Author Topic: Another opinion request: my first new car - lease or buy? (Read 2773 times)

Zsaw · « **on:** March 09, 2009, 11:41:50 am »

Hey all,

Im a long time reader, first time poster.

I am in the new car market right now, and after having done months of obsessive research I have decided on buying a VW Rabbit. I test drove the new 2010 Mazda3 and a honda civic as well, but I feel the quality level in VW is worth the extra price and that the VW "suits me" (if anyone knows that I mean by that..)

I am super excited, to say the least.

Here is my question: I can afford the monthly payment of around 450 / month for 66 months (5.5 yrs). However, I could also lease the car for 4 years at ~ 360 / month. I don't know which route I should take. Both are taxes in.

I also have a small student loan I will be making payments on.

Things I am considering:
- Leasing will allow me to walk away from the car in 4 years, when my student loans are long gone as well. I could then get into another vehicle.
- The lower lease payment frees up an extra ~ $90/month, and ends 1.5 years earlier.

- I'm not sure how many km's a year I would need as this is my first vehicle. I will be driving to and from work every day for a round trip of 42 kms. Is 25000 km's a year lease enough?
- Pride of owning my first new vehicle, and not having to worry about how much I drive it is a big bonus for me.
- VW standard warranty is only for 80 000 kms. If I were to lease, I am slightly nervous about driving it past the warranty coverage. Should I be?
- It would suck to be given a huge bill for repairs / dents / scratches at the end of the lease.

I understand that leasing / buying is usually a personal preference depending on ones priorities, but I really can't figure out what I should do in my situation. Are leases better for someone who can use it as a business expense?

Sorry for the long post, but I really appreciate any opinions or advice you have for me.

toolatecrew · « **Reply #1 on:** March 09, 2009, 11:55:16 am »

Best bet is to not buy a new vehicle at all. If you can get financing at a decent rate you could buy a very good 2 or 3 year old car that has already suffered the largest chink of depreciation and pay it off in say 3 years. At the end of that 3 years you own the car and can keep driving it with no payments or it will still be worth a fair bit should you decide to change cars.

A new car depreciates 20% PLUS as soon as you drive it off the lot. A new Car requires you pay Freight and PDi. So on a 20K Rabbit?

Depreciation 4k
Freight PDI 1K

That's 5K just for the privelege of the new car smell.

I see a fair amount of used Rabbits 2007 and up advertised for less than 18K with less than 40,00km

vdk · « **Reply #2 on:** March 09, 2009, 12:00:38 pm »

I leased. And here's why.

When you lease, in those 4 years you only pay 50% of the car. After 4 years the Rabbit will not sell for half its MRSP - so that's a win for you. Dubs are expensive to maintain out of warranty, parts are expensive and after 100k some things will need replacing. At that time I'd just get a new one.
You can always get an extended warranty and a sort of waiver for dents/scratches/etc for you lease return.

The MKVI comes out in September, so if you can you might want to wait a bit.

Zsaw · « **Reply #3 on:** March 09, 2009, 04:40:33 pm »

Those are good points about buying used, but I still think I want a new car.

I also don't know about waiting for the MKVI, I really need a car by mid-april and am a bit weary of 1st year models anyway.

It's basically between leasing and buying on the rabbit, but after that I have no idea what to do!

y2chuck · « **Reply #4 on:** March 09, 2009, 04:59:38 pm »

In your situation, I'd lease. Doesn't sound like you are committed to keeping the vehicle for a long time and with paying back student loans a lower monthly payment would be better. Plus at any given time it's much easier to get out of a lease than it is to be upside down on your car loan in the event you need to get rid of the vehicle.

Obviously leasing over 4 years and giving it back is ultimately a waste of cash but if that's not a concern, I'd lease. Just a tip, when negotiating NEVER give the salesperson a month payment budget, always negotiate on the price first since the payments are based on that.

You may want to check out Leasebusters.com, they might have some posted there.

vdk · « **Reply #5 on:** March 09, 2009, 05:08:40 pm »

Owning a car is a waste of cash. Cars depreciate, can't do much about that.
If on a 4 year lease you have to pay 50% of the car, and after 4 years the car's worth 45%, then why would you buy it?

johngenx · « **Reply #6 on:** March 09, 2009, 05:49:49 pm »

Quote from: vdk on March 09, 2009, 05:08:40 pm

Owning a car is a waste of cash. Cars depreciate, can't do much about that.
If on a 4 year lease you have to pay 50% of the car, and after 4 years the car's worth 45%, then why would you buy it?

It depends. Remember that you're paying interest on the entire sum, not just the 50%. By paying attention to residual values, it is possible to come out ahead leasing, but not as often now. Leasing companies have taken too many blows to the sack to be giving it away anymore.

tpl · « **Reply #7 on:** March 09, 2009, 06:20:42 pm »

I think I'd BUY a 2007 or 2008 low mileage Rabbit and try to get the loan worked out to end when the particular car you buy is 4 years old. I.e that you'll be mostly paid off at 80,000 kms. As new a car as possible and to stay upside on the loan as much as possible with that happy option of a car that is still worth a good bit when you are ready to trade in.
So I guess I agree with TooLateCrew for this first car

airbalancer · « **Reply #8 on:** March 09, 2009, 06:23:16 pm »

If you lease and turn the car back in, make sure you do not good over the mileage limited or it will drive u crazy

Zsaw · « **Reply #9 on:** March 09, 2009, 06:39:12 pm »

The mileage issue is a major concern of mine - I plan on driving this car a lot! Not only back and forth to work, but also on trips to see friends who are scattered around atlantic canada.

One thing I didn't really consider too, is that after 4 years if I really wanted to get rid of the rabbit I could sell it. I'm sure I would be able to get more for it then VW says the residual value is - which would be enough to pay off the loan and then some..

I could also pay off the loan quicker after my student loan is out of the way (2-3 yrs max) and enjoy no monthly payments sooner, as VW has a no penalty policy for extra payments..

... just thinking out loud here...

Thanks for the replys everyone!

dr_spock · « **Reply #10 on:** March 10, 2009, 12:02:19 am »

If you plan to do more mileage than the lease agreement specified, then buying is a better option. I know some leasers who had to stop or cut down their driving a lot towards the end of their leases because of mileage.

toolatecrew · « **Reply #11 on:** March 10, 2009, 08:47:04 am »

Quote from: Zsaw on March 09, 2009, 06:39:12 pm

The mileage issue is a major concern of mine - I plan on driving this car a lot! Not only back and forth to work, but also on trips to see friends who are scattered around atlantic canada.

One thing I didn't really consider too, is that after 4 years if I really wanted to get rid of the rabbit I could sell it. I'm sure I would be able to get more for it then VW says the residual value is - which would be enough to pay off the loan and then some..

I could also pay off the loan quicker after my student loan is out of the way (2-3 yrs max) and enjoy no monthly payments sooner, as VW has a no penalty policy for extra payments..

... just thinking out loud here...

Thanks for the replys everyone!

If you drive from moncton to Halifax and back once a month (which I do for work) over 4 years that's over 28,000km. Leasing is not a good option if you do more than a few out of province trips a year.

Cord · « **Reply #12 on:** March 10, 2009, 12:19:09 pm »

Most leasing companies give you the option of buying extra kms up front at a reduced rate. Remember also that any lease end charges will only matter if you return the car. If you buy it out it doesn't matter how much damage or how many kms it has.

The only way to properly compare the lease vs buy scenarios is to compare the relative situation for both. For example, at lease end (48 mos) compare where you'd be at the 48 month point of the 66 mo finance. If you leased and saved the difference in the monthly payments you'd have over $4300 in the bank at that time and no car (if you returned it). If you financed, you'd have a 4 year old car, possibly with high mileage, with another 1.5 years of $450/mo payments. If you continue to rack up high mileage how much do you think the car will be worth when it is 5.5 years old and has 180,000(or more?) km? The next question is, once it's paid off, how long will you be happy driving that high mileage rabbit around for? And what will regular repairs cost at that point? The paid off car, for the the vast majority of people, is like the pot of gold at the end of the rainbow - once they get it they find it doesn't really exist. I'm going by memory here, but something like 70% of people have a different car and another monthly payment within six months of paying off their car.

Of course, lots of people buy a car and keep it until it dies. In just financial terms, these people will spend less on the car over its life. But they will also drive be driving an old car most of the time. Only you can decide the value of those kinds of intangibles.

vdk · « **Reply #13 on:** March 10, 2009, 12:37:38 pm »

Zsaw:

Did you check how much the scheduled services cost? I don't think you want to know how expensive parts are. VWs are not meant to be owned out of warranty, unless you can do the work yourself, ie. change bearings, shocks, timing belt, etc.

Just an FYI:
8k Service - $110
16k Service - $160
32k Service - $450 (with alignment)
64k Service - ~$600

sirAQUAMAN64 · « **Reply #14 on:** March 10, 2009, 12:46:06 pm »

Quote from: vdk on March 10, 2009, 12:37:38 pm

Zsaw:

Did you check how much the scheduled services cost? I don't think you want to know how expensive parts are. VWs are not meant to be owned out of warranty, unless you can do the work yourself, ie. change bearings, shocks, timing belt, etc.

Just an FYI:
8k Service - $110
16k Service - $160
32k Service - $450 (with alignment)
64k Service - ~$600

I don't think you'll find the service costs that much in NB. Hell, I didn't pay anywhere near that for my 2 VWs when servicing them - typically just the $102 for synthetic oil changes, tire rotation, and inspection. Occassionally for other items like cabin filter, etc but not hundreds of dollars worth. Plus the I5 has the timing chain which eliminates the biggest service hassle and expense nearing 100K. I'd check the labour rate, which I figure is less than in metro areas.

$90 is a fair amount, but even still I'm a buyer. More flexibility. You can pile on as many km's as you like without worry, can call it your own, have the option of selling or trading whenever for whatever reason, and if it's good to you can keep it as long as you like potentially with no car payment at all. If you get a good paying job pay it off sooner than the 66mths and save some interest. Yes, pride of ownership too

Although nice to have, in my experience I haven't really done much warranty work to the couple of cars I've owned. And most of it was earlier in the ownership, towards the end was geared toward wear & tear items warranty wouldn't cover. The Accent needed a new computer module at 120K, but the dealer successfully submitted it as goodwill and was covered. Didn't have any engine/transmission issues with the VWs save for replacing some glow plugs and relays on the TDI.

toolatecrew · « **Reply #15 on:** March 10, 2009, 12:47:40 pm »

Quote from: Cord on March 10, 2009, 12:19:09 pm

Most leasing companies give you the option of buying extra kms up front at a reduced rate. Remember also that any lease end charges will only matter if you return the car. If you buy it out it doesn't matter how much damage or how many kms it has.

The only way to properly compare the lease vs buy scenarios is to compare the relative situation for both. For example, at lease end (48 mos) compare where you'd be at the 48 month point of the 66 mo finance. If you leased and saved the difference in the monthly payments you'd have over $4300 in the bank at that time and no car (if you returned it). If you financed, you'd have a 4 year old car, possibly with high mileage, with another 1.5 years of $450/mo payments. If you continue to rack up high mileage how much do you think the car will be worth when it is 5.5 years old and has 180,000(or more?) km? The next question is, once it's paid off, how long will you be happy driving that high mileage rabbit around for? And what will regular repairs cost at that point? The paid off car, for the the vast majority of people, is like the pot of gold at the end of the rainbow - once they get it they find it doesn't really exist. I'm going by memory here, but something like 70% of people have a different car and another monthly payment within six months of paying off their car.

Of course, lots of people buy a car and keep it until it dies. In just financial terms, these people will spend less on the car over its life. But they will also drive be driving an old car most of the time. Only you can decide the value of those kinds of intangibles.

Your arguments are all valid.

Just want to point out that the savings in monthly payments in favour of leasing you propose are probaly far to high.

Your example of 5.5 years old and has 180,000 assumes a yearly mileage of 32,000KM. So he'd need to buy an additional 48,000km up front (which at 8 cents a km would be $3800) or pay a peanalty at the end. Either way that 4300 he puts in the bank gets wiped out.

If you know you will do high mileage and don't intend to keep the car leasing really doesn't make sense. The additional KM charges will offset most if any payment savings. Plus more KMs means more potential for damage which must be paid for before returning as well as for out of aranty repairs that must be performed for returing.

Nothing is absolute but high mileage situations and leases don't go together IMO (excepting business tax situations)

sirAQUAMAN64 · « **Reply #16 on:** March 10, 2009, 12:55:06 pm »

Another option for you may be to find a lighly used VW CPO Rabbit, which would be less to purchase, and extend your warranty by another 2 years / 40,000kms if you were worried about it. Believe the rates on VW CPO's are reasonable now too (they change by month).

Cord · « **Reply #17 on:** March 10, 2009, 01:40:30 pm »

Quote

Your example of 5.5 years old and has 180,000 assumes a yearly mileage of 32,000KM. So he'd need to buy an additional 48,000km up front (which at 8 cents a km would be $3800) or pay a peanalty at the end. Either way that 4300 he puts in the bank gets wiped out.

The lease is only 48 months. So he'd only have to purchase 28000 km extra over the base of 100,000 km. At .08 that's only $2240. So he'd still have about $2000 saved at the end of the lease vs. making the finance payments for those 48 months.

The point was that he has to compare the same situation at the same point in time if he finances. I estimate that he would still owe about $7600 at the 48 month point of the 66 month finance term. If he can sell his 4 year old car with 128,000 km for more than $9600 then he will be better off financially at that time by financing.

toolatecrew · « **Reply #18 on:** March 10, 2009, 01:49:27 pm »

Quote from: Cord on March 10, 2009, 01:40:30 pm

Quote
Your example of 5.5 years old and has 180,000 assumes a yearly mileage of 32,000KM. So he'd need to buy an additional 48,000km up front (which at 8 cents a km would be $3800) or pay a peanalty at the end. Either way that 4300 he puts in the bank gets wiped out.

The lease is only 48 months. So he'd only have to purchase 28000 km extra over the base of 100,000 km. At .08 that's only $2240. So he'd still have about $2000 saved at the end of the lease vs. making the finance payments for those 48 months.

The point was that he has to compare the same situation at the same point in time if he finances. I estimate that he would still owe about $7600 at the 48 month point of the 66 month finance term. If he can sell his 4 year old car with 128,000 km for more than $9600 then he will be better off financially at that time by financing.

That's fair enough but I think you can agree that by not factoring the extra KMs in the amount of savings is less than 1/2 what you had origionally suggested. I don't think there was any intent just thought it was more realistic. If he did not pay the KMs ahead the savings would probly be even less.

Zsaw · « **Reply #19 on:** March 10, 2009, 03:18:57 pm »

This is great stuff.

The dealer residual is $10,600 after 4 years with 100 000 kms on it. Assuming I could privately sell it for a bit more than that means I would make back the difference in monthly payments.

Thats a great point, to me. I am definitely leaning more towards purchasing this bad boy! I have a meeting at the local VW dealer friday.. I'll let everyone know how it goes!

I have quotes from other dealerships in New Brunswick, should I let them know this in person or wait until I leave and e-mail them the other quotes to see if they can beat it?

Thanks everyone, this place is great.

Zach