Quote:
Originally Posted by onewhippedpuppy
How does that work? I'm asking honestly, not being facetious. Cash is 0%, and if you are keeping it for "forever" resale value is a non-issue. I suppose there's the possibility that you could otherwise invest your cash for greater than 2.5% but that's certainly not guaranteed.
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Cash is never 0%, there is always an opportunity cost having your money tied up in a depreciating "asset" like a car. You'd earn something having that money elsewhere. Have a mortgage? I'm sure it's more than 2.5%. Put it there, to start.
There are two variables that make a lease more attractive than buying with cash
1)
Sales tax calculation. When you buy a car, you are taxed on the full purchase price. When you lease a car, you are taxed on the lease amount. And it's typically due as it accrues, each month. So instead of paying 100% all up front, you pay less than 50% over 3 years, monthly, with no interest. If you end up buying the car at the end of the lease, you'll pay tax on the remaining balance, but you deferred that obligation for 3 years (or whatever the term). If you don't buy the car at the end, you saved thousands in sales tax. In the case of a $60K car and a 7% sales tax rate, this is a significant factor. More than interest!
2)
Guaranteed future value. A lease is based on a residual...a guaranteed floor of what it will be worth at the end of the lease. If it's worth less than that, give it back and you didn't pay for the real cost of depreciation. If it's worth more than that, you have right of first refusal to buy your car for less than market value. So you can win, but you can't lose. It can save you thousands of dollars over owning the car and being at the whim of the market when it's time to sell. Want to keep your car "forever"? Then buy another just like yours for market value and you still saved the money. Or team up with your dealer or a guy like me and buy your exact car from the auction when the lease company disposes of it. I've done that a few times, saving one guy almost $7000 from the stated residual value.
In addition, there can also be an advantage in how a leased vehicle can affect income tax calculation for business use, which 89911 may benefit from. I've had doctors lease $100K cars, writing the lease in both their practice/business name and their personal name, buying tens of thousands of extra miles so the payment is high and the residual very low, then personally buying out the lease at the end for tens of thousands less than market value. The business wrote off 100% of the lease -- right off the top line. No worries of depreciating it too much an realizing a gain later.
It's just a financial instrument. Leases get a bad rep from those who didn't understand all the variables.