Last week I met a new friend- someone who is in a bit of a transition right now- as a lot of us are. Nice guy- smart guy- likes cars. He's young and driven... Doesn't have a family, lives at home right now... He's not on the street; but then again, he doesn't exactly have money coming out of his yin/yang either.
He's in a situation now that I think I should bring to light in an installment of How to Buy a Car... (in this installment- it's more like- How to Lease a Car.)
He had the misfortune of being in an accident with a leased car that he had loved (but he's okay otherwise)- an Infinti G-Sedan- which I will attest is a fantastic car that does just about everything right or really really well. I've driven them, ridden in them and know people who are looking at them closely- they're good cars.
Okay- long and short of it- he had a lease, put a little money down/out-of-pocket fees (there's a difference you know) and I'm not sure if you know this or not- (most times- and don't come running to me with that one time your cousin's uncle's aunt had a lease where this wasn't the case...) when you wreck a leased vehicle and it's totaled- you walk away from the lease... But that said- any monies that you put out-of-your-pocket- like fees and money-down (capital cost reduction) you're out. You don't get them back- nor do you get back a pro-ration of the difference based-off the remainder of the lease. You paid them when you picked-up the car to get to where you wanted to be monthly payment-wise- and it's gone now. That's the deal.
I'm going to say this, I've done this and I've said this before, (yes even to family...) If you're going to lease a car- build everything (and I mean everything) into the monthly lease payment of the car. Though leasing can be complicated- it's really just a function of time, a money factor (that is a way of addressing interest) and the residual value of an asset after a length of time.
It's an agreement, pure and simple- but when the car is deemed a paperweight- the insurance company pays the bank who leased you the vehicle (it's their car really anyway) and any money you gave the bank in an effort to keep the monthly payments "lower" is gone.
The only reason why banks and car makers advertise lease numbers with fine-print out-of-pocket expenses/cap-cost reductions is to keep the number-one figure most have to mind when leasing a car- the monthly payment- attractive to the consumer who's shopping a monthly budget- plain and simple.
From my professional experiences- the true cost of leasing any vehicle (and lets not split hairs here) is about $100-$150 a month difference between putting dealer fees/bank fees/taxes/title/ a little bit of cap-cost, etc, etc, etc and nothing but a handshake... Again- I'm just aggregating here- every car and deal is different- but if you want to look down from space and see it- this is the difference on an average car, average deal, average person... You get the picture. (Don't come to me with fine-print here, proving me wrong... I can be- but I'm more right than wrong with these figures).
My advice to you- don't give them a penny down or out-of-pocket and live with the fact that your monthly lease payment is going to be higher than your neighbors for the same exact car... all other things held equal.
What else can you do? Put the money you would have given the dealer in an account and don't touch it. I don't care what kind of account you put it in- just keep it in your pocket, I mean- better yours than theirs, right? Who knows? You may have a better opportunity cost of holding that money- and maybe you can do better with it- like putting it on black in Atlantic City and hoping for the best...
If you don't have that discipline- well, I can't help you there.
Now, there are very very rare instances where banks will give "accelerated" or beneficial (read better) money factors to those who put more money "down" (we're talking capital-cost reduction- not the myriad of fees and bullshit that comes with leasing a car)- basically- that's because you're giving them money to hold-up front and they may cut you a break on the interest of the lease- which may lower the payment a few dollars here and there- but I don't know how much better- then again- you're playing a game of whose pocket is this money today (today) doing better in- it may be a wash over the course of a lease- I don't know!
I've even heard where these monies can be totally refundable at the end of the lease- which is basically like giving the bank a loan in exchange for a better lease payment on your car- instead of you charging them interest- they're helping you out by lowering your payment.
You ultimately have to sit with an honest finance and insurance (F'n I) guy and weigh the options in this case- but really- you have to ask yourself- where would you rather have the money? In their pockets- or yours?
The dealer/bank/institution leasing the car will always want the money in their pocket- try thinking like that and keep it in yours.
Now- back to my friend... He needs a car (and now maybe wants to now save some extra money) after getting out of a leased Infiniti G- which to most is considered a premium vehicle- i.e. more than enough car that you really ever need. (They lease for- no bullshit- in the high $400, low-to-mid $500 range- depending on the car, package, you get it, right?)
He's done some shopping and can get into a nicely equipped (read pretty loaded) Honda Accord or Nissan Altima lease (read with all the bells, whistles and bullshit) for about a $100 - $125 dollars less a month than what he was paying with the Infiniti lease- most things equal here.
To buy the said "lesser" cars above, rather than lease them- he's looking at numbers that would pretty-much wash the monthly lease payment of the Infiniti G-Sedan. They're about equal- but now he's talking a term of 60 months and not 36 months. At around $500 a month- that's a pile of $12,000 however you look at it.
Then again, at the end of 60 months- he owns the car- rather than being left with nothing after just 36 months.
Personally- what I would do? What would The Car Guy Gets It do in this situation- if I were him?
I would go to Infiniti and see if I could get into another leased Infiniti for nothing out-of-pocket- and roughly the same monthly lease he was in before the accident. (He can try anyway- I hear they're desperate for business by him...)
Simple reasoning- he's whole- he's where he was before an unexpected accident changed his situation. (How many situations in life can you ever really do that in?) But here's my silly math- you can take it for what it's worth and what I'm charging- which is nothing...
1) He obviously could afford the monthly payment- he was making it before the accident 2) He loved the car 3) He's a young guy and being young, single and maybe a little stupid- what's $100-$150 a month really? (where we're from- in NJ- it's nothing, trust me...) 4) In three years, if he has a different life than he has now- he could get out of the car easily and change his priorities and start walking or taking the bus then and finally 5) to lease or buy anything that you really don't think you're going to want or view as "a second" for either three years or five years and forever is silly if you can afford to get into something you really want- which is what you had to begin with. (Wheeeewwwww- I think I held my breath typing that too...).
Okay- so what if he wants to save some money? (And do what with it- buy a house in Florida? Invest in Greek bonds? Buy-into a Goldman Sachs investment?) If my friend is really concerned with saving money- get into a lesser, and by lesser, I'm meaning four-cylinder version/cloth interior of an Accord, Altima or Toyota Camry.
In fact- I'm going to write later about this- buy or lease a Toyota... Get'em while their hot, or not.
Lease (what I call) a "stripper" or a car with not a lot of options, bells/whistles and ornamental status. It's all bullshit anyway. Don't get the DX model- get the LE model or LX or S model- get something closer to the bottom-of-the-line, but a little better- because honestly- that's where the best deals are in cars like this. They make the most of them this way- it's packaged just right with everything that you need- and maybe a little bit of what you want too.
You start with extras, do-dads, fees and bullshit- you're going to spend more money anyway.
Lease a car for like $350 a month all-in, nothing out-of-your-pocket- because in the end- they really don't come much cheaper than that- now do they?
Just keep the money in your pocket- not theirs- The Car Guy Gets It!
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