So, I'm finally looking to pull the trigger on a new car and I'm having some trouble deciding on whether to lease or just buy it up front with cash. This is for a Tesla model 3 so buying used is still very similar in price, hence the reason going for a new one.
The leasing rate here is incredibly low, (0.99%) which would make the monthly payments super low. I know there are disadvantages (higher insurance, not owning the car, others??). I would be paying for the more expensive insurance (full casco) regardless as I would like to have have the full package for the first couple years.
But I think together with the lower rates and low monthly payments, I would still be basically paying nothing for 3-4 years and can save the 45k+ cash to use in other ways and just buy the car at the end of the leasing period.
I know some people who lost their jobs this year and one of them was also at the end of his lease.
Normally he would just get a new car and new lease for another 3 years.
But because he was not employed, he could not get the new lease and he had to give back the car.
This is why I only want to buy a used car with cash.
Leasing can be good if you have many sources of income, for example, if you are a professional landlord and you collect rent from 10 different properties. It is probably a valid choice if you are a doctor too. But for everybody else, now could be a good time to reflect on the downsides of leasing.
Another worry for me is I don't know how to predict the kilometers per year, I don't want to frame my thinking around the number written in a lease contract. After all, having a car is about freedom.
Do you know whether it's possible to lease a car and then maybe after a year just buy the car to end the lease early? Or do you need to stick with the lease until the end and only buy it then?
You can buy out the lease anytime, with a sliding penalty - the earlier you do, the higher the penalty. If you buy it after the midpoint of the period, it's not that bad. Last 4 months or so is practically (if not actually) free of extra charge, i.e. no penalty.
Leasing has two functions to my understanding:
1. instead of saving an amount for 5 years, and paying a lump sump of cash 5 years from now, I get a car now and instead of putting it in an account it goes to the lessor. You can also do that with a loan, but in CH it's unsecured and very expensive.
2. Leasing has a set residual, so if the market goes to absolute shite, you already know the worst that can happen. I've leased a new car, and at the end of lease I did not return it but I sold it for 25% over the residual and got some money back. Returning a car is probably the worst thing you can do. This is not the US, where leases are disposable items. Garages will charge you through the nose for anything they can find when you return the car, and in my mind, returning the car should be a last financial resort.
If you're financially minded and you keep track of how much your car is worth at any given time, you can plan with a reasonable downpayment and stay always above water and have equity in the car. If you can plan, you're basically paying the depreciation as you go.
You can also get insurance against loss of income that would cover the leasing payment in case of job loss or similar. It's not hugely expensive in the grand scheme of car ownership, so if you don't have savings/liquid assets that would cover the value of the car in a bad situation, or don't have job security, then it's an option.
You make good points but it is not the whole story
The residual value is only there if you don't use the car a lot
If you are having fun and use it every weekend and make some long road trips then you might hit 30,000k per year but your lease is only for 20,000k per year. In this case, there is no residual and you pay a penalty for going over the contract mileage.
Turning that into a practical example: let's say you lease a BMW 1 series for your spouse to run the kids to school but for weekends and family vacations you also have a BMW X3. The mileage on the small car is predictable and very low, the mileage on the X3 is unpredictable and could be quite high. The small car might turn a profit on the lease but the X3 could go the other way.
I've written this before but its worth repeating, you can take over someone's lease under certain favourable conditions and end up with a bargain. Websites like leasetransfer.ch are set up to marry the two parties and what you need to look for are cars with < 6 months remaining and well under the allocated miles.
This example is a 2017 Mini JCW with a residual of CHF 13,000 and only 38k km. The leasee has been paying for 100k km and only used 38k. They are even offering 1 month lease payment free which leaves 4 months to pay and then the car is yours for CHF 13k which strikes me as a bargain.
There are lots of dreamers on there e.g. those who want you to pay them back their deposit or all costs related to the transfer when their cars are almost at the limit, so you need to hunt for the diamonds in the rough.
For the car I'm interested in, I found 12 results there but all of the sellers are asking too much.
Over the last few days, I went around and looked at some of the cheapest used vehicles in my specification. Each of them has some glitches. One of the sellers had even taped over some rust but I pulled up the tape and looked at it. The rusted part can actually be removed, sandblasted and repainted to remove the rust so I felt it was a bit silly how they taped it. Overall, my plan is to get one of the vehicles in this lower price bracket, drive it up to Germany and have somebody replace all the parts that other owners complain about. A good workshop can do all that in a single day for a fixed cost. I feel that if the vehicle passes an MFK and is running, it is better to spend €1,000 for an intensive workshop visit like that than spending money on the TCS test or extended warranty.
I don't see the leasing vs. buying necessarily as black-white bad or good.
If you have found a good deal, and have better (appreciating) assets for your money (10-20-30k) to sit in for e.g. 3 years, I don't see why I would park my cash in all at once.
Of course, as others have said, job security for one could be a reason to be cautios and plan even more diligently.
In my case:
My car at the end of its lease will have "residual value" set below 5k.
And current market rates the exact same car/mileage/equipment at 11-12k.
Could probably sell it the next day for 10k (if I wanted, but won't, as I don't need anything more at the moment).
More than compensates for the lease interest rates in between...
If your friend needs money because he is unemployed, at least with the leasing he should have the cash that he didn't spend by paying for the car in full, and he doesn't have to worry about having to sell the car to get some cash at a time when the second hand car market is really down.
I bought previous cars cash, then I realize that I almost never sell them off for the price I want.
With Leasing, I pay about 15- 20% downpayment, and at the end of the lease, I can just walk away with a relatively good idea of how much it would cost me. And I still have the money that I didn't spend if I had paid it in full at the beginning.
Timing is everything though. With your friend's timing, I think he is lucky that he leased the car.
You do know you can always SELL your car, right? You don't necessarily need to return it.
THERE IS NO FREE LUNCH.
Nobody is claiming that leasing is a silver bullet. Leasing is a nice way of paying approximately the depreciation of your car. If you use the car more, or if you are hard on it, it will be worth less in any case. That's why the garage charges you, not out of spite
My car was over the planned Km, I had no incentive to pay the extra penalty for the Km. I bought it from the lessor, and sold it at a fair market price, which was substantially over the residual.
If the car was worth less than the residual+penalty, I would just let them eat it obviously, but that's quite far fetched.
In any case, you should always take care what your car is worth. Depreciation is always the big ticket in cars, and it will always be. Financing charges, leasing penalties, etc. are extra fees for whatever convenience they might come with but not the main issue. If you get a car for 4y/60k Km total, and you happen to do 100k Km, the car will be worth a lot less than expected. It would be worth EXACTLY the same if it was not leased, it's just a matter of Km penalties and residuals, and if it makes sense to keep or return.
So why do people do it? I understand that it might give you a lower monthly payment in the short term vs. just getting a loan, but if you're really that strapped for cash shouldn't you just be going for a cheaper car in the first place? Or am I missing something else here?
(TBH I've not bought a car or motorbike except for cash in the last 30-odd years, so I know I'm not really well up on the whys and wherefores).
I have the cash and I can afford a car. But leasing gives me more flexibility. I can invest my cash and get more than 0.9%, at the end of the term I can return the car, sell it myself, or most likely, the garage will make a good offer on a new car.