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Critical Look at Car Buying: Lease vs Purchase Fiance
The best way to buy a car is to pay cash for it. The discounts are huge. Alternatively take that cash out of HELoC and pay simple prime on it if the car manufacturers interest rate is higher then prime. For most people who are not blessed with this knowledge or who do not qualify for a Cash-HELoC ,are left with dealership purchase options. Here is my take on different options offered by dealerships and car manufacturers.
The competition in the automotive industry is intense to say the least. In June, Erin Mills Auto Mall sold 300 vehicles. More than 200 vehicles were Toyota, Honda and Nissans. Sticker price cuts and free gas card were cheif baits. Now that that three Japnese imports have elbowed the Big Three out of the main stream family market, they have set upon each another. Behind the scene Toyota, Honda and others seem to strategizes on perfecting a positioning market share matrix based on luring the consumers with highly gas efficient and sturdy vehicles with attractive purchase options. Gone are the simple ways of making money thru' admn charge, freight & forwarding cost. A smart customer can leverage this competition to a advantage. It is important to understand this matrix strategy and market size background to understand the hidden catch behind the buy back, leasing rate and 60 x 84 payment plans. In North America every 5th. car sold is a Toyota Corolla or similar, every 7th. car sold is Lexus Gi series, every 10th. car sold is BMW 3series/ X series, every 15th. Car sold is Versa/ Yarris, every 24 car is Accord/ Camry/Altima, 25 car is Impala (Source Wall Street Journal 10 July- Car Retail Turnout) Small cars increasing long waiting time is a testimonials to to shifting market mood (Corolla built in Cambridge Canada, currently has a 4~8 weeks wait in North America) The most popular new colour is Sand Mica besides traditional Grey and Silver.
The choice between Financing and Leasing is confusing if not confounding. Suppose you could afford both which one makes a better option and more sense in the long run. I used a financial calculator and lots of common sense to figure this one out. I was buying a new car for my wife. Another thing that surprised me was that in the same dealership two different sales rep. can come up with two different numbers, this way you can avoid the sleazy sales guy. It is always good to shop around.
Leasing: In my humble opinion, leasing is more suitable to unstable products or newer products or to fill the coffers of the car financier. It is like term insurance, you buy it when you are young to cover for mortgage, children s education and living expenses in case something bad happens to you. It does not make sense. By the time you are old the insurance is too expensive, the term has expired and you are left high and dry without any protection. Leasing is the same by the time you get used to car, it is time to return it. At the time of leasing they tell you how easy it is to return the car or purchase finance at end of term. Here is the caveat, when you return the car, the car has to be in the tip top condition. They define 'tip top' condition like the tires should be new, dents smaller than a nickle are OK, no scratch marks. I will give my friends recent problem with leasing as an example. My friend went to return a leased car at expiry of 48 months term at a popular imported car dealership. They charged him $4000 to bring the car to "tip top" condition without the extra mileage charge of 10 cents per km. The car seemed ok to me except for the normal wear and tear. My friend had 5000 km extra mileage in the last two months due to unplanned trips which additionally cost him $500 on top of the $390 lease he was paying. At time of leasing he figured it would cost him 390 x 48 months= $18,240, instead it came to ($18,240 +4000 +500) $22,740 (or instead of $390 a month in actual he paid $473.75per month (22,740/48 months))
Secondly he looked at the purchase finance option of the buy back amount. The buy back amount is $12,250. Due to declining second hand ("Pre Owend")car prices caused by huge supply of cheap 'Mile' cars (US cars, majority flood hit cars, cars with no history sheets), the Canadian street price of that car now is $10,500. So he could not sell it in open market. Purchase finance APR of buy back works to 7.9% or $297 pm or $14,256 for 4 yrs. The lease on a new similar vehicle 2009 model worked out to $343 pm and the buy back is $10,240. It so appears that the buy back amount seem to reflect the current market selling price of that model vehicle. After 4 yrs, the market price will decline further. After 4 yrs who knows what the second hand car market would look like given the current economic turmoil?
Hence the drawback with leasing are, the market price might drop you will be left paying for a white elephant, you might drive more that allowed and incur extra cost, you might have to pay for "tip top" cost adding to the cost. The advantage of lease term is that it is look quite cheap to start, it is good for those who intend to reduce tax bills or who would like to buy the luxury car in the end of term, you can exchange old for new every four yrs, sales guy make more commission on lease vehicles. In conclusion it is best for newer untested products car that depreciate very fast. It is definitely not for the likes of Toyota, Nissan and other sturdy family purpose cars.Lease is a tease. And Boy, life is no tease.
Purchase Finance: Suitable for long term sturdy car. This is the real thing like life insurance. It is yours forever, you are the owner. It might cost more to begin with but in the long run whole lot cheaper then leasing. I would definitely purchase finance a Buick, Lincoln, Toyota, Nissan, Lexus, BMW and other such time tested products. Nearly 60% of these vehicles are sold purchase financed, 10% Cash-HELoC and rest on lease (Source Edmunds Auto) Increasingly I can see car manufactures reducing their sticker prices but increasing the APR (interest rate). It almost seems to me financing is becoming the main source of profit for car manufacturers rather then the sticker MSRP. Hence you notice in some imported cars the leasing APR is lower and the purchase fiance APR is higher. They are trying to make lease more attarctive then purchase finance option. They make more money on lease then purchase finance plus they have hooked a car junkie. Once in lease it is difficult to get out of that loop. People have different reasons in buying a car ranging from attracting attention (mainly BMW) to commanding respect to dependable family ride. Purchase finance is preferable for long term dependable family ride.
GOLD July 08: For those interested in getting your share of gold gains, this is the entry time. You can see TSX is getting sole support from precious materials sector now that energy/Commodities and financial sector are getting badly hit.
The best way to gain from raising gold is to buy either paper bullion or funds that are gold heavy. If you are the gambler type and want to trade in gold, good place to trade is Kitco.com, Monex.com, Tulving.com, goldmoney.com allows to buy real gold in paper form. If you want to reduce the risk and recieve similair reward than I can recommend few good funds with top gold manufacturers like Barrick, Yamana, Kinross Gold Corp, Newmont Mining and others. They are Dynamic Precious material. RBC Global Precious Metals, AGF and Mackenzie. To read more about gold future potentials you can check TheBullionDesk.com, Goldseek.com and 24hgold.com. You may also want read commentaries by expert gold pundits like James Turk, Frank Holmes, the Aden Sisters, Doug Casey and David Morgan.
Dev Singh
FINANCE, INSURANCE ADVISOR
Desjardins
151 City Centre Drive, Suite 101
Mississauga ON L5B 1M7
Bus: (905)276-9456 Ext.238
Fax: (905)276-4964
Direct: 416 844 1575
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