Clarity -> Prologue

[Dan Albrich]

Thank you ENirogus for the lease detail. To paraphrase slightly, lease deal sounds like it can make sense (depending on terms), if its a vehicle you might otherwise afford to buy. The additional point I'm making is if you don't have a good money buffer, there's some risk in leasing (i.e. something happens to the car, over mileage, etc) and you don't want to be forced to pay the residual. You may get yourself stuck. i.e. anything happens that removes the option to "throw the keys back."

 

[Landshark]

The additional point I'm making is if you don't have a good money buffer, there's some risk in leasing (i.e. something happens to the car, over mileage, etc) and you don't want to be forced to pay the residual.

Understanding that you won’t be “forced to pay the residual” for exceeding the mileage limit is an important hurdle to cross when considering whether or not to lease a vehicle.

 

[Dan Albrich]

I don't know anyone who has been burned, but a lower cost to entry could appeal to the audience that shouldn't use it; those whom cannot otherwise afford the vehicle. There seems to be some overlap in my mind with things like adjustable rate mortgage. If you can't afford regular mortgage, you can easily get into trouble.

In both cases, if you have enough money to just pay off the loan as need be, you'll be OK. (and I'd otherwise avoid).

 

[ENirogus]

Understanding that you won’t be “forced to pay the residual” for exceeding the mileage limit is an important hurdle to cross when considering whether or not to lease a vehicle.

YOu will have to pay a significant amount in mileage fees, delineated on the contract. PRobably current IRS mileage, .70 a mile in 2024
So if you are 200 miles over, who cares.
20000 miles over, you should probably buy the car.

 

[ENirogus]

Other notes:
If you run a business, lease fees are 100% deductable.
You cannot buy a Ferrari for your business, but you can damn well lease one.
The dealer[or leasing company] cannot demand a car look new on return, and mostly 3 year old cars are a hot commodity, but if they don't want the car[and you don't want it] they will try and nickel and dime you. Again, not had it happen, but it can. With the way EV values[residuals] have been, it is possible 3 years from now that the leasing company could be 10k under water, and they will be looking for some way out of that.
You do not have to have the car detailed before return, but actual dents, threadbare tires, broken things will count against your.
Many people are not used to giving a damn, but if it is a lease car and someone backs into you, you get it fixed. Little crack in the windshield, get it replaced.
DOn't let your dog run around in the car[I put rugs down in mine]
Look at your current car, would a dealer want to sell that?

 

[Landshark]

I don't know anyone who has been burned, but a lower cost to entry could appeal to the audience that shouldn't use it; those whom cannot otherwise afford the vehicle. There seems to be some overlap in my mind with things like adjustable rate mortgage. If you can't afford regular mortgage, you can easily get into trouble.

In both cases, if you have enough money to just pay off the loan as need be, you'll be OK. (and I'd otherwise avoid).

The lease for the Prologue is a low cost way to drive a new, $50K car for 3 years with no obligation to buy the car at the end of the lease. It’s a relatively small amount of money up front and very low payments. Run the numbers for buying a $50K car with $4K down and a $46K loan for 5 years at 6-7% and see what the payments and interest would be. Sure, you’ll own the car, but you’ll have forked out more of your paycheck than the guy who found new car leases for $150/mo.

A lease is more similar to a rental agreement than a loan. There isn’t a loan balance to be paid off. There is a residual value that is reduced every month until it reaches the value that was determined for the end of the term. It may be $45,600 after the first month, or $40K after the 18th month. Keep in mind that there is no obligation to pay the residual and buy the car at the end of the lease or at any time during the lease. Just pay $150/mo for 36 months and return the car.

There’s risk involved in everything. As Leslie Nielsen said “You take a chance every time you get out of bed, walk across the street or stick your face in a fan”. Not everyone needs to be in the comfort zone of having enough cash reserves to pay off their car loans and home mortgage. If everyone followed that guidance, very few people would be living in their current home or driving their current vehicle. In the case of the lease, you’d only need $5400 stashed away the make the payments for 3 years. That is more manageable for most people than having $46K set aside to pay off a car loan, just in case.

 

[Landshark]

The Prologue lease is very intriguing. With $4K down and $150/mo for 3 years, the total cost is $9400, plus sales tax on the depreciated amount, say 40% of MSRP. That works out to $3133/yr, plus tax, say 40% of $3K (which is 6% of $50K). That’s another $400/yr, so just over $3500/yr.

To buy the car with $4K down and a 6-year loan at 6%, the monthly payments would be $762/mo. Total payments would be $55K plus the $4K down, plus $3K in sales tax, which totals $62K. That’s $62K out of pocket, or just over $10K/yr for the privilege of owning a 6-year old car that might be worth about $20K and is probably due for a major service and a new set of tires. If we sell the car for $20K we’re now out $42K, or $7K/yr. Even if we pay cash up front, we’re out $5500/yr, or $33K total.

This scenario assumes that a second 3 year lease could be had that is similar to the original lease, in which case, leasing for 6 years would cost $21K versus somewhere between $33K-$42K.

Someone who can make a monthly payment of $762 for 6 years, could lease a car with a $150/mo payment and put away more than $600/mo, or more than $43K over a 6-year period. Alternatively, they would not have to remove $53K from an investment portfolio in order to purchase a depreciating asset.

Just some information for anyone who hasn’t considered a lease for some reason or another.

 

[Dan Albrich]

@Landshark- I think your reasoning is all sound.

The risk case that one might consider, much depends on their situation, is a case where the car is damaged and insurance doesn't cover it. For example, leaving a dog in the car that eats through the back seat (has happened to a family member). This is deemed miss-use and not covered, but affects the cars value. If the person involved loans the car to an unlisted driver and the car is badly damaged in an accident (may not be covered by insurance). My own family have had a lease where mileage was exceeded in such a way that you basically had to buy the car (one of my wife's parents). These are all avoidable issues based on proper discipline but we are talking about human beings that make mistakes.

Totally agree life is full of risks. But there are situations (and maybe ones I'm not thinking of) that doesn't permit the lesee to just throw the keys back. This just to agree that leasing is more akin to renting. It's not your property, but the liability for the property is yours.

I've actually never done a lease. I suspect I have the personal discipline to avoid any unnecessary risk. That being said, I feel more comfortable with the ownership route. I drive my vehicles until the wheels come off to control transportation cost.

 

[Landshark]

These days, leaving a dog in the car could land you in prison, or at least with some court costs and a fine. A vehicle lease probably wouldn’t top the To Do list in that situation.

We could doomsday our way out of buying or leasing and just ride a bike or take public transportation, even though they carry risks as well. Buying typically involves a substantial down payment and an obligation to repay a loan over a 4-7 year period. Loss of employment, an unexpected illness or injury, could result in selling the car for less than the loan balance. Alternatively, one could liquidate investment funds to purchase an item that is guaranteed to depreciate in value.

I still have a 1999 GMC truck that I bought new and paid cash. It’s low mileage at about 80,000 and has also been relatively low maintenance. Last year the water pump was replaced, coolant, transmission fluid, brake fluid, oil and a few other things, which totaled about $1600. The year before it got its 3rd set of tires for $1000. Not bad, considering the age.

I’ve also bought a couple of cars that were 3-4 years old and kept them to the age of 10-15 years. The original owner took the depreciation hit and I got a nearly new car at a reasonable price. In my experience, this works up to roughly the 8-year/100K mile mark. Then the car needs tires and shocks, emissions sensors and components start to fail, normal wear and tear items seem to need attention in groups of 3-4 at a time, one needed a new transmission. At the 10 year mark, those cars averaged $1500-2500 a year in maintenance. It never seemed logical to spend $2500/yr on a car that was worth $2500, particularly if there was a lease offer to drive a new, $50K car for $3000/yr.

 

[Fastermac]

I don’t lease but buy only for a good price with a low interest rate from the manufacturer. I keep a car for at least 10 years while taking good care of it. I got both the Clarity and the Prologue with dealer/manufacturer discounts and state and federal tax incentives, in addition to 0.9 % interest from Honda. I am not pulling money from investments and paying very little interest per month. I prefer not to have to go car shopping every 3 years.

I will agree that buying a 3 year old lease return in cash from a dealer with the manufacturer’s warranty can also be a good idea. Bought a 2016 Accord with 800 miles on the odometer in 2018 for my daughter from our local Honda dealer and it has been super reliable. Buying a used car in cash can also be a good thing but you assume some risk that the previous owner did not maintain or generally abused the vehicle. You have to carefully vet the vehicle.