Need to get a new car. My financial planner says I should lease, but what happens at the end of the 3-yr lease term if I want to buy it? And why is this ever the right move if I plan on keeping the vehicle until it dies? I just don’t get it, ergo this question to this sub. Thanks in advance!
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It depends on the initial value of the vehicle and the depreciation. If you are talking about getting a luxury German car new, that will depreciate significantly during the lease period. It might make financial sense to lease and the buy the lease on the depreciated value after three years. You know the car’s history and maintenance so you aren’t buying someone else’s problem, you got to drive a brand new car, and your payments were never as high as a loan on a $80,000 car would be. There are other benefits, if the car was a turd you don’t have to worry about selling it, you just give it back to the dealer. If you don’t like it anymore, you don’t have to sell at a loss, you can just give it back to the dealer.
The benefit, particularly with German cars, of riding the depreciation wave, is that they depreciate because rich people want new cars; not because the cars themselves are bad. People misinterpret why luxury cars depreciate, the demand for new cars is because people like them shiny. So if you are coming off the lease of a $76,000 vehicle you treated well, and the residual value is now $39,000, you can now buy a 3 year old full sized German SUV for only $4k more than a new Rav4.
Obviously there are risks to these schemes, but your financial advisor isn’t necessarily shooting you wrong here. New cars are much too expensive, and used cars are too damned expensive!
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