When you "buy out" the lease, you just send in the rest of the payments? (i.e. 10 mos X $200/mo = $2,000 sent in?) or is it a reduced rate? Any penalties for early buy out?

 

Um, you would have to show me some math.
I not talking about salesmen, contractors, etc. who are actually businesses.
Even there, I have owned a couple dozen fleet cars myself, and never once could the salespeople show me any way I could save ten cents on leasing. For a private party who can not deduct it as an expense of doing business it does not seem to make sense in any financial way.

It's like the suggestion that a person pay an extra 30 bucks a month so he doesn’t have to pay the whole amount at the end. That means, pretending to yourself that you don't owe the money, recognizing that you are incapable of saving a few bucks a month... Very strange, like having extra taken out of a paycheck so you get a big 'refund' at the end of the year... I must live in a different world than these people. I have never had to 'pretend' to myself about how much money I did or didn't have, whether that was a little or a lot.
Oh well, living within your means is looked down upon by many these days.
Chris

 

I can't show you the math because its different for every person (different driving needs, different vehicles, different financing rates etc)

Look at it this way, you buy a $40k truck, finance it for 48 months. Let's say you drive it for 5 years (so you dont make any payments for months 49-60) You now trade it in for $15k (if youre lucky)

If you lease for 5 years, you pay maybe $25k on a $40k truck. AT the end you walk away.

Both scenarios have the same result.

The difference in the real world would be finance rate vs lease rate and trade in value vs lease residual. Most lease are 2-3 years so you use more of the truck (based on depreciation) You'd be in the same boat if you bought a truck and sold it after 2 years (the deprecitation hit) But because leases tend to be shorter than financing (2-3 yrs, vs 4-5 yrs) they of course are more expensive. If the lease was 5 years, you may find the numbers more equitable.

 

the whole business expense thing is a joke too. Companies write off owned trucks as a depreciation expense. It makes no difference to the accountant. Thats the biggest urban myth going.

 

Key word is more expensive. Another key word is payment. It's renting rather than owning. Something I have always done with shop space, or retail space. It only works out in private property about one time in a hundred.
What it all adds up to, you lease so you can appear to have more money than you do.
Um, no thanks.
Chris

 

No penalties for buying out your lease..The intrest is calculated and added to your payment's when you sign your contract, you don't save any intrest by buying out your lease early.....But you pay a higher intrest rate to Finance the purchass your truck. on a $35,000 truck it will take me five years to pay off, ( counting my first year ) Paying $14,000 every two years to own a debt and not own a car/truck is crazy. Here in Canada, we have to pay 7%, + intrest rate + (my buy out $25,000 ) in less than a year I knocked $10,000 off my truck, Can't buy my truck in a 05 for that price.

 

It makes perfect financial sense. If you are a company, and you are wanting
a loan for say a peice of capital equipment, you need to disclose your financial statements to a loan officer. One thing they are looking at is liquidity. On a balance sheet, the math is assetts equals liabilities plus owners equity. If you have twenty vehicles as an assett, they are also twenty liabilities, with depreciation, and depreciation expense.

If you are doing a TRAC lease (terminal rental adjustment clause) there is no assett/depreciation/depreciation expense. There is only an equipment or transportation expense. Therefore, the company does not look weighted down by debt. A pure expense (write off). A vehicle is not an investment, it is a purchase. Investments appreciate. Why would you buy something that does nothing but depreciate when you dont have to?

Just another flip side of the coin, and there is much more to this as well.
The TRAC lease is one of the reasons Ford is so strong in commercial vehicles.

 

so why are they buying capital equipment? It too depreciates like the truck in your example.

Why? The purchase of the truck is an equipment purchase required to operate the business. You can opt to buy instead of lease. My point is is the lease thing being favorable to business is an urban myth. A business can own a truck and still take an expense. There is no difference.

As far as single expense on the balance sheet, that is not entirely true. Income and expenses tie back to the balance sheet. So an owned truck would show as an asset with a corresponding depreciation expense, a leased vehicle would show on the liabilities as an account payable with corresponding lease expense. The net of it is how much does it cost to operate the vehicle every month whether that is a predetermined lease amount, or a purchased amount amortized over the useful life of the vehicle.

Like I said, doesn't make much difference to the accountant and shouldn't make much of a difference to the loan officer. The cash flow is the cash flow. You have it or you don't.

 

The reason that business find it an advantage to lease is the IRS rules regarding depreciation. Vehicles have to be depreciated over 5 years rather than over a shorter period allowed several years ago. Many commercial vehicles are replaced much more quickly than that and they don't get the full benefits of depreciation. However, the full cost of a lease is deductdible so it is a tax advantage to lease rather then buy.

 

really? wow these F-Series really are *****ty trucks if you only get 4 years out of them on the jobsite.

 

One of the weird quirks of construction is that to most contractors, maintance not worth doing. Due to odd tax laws, pressures of time, and the mindset of contracting, it's not unusual to 'suck the life' out of a truck in two years. At the end of that time it is a used up hulk.
Many of them have been totally abused.
This means things like no oil changes, driving it loaded at five times max, driving it off of curbs twenty times in an hour, no paint maintance at all. Driven by 24 different unlicensed illegals, driven at freeway speeds in whatever gear it got left in... All of these things are so common as to be a daily thing on a site.
Sure some take care of their trucks. Especially the owners truck... But most don't.
We used to see them at auctions, and they are something a smart buyer won't touch. Totally used up.
It's why 'commercial fleet vehicles' are priced so low, and a big warning on Carfax.
Brand doesn’t matter if you thrash it.
Chris

 

The kind of vehicle is not relevant nor is their durability. Most fleet vehicles are used and it is typical that they be driven 40,000-80,000 per year and upgraded every couple of years (long before they could be depreciated out). Typically, the payoff on high mileage vehicles is more than the market value and the company has to pay the difference to the lease company. That is all tax deductible and the reason they are leased. The company I worked for went to leasing when the regulations were enacted several years ago only because of that reason. They "sold" our fleet of cars to the leasing company and the only thing that changed for us drivers was the registration card.

 

So I guess you don't know how compound interest works? By sending in EXTRA, no matter what amount, you are being charged interest on less. Which in turn, lowers your balance due at the end. This works for a purchase or a lease, for a vehicle or a house. Eventually, you will be ahead an entire payment, and when you're talking about a house on a 30 year note, that one payment ahead early in the mortgage will end up saving you about 2 years on the entire note due to compound interest. In this situation of a lease, you will owe less than what the "agreed upon buyback price" is, thus giving you that money to use for any "deductions" for milage or damage, or money towrds your next vehicle.

Yes, you could save that money yourself and put it in a savings account, but the interest you accrue in the saving account will be less than the interest saved from the car loan.

Besides, if someone wants a nice car and a lease is how they get into it, then more power to them. It is not for everyone.....and obviously, not for you.

cheers anyway!

 

Um, there is no compounding of interest on a lease, as compounding is a factor of interest on loaned money, not rent...
If you rent a house and send them an extra 30 bucks a month, your rent is still the same...
If you wanted the extra 30 bucks a month to 'compound' you would have to invest it, say in a Mutual Fund, CD, etc. during the life of the loan. It would not keep up with inflation of course, unless you went with something more aggressive.

I am also not decrying the fact that many want to appear more solvent than they really are, I am just pointing out that they are doing it…

If they want to carry a large roll of 1 dollar bills, wrapped in a single fifty, that’s their business.

But they should not encourage others to do so. And they should be aware that that’s what they are doing. There is no positive financial reason to lease for a private party.

Remember, there are a lot of young or otherwise impressionable folks reading these forums. It doesn’t hurt to point out when something is not too wise for a college kid, etc. to do.

It’s like when we talk about driving fast here, we also mention to be careful and think.
Just courtesy to the new folks.
Chris.

 

I agree that people need to hear the good AND bad about anything that may affect their finances, or any aspect of their life for that matter.

As far as comparing a lease to "rent", I agree with you 100%. You cannot build equity in it without paying more than the agreed upon price.

As far as the rent staying the same, that is because the "rent" amount was agreed upon by you and your financier (sp). However, for example, by sending in extra, my required payment right now is over $150 less than I agreed to send when I signed the papers. This not only pays off my lease agreement faster, it also allows me, a college student by the way, a little lee-way in the event of an emergency.

Also, as I said before, the lower the balance is the less interest will be charged....I know this because I got a refund check from FOMOCO when I turned my last lease in on this one for $5.43 just from turning it in during the middle of my billing cycle.

Granted...I will never have the title to a vehicle if I continue to lease (I"m on my 3rd lease now), but I do have the peace of mind of always having a warranty, of having the lastest safety improvements, the most efficient engine, and the latest/greatest for whatever vehicle type I'm in.



P.S. ChrisAdams, you are one the more intellegent/open minded people on this board from what I can tell, and even though we are butting heads on this topic, I still admire and respect you and your knowledge base.