QUOTE (yjbeach @ Jun 8 2010, 09:31 AM)
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Correct, they make a signifcant amount of money back on the penalties when turning the car back in.
Breaking things down financially. It's better to buy than to lease. When calculating out opportunity cost leasing a car for $300 a month with $3000 do at signing (3 year contract), you would have to make an annual salary of over $95,000 with no fees when turning the vehicle over.
When you purchase a vehicle (estimated at $25,000) with $3000 down and an average monthly payment of $400 a month and 4.5% interest ( and using a credit union that usually applies 70% to principal and 30% to interest). You will start to gain equity in the car which traded in after a 3 year run, will put you ahead.
There is a break down of this at
www.fool.com a good website for beginner and moderate financial assistance.
Well I would beg to differ with your analysis. Plus I've never heard of applying 70% to principal and 30% to interest with a credit union loan? All auto loans I know of are a straight amortization schedule, which as you pay down the balance, more goes to principal and less to interest. If there is a loan program other than this where more is applied to principal in the beginning, then I'd assume you will be paying for it with a higher stated interest rate. . . but any case here's my analysis and logic.
Lets start with a little background: This is my 3rd Hyundai, and my wife has owned 4, so I am well accustomed to the residual value when buying. (I have negotiated all but her first car which was purchased before I knew her). Also, I am an accountant so I am by nature cheap and one of the reasons I got this car was to shave off $100-200/month in expenses PLUS get a new car. My previous car (a 2006 Sonata GLS with the 3.3L engine) I owned for almost 4 1/2 years and I never had equity in the car. That being said I was stupid and financed it over 72 months and really didn't put any money down when I bought it. For the last year and a half I stayed about break even with KBB/edmunds value compared to my loan. This is also the first car I've ever leased.
Now the numbers. Using my lease as the example, I put $1,000 down, haggled down the purchase price of the 2011 as well as my trade in value and my lease payment including taxes is $298/month for 36 months with 12,000 miles per year (which is what I drive). Using the exact same numbers (down payment, purchase price, trade in, etc) financing over 60 months at 2.9% I would be paying $395 and at 72 months at 3.9% I would be paying $348. On the lease I will have paid total cash of $12,128 (including the $400 lease end fee) over the 36 months and will turn over the keys. On the 60 month loan, I would have paid cash of $15,228 over 36 months (3,100 more) and would owe $9,205 on the car. Now I have no idea what the trade in values will be like in 3 years, but judging from past experience I wouldn't put it much past 10k. Even if I assumed the trade in value after 3 years would be 12,305, I would be at a break even point between leasing and buying. That is I would have paid $3,100 more cash by buying, which I will recoup when I trade it in assuming I could get the 12,305. This isn't even taking into account the time value of money, which would drive the required trade in allowance to around 13k to reach a break even point. Financing over 72 months and the break even point would go even higher. Now sure, maybe in 3 years I will be kicking myself because the trade in allowance is some ridiculous value, but I won't be holding my breath. Personally I like the idea of going back in 3 years to look at a new car and only have to haggle one aspect (the price of the new car) and not worry about what my trade is worth.
Sorry for the long post, but with the excellent residual values and money factors Hyundai is offering with their lease deals, I couldn't pass on giving it a try. I'm curious to see if in 3 years I still feel that I made the right financial decision. Ohh and of course it is cheaper to buy a car and keep it for say 10 years, than to lease, but I know I wouldn't be keeping the car for 10 years.
