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Discussion Starter · #1 · (Edited)
I think I've already figured out the answer to this, but I just wanted to get a second opinion. Let me lay out the facts and figures.

In 2007 I leased a brand new, lightly optioned Cayman 2.7.

I put $15K down and my monthly payments are $1K over 48 months (all figures CDN$)

That means my total lease obligation is $63K ($15K plus $48K)

The buyout on my car is $34K. Which means if I bought it out I'd basically have spent $97,000 to own a 2007 Cayman which by that time (2011) will have about 80,0000 kilometers on the clock.

(BTW, used '07 Caymans will probably be selling for about $28K by 2011 if the deprecation trends continue so I'd be spending $6K more to own my car vs. taking a chance on a stranger's car.)

From a financial standpoint, should I buy it out or just turn it in?
 

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According to those who know lots more than I do, never put down money on a lease. And if you did put $15K down on a 2007 2.7, your payments should probably be closer to $500 rather than $1K.

I missed that you are talking Canadian dollars / values. If your figures are correct, I think it depends on whether or not you want to keep it rather than $6K difference. I like new cars every few years so I would probably turn it in for a newer model.
 

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Thread move to get you more views on the question.

Thanks.
 

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Discussion Starter · #4 ·
Never put down money on a lease.
If your total lease obligation is 'x' amount of dollars, it really doesn't matter if you put more of that money up front or pay more of it in higher monthly payments.

Actually, if you put less up front that means you're financing more of that money over the term and at 6.9% (Porsche's finance terms at the time) that means you're paying more over the term than if you put more up front and finance less.

Of course someone will always tell you, well I would take that money that I didn't put down up front and invest it at a 'guaranteed 10%' and make more money.

Sure, so put nothing down and have huge monthly payment and be upside down on your lease the entire time you own the car.
 

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I have heard from numerous others who are much more knowledgeable than I am, that you should probably never lease a car that you anticipate buying at the end of the lease. Its usually the most expensive way you can buy a car. If you are upside down in the lease, turn it in when the lease is up and then offer to buy the same car or a similar car from the dealer at the going price. If they refuse, you can find a better deal elswhere. Or you can start over again with a brand new car.
 

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Discussion Starter · #6 ·
Offer to buy the same car or a similar car from the dealer at the going price. If they refuse, you can find a better deal elsewhere.
I think this is the smart advice.

I too have heard never to buy a car at the end of a lease.
 

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If your total lease obligation is 'x' amount of dollars, it really doesn't matter if you put more of that money up front or pay more of it in higher monthly payments.
Yes that is true, but the problem is that you are RISKING all that upfront money you pay. For example, let's say you put $15k down on a lease, and as you drive off the dealer's lot somebody broadsides you and totals the car. You've put zero miles on the car. Even though the accident is not your fault and gap insurance will take care of the value of the car, the $15k you just paid to the dealer not an hour ago is gone - you don't get a cent of it back. Now do you see why putting down upfront money is a bad idea? $15k is a lot of money to rent a car for a few minutes.

That's why it's never a good idea to put money down on a lease.

Actually, if you put less up front that means you're financing more of that money over the term and at 6.9% (Porsche's finance terms at the time) that means you're paying more over the term than if you put more up front and finance less.
That may be true, but overall you are putting less of your money at risk. Besides, you can always put that money you were going to use as an upfront payment in a savings account, CD, or low-risk mutual fund, and it will help offset the additional finance charges.

Of course someone will always tell you, well I would take that money that I didn't put down up front and invest it at a 'guaranteed 10%' and make more money.

Sure, so put nothing down and have huge monthly payment and be upside down on your lease the entire time you own the car.
It doesn't matter if you're upside down on your lease - that's why you're leasing, right? If you plan on buying the car after your lease is up, or if you're concerned about being upside down, then you probably shouldn't be leasing in the first place. When you lease, the leasing bank is taking most of the risk by giving you a GUARANTEED residual value. If the car is worth less than the residual at the end of the lease, no problem - just return the car and it's the bank that's upside down. If the car is worth more than the residual, you have the option of buying the car or trading it in and using the equity towards the purchase of a new car, or keep the extra cash as profit.

Obviously nothing's guaranteed. What's also not guaranteed is that you're going to be able to drive or keep that car for the entire length of the lease term - that's even riskier. Almost every leasing FAQ says to minimize your upfront costs as much as possible. Your reasoning is sound, but the benefits doesn't outweigh the potential downside.
 

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Interpol is 100% correct. Nothing upfront on a lease, ever. A lease means you park their car outside, not one of yours. Upon termination, it's nice to give them the keys to their car. You can claim it as an expense, drive it harder, more often than if it were your car, many advantages. Remember, it is their car, not yours.:cheers:
 

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Discussion Starter · #9 ·
Okay, I hear with what Interpol is saying, but I still maintain that either way you have to pay x amount of dollars over x amount of months whether you put more up front or pay more each month. The car accident argument is a compelling one, but other than that I still don't think it's that bad to 'give them more of the money up front' so to speak. You're contractually obligated to pay them the full amount anyway so it doesn't really matter when they have it (other than the crash scenario) If they're charging 6.9% which is quite common in Canada. You're not going to guaranteed better than in any investment situation over 4 years. And the whole 'hanging on to your money' is money you're going to have to give up anyway, if it makes you feel better to keep every cent right up to the moment you give it away than that's fine, but you and I will still be giving the money away eventually either way over the lease term. So for me, the only real eye opener is the crash scenario.

Anyway, I appreciate the discussion. Let's keep it going.
 

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I'm inclined to lean towards hawc's views. It comes down to risk aversion and the specific numbers. I refuse to side with general statements like '0 down, ever'. If I go with decisions that the masses make, I'll more likely end up being in the same financial situations that the masses are in, which is not that great.

I'm not going to cite specific numbers but if the numbers on a lease vs purchase vs investment options show that I am gaining an advantage in funds expended over comparable periods, then I have to look at the risk I want to accept for cases that Interpol gives an example for and figure that into the equation.

I will say thought that if one starts looking at situations where the lease would be advantageous, it's probably because I'm using someone else's funding to advantage - and that would probably not lean towards investing much, if any, money into the front end myself.

Bottom line is still understand the situations yourself and know what risk/return scenario's you are getting into. Following generalized strategies won't do that for you.
 

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Discussion Starter · #12 ·
turn it in and if you really want to buy a Cayman, get the new 987.2
I'm thinking that might be a good case. Get a 1 or 2 year old 987.2 for a bit more than I would be buying out my 4 year old car (especially if I pick it up in the u.s where Caymans are waaay cheaper.) Who knows it might be someone's on this board. I do like PDK though.
 

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Okay, I hear with what Interpol is saying, but I still maintain that either way you have to pay x amount of dollars over x amount of months whether you put more up front or pay more each month. The car accident argument is a compelling one, but other than that I still don't think it's that bad to 'give them more of the money up front' so to speak. You're contractually obligated to pay them the full amount anyway so it doesn't really matter when they have it (other than the crash scenario) If they're charging 6.9% which is quite common in Canada. You're not going to guaranteed better than in any investment situation over 4 years. And the whole 'hanging on to your money' is money you're going to have to give up anyway, if it makes you feel better to keep every cent right up to the moment you give it away than that's fine, but you and I will still be giving the money away eventually either way over the lease term. So for me, the only real eye opener is the crash scenario.

Anyway, I appreciate the discussion. Let's keep it going.
hawc, you are correct - overall you are paying the same amount of depreciation whether you pay a down payment or not. But this is ONLY assuming that you manage to complete the entire lease term, which sometimes doesn't happen. Example - in addition to the scenario I described above, you could also run into financial difficulties in the future that may require you to unload the car and find a cheaper one, or you happen to find a new car a year or two into your lease that you find more appealing.

When you put a big down payment down, you are basically betting that amount against the possiblity that your lease will end prematurely. If you win, you essentially win what you've saved in the additional finance charges. But if you lose, you will lose big. The house (in this case, the bank) has a huge edge over you.

Let's bring mathematics into the picture. Assuming the following terms:

36 month lease
$70000 car
Money factor 0.00271 (6.5% APR)
46% residual ($32000)
0% sales tax (trying to keep it simple here)

Scenario 1. Monthly payment with $0 down: $1331.98
Scenario 2. Monthly payment with $15000 down: $874.66

If your lease ended prematurely:
After 1 month: in scenario 1 you've paid $1332, scenario 2 you've paid $15875
After 3 months: S1 you've paid $3996, S2 you've paid $17624
After 1 year: S1 you've paid $15984, S2 you've paid $25496
After 2 years: S1 you've paid $31968, S2 you've paid $35992

As you can see, even after 2/3 of your lease term is over, you've still paid less out of your own pocket overall if you didn't put a deposit down upfront. And get this - it's not until after 33 MONTHS that you start to break even ($43955 for $0 down, $43863 for $15k down). Now, can you say with 100% certainty that you will always keep a leased car for 92% of the lease term (33/36 months), avoiding accidents, thefts, and financial hardship?

And finally, look at the total out-of-pocket. For scenario 1, after 36 months you will have paid $47951 total. For scenario 2, $46488 - a total savings of a whopping $1463, or $40.63/month. Too much risk for not enough gain.

Like I said - even with the higher monthly payments and finance charges, putting $0 down is the better choice. No ifs, ands, or buts. gtscayman, I'm afraid I'm going to have to disagree with you. In situations where you're financing a non-material item (in this case, a car's depreciation), it's ALWAYS a good idea to minimize your upfront payments - always.
 

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Yes that is true, but the problem is that you are RISKING all that upfront money you pay. For example, let's say you put $15k down on a lease, and as you drive off the dealer's lot somebody broadsides you and totals the car. You've put zero miles on the car. Even though the accident is not your fault and gap insurance will take care of the value of the car, the $15k you just paid to the dealer not an hour ago is gone - you don't get a cent of it back. Now do you see why putting down upfront money is a bad idea? $15k is a lot of money to rent a car for a few minutes.
I've heard this argument about zero money down and loss in an accident a million times but have never really understood it. If a combination of your insurance and the gap insurance covers the cost of the vehicle, then doesn't the lessor get only whatever is owed on the vehicle? In this case that would be the value of the vehicle minus the $15K which they've already received, then the lessee would get the remainder of the insurance settlement. I can see no rational legal justification for why the lessor would be entitled to both the entire insurance payout AND any amount pre-paid on the lease. Phrased another way, you are not obligated to continue to pay the entire agreed upon lease sum on a vehicle that is totaled, why would this depend on how you paid the lease?

I would really appreciate it if someone could explain to me the legal issues involved.
 

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I've heard this argument about zero money down and loss in an accident a million times but have never really understood it. If a combination of your insurance and the gap insurance covers the cost of the vehicle, then doesn't the lessor get only whatever is owed on the vehicle? In this case that would be the value of the vehicle minus the $15K which they've already received, then the lessee would get the remainder of the insurance settlement. I can see no rational legal justification for why the lessor would be entitled to both the entire insurance payout AND any amount pre-paid on the lease. Phrased another way, you are not obligated to continue to pay the entire agreed upon lease sum on a vehicle that is totaled, why would this depend on how you paid the lease?

I would really appreciate it if someone could explain to me the legal issues involved.
Gap insurance merely pays the difference between what your insurance company pays and what you owe to the leasing bank, nothing more. It's already stated in virtually every gap insurance policy that it will not reimburse you for any money you put down upfront to reduce the cap cost. If you can find an insurance company that'll give you gap insurance that covers your down payment prorated to the length of your lease term, then the issue is moot.

The reason why is because banks will usually not allow you to reduce the cap cost below wholesale price when you negotiate the lease. Also, what if, for example, instead of putting down $15000 you manage to negotiate a $15000 discount on the price of the car? Would you expect to be handed a $15000 check from gap insurance in that case as well? The insurance company makes no distinction between the two - cap cost reduction is cap cost reduction, regardless of where the discount is coming from (your pocket or the dealer's).
 

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Alright, I just took a look at my lease. There are several things that happen in case of a total loss in an accident:

- they claim the insurance payout from your insurance.

- you are responsible for any deductible payments.

- there is an option to continue the lease with a substitute vehicle.

- you can purchase the vehicle at any time during the lease period for the residual value and pro-rated unpaid part of the lease. The down payment is applied towards the lease payments.

So, if you put a lot of money down you have some protection including purchasing the vehicle and claiming the insurance payout. Still, more of a hassle than no money down.

By the way, I did not put any money down on my lease.
 

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I refuse to side with general statements like '0 down, ever'. If I go with decisions that the masses make, I'll more likely end up being in the same financial situations that the masses are in, which is not that great.
I agree. Hopefully that doesn't make us a mass of two. LOL. I will put my lease up against anyone's "cash purchase" of a 2008 CS on 9/15/07. So much for "renting versus buying". :eek:

A car is a consumable. Every mile you drive has a price.

To the OP... if you can get a better car for the residual price than your existing car, then turn the car in. Especially when you consider that you will likely be able to get a newer generation car for the same money. "Better" is a relative term.

As far as "never, ever do a capital reduction" is concerned, there are a lot of good reasons to do so. Not everyone lives on "paycheck" income, and having low monthly expenses while writing big checks when the money comes in is what you call "maintaining sanity and keeping your blood pressure down" for some people. ;)

Driving a car's "new miles" is a luxury no matter how you slice it. Arguing over how you finance those new, luxury miles is silly. It is no different than paying a premium over MSRP to get the latest car.
 

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As far as "never, ever do a capital reduction" is concerned, there are a lot of good reasons to do so. Not everyone lives on "paycheck" income, and having low monthly expenses while writing big checks when the money comes in is what you call "maintaining sanity and keeping your blood pressure down" for some people. ;)
And what would these "lots of good reasons" be? I'd like to hear them myself, because I've pretty much schooled myself on the ins and outs of car leasing and have yet to hear a good reason why any benefits of out-of-pocket cap cost reduction outweigh the disadvantages - if there are any to begin with.

If "having low monthly expenses" is a priority, why put up a big cash outlay upfront when you can keep that deposit money in a savings account and use it incrementally to pay the higher monthly payments of a no-down-payment lease?
 

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And what would these "lots of good reasons" be? I'd like to hear them myself, because I've pretty much schooled myself on the ins and outs of car leasing and have yet to hear a good reason why any benefits of out-of-pocket cap cost reduction outweigh the disadvantages - if there are any to begin with.

If "having low monthly expenses" is a priority, why put up a big cash outlay upfront when you can keep that deposit money in a savings account and use it incrementally to pay the higher monthly payments of a no-down-payment lease?
Interpol - my stance is exactly what you're getting at - do the math before you lease/buy/invest before you make a decision. There may be advantages or disadvantages that one cannot ascertain until they understand what those risks are and how their risk acceptance plays into that. I don't doubt that some/most/all circumstances would show that paying big up front is not the way to go, but unless you do the math, you won't for sure know why.

Like Dave points out, some people have unusual risk aversion strategies that may not make the best financial sense, but make them comfortable. People aren't machines so sometimes that comes into the equation. I have a brother in law who says he wouldn't go into debt for anything - I just think he has lost many opportunities but then that's what makes him comfortable - good for him.:cheers:

btw - some of what you have stated has made me rethink a potential lease obligation I may take on so you're not wasting words with what you state. Amazing how us old guys can still learn from the net! lol
 

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gtscayman, I see your point clearly. I would just caution those who are 'risk-averse' that they really need to look closely at what they're getting into before making the decision to go one way or the other - because, as you can see from the mathematical example I presented above, what one may perceive as 'less risky' actually might not be - why bet $15000 to save $1463?

Sure, lower monthly payments are great, but not if the overall picture looks unfavorable.
 
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