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nealrm
05-01-2009, 01:42 PM
It is time for us to look into a new (or used) car. I was wondering if anyone would share their numbers showing the owning vs leasing costs.

vangogh
05-01-2009, 04:02 PM
I've wondered that myself. I've always bought used cars. You generally get the best value on a car that's one or two years old since most of the depreciate occurs in the first year, but the car is still close to new.

Something about leasing has always made me suspect it's the least value, but the easiest way to get a new car, but in truth I don't know.

Evan
05-01-2009, 06:53 PM
Bloomberg offers a nice calculator:
Bloomberg.com: Calculators (http://www.bloomberg.com/invest/calculators/leasebuy.html)

For "Investment Rate of Return" (which is what you could get if you were able to use the cash in another investment) -- you may wish to be a bit more conservative like 4%.

Spider
06-22-2009, 09:58 AM
By and large, I see this as an accounting decision. Buying a car is a capital expense. Leasing a car is an operating expnse. Does it suit your business to increase your capital expenditure and reduce your operating expenditue or vise versa?

Evan
06-22-2009, 11:10 AM
Leasing a car is an operating expnse.

Not always from a financial reporting perspective (generally accepted accounting principles) if these are prepared by an accountant. Depending on the nature of the lease, it very well could be capitalized.

Though, while the costs are different in the long run, it's just a matter of which option can fit within your cash flows.

Spider
06-22-2009, 01:08 PM
I stand corrected. Good job I'm not an accountant!

nealrm
06-22-2009, 01:43 PM
Thanks for the link to the calculator. However, I don't think I trust it. I noticed that changing the leasing parameters not only changed the cost of leasing the car but also the cost of buying the car. On the flip side, changing the buying parameters did not change the leasing price.

ArcSine
06-22-2009, 02:05 PM
More often than not, whenever you're dealing with any active, robust market, the sheer volume of transactions and informed players will tend to make things converge to an equilibrium of sorts, given sufficient time. I think that's the case with the auto leasing / purchasing market. If either arrangement (leasing, purchasing) represented a massive advantage vis-a-vis the other (whether to the consumer or to the dealer), that disparity would be soon boiled away by the normal workings of the market.

And that certainlly squares with what I've seen firsthand. I've run the numbers on a lot of lease-vs-purchase comparisons, and neither arrangement ever blows away the other, on a net present value basis.

Sometimes, leasing will cross the finish line with a slight edge, on an after-tax basis. (Evan, you've probably seen that yourself, when you consider that the income-inclusion amount typically doesn't fully balance out the depreciation limitations on an owned vehicle.)

Not to say that an intelligent analysis isn't needed, but I think in many cases a biz-car-shopper can just focus on the obvious issues (monthly payment amount vs. their budget, etc.) and not worry too much that either arrangement is head-and-shoulders better than the other.

Cheers, all!

Dan Furman
06-23-2009, 02:15 PM
Personally, I like buying/owning cars. I really enjoy a new car, and, once it's not "new" anymore, I really enjoy driving a car that I owned from day 1.

The "best value" doesn't factor into it for me, because no matter how you do it, we aren't talking big, life-changing numbers here. The personal enjoyment I get out of buying and owning new is worth whatever amount I left on the table had I done it another way.

vangogh
06-23-2009, 06:01 PM
I like the feeling of ownership too. Nothing against leasing, but I like the feeling of knowing the car belongs to me.

phanio
06-25-2009, 03:38 PM
To lease or not to lease - depends on what you can afford and the purpose of the asset being leased. Usually leases leave no equity but could be easier on cash flow.

Old graduate school thought was that if it appreciates - buy it - if it depreciates - lease it.

Evan
06-25-2009, 03:48 PM
Old graduate school thought was that if it appreciates - buy it - if it depreciates - lease it.

I'd agree on the appreciation part. But for depreciation, it really depends on how long you plan on having the asset. Cars can last quite a while, but if you're getting a new one every few years, it costs a lot more than keeping it over a longer period of time.

Other factors, such as a personal preference, have a larger impact on this decision.