Author Topic: Does it make sense to lease a new vehicle.... (Read 18448 times)

Sterling · « **Reply #20 on:** February 09, 2005, 09:11:12 pm »

Gtigabe, with all due respect to your friend, that makes no sense. A car has no value as an asset until it is worth more than what you owe. A car worth $25,000 that you still owe $30,000 on is no asset no matter what the payment. This is the typical situation for years on a typical car loan.

The only reason a bank may look negatively at a lease payment is because they hope to coerce you into borrowing their money instead, therefore allowing them the opportunity to earn the interest. Since, by law, banks cannot lease vehicles in Canada they will usually do whatever they can to "help" their clients out of nasty leases and into friendly long term loans.

Of course they want you to "roll the car loan into your mortgage." Have you ever calculated the interest paid on an extra $25,000 on a 25 year mortgage?

(Message edited by Sterling on February 09, 2005)

Craig · « **Reply #21 on:** February 10, 2005, 05:57:31 pm »

Well, I now know I can do about $600 better than the above prices on the final price before GST + PST. That helps. And if the convertible is actually worth something, that helps even more.

Jamesbe:
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.

ING savings accounts are at 2.4%. The interest rate on the X-Trail XE is 4.0% less the 0.25% grad discount, or 3.75%. From discussions with ING today, we should qualify for their lowest mortgage rate of 3.65%

Why would I put money aside to earn 2.4%, and pay 3.75% to the financing company? Makes no sense.

From our discussions, ING don't seem to care about your assets nearly as much as your liabilities. To have regular car financing payments will negatively affect the mortgage application. Having a leased car on which you owe nothing will have no affect on the application. Again, this is according to the ING rep.

Assuming the car does not come back (it's been 2 weeks now), I'll be making the one cheque lease deal the day I get the insurance cheque in my hand. Probably a little over a week from now. The only remaining question is 36 or 48 months?}

Triple_b · « **Reply #22 on:** February 10, 2005, 07:31:18 pm »

Cphansen,

"Why would I put money aside to earn 2.4%, and pay 3.75% to the financing company? Makes no sense."

Because you may have to pay the 3.75% either way. Prepaying a lease does not absolve you of paying the financing charges. Like somebody mentioned above, some companies give you a break on the interest rate, but not all. I do not believe Nissan does this, but you should check that out.

As an aside, I have heard that obtaining a mortgage through ING is not the best experience. In my experience, a mortgage broker should be able to meet or beat ING at no cost to you (as mine did when I got my mortgage).

Craig · « **Reply #23 on:** February 10, 2005, 07:52:24 pm »

36 or 48 month lease? WTF am I thinking?

The above numbers are a little high, but they're in the correct proportions. With 36 months, I pay $18.1K now, and $17.2K in 3 years. Total is $35.3K. With 48 months, I pay 20.2K now and $15.3K to buy it out in four years. Total is ~$250 higher.

I simply go three year, put the extra $2,100 in the bank for three years, let it grow to $2,250 and use that towards the three year buyout. (Or simply apply it to the mortgage.) I'm $400 or more ahead of the game, and I don't have to keep the car for year 4 without powertrain coverage, if it turns out to be a lemon. The only problem is that I only have 3 years instead of 4 to get the buyout together.

Craig · « **Reply #24 on:** February 10, 2005, 07:58:56 pm »

Triple_b,

Yes, I'll have to pay 3.75% - on the residual. I understand that. But with a single-cheque lease, I'm paying for the portion of the vehicle that I am using up front, and avoiding paying 3.75% on that. Should I put the money from the insurance company in a 2.4% savings acount, and use that to make lease payments that are subject to 3.75%, I'm effectively paying 1.35% interest on the vehicle, before the residual. Follow?

Sterling · « **Reply #25 on:** February 10, 2005, 08:55:01 pm »

If Nissan doesn't give a rate discount for pre-paying, why do you think you're avoiding paying interest on the amount you pre-pay?

Craig · « **Reply #26 on:** February 10, 2005, 10:59:23 pm »

Because...I am?

In the above example, The total lease fee for a single-cheque lease is $18,070. Paid monthly, it's 36 * $532.12 = $19,156. I save $1,086 by prepaying. It's all up there.

DriverJeff · « **Reply #27 on:** February 10, 2005, 11:13:55 pm »

"To have regular car financing payments will negatively affect the mortgage application. Having a leased car on which you owe nothing will have no affect on the application. Again, this is according to the ING rep."

Then I'd say that rep is absolutely incorrect. It's all based on ratios and if you're locked into payments per month whether a lease or finance, it's still money you're obligated to come with each month and definitely WILL affect the ratios and your mortgage application. In fact, I just recently had a rude awakening when I was informed that my monthly car allowance will not be accepted as part of my regular taxable salary (despite claiming it with Rev Can) and thus, the full lease amount I shell out each month is considered a liability and thus negatively affected my mortgage process. My experience with ING was very much less than stellar. Triple B's recommendation of using a good mortgage broker mirrors my sentiments. ING and PC Financial have done some brilliant marketing to fleece the common man into believing their rates are best. BS... they're the best at face value, but that'd be just like buying a car without negotiating a better price -- where's the fun in that?

Craig · « **Reply #28 on:** February 10, 2005, 11:18:12 pm »

OK, let me say this again. It will be a single-cheque lease. I will owe nothing for three years after I drive the car away, except the small matter of returning the car or buying it out at the end of 36 months.

Sterling · « **Reply #29 on:** February 11, 2005, 12:08:17 am »

"In the above example, The total lease fee for a single-cheque lease is $18,070. Paid monthly, it's 36 * $532.12 = $19,156. I save $1,086 by prepaying. It's all up there."

So, contrary to your earlier statements, Nissan will be giving you an interest rate reduction for pre-paying.

(Message edited by Sterling on February 11, 2005)

Craig · « **Reply #30 on:** February 11, 2005, 08:16:27 am »

*bangs head on wall*

Not a rate reduction. That would mean the interest rate would be reduced from 3.75%. It is not. But, the value of the lease would be payed up front, as opposed to paying it over time. THAT'S where the the interest savings are derived from.

Go and borrow $18,000 from your bank at 4% interest. Ask them if it would be cheaper to pay the money back tomorrow, or monthly over the next three years. This is the same damn thing. I'm effectively borrowing three years of that car's life, worth $18,000 to Nissan. If I pay that back over three years, of course there will be interest owing on that $18,000, as well as the residual. But paying up front is not an interest rate reduction. It's paying up front.

safristi · « **Reply #31 on:** February 11, 2005, 10:46:24 am »

I hear you...but bottom line $18,000 for three years use of an X Trail and then a $17,248 buy out...I'll pass...take this as an opportunity to
throw some money into the mortgage/downpayment...or maybe you can write car lease payments off on your Engineering self employment..that would make a difference...maybe take over a leaseBuster vehicle where they give YOU an incentive?

..or have ya got the New Car Joneses???

S60 · « **Reply #32 on:** February 11, 2005, 11:20:54 am »

Cp, some of the car retailers offer optional leasing programs, for example
Advanced Payment Option
Lower your total cost by pre-paying all of your monthly lease payments. The benefits of this lease option are that you receive a reduced interest rate while eliminating the need to submit a monthly payment.

Multiple Security Deposit Lease
Reduce your monthly payment by pre-paying up to 10 security deposits. Each additional security deposit reduces your interest rate by 0.25%. The 0.25% reduction is applied against the total value of your lease, thus providing an excellent rate of return on your money. Depending on your situation, this lease may provide the greatest savings when compared to all other leases.

These options I posted are what VolvoCanada offers, and I know some of the other companies have similar programs.

Craig · « **Reply #33 on:** February 11, 2005, 11:42:27 am »

It's mostly just that the X-Trail is the only sport-cute that I like. Liberty is too heavy and thirsty. CR-V is too odd. RAV4 is too small. I sound like the narrator from Goldilocks.

We do a lot of winter driving, and as I said, we've inadvertently taken the Matrix off-road in bad weather. Partly for our safety, and partly for our insurance premiums, we can not let that happen again. We could also make good use of the extra space and towing capacity.

Finally, I have had atrocious luck with keeping vehicles over five years. The only lower-cost option we are considering is simply getting a new Matrix as another one-cheque lease. The residual on a Matrix is too high to consider used. In that case we're spending $13,000 now for a 36 month lease (instead of $18,000), but the 36 month buyout is the same $17,250 as an X-Trail! For $5,000 more up front, we get a much better vehicle for our purposes.

Please, do not misunderstand. I appreciate the opinions put forth here, though I can't fathom why people don't understand the interest savings of a one-cheque lease. I figured my situation may apply to others as well, and in your shoes, I would probably give the same advice. The first advantage we have over similar couples, is a decent income and earning power higher than that, should I decide (need) to give up the business and work for a living (or if the business starts to generate the profits I'm hoping for). The second advantage is a parental safety net that we'd rather not rely on, but is there. The third advantage is my amazing good looks, which will surely command the attention of fashion designers and photographers the world over.

Craig · « **Reply #34 on:** February 11, 2005, 11:43:31 am »

S60, that would be fantastic for me if it was offered, but Nissan does not. Thank you for the information.

S60 · « **Reply #35 on:** February 11, 2005, 11:58:54 am »

I posted that info, as I think some of the other posters were assuming you would be getting a similar deal thru Nissan, which you are not.

I am not an accountant, but prepaying if you can I would imagine gives you a comfort zone, as you know that part of overhead has been dealt with.
Its a known expense to you anyway, and I would imagine as far as taxes are concerned, you would be able to spread out, or carry over the expense over the 3 or 4 year period. I am not sure on this, and it would be worth asking your accountant about. As leasing in your case (self-employed) is very benefical.

Sterling · « **Reply #36 on:** February 11, 2005, 12:43:36 pm »

Look cph, prepaying a lease is not the same as putting down a large downpayment on a regular finance loan. It is not the same damn thing.

Pre-paid leases are calculated exactly the same way as regular leases. The cap cost is the same. The residual is the same. The term is the same. The only difference is a lowered interest rate. The payment is multiplied by the term to get the pre-payment amount.

Believe what you want, but when you actually get your contract you will see the interest rate will be stated at less than 3.75%.

Ex-airbalancer · « **Reply #37 on:** February 11, 2005, 06:18:54 pm »

Sterling, you are wrong, Cph is an engineer and they always right LOL
I can say this because my son is finishing up areospace engineering this year and he is always right too
If you plan on keep the SUV why do you not just buy it to start with.
Bank rates to by it off lease ,will be higher

By the way, what kind of engineer are you Cph

Craig · « **Reply #38 on:** February 14, 2005, 07:56:11 pm »

Sorry, Sterling (I feel a little sorry for myself, too). The lease rate stays 3.75%. Were I to prepay the lease of a Subaru, I can drop the lease rate down from 4.8% to 1.8% - a substantial savings, and it makes me take a harder look at the Forester. But the Nissan rate stays at 4.0% less 0.25%. Damn.

This is how I understand it:

MSRP on the X-Trail XE AWD Auto is $28,298
Selling price = 26,521 (assume)
F+PDI 1000
Air + Gas Tax 175
Admin 298
Subtotal = $27,994
Grad (350)
Capital Cost = $27,644

Residual after 36 months is 53%
.53 x $28,298 = $14,998

Now, the interest is applied as a reduction in the residual by a money factor. For 4.0% interest, that factor is 0.8871. They couldn't tell me the money factor for 3.75%, so here's mine:

x = 1.0375
x^3 = 1.1168 (3 year lease)
Money Factor = 1/x^3 = 0.8954

There may be a little play in this factor on their end, as deconstructing their factor this way converts 0.8871 to 4.07%, but close enough. We'll worry about 0.07% later.

Base prepaid amount = CapCost - (Residual x 0.8954)
= $27644 - $13429 = $14,215
GST + PST in = $16,347
PPSA = $58

Total prepayed amount = $16,405 + $475 security deposit = $16,880

Residual = $14,998 + taxes = $17,248 (less $475 deposit) = $16,773

Total if bought out is $33,653, which represents a premium of $1,862 over the cash purchase price, but the tax advantages of leasing help negate that.

So, no reduction in lease rate from Nissan. I'm a little ticked, but I've asked a few dealerships, including the one where I intend to buy.

For comparison, I ran the same numbers for a Subaru Forester X auto, and assumed a 5% discount, for sake of argument. Recall, the prepayed lease rate is 1.8%, down from 4.8%. Very nice.

Total prepayed amount = $18,110

Residual = $14,998 + taxes = $15,726

Total if bought out is $33,863, which represents a premium of $877 over the cash purchase price.

Basically, it's a wash. The Subaru MSRP is higher, and the residual is lower, which leads to an extra $1,200 due before pick-up. It would be even higher if not for the lower lease rate. In three years time, the buyout for the Nissan is $1,000 higher.

The Nissan allows me to claim $428 per month against my taxes. The Subaru allows me $473 per month during the lease. (Base Pre-payed + PST) / 36

After all that math, it will basically come down to which model I like more. lol

The Subie has a little more of a "soccer mom" feel to it, but it's a little lower and drives a little more like a car, which is good. The X-Trail is better-looking to me, and slightly larger inside with the seats down. AWD system goes to Subaru. Better engine may just go to Nissan (not sure). Mileage is about 1/2 L/100km better in the Subie.

Ah well, I have to wait until Thursday or Friday for the insurance cheque anyway.

84im · « **Reply #39 on:** February 16, 2005, 09:32:07 pm »

The X-Trail is better looking.....have you looked at this vehicle from the back....UGLY. Those high lights look dumb on the Honda and dumb on the X-Trail.
Ron