Craigslist ad: "I owe $3000 more than my car is worth; PLEASE buy it now!!!"
 

What is this person thinking? The ad clearly states that he or she is upside down to the tune of $3000 on their 2000 Saturn... but is really hoping that someone will buy it anyway.

It's like the seller is holding up a sign... "Wanted: Someone who is more of an idiot than I am."

http://phoenix.craigslist.org/car/82346679.html

Sad to see someone in that kind of bind.

I think some basic money management skills should be required material in high school.

Imagine having more money in your car than it's worth...

Oh, wait, isn't that just about everyone on Pelican?

You have to appreciate their honesty I guess. Anyone that buys a car and finances with little money down is always going to be upside down on the value/loan for most of the loan period. That is why I started leasing or buying a year or two old. If you buy a car and finance for 4 years you loan-value will be about equal in 3. If you lease for 3 years, you walk away from the car in 3 years also (granted your not a high milage user). The only difference is you payment with the lease is easily 25% or more cheaper on a monthly payment. I've never owned a car longer then 3 years (other then the 911), so if you can get over the "not owning" part of car leases, it make better sense financially. Sort of what this person is finding out.

What a pain in the arse it would be to part out...

Here's my rules: If it has very high resale value, buy it new. Look for the incentives. Low APRs and lease factors can be the equivalent of huge rebates or discounts.

Leasing is smart. You only pay the sales tax on the payments you make, so on a short-term lease or if you bail after a short time, you haven't lost all the sales tax. Plus, if a leased car isn't worth the residual at the end (on a wholesale basis), walk away or you can often renegotiate the purchase option lower if you want to keep it (or sell it). If it's worth more than the residual and you don't want the car, sell it and pocket the difference. It's a win-win situation. And (I believe) leased cars generate better tax deductions if the car is over a certain value.

Here's my rules:

Leasing is dumb. Only pay cash for used cars.

I too believe that leasing is NOT a smart deal.

It's like renting vs. owning a home -- I'd rather pay a mortgage, cause in the end, I own the property!

But I drive my cars for years before I switch -- my current daily driver is a 1995 Subaru Legacy with 150,000 miles on the clock. Still running strong -- hoping to see 200,000 without a major problem! Bottom line: my car has been paid for since 1998 -- it owes me nothing! I keep up with routine maintenance and I haven't had a major breakdown or repair bill, knock on wood...

If you talk of residual values and overall costs, keeping a car 10+ years makes more finanical sense than leasing and switching cars every 2-3 years. If you switch your cars every couple of years, then leasing may make sense to you on paper, but again, if you look at the cost in the long run, keeping a car for a longer period of time is still the best financial bet.

Tax deductions? You're getting pennies to the dollar. Not something I would consider an 'investment.' Besides, you can get better tax deductions if take out a home equity loan to buy a car anyway.

Typically, leasing is a concept that appeals to two types of people, IMHO:
1. Those who switch cars frequently ("I've gotta have the latest and greatest in my driveway")
2. Those who wish to drive a car out of their price range, and cannot afford to buy it, so they lease instead. ("I've gotta keep up with the Jones even if I make less money than they do")

As far as buying a car for investment purposes -- don't bother. When you buy a new car, you loose 5 - 10 percent of it's value once you drive it off the dealer's lot! If you buy a used car, you don't take that great a hit in depreciation, but if it is a collector car, you will need to pay top dollar for it. Predicting what new or used cars will become collector items in the future is a near impossible thing to do. Invest in stocks or real estate - it is more stable.

Just my $0.42,
-Z-man.

Here's what a friend does;

Lease a very expensive car. (His last car was $88,000) He negotiates a very short term-high mileage lease. His payments are very high, the residual value (agreed upon) is very low. He actually put very few miles on the car.

His lease payments are a direct write-off. (small business). At the end of his three year lease he buys the car for $40,000 and sells it for $60,000 and does it again.

It can be a cheap way to drive a nice car.

Leasing can be cheaper in some circumstances. It is for those who want a new car every 3-4 years and don't want the hassle of selling. The manufacturers also regularlyoffer better lease incentives than cash purchases. But I agree it is a complete waste of money to retn a car (as is a new car every 2-4 years but that's capitalism, baby!)

I see your point, but my problem is that I cannot write off the car since I do not own a small business. :eek: And IIRC, that loophole is getting smaller and smaller as the government is realizing folks are doing this.

Here's another trick: Lease a high-end car known to have problems. Lemon it, get your money back and drive for close to nothing. My boss did that with his 745i (not intentionally).

Dantilla- care to expand on "leasing is dumb?"

Z-man- I wasn't talking about car ownership being an investment. A depreciating asset is not an investment. I was referring to writing off a car for business purposes. With a purchase, you're limited to the amount of depreciation you can take per year. With a lease, it's unlimited (last I checked). And these tax deductions are above-the-line to self-employed people, not Schedule A. And a good lease factor will be well below HELOC rates anyway. (I believe there are limitations on home mortgage interest to consider as well.)

Obviously, leasing isn't for those who want to keep a car over 100,000 miles. Thinking it's for those who "...gotta have the latest and greatest in my driveway" or "cannot afford to buy it" is naive, although true I'm sure for some. For someone who likes to wring out 200,000 miles from a car, I'm sure you can appreciate not spending any more than necessary to drive a vehicle. Leasing puts a defined limit on the cost of ownership; there is a guaranteed "value" at the end that you don't have to sell it to get. If it's worth less, you've avoided that loss or you can maybe buy it for less than the residual. Consider it a "deferred rebate." I've seen people buy their leased vehicles for $5K less than the residual. Some of us may choose to drive a car that's always under warranty (and maybe always under a maintenence plan), with the latest safety technology, that's less likely to break down and perhaps cost a ton to fix. Probably not the cheapest car ownership, but there's some value to offset the extra cost.

I own my business of course I'm biased, but I can't figure out who would want to buy a car (say a used M5) and tie up 50-60k in a car for 3 years? This has nothing to do with "buying over your head". I go by my past track record and I tire over a car after 3 years, (really 2, the last year is looking to trade, sell or lease end. ) My saying is "I like my car, I just wish they would quit making nicer, faster cars, but they do:) It also has to do with how many miles you put on a car. Buy a nice premium used car and drive it out of warranty and you'll wish it was a lease when you try to unload it. I did buy my X5 thanks to the huge tax write off a few years ago. (I think it was called the GMC Hummer law!) You better believe its gone when it gets close to the extended warranty being up. Lots of little issues, fortunately all covered. Hey whatever works for you.

As noted, I hadn't considered those who own a small business and take advantage of the tax savings. Unfortunately, that doesn't apply to me, thus my bias.

My take on the warranty thing -- if a car has lasted through the warranty without major issues, then it is a safe bet the car will not have major issues once it is out of warranty. Granted, this is an assumption, but so far, this has held true in my case. The problem these days is that there are so many quality issues amongst car manufacturers across the board, that the likelyhood of having a trouble-free car is diminishing. And if I have an 'out-of warranty' car that starts acting up, I have the opportunity to sell the car and move on, as I have done in the past with my wife's Subaru SVX.

Keeping a car under warranty (like buying or leasing a new car every 3-5 years) is definately a value added item -- but as you note, there is a cost associated with this.

Here's another issue: unfortunately, I've rubbed the rear bumper of my Subie against a white wall a few years ago. Most of the big scratches I was able to buff out, but you can obviously see it. Had I leased my car, when I turned it in, I would have had to pay dearly for that blemish. When the time comes and I have to sell my high-mileage car, the scratches won't matter that much, since the value of the car will be quite low already. A buyer can use a scratch on a $50,000.00 Mercedes as leverage to lower the price, but I doubt a buyer has the same leverage on a $2000.00 Subaru! :D

My point in all this is simply: leasing, while an attractive alternative to owning a car, isn't as cheap a route as one may feel it is.

Then again, I'm an 'old-fashioned' kinda guy.
-Z.

Minor damage, like on your bumper can be fixed inexpensively. More serious damage can go to the insurance. You can have the bank quote the deduction before you return it as well.

I have an '04 WRX with several options for 42 months @ $280 + tax. About all I have to do is put gas in it and change the oil. If it's worth more than the residual (the bank's estimate of the wholesale value at the end), I can sell it and pocket the difference. Seems like a pretty good deal to me!

Trade ya my Legacy for your WRX! It's about an even trade, right?!? :)

Seriously, I am considering a WRX to replace my Subbie when the time comes...
-Z.

You've never owned an Audi, have you? :p

College as well...It's amazing how many College Grads end up in a financial bind because they never learned basic money management.

Seems to me you're renting a car for $11,760. I'm glad there are people willing to spend $40,000 $60,000 or even $88,000 on new cars. That insures a good supply of used cars for me to buy in five years. Currently there are three Porsches, one Jeep and a Chevy pick-up I can drive. All paid in full when purchased. All of them for a lot less than $88,000, and a couple of the Porsches worth more than I paid.

I will borrow money only to earn more money. I invest in real estate. I just buy & sell cars.