financing, rate should be in the mid 2% range on a HELOC.

I agree with some of your points re. leasing and lemons but that is what a new car warranty is for, after 3 years, you are basically forced to start over again as the buy out usually makes no sense if the monthly payments were juiced to get the number low.

I can't make sense of it. I mean we lease our Stelvio but it's for the wife's business so it is just so much easier with the tax man to do a lease.

These cars though, well especially the Mach 1, it will hold value, why lease it?

Well, fine, but then you need to apply the same rate to his lease payment and say he just paid it upfront so again his $52K would go down, and your $77K would go up, spread gets larger, and see where it compares to estimated FMV. All I'm trying to do here, and I know you understand it, is to get this to an apples to apples comparison.

Ok, let's say the monthly payments were juiced to get the payments low for arguments sake, and therefore, if you were to look at the FMV of the vehicle at the end of your lease term and compare it to the buy out, you are saying it makes no sense, because the buyout is higher than the FMV of the vehicle. Correct?

If so, then isn't that a good thing? The dealer messed up and let you drive a vehicle for X years and is now underwater - not you, the dealer. Had you financed that same vehicle, at the exact same point in life at the end of the term, your financed vehicle would be worth less on paper than your lease vehicle...so you paid less for the vehicle overall for those X number of years.

Vice versa, lets say they juiced it the other way and payments were higher, but the buyout was low - again, you would look at FMV and if you could make money by exercising your option to purchase, you would. Ceteris paribus.

Know where I'm coming from?

[Alfisti]

Originally Posted by Maitre_Absolut

You just contradicted yourself, which is it. Is the residual too high or too low?

If the Mach 1 is worth 50k in 4 years and his residual is lower then he can sell and pocket the difference, no different outcome than if he bought the car.

Back to the OP, you are comparing a 24 month lease on the STi to a 48 month on the Mustang, so of course the 24 will have a higher residual. You also have a significant MSRP difference so the mustang should be more expense to lease all else equal.

Let's assume the same price lease vs buy, taxes in.

LEASE:
1078*48 = 51,744
Buy out = $29,130*1.13 = 32,917
= $84,661

BUY:
68700*1.13 = 77,631
Interest @ 5 yrs and 2.5% is 1,378
= 79,009

He is more than $5K up and if the car holds value, as the Mach 1 likely will, he could offload it for $50K and spend $29K in 5 years instead of $52K in 3 years.

So to your point, let's say he does the buy out as the car is worth more, so he buys her out, 33K, sells at $50K, for a 17K delta. 52 less 17 is 35K. He has still spent 4K more in 3 years than he would have if he bought it over 5 years. Now i realise 5 vs 3 years is unfair but a) the loan cost would also be less and b) I am not even counting the extra 2 years of leasing he would need to do to get to 5 years of ownership.

It's madness.

[Joekerr]

Wait how did you get interest costs of only $1.4K over 5 years. Interest for one year assuming no payments is like $2K already. No way are your figures right.

Plus you should be using the same interest cost in both scenarios. If he had access to a lower interest rate than Ford is charging then he would just do an upfront payment as much as possible to remove their interest rate.

[wtwo3]

Originally Posted by Alfisti

Let's assume the same price lease vs buy, taxes in.

LEASE:
1078*48 = 51,744
Buy out = $29,130*1.13 = 32,917
= $84,661

BUY:
68700*1.13 = 77,631
Interest @ 5 yrs and 2.5% is 1,378
= 79,009

He is more than $5K up and if the car holds value, as the Mach 1 likely will, he could offload it for $50K and spend $29K in 5 years instead of $52K in 3 years.

So to your point, let's say he does the buy out as the car is worth more, so he buys her out, 33K, sells at $50K, for a 17K delta. 52 less 17 is 35K. He has still spent 4K more in 3 years than he would have if he bought it over 5 years. Now i realise 5 vs 3 years is unfair but a) the loan cost would also be less and b) I am not even counting the extra 2 years of leasing he would need to do to get to 5 years of ownership.

It's madness.

Assuming he's financing the entire thing - interest at 2.5% would be more like $5k over the course of the 5 year loan.

[Alfisti]

FFS I messed up the interest input into the online calculator. You're right, it is $5K.

I'd still buy.

[originalgoods13]

Here is another kicker. Ford has a prepaid lease plan, if I pay $43,500 up front, they will give me 1.5% APR with the $29,130 residual value.

[wtwo3]

Nothing about this thread screams "affordable" But that's the state of the market these days....

Beyond the financial aspects, there's other things to consider as well. Not sure if this still applies to leases in Canada, but for me there are other intangible benefits to leasing a daily driver:

- With leasing, the risk is assumed by the leasing company as opposed to the consumer. A couple of examples include - if you get into an accident, with a lease you can simply walk away at the end of the lease since the residual is fixed. With a purchase, you take a hit on the resale value from the accident. Another example is in the fact that we're here speculating used car pricing 2-4 years from now. With a purchase, the resale value is a factor of market conditions. With a lease, residual value is fixed. If the resale value of the car tanks for whatever reason, you're protected by the fixed residual and it's the leasing company's problem. If the resale value soars, then you can buy out your lease and sell it at a benefit to you.

- Convenience - if you have a habit of changing out your cars every 3-4 years, while leasing is typically the better financial option, this current market is anything but typical. However, there is still the convenience factor - no need to worry about selling the car, which if you sell to private party to maximize your return, can involve lots of test drives, periods of negotiations, etc. With a lease you simply turn it back in. This is still market dependent, and right now it's a seller's market so you may not have the headache selling typically causes if offers are plentiful.

[upstatedoc]

If I had a nickel for everytime one of these threads popped up over the years....I'd have a lot of nickels

[spazzyfry123]

Originally Posted by Alfisti

To be fair it is 52K on a $77K Mustang.

I forgot about the Canada tax

[spazzyfry123]

Originally Posted by wtwo3

Nothing about this thread screams "affordable" But that's the state of the market these days....

I was thinking the same thing! That's some crazy money for what it is.

But hell I've been hearing stories of people paying $8k over sticker for a Rav4. Wild.