Lease vs Finance

[mike931]

Now that the lease and finance rates have been announced (for Canada anyway), it would be interesting to read your perspectives on the leasing versus financing options.

• How do you, when you get a new car, decide between leasing or financing?
• What thought process, considerations, calculations do you typically do?
• For leasing, what do you make of the residual value, i.e. is this something you worry about being too high or too low and/or try to argue? How do you pick a leasing term (36, 48, 60 months)?
• How do you decide on the amount of down deposit you will make...assuming it's not 100%?

 

[MovingOn]

Now that the lease and finance rates have been announced (for Canada anyway), it would be interesting to read your perspectives on the leasing versus financing options.

• How do you, when you get a new car, decide between leasing or financing?
• What thought process, considerations, calculations do you typically do?
• For leasing, what do you make of the residual value, i.e. is this something you worry about being too high or too low and/or try to argue? How do you pick a leasing term (36, 48, 60 months)?
• How do you decide on the amount of down deposit you will make...assuming it's not 100%?

I always buy because I keep my cars forever. This time, I am still buying because I am in a position to claim CCA on my tax return for this car.

 

[Looney100]

Now that the lease and finance rates have been announced (for Canada anyway), it would be interesting to read your perspectives on the leasing versus financing options.

• How do you, when you get a new car, decide between leasing or financing?
• What thought process, considerations, calculations do you typically do?
• For leasing, what do you make of the residual value, i.e. is this something you worry about being too high or too low and/or try to argue? How do you pick a leasing term (36, 48, 60 months)?
• How do you decide on the amount of down deposit you will make...assuming it's not 100%?

I've never leased before, so can only speak to my thought process in deciding between the two.
To simplify things let's ignore tax deductibility, and assume that we're buying the same vehicle at the same price, regardless of the lease/finance decision.

• Unless the lease rate is substantially lower than the finance rate, leasing will almost always be more expensive as the rate will be applied to a higher outstanding balance. Whatever term is chosen, financing involves principal repayment that brings that number to zero at the end of the term, while leasing 'principal repayment' only takes things down to the residual value.
• Leasing provides some benefit if you don't want to go through the hassle of selling an owned vehicle at the end of the term. You just hand the keys back to the dealer and walk.
• Leasing can cause more complexity if you're looking to exit before the end of the term or are facing additional fees when turning the car back.
• Leasing provides some protection against unexpectedly-high depreciation. They predict some rate of depreciation, and set the residual value based on that (likely, with some extra built in as a buffer). If the car depreciates substantially more than expected, that's the lessor's problem - rather than yours if you purchased it.
• If you had some ability to negotiate the residual value, you'd want to raise it. From a lessee's perspective, there isn't much downside to this. A higher residual value means lower payments during the term of the lease, and if the residual value is higher than the actual value at the end of the lease, you just hand it back and walk away. I can't imagine that residual values are something that has much wiggle-room during negotiation.
• On lease term, I think this is mostly a personal decision. How long do you want to drive the car? Certainly, shorter terms will have higher payments as the car depreciates most when it's newest. While not a factor for the GV60, as it's not eligible - on vehicles that get the federal subsidy, it only kicks in at a 4 year (I think) lease, so if you choose, something shorter, you'd be leaving money on the table.
• Down payment amounts are another personal decision. I suspect, highly based on what you've got available at the time of closing and any monthly payment budget you may have. If the lease rate is particularly high or low, you may want to maximize/minimize your down payment accordingly.

 

[Looney100]

Has anyone managed to find the post-lease residual values for the GV60?

 

[Trixie86]

My thought process was much simpler, I like having no car payments.

 

[Looney100]

My thought process was much simpler, I like having no car payments.

That is mine as well, I will be doing neither lease nor financing, but the question asked for a comparison of those two options.

 

[Looney100]

The Genesis lease calculator doesn't seem to show the residual value, but if you try to put in a huge down payment, it gives you a specific maximum amount that varies based on term and mileage. I wonder if the residual value is the difference between the maximum down and cash price.

 

[mike_1103]

Has anyone managed to find the post-lease residual values for the GV60?

By playing with an amortization spreadsheet in Excel, and changing the term length to match the monthly lease payments I got from Genesis' online configurator, I came to these approximate residual values:

• 24 months: 59%
• 36 months: 46%
• 48 months: 37%
• 60 months: 30%

They are quite low...

Anyone else tried to figure them out?

 

[Looney100]

By playing with an amortization spreadsheet in Excel, and changing the term length to match the monthly lease payments I got from Genesis' online configurator, I came to these approximate residual values:

• 24 months: 59%
• 36 months: 46%
• 48 months: 37%
• 60 months: 30%

They are quite low...

Anyone else tried to figure them out?

Good idea!
I've asked my contact for the residual at the end of year 4, so may have something to test your numbers against shortly.

 

[mike_1103]

Now that the lease and finance rates have been announced (for Canada anyway), it would be interesting to read your perspectives on the leasing versus financing options.

• How do you, when you get a new car, decide between leasing or financing?
• What thought process, considerations, calculations do you typically do?
• For leasing, what do you make of the residual value, i.e. is this something you worry about being too high or too low and/or try to argue? How do you pick a leasing term (36, 48, 60 months)?
• How do you decide on the amount of down deposit you will make...assuming it's not 100%?

My decision to lease or finance is mainly based on the residual value and the interest rates. From what I see now (higher rates for leasing and low residual), I am leaning towards financing.

If you lease, you should not make a downpayment. The main reason is that there is no guarantee you will get your down payment back should your leased vehicle be stolen or totaled in an accident. More details here: Should You Make a Down Payment When You Lease? | Edmunds

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[Looney100]

Thanks, Mike,
That has completely changed my view on leasing. I didn't think of the implications of the loss of the vehicle. I guess I'm back to paying cash.
The lease rates are high, so I was thinking of putting the maximum down to minimize interest payments, but still allow me to walk if the resale was surprisingly low at the end of the term. If your residual calculations are close, it looks like they've built in a significant buffer for depreciation, so likely little benefit in that flexibility.

I'm not sure how representative it might be, but the EV6 has a residual of 62% of initial price at the end of 4 years.

 

[GenCoupeguy]

Their are only a couple of advantages of leases imo.

1) If you are someone that likes to swap vehicles every 2-4 years, it's a good fit. It cost you the same really except you get to keep the majority of your money in your bank account. For some people saving possible downtime and having a brand new vehicle are worth the constant hit of depreciation.
2) If you are uncertain about the technology or brand for some reason. For instance I SO wish I had leased that Saturn in 2008 because once they went BK the car became nearly worthless. But in the case of a 1st year EV one has to consider the possibility that battery technology will greatly improve, or the batteries will degrade significantly. In a lease you can hand it back to them, or just buy it at the residual value at the end of your term. If you like the vehicle and they have proven to be reliable, well buy the residual out and all you have lost is the extra interest as you borrowed the money longer. Frankly interest is less than inflation so you are still money ahead. If the car turns out to a be a turd, or solid state batteries are released in 2025 rending all previous EVs obsolete, you can walk away at a pre-agreed upon price and not get killed. As long as you get the choice at the end of the lease with no additional penalties.

 

[Edges]

By playing with an amortization spreadsheet in Excel, and changing the term length to match the monthly lease payments I got from Genesis' online configurator, I came to these approximate residual values:

• 24 months: 59%
• 36 months: 46%
• 48 months: 37%
• 60 months: 30%

They are quite low...

Anyone else tried to figure them out?

You are dead on. My manager confirmed with me couple days ago that the residual is 30% for 5 years and 37% at 4.

 

[Minbari]

You are dead on. My manager confirmed with me couple days ago that the residual is 30% for 5 years and 37% at 4.

Those are some absolutely brutal lease residuals for a vehicle like this. I think realistically it either leaves a big opportunity at the end of the lease to buy it and flip it or trade-in. I would say with near-certainty that that the vehicle will retain a lot more value than that in so few years. If the current state of EV's, vehicle deliveries, "shortages" of every part under the sun are anything to go by, these cars are likely to retain a lot of their value for their initial years. I wouldn't be surprised to see near-zero depreciation for the first 2 years or maybe even longer - Teslas and the Ioniq 5 are pretty good comparisons for the way these vehicles are performing in the used car market.

 

[Looney100]

Those are some absolutely brutal lease residuals for a vehicle like this. I think realistically it either leaves a big opportunity at the end of the lease to buy it and flip it or trade-in. I would say with near-certainty that that the vehicle will retain a lot more value than that in so few years. If the current state of EV's, vehicle deliveries, "shortages" of every part under the sun are anything to go by, these cars are likely to retain a lot of their value for their initial years. I wouldn't be surprised to see near-zero depreciation for the first 2 years or maybe even longer - Teslas and the Ioniq 5 are pretty good comparisons for the way these vehicles are performing in the used car market.

I wouldn't use current resale values as a proxy for what to expect if/when we look to resell something purchased now. All used vehicles are pricey given the chip shortage leading to tight supply, EVs particularly valuable given current fuel prices.

I'm looking at a total of ~10% depreciation on my current 2.5 year old vehicle as I sell it into this market. I certainly don't expect the same kid of resale if I'm looking to sell a GV60 in early 2025.

 

[etonduf]

Keep in mind that if you're a cash customer, it may be worth it to finance if Genesis is offering any incentives. If you can get $500 or $1000 off as a financing incentive, you can still turn around an pay off the loan immediately--but you've saved a little on the purchase price. (Or refi out to a lower rate, if you don't have the cash to pay it all off).

 

[EdP]

Their are only a couple of advantages of leases imo.

1) If you are someone that likes to swap vehicles every 2-4 years, it's a good fit. It cost you the same really except you get to keep the majority of your money in your bank account. For some people saving possible downtime and having a brand new vehicle are worth the constant hit of depreciation.

I see many of the lease deals have hefty down payments, the G80 is $4919. That would keep the monthly down but a good hit up front.

I leased one car, a 1991 Buick Regal. It was no money down and $300 a month. Timing was good as I just changed jobs and cash was low. After 3 years, I bought it at a good price and also bought another car. So essentially I got 6 year financing on the regal and no excess mileage to pay. It became my wife's car and kept it for 15 years.

One of the best deals was my company car. They leased from Avis. After 3 years, four of us that had company cars bought them at a very good price. That became my wife's car before the Regal.

 

[Looney100]

One of the best deals was my company car. They leased from Avis. After 3 years, four of us that had company cars bought them at a very good price. That became my wife's car before the Regal.

Former company cars are the best to buy out. My employer has done away with their program, but it was a great source of vehicles for many employees. You know exactly what you're getting if/when you buy, and prices are generally below market.

 

[Looney100]

Their are only a couple of advantages of leases imo.

1) If you are someone that likes to swap vehicles every 2-4 years, it's a good fit. It cost you the same really except you get to keep the majority of your money in your bank account. For some people saving possible downtime and having a brand new vehicle are worth the constant hit of depreciation.
2) If you are uncertain about the technology or brand for some reason. For instance I SO wish I had leased that Saturn in 2008 because once they went BK the car became nearly worthless. But in the case of a 1st year EV one has to consider the possibility that battery technology will greatly improve, or the batteries will degrade significantly. In a lease you can hand it back to them, or just buy it at the residual value at the end of your term. If you like the vehicle and they have proven to be reliable, well buy the residual out and all you have lost is the extra interest as you borrowed the money longer. Frankly interest is less than inflation so you are still money ahead. If the car turns out to a be a turd, or solid state batteries are released in 2025 rending all previous EVs obsolete, you can walk away at a pre-agreed upon price and not get killed. As long as you get the choice at the end of the lease with no additional penalties.

I agree that leasing does provide protection from unexpected depreciation (like you've experienced), but at what cost?

I suppose my case is different than most, as my comparison is between a cash purchase or lease. Let's assume I keep the car for 3 years and resale value of the performance at that time is $43K. For a cash purchase, I pay $83K now (all-in), sell for $43K, not cost is $40K.
With a lease, I put down $1K, make monthly payments totaling $52K, buyout at $38K (after tax), and sell for $43K - for a net cost of $48K. There's a 20% depreciation buffer built in there.

 

[Trixie86]

I agree that leasing does provide protection from unexpected depreciation (like you've experienced), but at what cost?

I suppose my case is different than most, as my comparison is between a cash purchase or lease. Let's assume I keep the car for 3 years and resale value of the performance at that time is $43K. For a cash purchase, I pay $83K now (all-in), sell for $43K, not cost is $40K.
With a lease, I put down $1K, make monthly payments totaling $52K, buyout at $38K (after tax), and sell for $43K - for a net cost of $48K. There's a 20% depreciation buffer built in there.

Or keep a financed car for 5 years. No payments for 2 years. How much is that?