Topic: Does it make sense to lease a new vehicle....

[Craig]

...with the intention of buying it out?

For those familiar with my position, my Matrix was stolen.  Next week, if it does not show up, I'll be getting a settlement from the insurance company.  The vehicle I'm looking at is an X-Trail XE Auto AWD.

Though really, we need two cars.  The wife needs a better commuter car as well, to replace an aging LeBaron convertible.  So part 2 of our plan is to sell the LeBaron privately in the spring (best time for a convertible), and buy a 2003-2004 Corolla for her.  We liked the Matrix, and the Corolla is even easier to drive.  It's also our rental while we wait for news on our car.

Seeing as we need these two cars within the next three months, the plan is to but the Corolla and lease the X-Trail.  Oh, did I mention we're buying a house this year.  There is money aside for that, which doesn't enter into the car decision.

So, the X-Trail will be leased.  The only thing is, I really think the X-Trail will be a keeper.  That is, I can forsee buying it out at the end of the lease.

If that's the case, should I be looking at financing instead of leasing?  Lease rate is 4%.  Financing is 4.8%.

Taking numbers from Nissan's online calculator, let's use the XE AWD manual + freight and PDE, as that'll be close to actual purchase price.  My wife qualifies for the grad rebate of $350 plus 0.25% off the lease or finance rate, which I've not included below.

Cash price is $28,298 + taxes = $33,693

Financed 36 months @ 3.8% = 36 * $957.89 = $34,484
Interest charges = $791

Financed 48 months @ 4.8% = 48 * $746.50 = $35,832
Interest charges = $2,139

36 month lease @ 4.0% = 36 * $532.12 = $19,156
Residual = $14,998 + taxes = $17,248
Total = $36,404
Interest charges = $2,711

48 month lease @ 4.0% = 48 * $455.59 = $21,868
Residual = $13,306 + taxes = $15,302
Total = $37,170
Interest charges = $3,477

(residuals are from an XE AWD auto)

I hate taking a hit on interest charges like that, but given our situation, and the fact that the interest rates here are close to mortgage prices, we may just be better off leasing for 48 months, with the option to buy it out.  That way, if it doesn't hold up, we can just walk away.  Then again, if we haven't use the allowed kilometres and we like the car, it's pretty easy to keep for $15K.

Is there anything I'm missing here, or have I got the math right?  I'm not sure if there are any other fees in the buyout or elsewhere that I've missed.

When it comes time to do the deal, I'm thinking of using the APA member services (www.apa.ca).  Good idea for $65?

[Ex-airbalancer]

Sorry to be -ve
I would buy a  used cars for cash,and keep  LeBaron until you get house because it will be hard to get a mortage. I had to pay off a daughter car loan so she could get her new house, because her total monthly payment were to high.Mortage companys do not care how much a loan is ,only monthly carring cost
After you get the house then you can go crazy on car payments if you want.  
Just my $0.02

(Message edited by Airbalancer on February 09, 2005)

[ovr50]

cph - I think your math is OK. You say the house deal doesn't enter into the equation; so, my feeling is the lease route on the X-Trail is fine and would probably be the route I would go in your situation. Yes, it costs a bit more over the time frame, but you can walk at the end or buy it out and resell if the equity is right to do that. You avoid all the upfront GST/PST and if not to your liking, you are only stuck w it for 3 or 4 years. I would go 4 for the lower pymt. The residual on the 48mo lease looks good, low enoungh to consider the buy out. You should be top side in the lease in about 2 years or so. Just my thoughts, I'm not an industry expert, but have/am leasing and like it.

[Craig]

I don't believe the Mortgage is a large a concern as you guys expect.  We can get co-signers if required, we have a nice down payment set aside, and assuming our car does not turn up, we have a $30,000 between the settlement and sale of the LeBaron coming our way.  I figure ~$15,000 for the lightly used Corolla CE, and the rest can knock down the car payment.

The LeBaron is starting to cost us money in repairs - over $800 last November, and I don't trust it.  I've been down the money pit road before.

Something that my folks advocate is the single cheque lease.  Write one cheque to cover the lease payments for the entire term of the lease.  For 36 months, that number would be ~$18,000.  This way, we could own the Corolla, and have use of the X-Trail for 3 years, for ~$33,000.  We could swing that, and have zero car payments, without dipping into our martgage down payment.  How's that sound?

[safristi]

If your under 40 and don't have a secure $100,000 after tax income..(maybe 1-2% of the population) FUGEDDABOIUTIT!!!!...you will(not!!) thank me now but LATER.....

[Craig]

So, the above gives me three more options:

Downpayment of $18,070:
Financed 36 months @ 3.8% = 36 * $428.06 = $15,410
Interest charges = $213

36 month lease @ 4.0% = 1 * $18,070 = $18,070
Residual = $14,998 + taxes = $17,248
Total = $35,318 (if bought out)
Interest charges = $1,625

48 month lease @ 4.0% = 1 * $20,246 = $20,246
Residual = $13,306 + taxes = $15,302
Total = $35,548 (if bought out)
Interest charges = $1,855

To me, the last two options look pretty good.  For creditor reviews, we will have no monthly car payments, though we will only own one car.  I'll have to check the insurance costs.

I know I can put together $18K, and since the outlay for the Corolla will wait until Spring, $20K now will be possible.

Is there something I should be wary of with one cheque leases?

[Craig]

I understand what you guys are saying, and I appreciate the concern.  I do not think I am being irresponsible here, but I will take a harder look at things this week, talk to my bank, and get back to this thread.  Suffice to say I think I have more set aside for the home downpayment than you assume.  If the bank would rather we own both our cars and make a 25% smaller downpayment on the mortgage, I'll buy both cars outright.

It's just that after sliding off the road last year in the Matrix, and having my older vehicles dropping water pumps and/or transmissions on the highway in the past three years, safety, reliability and avoiding huge repair bills are higher priorities for me now.

(Message edited by cphansen on February 09, 2005)

(Message edited by cphansen on February 09, 2005)

[Mdxtasy]

If you've got 35% down, the banks won't care if you even have a job.  A car loan is easy to get, a morgage not as easy.  I don't think it's a huge deal to sign up for a car then buy a house.  I did it.  I signed up for an EL and then signed for a house.  It will depend on your credit and job history....and what you as a family bring in as income.

[safristi]

ASSUME..old but true cliche  don't make an "ASS "out of "u" and "ME".........specially on ASH Wednesday,

(Message edited by safristi on February 09, 2005)

[Craig]

Safristi, you might as well know - I only understand about half of the content of your posts.

Mdx, not 35%, but closer to 20-25%, depending on how much house we buy.  My wife will have worked for a year by this July.  I am self-employed, so that doesn't help get a mortgage, I know.

Really, the house has to happen, and we have  co-signers at the ready.  Both sets of parents have been fantastic with us.

[wing]

I'm confused about Saf's responce.

But one thing to remember is if you don't buyout cash you'll have interest on that as well.

[Mdxtasy]

20% gets you nothing.  25% gets you out of CHMC fees.  I run my own company and it was difficult to jump through the hoops for a morgage.  Because I don't pay myself a lot, it was a big song and dance to get the morgage approved.  The bank wanted me to have run a profit from my company for 3 consecutive years and show strong financial statements.  Personal work history (they wanted 3 years) so your wife's 1 year work history might not be enough.  It's not impossible, just more steps when you are self employed.  Good luck.

[ovr50]

It sounds like you're fine, cph. The only problem I see with a lease that you basically prepay the monthlies on is that you better not change your mind before the end of the lease term. I'm too fickle to pre-pay the monthlies because I change my mind too often. But, if you're committed to the 3 or 4 years of the lease term, then prepay and save some interest.

[wing]

Why pay ahead of time, unless you get a discount?

Write the check out to yourself and deposit it into an ING account or something and then let them take the money from that account, at least you make interest, probably enough for 1 car payment or 2.

[Sterling]

You do get a discount for pre-paying. Probably about 2% lower rate. Your obligations are the same whether you prepay or pay monthly

[Craig]

I'm not so sure you get a lower financing rate, but by putting more money up front, you are reducing the amount you are borrowing.  I'll have to ask about a break on the interest rate for doing that.  Can't hurt to ask, can it?  ;)

Edit:  Actually, it can.  He laughed.  I'm hurt. My feelings aside, a single-cheque lease is available to me as an option.



(Message edited by cphansen on February 09, 2005)

[Froggy]

I know Volvo will drop the interest rate for a lease to 0.8% from 3.8% if you prepay. (S40 T5 AWD)

[Brig]

CPHansen - Do you already have a pre-approved mortgage?  Might want to dip your toe in that pool before you commit to other obligations.  And I do speak from experience.  

Regardless of having co-signers (whose obligations and credit histories also come under scrutiny), the rules are getting tougher.  They look at how long you've had the job you've had (three years is the minimum acceptable), your debt service ratio (loans vs income) and your credit risk.

I'm sure you know what you're doing  - you are a big boy, and all.  I just don't see a clear picture from your posts.  Can you clarify for us so we can stop nagging?

Brigitte

[GTI-Gabe]

My friend who underwrites at a bank says that any car payment over $400 is not looked at possitively when getting a mortgage, specially when it's a Lease (not an asset)

If you bought the car (financed it) it would be better since its looked as an asset when getting a mortgage.  You could then roll the car loan into your mortgage.

[Craig]

Gtigabe, that's very interesting.  I'll ask about that when I see the bank.  Opens up the possibility of putting ~$20K down and financing the rest, though I still like the single cheque lease idea.

Brigitte, I'm not all that large.  About 5'11", 160 lbs.  What I do have are brother-in-laws who have recently made the plunge from similar circumstances, and more family help if required.  My wife is recently-graduated with a post-grad in Engineering.  I'm a self-employed engineer, though I may go back to a regular paycheque soon.

The plan is to buy a small home and pay it off.  Simple as that.  If more help is required to make that happen, we have it available, even if we don't want to use it.  Both families are rather mortified at our luck with cars over the last few years, and are interested in seeing us in one decent winter driving vehicle for skiing, and hopefully a commuter car that won't leave my wife stranded.

To bring the subject back to cars, whatja think I can get for a white 93 LeBaron LX convertible V6 3.0L, auto, leather with 96,000 km?  It's not exactly in the black book anymore.  There are three on autotrader.ce right now:

http://search.trader.ca/Results.asp?BFROM=1&BAD=N&BPRICE=N&BTYPE=B&BCAT=1&BOREGI ON=-1&BYEAR1=1991&BYEAR2=1995&BPRICE1=&BPRICE2=&BKEYWORD=convertible&BMAKE=31&BM ODEL=LE+BARON&q1==+1&c1=@category&q3=31&c3=@makeid&q4=1142&c4=@modelcode&q5=convertible*&c5=@adcopy&q6 =>=+1991+and+<=+1995&c6=@year&q7=&c7=@askprice&SortBy=askprice&SortOrder =d&DisplayType=pictures&DisplayRowCount=48&mknm=31&mdnm=LE+BARON&q14=&c14=@subca tegory&subcategory=&CAT=1

I think the asking prices are a little high, but if they're asking $9-10K for similar vintage and similar miles, without leather, maybe mine would command ~$7-8K in the spring?  That car has serious hops, but it's not practical at all.  She's better off in a newer-model Corolla.