In this episode of Drive Radio, John Rush dives deep into the intricate details of leasing versus buying a car. Joined by engineer Luke Cashman, the duo unpacks the often overlooked fine print and hidden costs associated with vehicle leasing, offering listeners a comprehensive understanding of when leasing might make sense and when it could end up being a costly decision. This insightful discussion highlights the importance of being fully informed before committing to a lease, especially when considering post-lease expenses like maintenance obligations and potential penalties for excessive wear and tear.
SPEAKER 06 :
This is Drive Radio, The Extra Mile, with your host, John Rush.
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All right, welcome back to another edition of Drive Radio, The Extra Mile. Luke Cashman, my engineer, who he has been all along. So, Luke, how are you? I’m doing all right, John. Thank you very much. Always a joy, and I say this all the time. This is a particular program, if you’re just joining us for the first time, this is a program whereby we continue on with Drive Radio. We call it The Extra Mile because it’s not a live call-in show. Luke and I record this earlier in the week. And we do topics that, frankly, I can and do cover in a small way on Drive Radio, but we have callers and interruptions and things along those lines, which is what that show is designed for. So I’m not criticizing. That’s what it’s made for. This hour, on the other hand, is made to get into some depth of some topics that we cannot do in Drive Radio because of, again, interruptions and things along those lines. Now, given that we’ve got this time that we do this extra mile on each week, or in each week, I should say, I look for topics from you all. And we’ve talked here recently since we started the extra mile first of November about, you know, car buying and financing and all sorts of things along those lines and brushed on. And that’s probably the issue there. I probably could have done some of those in multiple segments, but brushed on leasing versus buying. And so I had somebody earlier in the week, actually two people. that since last week asked me what i cover more in depth when it comes to leasing versus buying and you know kind of the ins and outs and when does it make sense when does it not make sense and so on now i will say this and i was telling luke this before we started recording today this is a topic that i’ll try to get enough content for an entire hour um to me this is not an hour-long conversation but i might surprise myself There is a lot of ins and outs to leasing versus buying. And if you do get yourself into a lease, what’s the best way to handle things towards the end and so on? And we’ll get into that because there are things with leasing that a lot of people forget. And really quick, some people think you just lease the car, turn it back in, and away you go. No, it’s not that simple. There are still maintenance things and things that you’re graded on when it comes to leasing, when you turn the car back in, that if you’re not careful can really nick you and cost you a lot of money. And that’s some of the fine print on leases that a lot of people forget. And you always hear somebody say, well, you know, I lease a car because I get a new car every two or three years. And by the way, that’s great. And you can do that. But those are people that typically, by the way, understand everything that I’m going to talk about today and they know how to deal with things. And not everybody does. And in a lot of cases, it’s not always communicated correctly. So Luke and I will go through some of this today. And as I always say, if there’s a particular question. that you have in something that you would like us to get into more depth in as far as topics go please send me an email send me a text message i’ll work that into this particular end of things and more than happy to do it now just you all know too typically luke and i record these either monday or tuesdays of the week prior typically tuesday sometimes it has to be monday depending upon what the week is like but my point is if you send me something in wednesday or thursday it’s going to be later on that we actually are able to cover that particular topic. But I’m going to start, then I’m going to throw a question out to Luke, because I’m going to sort of answer and field some questions just like I would be if I had calls coming in. I’ve got a lot of notes here when it comes to leasing versus buying. But Luke, I’m going to throw this to you. When it comes to leasing versus buying, give me your understanding between those two things, and then we’ll dive in.
SPEAKER 04 :
Yeah. Yeah. So as a matter of fact, this is probably good for the sake of the show. I’m not too familiar with leasing in general. My understanding is it’s almost like long-term rental in the sense that you are gaining access to drive the vehicle for a while, you know, and it’s yours. You can play around with it and put around with it, but you don’t
SPEAKER 03 :
own it in the same way as if you were to you know finance it and you know pay it off is again my understanding I’m not super familiar with the leasing process okay and that’s a perfect way to start because by the way I think what Luke just said and I mean this sincerely I think what Luke just said applies to a lot of people I don’t think Luke is the only person out there that has heard some of the things. And by the way, you can see lots of different ads. And this is where, let me start with this. The reason why leasing exists is a couple of different reasons. Business-wise is one side, which I’ll talk about as well. So I probably will get enough content here to handle everything because there is a lot of things that go into leasing in whether you’re buying it through a company or whether you’re buying it yourself, and I’ll get into some of those things. Now, I will also throw out a few tax things. I am, fair warning here, a disclaimer, I’m not an accountant, and I’m not a CPA. I do understand the tax code fairly well. I do coach other businesses, so I know a lot about the tax sides of things and what you can and can’t do, especially when it comes to vehicles and so on. But I do need to make a disclaimer that I am not giving any type of financial advice and or tax advice in what i’m going to say today but i will give some facts when it comes to how some of those things work especially for those of you that have your own business so you know what are the ins and outs of leasing and what i was going to say a moment ago is you’ll see a lot of vehicles from either the manufacturer or the dealership itself where they will advertise a lease versus a buy to own and the reason for that is because when you lease a vehicle so let’s take a we’ll do round numbers fifty thousand dollars that’s kind of the average price of a new car today it’s actually slightly higher than that but let’s use fifty thousand dollars And what leasing does is it provides you with, in some cases, rarely are there one-year leases. Normally, they’re two- to three-year leases. Rarely does it go over three years, and rarely is it ever under two. So that kind of that sweet spot is that two- to three-year mark. And the reason for that is… keep in mind with the lease the reason why they can advertise that for a lesser monthly payment than if you were to buy the car is because you’re only paying for the portion of the car think of it this way you’re paying for the portion of the car that you’re using in that two to three year lifespan and the reason why they don’t go much longer than two to three years is because at the end of that two to three year time frame They are doing their best to determine what’s the value of that vehicle going to be when you turn that vehicle back in. So they’re predetermining the amount of money that you’re spending with interest, by the way, because leasing has interest figured into it. It’s not necessarily interest, but believe me, there’s interest figured into the money on the lease. That’s how they make money on the lease. But what they’re doing is they’re charging you for the amount of vehicle that you’re using during that time frame. And this is where sometimes it can end up really well for you as a customer or really bad is that residual value. that they’re determining on the front side. They’ve got all sorts of algorithms and calculations and so on to determine what’s the value of that vehicle going to be and where sometimes it can be really well for you as if all of a sudden the market just tanks. There’s a huge recession and all of a sudden vehicle prices plummet. Well, depending upon what they figured your residual at, you might walk away. Let’s say that that $50,000 car, let’s say they figured that it’s going to be worth $25,000 in three years. You’re going to pay for the $25,000. But let’s say at the end of the lease, that vehicle is now worth $20,000 and not $25,000. You walk away. I’ll go through some of the provisions of what’s involved with walking away because even that sometimes isn’t as simple as some people think. But you walk away. You basically turn over the keys. You’re done. If there’s any paperwork needed at the end that you will have to do, by the way, sign off and so on, you basically turn the car back in and you’re now carless. So you either have to release. Buy another car, go buy a used car. Maybe you’ve already done that before the lease ends. Whatever the case may be, you’re paying for the portion of the car that you’re using based upon what they’re factoring in on the front side of that residual value. Now, I will say this. They’re pretty darn accurate in knowing what that vehicle is going to be worth at the end of that time frame, especially on a two-year lease. They’re really accurate because they can pretty much figure in two years this is what that car is going to be worth. But like I said, there’s been issues or situations in the past whereby people have come out really, really well on leases because all of a sudden, man, that car dropped like a rock. And all of a sudden, it’s not worth anywhere as close to what its residual value is. And in that case, the manufacturer, whoever did the lease, because leasing is done by the manufacturer and others, that there are independent leasing companies as well, especially if you have a business. And again, at the end of that time frame, you just walk away, no questions asked, and off you go. Now, the opposite can also happen. This is where it gets a little bit dicey. And this is kind of the question that I think I had coming in to get this conversation started. Let’s use this same $50,000 car. And let’s say something happens in COVID, and all of a sudden car prices skyrocket, and it does the opposite. And at the end of that two-year time frame, instead of it being worth, or two- or three-year time frame, whatever it is, instead of it being worth $25,000, maybe it’s worth $30,000 or $35,000 even. Some of that actually happened during COVID. Well, every lease, for the most part, I mean, every lease can be a little bit different, but for the most part, you have the option of buying out your own lease at the end. turning that into full-time financing or further financing, writing a check, whatever you want to do. So in that particular case, if all of a sudden you get to the end of the lease and it’s worth more money than the residual, well, in most cases, providing you’ve got the capital, the credit, whatever it is, yeah, you would be best off to go ahead and buy that vehicle. And even if you flipped it and resold it, or bought it, traded it in, did whatever you needed to, you’re going to be ahead in that particular scenario. So this is where leasing gets a little bit dicey. In a little bit of a way, Luke, it’s kind of a gamble, if you would. It’s sort of like I go to a little sports bar near my house, and I don’t gamble on football games or basketball or hockey or anything like that, but a lot of people do, I’m learning. In fact, I’m learning there’s – I’m in the minority. Most people bet on games. And what they’re betting on is all sorts of outcomes. Everything, by the way, from the score to the score at the end of a quarter to the score at the end of a half to what happens inside the two-minute warning to – guys, I’m not joking. There’s all sorts of things people bet on. And I’m learning that there’s a lot of things I knew nothing about. Now, does that mean I’m going to bet on games? No. I work too hard for my money and I’m not a betting man. But leasing, in a lot of ways, isn’t much different. And it’s a little bit more calculated than a football game because it is a hard asset that for the most part, again, there’s algorithms in history that people, you know, that these companies pretty much know this is what this vehicle may be worth in this time frame. And they’re usually pretty close or they wouldn’t keep leasing vehicles. They would be taking baths on these things all the time. So normally they’re pretty close. Now, there’s also a lot of fine print. in leasing. And this is where it gets a little bit dicey because most people don’t know this. Most people think, I’m just going to buy the car, change oil. In fact, I won’t even change it as often as I probably should, but I’ll change oil, make sure the maintenance is done. I’ll turn it back in and I’ll walk away. Well, not so fast. There are stipulations in there as to, is the windshield broken or cracked? Does it have a bunch of door dings? Did you get into an accident? Is there a little fender bender on it you didn’t get fixed? Did somebody key the car? What are the tires like? Every lease will stipulate even, you know, tread depth has to be X or above. And by the way, if it doesn’t, then they’re either going to charge you for tires or you’re putting tires on it before you turn it in. Same thing with a windshield. If it’s got a cracked windshield, this one I already know. If it has a cracked windshield, you’ve got to put a windshield in it. Or they will and charge you for it. So these charges at the end can be significant on a lease if you didn’t take very good care of the car. Let’s use another example. You turn the car back in and, I mean, I’ve seen cars like this because I’ve been in the industry my whole life. It looks like somebody lived in it. I mean, I have literally, and I’ve heard stories and seen vehicles whereby you needed a shovel to get into anywhere but the driver’s seat of the car, and I’m not exaggerating. I’m not. Luke’s laughing at me, but I’m not exaggerating. I’ve had vehicles I’ve worked on like that, where you literally went and got a trash sack and a shovel, and you literally scooped everything into a trash sack just to begin to work on the car. So if you use a car like that, I would highly recommend leasing isn’t for you. Because they’re going to charge you for a detail if the car has been smoked in, if you’ve smoked weed in the car. I mean, all of these things come into play when you turn that car back in. And basically, if that car isn’t, you know, on a scale of one to ten, if it’s not an eight. you’re going to get dinged for things to make it an 8. They don’t expect it to be a 10 because they know there’s going to be wear and tear on the car, but literally on a scale of 1 to 10, they’re expecting that car to be turned in on an 8 level. And all of that is stipulated in the lease paperwork that you’re signing on the front side. So if you’ve ever thought about doing a lease, the first thing I would highly recommend to someone is, I want to see the paperwork on the stipulations of what I have to do to this vehicle when I turn it back in. In other words, maybe the windshield’s not cracked, but maybe I was in a really bad sandstorm and it’s really pitted really badly and there’s this haze to it. Do I have to put a windshield in? Again, it’ll stipulate because a lot of people will buy a car and lease a car, I should say, and do the lease because they feel like, well, I don’t have to pay for anything while I’m driving it. Well, that’s not really true. Now, if you’re a really particular individual like me, and in my case, I buy a car that’s a 10 today, and I’m not exaggerating, that car is a 9 in three years, not an 8. In fact, some would say it’s probably a 10 because that’s just how I take care of my cars. In some cases, they’re better than when I bought it because I PPF them, I ceramic coat them, I put floor mats in that protect all the carpets. I mean, I’m one of those people. When you buy my car, And people have said this. It’s like buying a new car. In fact, one of the places that I deal with regularly where I’ll say, hey, I’m looking to do something or something or other with this particular car or whatever, blah, blah, blah. First question I get is, is this a John Rush car? Or is this a family or a friend? And I’ll say, no, this is a John Rush car. Okay, then I’ll give you X, Y, Z. I mean, they don’t have to look at the car. They automatically know exactly how I take care of my vehicles and what kind of money they can give me for the car. And all they look at is the mileage. They know the rest of it is good to go and off we go. And if you take care of cars and you have that reputation, you get a higher value out of the car. Well, leasing in a lot of ways forces some of what I just said. Because if you turn that car in, Again, if it’s got a bad windshield, if it’s all tore up, if it’s had a fender bender, if, I don’t know, something happens and the kids take this tricycle down the side of the car and it’s got a big old scrape in it, or the tires are almost bald, or you hit a curb and the alignment’s out and it’s got a bad spot in the tire. I mean, they’re going to nick you for all those things. They’ll get the car up to speed, and you will be paying, at the end of that lease… For all of those items. That, I think, is, Luke, probably one of the largest misconceptions that people have when they go to lease a car is they think, oh, I’ll just buy it today and I’ll turn it in in two to three years and I’m all good to go. I’ll just walk away. Well, no, you won’t. Not unless you keep your car really pristine, you know, like I do. Then typically that car might even be worth a little bit more money. at the end of the lease and you might be one of those that’s better off you know going ahead and buying that car outright and doing something with it now i will tell the majority of people and i’m i feel strongly about this i think only businesses should lease cars And the reason I say that is because when you lease a car as a business, you can expense out every single payment. That’s your quote-unquote write-off for that car, and it makes the car more affordable for you as a business owner. As a person, unless you just have a boatload of money, typically leasing every two years isn’t, and I’m putting caveat, you know, putting air quotes around this because there are exceptions, but typically it isn’t your best financial decision. Normally, you could buy the car, take as good a care as you would through the lease like you’re supposed to anyways, and generally speaking, the car you bought will have less money owed on it than what you would have done if you’d done a lease. Again, not always, and there are exceptions to this. And here’s why there can be some exceptions. Sometimes dealers, manufacturers even, typically the manufacturer, they will have a heavily incentivized vehicle to lease because that’s the only way they can get that vehicle sold. I’ll give you an example of some things recently. And so if this is playing as a replay down the road, this will be a distant memory, but right now it’s a fresh memory. Before the end of the year, they may still even be doing it, because Dodge, Stellantis, couldn’t sell the new Charger EVs. Literally, they couldn’t give them away. They came up with a $149 a month lease I believe it was capped total at like 12,000 miles, meaning you could drive the car 6,000 miles a year. And then if you went over that, there was a – and I didn’t get into that yet. I should talk about the mileage thing as well because that’s another thing that they’ll nick you on on a lease. But in this case, I think it was 12,000 miles, 6,000 a year basically. But all in all, $149 a month. Drive a new car, $149 a month. I mean, that’s pretty darn cheap. And, again, the reason why they did that was they can’t – here’s what they’re banking on. We’ll at least get that car out into the public. It won’t be sitting around in a lot. Other people at least see somebody driving it. Yeah, we’re factoring in the residual, and we’re going to get killed on it at that point in time, but at least we’re getting the car out on the road today. And by the way, the way they’re looking at this is the law of averages as well. They know that for every one of those they put out, some of them are going to get dinged up. They’re going to get totaled. All sorts of other things will happen that they’ll end up getting their full money out of when it’s all said and done. And again, for them, it’s a law of averages. And that’s what they’re playing on when they do that. But occasionally you will find really good smoking lease deals. And in that case, by all means, if you want to participate in it and you’re not a business even, you know what? As long as it fits your budget, be my guest. The one I just gave you was a great example. There was one two years ago, interestingly enough, Stellantis or Chrysler, Fiat, which they own. They had their little 500 EV car, which has about 120 mile range. But they literally, you could drive that car for $40 a month when it was all said and done. Like $49, something like that, $50. Cheaper than getting an Uber. Thank you, Luke. Cheaper than one Uber trip in most cases. So you could drive that car for the entire month for $50. Now, a little more than that because you’ve got to buy license plates and registration. You’ve got to register and do all that kind of stuff, insurance and what have you. But still, all in all, that car was way under $100 a month. Now, for two years, you’re hard-pressed to go. An old jalopy used car is going to cost you $100 a month. So again, transportation costs money. There’s no such thing as a free ride, no matter what you’re buying or owning. So at the end of the day, there are sometimes really good smoke and lease deals. And the reason why they do those lease deals like that is because they know at the end of the day, they can get that car again out into the marketplace. And it’s much better being in the marketplace on the road, if you would, than it is on a dealer’s lot. So, yeah, occasionally you’re going to find those sorts of deals, and that’s why, you know, typically I’m not a leasing fan for people that don’t own businesses. And I’ll get into the tax side of that here in a moment. I’ll take a break. But typically speaking, you know, regular Joe, you know, car owners, drivers, homeowners, whatever, leasing is not the best deal for them. Let’s take a quick break. We’re going to come right back. Again, this is Drive Radio, The Extra Mile, right here on KLZ 560.
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SPEAKER 03 :
All right, we are back. Drive Radio, The Extra Mile on KLZ. Appreciate you listening. If you have listening for the first time, I’m your host, John Rush. Luke Cashman is my engineer. We do this every single week in addition to Drive Radio. Drive Radio is every Saturday, 10 to 1. And then this particular hour, and there’s replays of this, but the initial hour is played from 3 to 4 p.m. on Saturday. So if you’re listening to a replay of this, sometimes that’s on Tuesday, other times of the week. If it’s a replay, you’ll understand. episode of the week. The fresh episode, I should say, is on Saturdays from 3 to 4 p.m. So today we’re talking about the real costs and the best choice for you when it comes to leasing versus buying. So first things first. As I’ve always said when it comes to buying cars, what are your needs? So you have to be the one to sit down and figure out, this is what I need in my basic form of transportation. I need a car. I need a sedan. I can get by with a two-door. Maybe I want a little bit more of a sporty car. I need a full-bore SUV. I need a truck. Whatever. You know what your needs are. And at the end of the day, you need to be the one to sit down and determine these are my needs. And it’s okay to throw some wants in there as well. You know, I want blind spot monitoring, which is almost standard anymore. But, you know, I want heat and cooled seats. For some people, not me, I want a heated steering wheel. Okay, you decide what it is you want. And then what are your actual needs? And then, of course, what vehicles fit into all of that? Then start shopping. Are there any super good lease deals on the car that you’re looking at whereby you could look at that and say, man, I gave you an example a moment ago, two different cars, whereby in those cases, and anybody that would ask me, and I had people on the radio even ask me that, yeah, there was no sense buying those cars. At that kind of money, you’d be stupid to buy the car. Lease it. Rent it, basically. Leasing is basically renting for X amount of time at a given dollar figure every single month. And off you go. Now, always remember that, you know, there’s taxes and other things that are due, license plates, registration, and so on that are on top of what the lease is. Sometimes they’ll wrap that into the lease, sometimes not. It just depends on the circumstances and who’s doing the lease and so on. And again, there’s all sorts of companies that do leasing outside of the dealership. So you can find other lease deals besides the dealership. So that’s probably, Luke, as much of an unknown as anything else. Most people think, well, I can only lease through the manufacturer. No. No. No, there are places even in town here where they broker cars, they’ll lease it for you. In a lot of cases, they do it for commercial operators that have fleets and so on. But if you’re a good customer of theirs, even as just a regular, you know, Joe Schmo. So if Luke wanted to go in and lease a car, I’ve got people I could send him to that could lease that vehicle to him outside of what the dealership’s doing. And off you go. That’s more of a traditional lease and sometimes a longer term lease. than what you’ll even get at the dealership. So first things first, you know, should you lease a car? And as an individual, I’m going to go back to what I said a moment ago, and only only in rare circumstances, if you ask me. And again, if you have a small business, you have the ability to take some deductions in said business, and you’ve got the ability to do some things along those lines that help you out tax wise, well, then leasing makes more sense.
SPEAKER 04 :
I was going to ask, talking about leasing a vehicle and the contract term, you call it two, three years, something along those lines. What happens when that contract is, how often are those cars being put back in a dealership? Are they advertising, hey, this vehicle was previously leased? Is it sold as just a used car? Do they continue leasing it at cheaper prices? How does that work?
SPEAKER 03 :
That’s a great question. You rarely, if ever, can lease a used car. And the reason for that is because it’s really hard to determine what’s that value going to be on down the road. I mean, there are, again, with every single thing I say, there’s always exceptions. I want everybody to understand that. Sometimes I’ll get somebody sending me a text message, well, no, John, you know, you can do, okay, yeah, I get there are exceptions to a lot of generalities in what I’m talking about during these hour-long extra mile segments. Typically, You’re not going to lease a used car. But again, there’s exceptions. And here’s some of the exceptions. Exotics. So let’s say you find a Porsche 911 that’s three years old. Can you potentially lease that car? Yeah. You can find people that will typically lease a car like that because of its value, its high value at that point in time. And knowing, again, what the residual will be even two or three years down the road. They know that because they know that car. They know the market. And those are some of the exceptions. You know, could you lease, you know, again, some of the other high-end, you know, $150,000, $200,000 cars once they’re used? Yes, you can in that case. Generally speaking, though, you know, you go buy a new Jeep Cherokee and you lease it. Are they releasing that at the end of the lease? No, they’re not. Now, Luke asked a great question. On the used car lot, when that leased vehicle comes back in, and sometimes that same dealer will resell that car, sometimes it goes to auction, this all comes back down to what I was saying earlier. What’s the condition of the vehicle as it’s coming back in? Is it an 8 or a 9, or is it a 5? If it’s a five and they had to do some work to even make it function, and or here’s the other thing they’ll do. It’s a five. They’re charging you for all the things it needs. It just gets dumped at auction. They don’t fix it. They know what the cost to fix it is. It needs a windshield. It needs a bunch of PDR on it because it’s got a bunch of dents all over the place. It needs tires. I can tell because it was curb checked. It needs an alignment. Maybe it’s got a wheel that’s bent or cracked. I mean, they know all these things. They’ll charge you for all of that. Trust me, that car is not going on the retail lot. They are not fixing that car and then putting it back on the lot. In that scenario, Luke, that car is going to auction or a wholesaler, one of the two. And wholesalers, by the way, are people that buy and sell cars on the wholesale level. They’ll buy that car from the dealer. They’ll make a quick $500, sometimes maybe even $1,000, but typically they’ll make $500 and they’ll go find a used car lot that wants that car. that will do some things to it to get it up to speed and sell it for less money than what you would normally find at a regular new car dealership, but that car typically will not stick around at a new car dealership. So great question, Luke, because typically speaking, the only off-lease vehicles that you’re going to find at a car dealership are going to be those that come back in and met all the criteria for that vehicle being maintained properly, coming back as an 8th, or a nine even, you know, if it were me and I turned that car back in, yeah, that car’s going a lot. It’s not getting wholesale. It’s not going to auction there. They’re going to put that car back out in a lot and sell it. And they’re going to make their money.
SPEAKER 04 :
And are they selling it as a used car? Are they selling it as a previously leased car? Is there like a differentiation?
SPEAKER 03 :
Sometimes they’ll tell you, and typically by Carfax, you can kind of tell, was that a leased vehicle or was it not? Because they’ll tell you in a lot of cases who the financier was. Because when you lease a vehicle, you don’t own it. The leasing company does. So let’s say, for example, you know, you lease a new vehicle and it’s coming through the leasing division of Stellantis because I talked about the chargers and so on. Typically, even on the registration, it will show Stellantis as the owner and you as the driver.
SPEAKER 04 :
And if you’re a buyer, you, John Rush, are walking into a lot and you’re looking to buy a 2023, 2024 vehicle, you check your Carfax, and then one of them was just a regular used car, and then one of them was previously leased, how much is that going to influence which of those vehicles you buy? That’s a great question.
SPEAKER 03 :
I’m gonna look at both of them, and I’ve had listeners send me different scenarios of vehicles they’re looking at, so sometimes I will actually do this for listeners. And what I’m looking at is, number one, what was the last buyer like? This is the plus, by the way. If it was a leased vehicle, And it’s now back on the retail lot being resold. That meant it met all the criteria, meaning it was probably a pretty good car, pretty well maintained, or they wouldn’t have kept it. So to me, that’s kind of an attaboy. That’s actually a plus in my world, not a minus. Because if the dealer kept it, and again, you can go through the history and determine was that car leased here? Was it leased in California? Where was it leased at? But even then, let’s say the car was leased in California, but it got here and it’s still on that dealer’s lot. To me, that’s not a negative because that car, through the leasing end of things, met all the criteria where it could just be turned back in and the dealer kept it. That means that they typically didn’t find too many things wrong with it. It’s on that eight or nine level. They’re going to keep it, sell it. So that, to me, is not a negative. Now, I’ve mentioned this before, and I’ll mention it again. Off-lease vehicles that are coming from corporate leases, those are the ones you have to really be careful of. And this is not a knock at Enterprise, but Enterprise not only rents cars… But most of you may or may not know this. They have a whole entire leasing division for corporate accounts. Like me as a fleet operator, Enterprise calls on me regularly because they would love to have my fleet business because they would provide me with all of my trucks and so on. And that’s a division of what they do. And in my case, let’s say that I leased a new truck, drove it for three years and turned it back in. It would go back on a Enterprise lot. Again, not a bad thing, but that’s typically how those things work. So corporate leases, those are ones you’ve got to be a little bit more careful on. Now, if you can somehow figure out who the owner corporately was, I mean, like for us, for example, in my fleet, they’re very well maintained. If I turn a vehicle back in, even on a lease-type deal like that, there’s not going to be a single thing wrong with it. I mean, it might have a few scrapes, dings, dents, things like that. But mechanically speaking, it’s going to be sound because we do all of our own maintenance, and a lot of fleets do. So that’s one of those where you really have to pay attention. Now, the other thing, too, that Enterprise offers for some of their corporate accounts is they do the maintenance as well. They include in their fleet. whole package will come out do your oil changes tire rotations the whole nine yards and they’re including all of that and that’s another one where you can probably find out in the description of the vehicle that you’re looking to buy some of that but but luke that’s a really great question because it is important to know where did this vehicle come from why is it now for sale So, yes, thank you for that question. But back to, you know, who should lease a car? And again, folks, if your semi has a lot of money, and a lot of my listeners do, and you want to drive a car every other year, and you can afford to do so, and you’ve got the lifestyle that enables you to do that, knock your socks off. I’ve never, ever told someone not to buy something. If it fits your budget and you know where you need to be, I’m not Dave Ramsey, okay? I am not a credit counselor. Don’t want to be Dave Ramsey. Dave has his own shtick and things that he does, and I appreciate Dave greatly. Dave’s made a lot of money helping other people save money and get out of debt and so on. Dave is very much against leasing, especially if you’re an individual. He’s against buying new cars, period. I think his only exception might be for businesses, but even then, he’s a guy where you’ve got to make a lot of money or he’s not going to recommend you buy a new car ever. I’m not him. There are certain circumstances whereby leasing a vehicle may be right for you. Again, you have to look at all, key word here, all the costs. And I think for some of the people that I’ve consulted with in the past when it comes to, you know, they’re at the end of the lease and they’re trying to figure out what do they do or not do and so on. And I’ve seen people make these mistakes. I had a friend of a friend, a friend of a family member, I should say, not long ago that was upside down in a particular vehicle. And I just had to question initially, why did you lease that vehicle? and especially the vehicle that you leased. You are the completely wrong candidate to lease a car. But what happens is because dealers know this, in a lot of cases they can get you into a car easier by leasing than by selling it to you. Because again, all they have to worry about getting you funded for is the use of the vehicle during the lease. And where a lot of dealers, by the way, will cheat. I don’t know what other words to use for this, Luke, but they’ll cheat because if the car has less miles factored in on an annual basis. So let’s say I’ll go back to that Charger example. They’re looking at a 12,000 mile lease over two years, 6,000 a year. Well, that’s about half of what most people drive. Most people drive 12,000 to 15,000 miles a year. So where they’ll kind of get you sometimes on a lease and a low figure is they factor in, okay, we’re going to do a two-year lease with 15,000 miles, 7,500 a year. Again, that in some cases is half of what somebody would typically be driving that car. Meaning that again, when you go to turn that vehicle back in, you’re at the two-year mark. And one of the first things they’re going to ask you is what’s the mileage at? Because every lease… will have a stipulation in there as to what the mileage requirements are, and if you exceed that, here’s what we’re charging you. So let’s use that same 15,000 miles on a two-year lease and you put 25,000 miles on it instead. That extra 10,000 miles, if they’re factoring that in at 15 cents a mile, for example, there’s 1500 bucks you owe, just for the mileage. And by the way, it could be as high as 30 cents a mile in some cases, depending upon the lease and what you’re signing up for. And again, what the dealerships will do is they’re going to get you in for a $50,000 vehicle. They’re factoring in a $25,000 residual or maybe even a little bit higher. And the way they can even make the residual higher is they lower that mileage cap. So instead of it being 25,000 miles, which is what you’re probably going to drive, they put it down to 12,000. Well, they can put a higher residual in, meaning they get your payment down for the course of that two-year time frame. But the problem is if you exceed said mileage, you’re still paying. You’re just paying at the end. And that’s where it becomes difficult because what happens is most people can’t pay at the end. So here’s what happens. And as I said earlier, I didn’t think I’d be able to cover all of this. I wouldn’t have enough material for an hour. I’m going in enough facets here where, yeah, Luke, we’re going to be just fine. Because here’s the other thing that happens. The dealership knows that on that front side, They’re talking to Luke. And they’ve even asked Luke, Luke, you know, how many miles a year do you drive? Well, you know, I average about 12,000 miles a year. Well, what they do is to get Luke into a car that he can afford. They’ll figure out the vehicle and a higher residual by lowering his mileage cap. And sometimes they’ll even tell Luke, sometimes they won’t. It’ll be in big, bold letters as to what it is. But again, they’ll roll through a lot of that quickly so that Luke signs up, gets the lease, and out the door he goes. And what they know is that when Luke comes back in two years… to turn said vehicle back in, even if Luke has done a really good job of keeping up on tires and maintenance and there’s no scratches and the windshield’s great and so on, he’s over the mileage. So now Luke owes two grand at the end of the lease for the mileage over, for being over a mileage, the mileage overage, I should say. So here’s what they know happens. Luke can’t afford to write a check for two grand. he’s stuck. So now what happens is the dealership says, well, you know, tell you what, Luke, what we can do is, you know, you’re going to owe us the two grand unless you just buy the vehicle outright. So here’s the deal. You’re over on mileage. So guess what? Here’s what the residual value was. Let’s just get you signed up for another 60 months. You know, we’ll sign you up for 60 months at whatever percent interest and blah, blah, blah. And it’s probably going to keep your payment roughly the same as what you’ve been leasing for the last two years. But here’s what just happened. You now have a seven-year car payment for the same car. Yes, it’s pretty much at the same price, but you didn’t get a new car at the end of the lease like you were thinking. you’re basically driving the same car you drove off two years ago because of the way they factored the lease initially and you went over on your mileage and now you can’t pay for that difference and or it needs tires and or it needed a windshield and, and, and now all of a sudden, guess what? You’re financing that car for another 60 months, which they’ll do typically at a higher interest rate because it’s now a used car, not a new car. And you’re going to pay for that car now for the, you know, for five, five plus the two years. So seven years total. And, folks, everything I’m telling you is real-world stuff that happens. That’s why I’m not a huge fan of leasing because most people forget. And I say this a lot on Driver. They forget about the back end is what I was going to say. And they do that because the dealership at the time of the sale initially is working off of emotions. Oh, man, Luke, man, that Jeep Wrangler would look good in your driveway. I mean, man alive, look at all the things you could do. You can go camping with your girlfriend. You can go up in the mountains and look at all the fun you would have and so on. Man, we’ll make this deal work for you. You know, yeah, you’re probably going to be a little bit over on the mileage, but, you know, we’ll figure that out at the end of the lease. And most likely, you know, the value is going to be up on this Jeep anyways because they hold their value really well. Not, but that’s what they’re going to tell you. And then two years later, you know, Luke goes to turn said vehicle back in, and now you’re sort of caught between a rock and a hard spot, and you have no choice but to finance that for another 60 months. And now, again, you’re driving that car for seven years. Again, you could sell that car, you know, shortly after buying it. But here’s the thing. Because of the way they figured the residual and so on, it’s not worth what you just paid for it. Now, some would say, well, then how do they get it financed? Because they know the whole gig and that you’re going to go ahead and keep making the payments because you have to have transportation. So they’ll go ahead and fund that exorbitant priced used car in the way I just said. And folks, if you’re in a dealership level, this is not a knock at you. I’m not knocking anybody any way, shape, or form. I’m just telling all of you as listeners, this is how this end of things works. So I got a lot more to say. I didn’t think I’d have enough material for our entire one-hour program today, but I’m learning we’re going to have more than enough material. So guys, we’ll take a quick timeout. We’re going to be right back. This is Drive Radio, The Extra Mile, right here on KLZ 560.
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SPEAKER 08 :
This program was recorded earlier for broadcast at this time. No phone calls can be accepted.
SPEAKER 03 :
All right, we are back. KLZ 560, Drive Radio, The Extra Mile, talking about leasing versus buying. And I’ve spent the majority of the time talking about leasing because, again, I think a lot of people forget about the hidden costs of leasing. Now, here’s the other thing to get you on, and this is in my notes. Early termination. So let’s just say, for example, you get 18 months into a 24-month lease, but you want out. There’s another car. Something’s happened. You had a baby. You need a bigger car now. The two-door sports car is not going to work any longer, so you need out. They’ll let you out for a fee. For a fee, just like anything else that has early termination agreement, just like that $49.99 cable bill you signed up for, that you signed up for a two-year deal that all of a sudden a year in you want to switch companies. Well, yeah, you can get out. There’s an early termination fee in the clause, or early termination clause in your contract, and you’re going to pay for that. Leasing is the same way. If you get 18 months down the road or you get two years into a three-year lease and you want out, sure, you can get out, but they’re going to charge you. So just remember that, that there’s going to be excess fees, again, or fees for excess things like early termination. Wear and tear charges. One of these I forgot about too, by the way, is in some cases, depending upon who you’re leasing from, there’s mandatory dealer inspections that you have to abide by in said lease. Meaning every six months, every four months, you’ve got to bring the vehicle in for an inspection at that said dealer. Those are other things that in a lot of cases will be in the fine print that no one pays attention to. Now, in my notes, this is coming from AI, by the way. Who is leasing the worst for? High mileage drivers, which I just got done explaining. Families with kids, yes, because kids are hard on cars. Mine weren’t, but some are. Trades people, that goes back to the whole, you know, owning a business and so on. And anyone that likes keeping cars long term. Yeah, folks, again, let me go back to the whole buying side. If you’re somebody that drives a car 200,000 miles and then you go ahead and turn it in at that point, you flip it or you do whatever, or maybe even put 100,000 miles on and then you go ahead and do something with the vehicle. Leasing is not for you. You will be better off, financially speaking, even if you have to pay for a car and get a loan for it and pay interest, you’re better off buying the car. Now, back to the whole leasing versus buying as far as companies are concerned. as a business, if you lease a car, you’re able to expense the entire lease payment, the entire cost of the car monthly you can expense out every single month. So if it’s a $500 a month lease payment, that’s $6,000 a year that you get to expense out on said vehicle, plus any other expenses you would have on it, gas, license plates, and so on. And that’s what that car is deductible, that that’s what you can deduct every year. Now, here’s where it gets dicey. If you’re a company whereby you need some excess depreciation or some excess expenses in a particular year because you had a really good year, again, leasing is not for you because you need to take and buy a vehicle that qualifies for accelerated depreciation and expense the entire vehicle out the first year you buy it. And a lot of vehicles fit that description as to what I just said. So, again, that’s where even as businesses, you know, buying versus leasing, you got to factor all of these things in. Now, another thing you have to be careful of on leasing. And this one I forgot about, but it’s in my notes. Some of you like to modify your vehicles. You like to put different wheels and tires. You like to change the exhaust around. You may want to throw a cold air intake on. I talked about that a few weeks ago in regards to the performance sides of things and so on. Some of you that have off-road vehicles, you want to throw a winch on it. You want to do this. You want to do that. Yeah, not on a leased vehicle. Not going to happen. You are really limited in what you can do to that vehicle modification wise when you’re leasing in fact most of the leases will tell you no modifications are allowed if you do you’re going to buy it at the end of the lease period we’re not taking it back and sometimes not always you got to look at this inside of your your lease paperwork in some cases They might even charge you extra for said modifications, even though you’re buying said vehicle. And again, some of you are going to come back and say, well, they can’t do this, this, that, and the other. Again, folks, every one of these things has exceptions to it. But at the end of the day, when you lease a vehicle, you are literally paying for all of the little ticky-tack things that happen. Now, again, I want to make sure that I’m clear on this. There are times… when leasing makes sense. This is in my notes as well. You drive under 10,000, 12,000 miles a year. You want a new car every two to three years. You can write that car off as a business expense. You value the convenience of having a new car over the cost of a new car. In other words, you can afford to do this. And you always want a vehicle that’s under warranty, okay? If that’s you and you can do all of that, be my guest. But if you’re somebody that drives a lot, Again, keep cars long term. You want the lowest total cost of ownership for a car. You want flexibility as to when you can buy and sell said car. Or you want to pass that car on to a business, your business or your family member or whatever, then you should be buying a car. And here’s a good rule of thumb. If you keep your car more than five years, you’ll always win buying versus leasing. So if you’re somebody that only turns a car every five, six years, leasing is not going to be for you. Now, if you are somebody that does something with a car every other year or so, and again, you’ve got the capital, the means to go ahead and lease that car, and that’s what you enjoy doing, be my guest. Have fun. Again, there’s no criticism coming on my end. Now, the other reason why sometimes people will lease cars, it’s not in my notes here. Some people like driving more expensive cars for whatever reason. You realtors, nothing against you guys, but you like driving expensive cars. And for a lot of realtors, because they like driving expensive cars, leasing makes sense for them. And they’re a business. They can expense that vehicle out and so on. But in a lot of cases, they can buy a car or lease a car, rather, I should say, that is $20,000, $30,000 more money than what they would normally spend on a car they would buy and yet have the same monthly cash flow. Outflow, I should say. Not cash flow in, but cash flow out. And they can do that by leasing versus buying. So again, in a lot of cases, if you’re looking to buy a more expensive car because of, in this case, you’re a realtor and you want to make sure that your clients know that you’re successful because you drive a nice car and blah, blah, blah. And that’s what realtors do. Again, not knocking them. This is just what they do. Then go ahead, lease it. Now, just remember, as a So this is something else, too, that I should have mentioned. In a lot of cases, you can buy more miles on the front side cheaper than on the back side. So let’s say, for example, they offer you that 12,000-mile lease for two years, but really what you need is 20,000 miles. Buy those miles on the front side. negotiate that in on the lease it’ll raise your payment but negotiate that in on the front side if that’s you if you know you’re going to drive that many miles then go ahead and do that now there’s a limit to how much of that they will do but ask hey man i you know 12 000 is not going to be enough i i need 15 i need 18. they’ll tell you that they’ll sell you that mileage on the front side now remember you’re paying for that on the front side every monthly payment you’re buying extra miles Like I said, leasing is you buying the value of the car along with the mileage for the course of time you own it. That’s what leasing is. And yes, there’s somewhat of a gamble there because they don’t know exactly what the value of that car will be at the end of the lease. But folks, unless major world events happen, they’re pretty close. Trust me, they’ve got this thing. And by the way, with AI, it’s even going to get better and smarter and all of that. They’re going to be to the point where they won’t be off 500 bucks on that car at the end of that two year time frame. And also keep this in mind. They’re always going to err on the side of caution. So if they think in two years that car is worth, you know, twenty five thousand dollars, they’re going to probably write it down to twenty four or twenty three. Because they want that cushion at the end. Rarely are they going to go the other way. Telling you that, oh, man, you know, it’s 25. We think it might be worth 26 or 7. We’ll allow you 27. No, they’re not going to do that. They’re not going to do that. They’re always going to err on the side of caution. So the one thing, and I should have mentioned this even talking about, you know, at the end of the year, when’s the best time to buy a vehicle and so on. And now that we’re into a new year, keep this in mind, best time to buy a new vehicle, end of the month. Not beginning, not middle, end. Keep in mind that one thing you’ve got to be careful of when you go to dealerships especially is this whole leasing thing that I’ve mentioned during this entire hour. Because in a lot of cases, if they think that you’re going to struggle to make the payment on buying a car, they’ll push you towards a lease. Because they know that by you leasing, you can buy more car. And remember, this is something else that I’ve never mentioned, but I should. That salesperson, the dealership themselves, They don’t care if you lease or buy. They just want the car gone. And that salesperson is going to make commission on the total price of the car and the deal, not just because you’re paying for that portion of using the car in a lease. In other words, he’s getting the entire sale. So he or she doesn’t care if you lease or you buy. In fact, they’d rather have you lease and have a for sure deal than you buy and not have a for sure deal. So in a lot of cases, they’re going to push you into leasing because they can get you qualified for that, especially those of you that are out there listening that are younger, that maybe don’t have quite the credit that maybe your parents have. They’re going to really try to push you into leasing. And again, the reason they do that is because they can put you into a car that you might not otherwise be able to be in and be driving away from. And a lot of times, too, this is the other thing they’ll do. You’ll be on the lot looking at a used car, and maybe it’s a two-year-old used car. And for you, that would work fine. Don’t be surprised if they’ll say, you know, hey, Luke, guess what? You know, you’re looking at this car, it’s used, and if you’re going to finance it, this is roughly where the payments are going to be. Guess what? I can get you a brand-new car as a lease for the same price. And they’ll say that. In fact, in some cases, they’ll say, man, you know what, Luke? You’re looking at this particular car here. I can put you in the same car, brand new, in a lease and save you 50 bucks a month. And by the way, sometimes they can’t. So they’re going to push that to somebody like a Luke because in their mind, they’d rather sell that new car than the used car because somebody else will come along and buy the used car. That’s not a problem. And the sales guy, salesperson is making more money on the new car sale typically than the used car sale. So, of course, they’re going to push some of those things. So as I started off today’s segment, I didn’t think we’d have enough material to cover an entire hour. There’s actually a few more things I could throw into this. Bottom line, and this is one last thing I’m going to leave with you. If you did lease a car and you’re thinking about what to do at the end. About three months prior, start working your deal out with the dealership as to what’s my residual, what’s the car actually going to be worth, should I buy the car, should I turn it back in, and they’ll help you with all of that at that time. So don’t just walk in and do it on a whim. Work that deal out two or three months in advance before your lease is actually up. You’ll be much better off when it’s all said and done. Luke, again, thank you always. I appreciate it. He’s been my engineer today, Luke Cashman. Guys, that’s another episode of Drive Radio, The Extra Mile, heard right here every week, 3 to 4 p.m. on Saturdays, right here on KLZ 560.
SPEAKER 02 :
The views and opinions expressed on KLZ 560 are those of the speaker and do not necessarily reflect those of Crawford Broadcasting, the station, management, employees, associates, or advertisers. KLZ 560 is a Crawford Broadcasting God and country station.
