ztreb185

Seems like most people choose to lease German cars. However I'm more of a practical guy and like to keep cars long term and save money. I'm considering buying an A4, bad idea?

VM

I think you need to crunch the numbers very carefully, especially looking at the residuals, costs of extended warranty, interest costs, maintenance costs (DSG fluid change, anyone?), etc.

My rough analysis suggested that the 'break-even' point on buying one vs leasing multiple cars is around year 9-10, roughly when the biggest extended warranty (which costs $5K CAD) would end.

The fundamental thing is this - in my 4 year lease, I'm only paying about 40% of the cost of the car (residual about 54-55%, 5% discount MSRP). In 8 years, I could lease two cars and have paid for 80% of the cost of one. Or, if I bought it, I've paid about 95% of the cost. In 8 years, I think I'd be lucky to get 20% of MSRP for it... and that's not factoring the extended warranty cost (about 8% of MSRP), the cost of extra tires, DSG fluid changes, etc. Oh, and I would have paid sales tax on 95% of the cost of the car, whereas in the leasing scenario, I've paid taxes on 80%.

(Note: yes, financing charges will likely increase the leasing cost a bit)

The thing with German cars is:
1) They're not seen to be very reliable
2) They're not cheap to repair out of warranty, so you want extended warranties
3) They hold their value very well
4) Dealers know how to get top dollar for lease returns with all the CPO offers.
All of that, frankly, militates in favour of leasing.

3cat

I admit I don't understand leasing. I've always heard it's the way to go if you can write it off within a business.
Is leasing better financially than say paying cash for the car or paying it off within 1 year?

VM

Your typical car lease fundamentally works like this: the leasing company buys the car for $X. Its value is estimated at $Y at the end of the lease (the residual), and you have an obligation to return it in good condition with less than the number of kms/miles in the lease. You pay $X - $Y amortized over the length of the lease, plus interest on the whole amount left. (Think of it as a loan that goes from $X to $Y, so the first month, you are paying interest on $X, the second month $X minus what you paid off in the first month, until the last month you are only paying interest on $Y. ) In many places, the sales tax is calculated based on your monthly payment, rather than on the sale price of the car, so you don't pay tax on the $Y.

At the end of the lease, either return the car and walk away, or pay $Y and buy the car out.

(Note: U.S. terminology is different from Canadian - we have a normal interest rate on our leases, you guys have this 'money factor' thing I don't understand)

The advantage of leasing, in my view, is the transfer of risk. If you buy a car for $X, then you have $X of your money invested in that car, and if for whatever reason it's worth less than expected in 4 years, that's your problem. And you have to either sell it yourself (good luck, since you can't compete with dealers offering financing and CPO warranties) or trade it in and get low-balled. This is especially true if you have a more unusually-equipped car - dealers/buyers can easily be like "but you have an undesirable colour/transmission/whatever" and knock thousands off their offers, whereas the leasing companies don't consider colours or options when calculating residuals (they do consider trim levels and I think transmissions).

And, here at least, there's the sales tax issue mentioned above - if I go and buy a car, I am paying 13% sales tax on the full price... and I don't get a penny of that back when selling the car or trading it in (in fact, the second buyer gets to pay 13% tax themselves!). With the leased car, I've only paid that 13% on the part of the car I've used.

If you're self-employed, there are tax advantages to leasing as well.

SCarGuy

Money Factor x 2400 = APR interest rate. Same thing, different terminology.

FLkiwi

I'm not an expert, but one issue with leasing which is relevant for me is that the residual is calculated assuming a specific number of miles per year.
My work is less than a mile from my house, so I do zero commuting, which means I drive between 3K and 5K miles per year.

A lease payment would be calculated based on 10K - 15K miles per year depending on the lease, which means I'd be paying for miles I never used.

Similarly, if you drive more than about 15K miles per year, you'd end up paying for those additional miles at lease termination.

All the other points in favour of a lease are spot on, but one more determining factor is how close you are to the target number of miles.

SCarGuy

sometimes, not always - depends on an individual situation

SCarGuy

Sort of, but not quite exactly. The floor for lease mileage is 7500 a year with Audi. So you can really tailor a lease how you want to suit your driving.

The residual is based on the contracted mileage. If you are under, the car might be worth more in the marketplace, but you have a pre-negotiated purchase price that may be LESS than the actual FMV. Meaning you can buy your car, that you drove and know it's history, for less than FMV. Or, you can take that "equity", if any exists, and roll it into a new lease as money down.

Audi similarly lets you buy more miles mid lease term, for less than they charge you if you simply don't do anything and go over your initially contracted mileage.

PPOPHIL

GEICO has MBI (Mechanical Breakdown Insurance) which mirrors the factory warranty for 7 years 100,000 miles for $60 a year. No brainer

jaybar

Not necessarily- I just closed out my 10k/year lease with 9k in overage miles. I leased another Audi and was able to negotiate no overage charges for the excess miles. And they waived the disposition fee. As long as you buy a new Audi they will forgive the miles.

Dealers like used car inventory, they will essentially buy your lease and sell the car CPO or it goes to auction.