| mocatdaze |
At the risk of getting bashed, I'm going to throw some numbers out for a friend, before he potentially makes a big mistake.
He's leasing a:
Silver MDX Touring w/Nav
For:
48 months and 15K miles/year
The dealer is asking $1200 due at signing and $560/month.
I don't have the other numbers, one normally needs in a lease, such as money factor, cap cost, etc.
ANY help at all would be appreciated. I've done a search through the forum and haven't found a good match to compare with.
Thanks again!!! |
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| kseto007 |
| I'm paying $589/month for a 2003 Touring model for (48 month lease) with zero down. |
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| tommyj |
| Atlanta dealer is running ad for 48 month lease on base model for $399. Cost $36,900. Down $3,000. Residual $19,100. I think 18 cents over 12,000 miles. |
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| rerodgers |
seems a little high. I am looking at leasing a touring w/RES for 48 months and have run pricing based on Expert Lease software and leasecompare.com and you should be able to get a better deal than that.
Check out leasecompare.com or leaseguide.com to run some numbers on lease payments.
Hope that helps!
:) |
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| kseto007 |
Looks like I did OK according to leasecompare.com.
My monthly payments is between the high and low number.
I also forgot to mention that I actual talk the dealer into taking back my 02 CL type S that I was leasing for about a year and half to get the MDX touring with door trim and side steps without any penalty.
Also depends on your credit, if its not in the excellent range, expect to pay higher. |
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| thill381 |
quote:
Originally posted by tommyj
Atlanta dealer is running ad for 48 month lease on base model for $399. Cost $36,900. Down $3,000. Residual $19,100. I think 18 cents over 12,000 miles.
That $3,000 down does not include Tax, Title, and Lic which here in Illinois w/o a trade would be equivalent to another $2,400 for a total of $5,400 due at inception. |
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| tommyj |
quote:
Originally posted by thill381
That $3,000 down does not include Tax, Title, and Lic which here in Illinois w/o a trade would be equivalent to another $2,400 for a total of $5,400 due at inception.
The last time I leased in Georgia the tax was in each payment....not up front. The title and license are not material and usually will be absorbed by dealer. I would not do a lease in a state if I had to pay sales tax up front. That really isn't a lease. |
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| Aspen White |
| I'm paying $573 a month (includes 5% tax) 48 months 17,500 miles a year. Zero down, just first months payment. |
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| Aspen White |
| Forgot to say the car is an 04 Touring. |
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| JeffK |
Now in New York, instead of paying tax on the lease payments, we now have to pay tax on the purchase price.
Acura no longer leases in New York because of liability.
Instead there is a monthly payment with a balloon at the end. The Balloon is like the residual - your option not dealer - you can walk if balloon is higher than market value.
To soften blow of extra taxes, most dealers are waiving first month and there is no "bank fee".
Few dollars more than a true lease.
One advantage is that title is now in your name rather than leasing company (whole point - leasing company is no longer liable) and this should be easier to get out of verses a lease.
It will be like selling a car, subject to monthly payments. With a small cash incentive you should be able to sell your MDX before the end of the term if you wish.
JeffK
BTW, on a base '03, no money down, 48 months, 12000 miles per year, all fees including taxes, and bank fee in the lease, I am paying $497 per month. |
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| sgtglok |
quote:
Originally posted by JeffK
Now in New York, instead of paying tax on the lease payments, we now have to pay tax on the purchase price.
Acura no longer leases in New York because of liability.
Instead there is a monthly payment with a balloon at the end. The Balloon is like the residual - your option not dealer - you can walk if balloon is higher than market value.
I don't get it. Where is the lease term here? So, compared to buying a car with zero down and a 'baloon' payment in the end, how is this different? By 'Acura no longer leases in NY' you mean Honda Financial Corp does not do leases in NY now? :confused:
So, if I go out of state, I will not be able to lease, or need to pay taxes on purchase price, not on lease term? What about if I do not go with Honda Financing, and do a lease through another company? Does not make sense to me. |
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| sgtglok |
quote:
Originally posted by mocatdaze
Silver MDX Touring w/Nav
For:
48 months and 15K miles/year
The dealer is asking $1200 due at signing and $560/month.
This $1200 is ALL that is due at signing (ie., includes bank fee, security deposit, etc)? If yes, sounds like a good deal to me!
Certainly, get the final purchase price, residual, money factor first! |
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| JeffK |
Under the theory of vicarious liability, a judge has ruled that in an accident, the title holder of the car can be sued.
Sounds nutty to me but that is the law in New York.
All states, except New York and I think Massachusetts, have passed legislation to shield the the leasing company.
To the best of my knowledge only the financial arm of BMW, Mercedes and Audi are still writing leases in New York.
Honda (Acura) financial is not.
Instead, Honda Financial is writing a hybrid product - monthly payments like a lease, with a balloon at the end - same as the residual.
Difference is that when you buy, you spread the purchase price over 4 or 5 years and at the end you own the car.
With this hybrid product you have the option to buy at the end by paying the balloon.
The payments under the hybrid are much, much lower than under a buying over time - financing.
The same formula for determining monthly payments on the hybrid is used as if it were a lease.
Hope this clarifies.
JeffK |
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| sgtglok |
| Thanks Jeff! It does, partially. What about other leasers, such as Chase, Haan, etc.? So, 100/300 liability on insurance coverage mandatory on all leases in NY is not enough these days? Anyway, the only way this form of lease can still be attractive is if the total out of pocket due at lease signing (be it tax on a cap cost, minus bank fees, minus (refundable!) security deposit, minus whatever else) is about the same as before. This concerns me the most. I rolled the tax into the monthly payments (crazed by the idea that if my car is stolen or totalled, I loose the tax $$) Now, if the tax is doubled, no way it would make sense to roll into the payments, since you pay additional tax on principal. Guess, I would need to clear this more with my local dealer. |
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| JeffK |
Well, you of course were correct to roll everything into the lease.
You cannot imagine how many times I have posted this basic principal in leasing to put <b>NO MONEY DOWN</b>.
Otherwise, as you correctly state, whatever you put down, in the event of theft or totaling a car in an accident it is <b>GONE</b>.
A while back I had this heated discussion with a poster who alleged to be a former new/used car salesmen (I saw alleged because he put money down) who was advising his customers to put money down to lower the monthly payment!
Unbelievable!
To answer your question: I found that the "hybrid" is within 1% or 2% of the cost of a traditional lease payment.
I do not know about Chase or Hahn. I tend to lease with the finance arm of the manufacturer. At lease end they are easier to deal with.
I would still put the taxes into the payment. Again, anything you put down, in the event of theft or totaling because of an accident will be lost. |
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| thill381 |
quote:
Originally posted by JeffK
Well, you of course were correct to roll everything into the lease.
You cannot imagine how many times I have posted this basic principal in leasing to put <b>NO MONEY DOWN</b>.
Otherwise, as you correctly state, whatever you put down, in the event of theft or totaling a car in an accident it is <b>GONE</b>.
A while back I had this heated discussion with a poster who alleged to be a former new/used car salesmen (I saw alleged because he put money down) who was advising his customers to put money down to lower the monthly payment!
Unbelievable!
To answer your question: I found that the "hybrid" is within 1% or 2% of the cost of a traditional lease payment.
I do not know about Chase or Hahn. I tend to lease with the finance arm of the manufacturer. At lease end they are easier to deal with.
I would still put the taxes into the payment. Again, anything you put down, in the event of theft or totaling because of an accident will be lost.
Well jeffk it is either have customers put money down a car, so they can afford the payments, or let them walk. As a salesperson, and manager it was not in my best interest to tlet the customer walk, hence they put money down to allow for a comfortable monthly payment. What would you do, tell the customer not to put any money and go lease a car they can afford w/o putting money down??? If your not putting any money down on a lease you had best have GAP insurance w/ the note to cover the negative equity you have after rolling everything into the lease.
I find it hard to believe that you would insult everybody on this board who has put money down on a lease. While I understand what you are saying, I and certainly most in the new car business would not agree with you. Again hope you have GAP, and no it doesn't come w/ every lease.
Don't take this as an "attack", however I have validated my experience on this topic and I still don't know where your "expertise" comes from. And no I don't have time to read through archives on your pompus preaching about leasing to find out, just enough time to defend my real world experience on the topic. |
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| JeffK |
Dear thill381
In my last post I mentioned "alleged" and now I am glad I did.
FYI, in New York for the past 5 years, GAP insurance is not only mandatory but has been codified by the New York State legislature.
Were you truly a "sales manager" or are you now masquerading as one??
I stand by what I said before: You did a disservice to your customers.
In an attempt to make sales, regardless of the consequences, you sold your customers down the river.
But alas, there is some justice - you made the same mistake on your own lease.
Hope you have don't have your vehicle stolen or totaled, because all you put down is lost.
Shame you are so arrogant that you will not read what I and others have posted.
Instead you go blindly on, under the delusion that you have "helped customers get their ""dream car"".
Come off it, you did what you had to make a sale, and the customer be damned.
You have lowered to new lows "caveat emptor".
One of the purposes of this Board is to help others not fall into the traps laid by new/used car salesmen.
Keep that in mind before you post again with information that is detrimental to the financial well being of other posters.
JeffK |
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| pelucidor |
I don't get it - if a customer can afford to put money down then surely they can put that money into a bank instead and use it in small chunks towards the monthly payments. And that money is earning some interest and is in THEIR pocket and not the lease companies (for emergencies etc).
Since 1997 I have leased a Jeep Grand Cherokee (I was fresh off the boat and didn't know what I was doing) and then an Lexus RX300, Lexus IS300, Acura MDX Touring and Infinfiti G35 Sedan. In every case the salesman explained to me that it is safer to put $0 down (or as little as possible) for exactly the reasons Jeff outlined - you lose the down payment if you lose the car in an accident/fire/theft and there is ZERO benefit in putting it down at inception. For my first lease I actually wanted to put down $5000 and even the Chrysler salesman told me the correct thing to do - $0 down all the way.
BACK ON TOPIC
Oh and I think the lease deal is not bad but also not great. I got an '02 Touring (no NAV) a month before the '03 came out for $535 per month with $0 down for 15k miles per year over 39 months. I also got a wooden steering wheel and shift knob and other wooden items thrown in for free, as well as the cargo liner and partition net (for my dogs) and all season mats etc (about $1k worth). |
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| mocatdaze |
Now that I'm back in town I can post on my own! Thanks to everyone's input. I've been lurking on this site for quite some time, but never, had anything to contribute... until now!
Details: I wound up going down to Houston and getting a 04 MDX Touring/Nav. 48 months @ 15k year. All season mats, truck tray, locks, mud flaps (standard?). Our monthly come out to be $560. Our down was first month + plus security deposit. Plus couple hundred for registration.
My wife and I drove the car back to Denver and couldn't be happier!! The car is freakin awesome. Smooth as butter and stable. Man what a ride. The improvements in the 04 are very noticable IMO.
The only downside is that the X is mainly for my wife, hehe, but I drive a TSX, so I'm doing okay. But, I'm thinking I should have leased the TSX, cuz that TL is sweet.... |
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| JeffK |
Dear mocatdaze:
<b>WELCOME!</b>
Sincerely hope my posts have helped.
Sounds like you did fine, especially for an '04.
BTW, even though you bought in Texas, I assume you registered the car in Colorado.
Does you lease payment include Colorado sales tax?
JeffK
PS: The only way I can drive my MDX is that I got my wife a 2003 Porsche Boxster! |
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| cevansmdx |
| Just to quickly add to the issue of putting money down on a lease. My research has shown me that it is risky putting down money on a lease for the reasons mentioned above. However, the balloon loan type deal that is being used by Honda/Acura in NY does not include this risk. I checked with several dealers, and all except 1 explained to me that in the event the car is stolen or totalled, whatever money the ins. company pays out beyond what is owed goes back to the buyer. Meaning, if you put down $2k in the balloon loan, and the car is stolen that night, you will get back your money. This is 1 of the main reasons I decided to pull the trigger on the deal. I put down $1k and traded in another car which I had about $2k worth of equity in - so basically I am putting down $3k. If any has any more info on this, please let me know as I am due to pick up a Midnight Blue 04 in 2 days and want to know if I am being misled. If my $3k is at risk, I might have to rethink my position. |
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| JeffK |
IMHO I do not think you are correct.
By putting money down one of two things happens:
1) Your monthly payment goes down; or
2) The balloon goes down.
In either event this is of no benefit to you.
If the car is stolen/totaled, etc. GAP insurance steps in to make you whole - it pays the balance of the monthly payments and the balloon.
In either event the money you put down, and you correctly state it to be $3,000, is lost.
The only advantage is that under NY State law when you buy, the trade in value of car is deducted from the purchase price, so in effect you save the tax on the $2,000, about $170, assuming 8.5% tax. In my opinion this is not a good enough reason to risk $2,000.
If the deal is good with $3,000 down, it is good with the $3,000 in your pocket. Put the $3,000 in the bank, and draw it down periodically to make a monthly payment.
JeffK |
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| JeffK |
Dear cevansmdx
I just reread your post again:
<i>I checked with several dealers, and all except 1 explained to me that in the event the car is stolen or totalled, <b>whatever money the ins. company pays out beyond what is owed goes back to the buyer. Meaning, if you put down $2k in the balloon loan, and the car is stolen that night, you will get back your money. </b>This is 1 of the main reasons I decided to pull the trigger on the deal. I put down $1k and traded in another car which I had about $2k worth of equity in - so basically I am putting down $3k. If any has any more info on this, please let me know as I am due to pick up a Midnight Blue 04 in 2 days and want to know if I am being misled. If my $3k is at risk, I might have to rethink my position.</i>
The reason for GAP insurance is that you <b>never have equity in a car that is leased until the very end of the lease</b>.
Let me explain:
Think of a 30 year mortgage on a house: The first 20 years you pay off less than 20% of the principal, which of course generates tremendously tax deductions! The mortgage is "front loaded" with interest. It is only at the end of the mortgage that you start paying down the loan.
Think of a lease as a short term mortgage: The first 25/30% of payments go to interest. Only after the bank receives their interest do you start paying off the loan - creating equity.
So assume the car has a value of $35,000 and you are paying $600 a month for 48 months. After one year the car has depreciated, for this example 15%, or $5,250. So it has a "value" of $29,750.
During this 12 month period you have paid $7,200 - but almost all of that is interest! So you have no equity in the car!
If it is stolen/totaled etc. Gap Insurance steps in and pays the difference between $35,000 and $29,750. Your regular car insurance pays the value of the car, $29,750.
I have used simplified numbers to make the example easier to follow.
I know I am right, because if you try to get out of a lease after 12 or 18 months, it will cost you many thousands of dollars - the difference I have outlined above.
I have seen people who have put $10,000 down on a $75,000 Mercedes Benz and then 2 years later try to get out of the lease. They thought that by putting down $10,000 they would have equity in the car. <b>NOPE - if they wanted out, MB wanted more, as high as $3,000!</b>. Of course if they had not put down the $10,000 then it would have cost them $13,000 to get out of the lease!
The long and the short is that the dealer technically is correct, you will get any equity in the car, from the gap insurance. However, unless you put down a ton <b>substantially more than $3,000</b> you in fact will not have any equity.
So as I posted above, never put any money down on a lease. Roll everything possible, include taxes, bank fees, etc. into the lease. In the event the car is stolen/totaled, everything you do not roll into the lease is lost!
JeffK |
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| thill381 |
quote:
Originally posted by JeffK
Dear cevansmdx
I know I am right, because if you try to get out of a lease after 12 or 18 months, it will cost you many thousands of dollars - the difference I have outlined above.
I have seen people who have put $10,000 down on a $75,000 Mercedes Benz and then 2 years later try to get out of the lease. They thought that by putting down $10,000 they would have equity in the car. <b>NOPE - if they wanted out, MB wanted more, as high as $3,000!</b>. Of course if they had not put down the $10,000 then it would have cost them $13,000 to get out of the lease!
The long and the short is that the dealer technically is correct, you will get any equity in the car, from the gap insurance. However, unless you put down a ton <b>substantially more than $3,000</b> you in fact will not have any equity.
JeffK
I do not want to argue the "NO MONEY DOWN" theory, as we do not see eye to eye on it. However this statement is blatantly wrong as we just sold our LEASED 2003 MDX after 8 months and had $2,400 in equity in it. Now YES we did put $1,800 down (inc 1st & sec) on the original lease and did get a discount off MSRP but we had equity in it. Which is very, very rare but it happened and speaks volumes to the resale value of our vehicles. The lease was w/ chase and there was no early termination fee. What end's up happening is you pay a portion of interest on the lease (not the total of all lease payments) that equates to just a few hundred dollars more than if you where paying off a fee simple loan.
As for the NY balloon loan, just make sure that you are able to walk away at the end of the 36 or 48 months. Balloons are usually for a shorter term, like 48 months, w/ a final payment (the balloon balance) due on the 49 month. Now this 49th payment would be the "residual value" which would be close to 50% of the vehicles MSRP. Just make sure that you can walk away after 48 mos.
Again JeffK, I don't want to get into another pissing contest on leasing, but wanted to point out the equity we had in our lease, and to make sure that this balloon is not a "traditional" balloon with one large final payment. |
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| cevansmdx |
I see your point. It's quite confusing. How it was explained to me is that because this technically is a loan (I get a title for the car with a lien holder on it), and there are no fees- at the front or the back- that the insurance comp. , in the case of a totla loss, basically pays the value of the car as opposed to the remainder of the payments. Therefore, the deal basically consists of principle, simple interest, and, in the case of these type of loans, an optional balloon payment (or turn in the vehicle). None of the leasing factors (cap cost, money factor, etc) apply here. I also have the option to get out of the loan at any time without penalty (I would have to pay the remaining principle) and I can prepay towards the balloon during the term of the loan. The way they advertise it is as a lease without the pitfalls of an actual lease.
I am going to call AHFC (Honda finance) tomorrow and get the full explanation. Thanx very much for your analysis and input. I've got to make sure I understand everything before I sign on the dotted line - geez, it's never easy!! |
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| cevansmdx |
Sorry - here are the terms of the balloon loan:
42 months, 12K miles a year, 15 cents a mile penalty, balloon is $22,167 which works out to 60% of MSRP. GAP included, $1500 allowance for damage, no early termination fees, no fees of any kind. As stated above, I have the option to turn in the vehicle instead of making the final payment. With my trade in and downpayment (which including tax savings don't come to exactly $3k but it's close) , I'm looking at about $415 monthly payment.
Thanx again for your input, gentlemen. |
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| JeffK |
Dear cevansmdx:
<i>I see your point. It's quite confusing. How it was explained to me is that because this technically is a loan (I get a title for the car with a lien holder on it), and there are no fees- at the front or the back- that the insurance comp. , in the case of a totla loss, basically pays the value of the car as opposed to the remainder of the payments.</i>
Actually partially right. You are required to carry insurance, which will name the lien holder as the beneficiary. However, the insurance will only pay the actual value at the time of loss, i.e. using my example $29.400. The difference between $35,000, less that portion of the monthly payment that reduced the loan, will be paid by GAP.
<i>Therefore, the deal basically consists of principle, simple interest, and, in the case of these type of loans, an optional balloon payment (or turn in the vehicle). None of the leasing factors (cap cost, money factor, etc) apply here. </i>
Again partially right. In determining the monthly rate, the same formula as in a lease is used. The Cap cost, money factor ( number times 24 = interest rate), residual = balloon.
For lease calculations go to: http://www.leaseguide.com/calc.htm
<i>I also have the option to get out of the loan at any time without penalty (I would have to pay the remaining principle) and I can prepay towards the balloon during the term of the loan. </i>
Just a like mortgage. But the remaining principal will be high as I have explained.
BTW, if you lease you also can always get out of the lease. However, for the reasons stated above, it will be very, very costly unless you put <b>a lot of money down.</b>
<i>The way they advertise it is as a lease without the pitfalls of an actual lease. </i>
Here I believe you are correct. I have taken over four leases, my most recent being a 2001 A6 Audi. I had to be approved by Audi (VW) financial. Here is the catch: I am primarily liable on the lease, but the original lessee is <b>secondarily liable</b>. So now Audi has two persons to look for to make payments.
With a Balloon, you are the title holder. So if you want out, you can pay off the loan (again very expensive) or "sell" the car to another, subject to the loan. However, I suspect that in a sale, the lien holder will want to paid up front. Just like in a mortgage: Many banks will let the new buyer assume the mortgage - other mortgages provide for immediate re-payment of the loan upon sale - transfer of title.
I suspect a transfer of equity will trigger a clause that requires the payment in full of the loan.
Remember that this will be a substantial amount as your first payments go to interest.
In the industry, when you owe money if you want to terminate the lease early, the lease is said to be <b>UPSIDE DOWN</b>. If you hold to the end you can walk - but if you try to get out early, you will be paying substantially.
<i>I am going to call AHFC (Honda finance) tomorrow and get the full explanation. </i>
Good idea and post your findings!
<i>Thanx very much for your analysis and input. I've got to make sure I understand everything before I sign on the dotted line - geez, it's never easy!!</i>
I check back to see if you need more help.
JeffK
PS: thill381 has posted. But remember he has traded in cars, made down payments, etc. which blur all his figures. In fact, I pointed out in prior posts that based on his monthly payments, he either did not get the discounts the dealer said he did, or they did not give him credit at the amount he claimed for the cars he traded in.
Keep it simple: No money down. What is the monthly payment. Go to my lease calculator and see how close your figures are with the dealers.
If there is a discrepancy, let the lease manager spell everything out and post here. I will be happy to check his figures out for you.
JeffK |
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| tax_atty |
Just wanted to set a few things straight and state my point of view.
First of all, NYS is the only state in the nation which still has a vicarious liability law that holds the legal owner of the vehicle liable for the actions of the driver. Given the legal nature of leases, the other 49 states have changed their laws to hold the person that registers the vehicle liable for the actions of the driver. As of about a year ago Rhode Island & Connecticut were the only two other states with a vicarious liability law similar to NY. Both of those states changed their laws a short time ago after Chase lost a major vicarious liability lawsuit and threatened to stop their leasing business in thoses states. In this case I am embarrased to say I am a lawyer because it was the NYS Trial Lawyers Association that helped blocked legislation to update NYS to the rest of the nation.
Most foreign luxury brands including Mercedes, BMW, Audi, Lexus, etc.. are still offering "true" leases. Chase no longer leases cars in NY, but Hahn still does. These companies have substantially increased their "bank fees" because of the liability issue.
With the balloon payment plans, Acura does not charge a bank fee or termination fee and allows $1,500 in damages if you chose to turn in the car and not make the balloon payment. They do this to compensate somewhat for the increased tax expense. Otherwise, financially the balloon loan is exactly the same as a lease.
On a 4 year balloon loan payment given an interest rate of 5-6% roughly 20% of your first payment goes to interest and the remaining 80% goes to principal. The amount going to principal gradually increases over the 48 months of the loan until you are paying almost 100% principal in the last payment. Accordingly, you are building equity with each payment. Note, however, the car will probably depreciate faster initially than you build equity.
The principal amount of the balloon payment is based on the agreed purchase price of the car less the residual plus the full amount of the taxes (based on the agreed purchase price). Accordingly, if you choose not to put the taxes into your monthly payment you are paying interest on the full tax amount.
I agree with JeffK that if you put anything down on a lease and the car is totaled or stolen you lose what you put down. Note, however, as time goes by, the amount you lose by making an upfront payment decreases because you are paying more per month if you don't make the upfront payment. To make an extreme example take 2 leases - X pays a $1,000 upfront and Y pays nothing upfront. If the car is lost or stolen on day 1 before the first payment is due X is out $1,000 and Y is out nothing. If, however, the car is stolen just after the last lease payment is made both X and Y are out $1,000 and Y has paid additional interest on the $1,000.
The point is you have to understand the risks. Everyday, we make decisions based on risks and rewards. Making an upfront payment is not a bad decision as long as you understand the risks. I am willing to pay the $3,600 in NYS tax upfront on my balloon payment because I have the cash and I am not earning much on this money currently. I don't want to jinx myself, but I believe that the probability of my MDX getting totaled or stolen is very slim. In the 38 years of my life I can only remember one car in my extended family that was stolen or totaled. I understand the risks and I believe FOR ME that the benefit of not paying interest on $3,600 plus the lower monthly payment is worth those risks. I also believe that FOR ME in a worse case scenario losing the $3,600 will not have a material impact on my financial well being.
Moral of the story to JeffK is never say never. |
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| JeffK |
Dear tax_atty:
Of course I agree with almost all of your post.
The points you make I have made previously on other posts - main reason I strongly urged <b>thill381</b> to read my prior posts.
Your post is a very good consolidation and recommended reading!
I believe you said:
<i>On a 4 year balloon loan payment given an interest rate of 5-6% roughly 20% of your first payment goes to interest and the remaining 80% goes to principal.</i>
I think you meant "roughly 80% of your first payment..."
Similar to life insurance: 50% of the first payment goes to sales commission: It isn't until the 4th or 5th year that you start buiding equity.
An automobile is a depreciating asset. A wise man a long time ago said,
whenever possible rent (lease)a: |
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| JeffK |
Dear tax_atty:
Of course I agree with almost all of your post.
The points you make I have made previously on other posts - main reason I strongly urged <b>thill381</b> to read my prior posts.
Your post is a very good consolidation and recommended reading!
I believe you said:
<i>On a 4 year balloon loan payment given an interest rate of 5-6% roughly 20% of your first payment goes to interest and the remaining 80% goes to principal.</i>
I think you meant "roughly 80% of your first payment..."
Similar to life insurance: 50% of the first payment goes to sales commission: It isn't until the 4th or 5th year that you start buiding equity.
An automobile is a depreciating asset. A wise man a long time ago said,
whenever possible rent (lease)a: |
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| JeffK |
Dear tax_atty:
Of course I agree with almost all of your post.
The points you make I have made previously on other posts - main reason I strongly urged <b>thill381</b> to read my prior posts.
Your post is a very good consolidation and recommended reading!
I believe you said:
<i>On a 4 year balloon loan payment given an interest rate of 5-6% roughly 20% of your first payment goes to interest and the remaining 80% goes to principal.</i>
I think you meant "roughly 80% of your first payment..."
Similar to life insurance: 50% of the first payment goes to sales commission: It isn't until the 4th or 5th year that you start buiding equity.
An automobile is a depreciating asset. A wise man a long time ago said,
whenever possible rent (lease)a: |
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| JeffK |
Dear tax_atty:
Of course I agree with almost all of your post.
The points you make I have made previously on other posts - main reason I strongly urged <b>thill381</b> to read my prior posts.
Your post is a very good consolidation and recommended reading!
I believe you said:
<i>On a 4 year balloon loan payment given an interest rate of 5-6% roughly 20% of your first payment goes to interest and the remaining 80% goes to principal.</i>
I think you meant "roughly 80% of your first payment..."
Similar to life insurance: 50% of the first payment goes to sales commission: It isn't until the 4th or 5th year that you start building equity.
An automobile is a depreciating asset. A wise man a long time ago said,
<b>"Whenever possible, rent (lease) a depreciating asset:
Own an appreciating asset"</b>
As to putting money down: I have posted before that in NY State, when you roll the tax into the lease, not only do you pay interest on the tax in the lease, but NY State then charges tax on the interest!
In my calculations, if the NY State sales tax is 8.75%, the actual cost of rolling the tax is 10%. In other words, if the lease payment is $500, with the tax being $43.75, when you roll it into the lease the $43.75 becomes $50.
I look at the $6.25 as insurance.
Fortunately for me I have been able to consistently generate returns of between 6% and 7% on my money, so the incremental cost to me is less than $6.25 per month.
FYI, Chrysler, GM to soften the blow of taxes on the purchase price, as opposed to the lease payments, waive the first months payment and there is no bank fee.
On my '03 which is leased through Honda Financial, the first $1500 in damaged is waived. I believe this is standard in Acura leases and is being carried over into this "hybrid" product.
VW and Audi still are leasing.
I have heard bad things about Hahn at lease ends - nickle and dime you to death about every nick and scratch. Main reason I lease through the financial arm of the manufacturer.
Finally you posted:
<i>Accordingly, if you choose not to put the taxes into your monthly payment you are paying interest on the full tax amount.</i>
Here I think you mean:
if you choose to put the taxes...
For the reasons set forth above.
Excellent post and thanks!
JeffK |
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| tax_atty |
Jeff:
If you calculate it out on a 4 year loan using a 5-6% rate your first payment is only 20% interest and 80% is principal. If you stretch out the loan such as with a 30 year mortgage you will find it's the opposite - mostly interest and a little principal. Also as the interest rate rises, so does the % of the payment going to pay interest.
I think it was J.P. Morgan who was famous for saying that you should buy things that appreciate in value and rent things that depreciate in value.
Anyway, just enjoy your X and be happy! |
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| JeffK |
Dear tax_atty:
Just now looking at my last lease on my Boxster: 39 months.
Depreciation $16,840, Interest 6,130.
So your 80/20 is more or less correct.
My point is that the allocation of interest vs. depreciation is not linear.
The first payments will be primarily interest and small percentage of principal. With each payment the interest portion declines and the allocation to principal increases.
That is why at the beginning of lease if you want to get out, it is very, very expensive.
The car has depreciated more than the allocation of the lease payments to principal - hence the terminology <b>"You are upside down"</b> meaning the difference between your purchase price and what the car is worth is much greater than your lease payments allocated to principal.
Finally if the residual is unrealistically high you will always be "upside down". For example, I am now turning in a 2001 Trailblazer. MSRP was $34,000, residual at 3 years 51%, $18,000 (this is my by-back price). Problem is the wholesale for the car is $12,000. Of course I am turning the car in - no reason to pay $18,000 for a vehicle worth only $12,000. In this case GMAC is upside down $6,000.
Most leasing companies take out their own "Gap" insurance to cover the difference between residual and market value. With GMAC I am not sure - they may be self insured.
Boy am I glad I leased! Only paid depreciation to $18,000. If I owned and wanted to sell now, I would lose another $6,000.
Another reason I always lease rather than own. (yes I did say always). There are tax reasons as well, but probably beyond the scope of this board.
J.P. Morgan: I wasn't there but I take your word on it.
I do enjoy my MDX as we all should!
JeffK |
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| rerodgers |
Jeffk knows what he is talking about.
I work for a very large financial services company that is part of a fortune 5 company which used be in the auto leasing business. I work in Finance and I also try to lease at least one of my cars. The other one I buy a 2-4 year old car, I figure I will let someone else pay for the 50% depreciation. JeffK is right, that it is best not to put any money down, if you can afford the payment (but that is another question all together). In the event of an accident, you our basically out whatever you put down as a cap reduction.
I just got rid of a 2000 Chrysler T&C that my buy-out was $15.2K and the wholesale value was $12K. I am sure glad I did not own that car. I gave them the keys and walked away. A friend of my from work had a 1999 that he purchased and after having it listed in the paper for 2 months and nobody calling him, he sold it to carmax and lost an arm and a leg. He wished he leased the car instead.
I guess that is what he and I get for leasing a crappy Chrysler car.
I just leased a '04 SS MDX with Honda Financial and could not be happier with the terms of the lease and the car.
The moral of the story is to buy/lease a fine Japanese car that will retain its value and will run like a top.
If you are not very careful, you can get very hosed with a lease. There are a lot of moving pieces and they are not required by law to show you some of the most important terms of the lease like the money factor. I got several quotes from several dealers that quoted my quite different money factors and residual values. While in the F&I's office working out the terms of the lease, she had inadvertantly entered the sales price in hte MSRP cell which lower the residual value by $2K and increased the payment by $25. She insisted that the payment was correct, until I whipped out my payment calc and we checked her numbers and discoverd the error. Most people would have never of know that anything was wrong.
I was also quoted a lease payment for a Honda Pilot from one dealer of $690 a month and when I used Honda Financial's payment calculator, the payment was $454. The dealer must have been smoking something when he came up with that payment.
Do you research and homework on lease payments.
JeffK, keep up the good work and advice.
RER:) |
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| tax_atty |
JeffK:
I agree with you that most of the time you are going to be upside down on a lease. Just another reason not to put money down if you even think you might need/want to get out of the car before lease end.
In general I believe in leasing my cars. I own my 97 Civic but that was my wife's before we got married (and I tried to convince her to lease but she wouldn't listen). Now I plan on using that as my train station car until it starts to die. I was strongly considering buying a Boxster, but only because I would have held onto it for years. That was before the upgrades on my new house ran over budget big time and I found out my wife was pregnant with twins. Now I just can't seem to justify that purchase (but I'll reconsider it in a few years - maybe when I turn 40 I'll buy myself a birthday present).
So I guess we agree in principal but I just can't get to that "always" position of yours. |
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| JeffK |
Dear Tax_atty:
Here is something that will make it easier to say "always".
In 2000 I leased a Boxster for my wife. They were going at MSRP or above. Found a demo in Florida with only 8,000 miles on it.
Ran perfectly.
At that time Boxsters were so hot, residuals unrealistically high. Monthly payment of $709, 30 months everything in.
At lease end, market had collapsed. Residual 64% was upside down $8,000. People who bought were crying.
Went out an leased a 2003 as replacement. Got $7,000 off MSRP.
39 months, lease payment <b>$587!</b>
Residual now after 3 years is 52%. Still think it is too high. Expect to turn in car at end of lease, even though it will only have 15/18,000 miles on it.
How many times does this happen? All to often. Always lease - never buy - well maybe not always - you can always buy a station car!
JeffK |
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