Small "box" in feature (p. R8) summarizes as follows:

BUY OR LEASE?

PURCHASE...
- Pro: Own vehicle at some point
- Con: If you finance, you risk owing more on the vehicle than it's worth

LEASE...
- Pros: Pay only for a portion of the car's price/Risk of car's market value is carried by the lessor, not you/Tax burden usually cheaper
- Cons: Payments are based in part on money factor and residual value, which can be difficult to compare/Like renting: You'll have nothing to show for all the payments/Always have a car payment

EXPERT'S PICK: Buy the vehicle. Ultimately, it's much cheaper.

PAY CASH OR FINANCE?

CASH...
- Pros: No interest payments/Insurance can be cheaper
- Con: Tie up money in a depreciating asset

LOAN...
- Pro: Money can be invested
- Con: You'll probably spend several thousand dollars in interest

EXPERT'S PICK: Pay cash. No guaranteed investments right now have returns greater than a loan will cost.

Actually, the decision not to lease is easy when you put 20K + on a car annually. And if you hate car payments the buy versus finance is easy too.

'02 A6 2.7T sport tip
Ming Blue
Hot Springs, VA

I only wish I had the cash to buy an Audi. Leasing is the only way to get that quattro experience, short of a 10-year loan.

Also, lease terms are so convoluted, you have to get a very good spreadsheet to actually compare it to buying.

I had the cash, so I put down $10k and financed the rest over 4 years at about 4%.

And its mine, so I can modify it all I want.

- it's a "company" vehicle
- I look forward to the 2004 models!

All things considered, I might buy my next one as I feel that I will know what I'm looking for and be okay keeping it for a longer period of time. As it is now, I'll be happy to give my car back at the end of the term - and likely get another Audi, though we'll see what's out there at that time.

Some people here probably did buy with cash, but I may be out of the range of the WSJ's average audience...

I don't buy anything I can't pay cash for, with an asterisk: I self finance (borrow & pay back self)... the A6 Avant was a stretch and my next one (7-10 yrs. I hope) will probably be used, something like an A6/ Passat, etc., unlikely I'll put the same cash outlay out again.

But I hate car payments so I pay cash, always.

the convenience/comfort factor of not having to try to sell or trade-in a used car. When the lease is over, either buy it at a known price or toss them the keys. The only thing worse than dickering over new car prices is ... dickering over used car prices!

buy my vehicles either thru cheapo rates offered by the manufacturers themselves, or thru my wife's teachers credit union - generally 1 or 2 pts cheaper than whatever "best deal" I can secure elsewhere.

I do this because:

1.) I take very good care of the vehicles, and generally make too many changes to them;BTW - the 2 times my Co. has leased for me, I wound up leaving, and actually got money BACK from the dealers because the cars were very well taken care of and were HOT, at the time ('84 Audi Turbo, and '86 Supra)
2.) Put on too many miles(prox. 20k per year which is just biz mileage) to make lease deal really advantageous;
3.) Generally wind up giving the cars to one of the kids 3-5 years down road.
4.) I NEVER pay all CASH for a car whether it's 30k or 45k.. That would be NUTS IMHO.

Best To all.
Rick
'98 Grand Cherokee Laredo Ltd. Black/Tan leather,running boards
'99.5 A4 2.8QTipS, Laser/Opal leather,wheels/cosmetics
'01 2.7T QTipS, Cashmere/Melange,wheels/cosmetics

You would have to assume that your return on cash, after taxes, would exceed your interest rate on the car loan.

I've been lead to believe that only residential mortgages, with deductible interest, lead to the conclusion that debt beats equity.

having mileage limits on car use, and putting money into the car at lease-end for damage and excess mileage.

The internet and Carmax have made selling used easier than ever.

The article says:

"CASH...
- Pros: No interest payments/Insurance can be cheaper
- Con: Tie up money in a depreciating asset"


The fact that the asset depreciates is irrelevant. Homes appreciate, but that does not advocate for paying cash for homes. Cars depreciate whether you pay cash or borrow, and the net effect to you is the same.

That statement sort of kills the credibility for me.

I'd still want to understand the lease completely and negotiate terms. At least with buying, I know what I'm getting. I get control and predictability, but lose a bit of convenience at trade-in time.

...why on god's green earth would anyone invest a chunk of cash in a rapidly depreciating asset? The only way that makes sense is if you keep the car until it falls apart.

... opportunity costs.

You pay for depreciation either way.

...ever try to sell a relatively high priced used car? Not fun...espcially if it's an Audi, which let's face it, isn't exactly a 'popular' car like a Mercedes or BMW. And if you trade it in, you KNOW the dealer will screw you for well below wholesale. So the depreciation cost is just that much greater.

what happens, the car is paid for. It is hard to work that into an equation, no payments to worry about.

Every situation is different and in the end you have to go with what you feel comfortable with.

knowing that I own the car free and clear from day one and I don't have to worry about a payment, etc.

I keep cars up and keep them a while, so I'm not in it for the short run. I do the math up front and if I can't pay for it I don't buy it, so if changed circumstances hit, I'm never "upside down" etc., I have an asset I can sell or keep, and I never forget it depreciates from day 1. But it beats having some dweeb nickel & dime me with mileage limits and fees, wear & tear surcharges at lease end, etc. That's my bias.

I also have used financial calculators to compare buy-lease-rent for every car I've bought, and in every single case, using the facts of my purchase, the outright purchase was most cost effective in the long run. All or none of this may apply to someone else but I've been doing it for 20+ yrs. and I don't lose any sleep over it, and I'm not getting poorer.

Maybe in the early-mid 90s, like when I bought my C280 with margin loan money and made it all back in 18 months. But for the past 3 yrs. you're lucky if you're doing 4-6%...

Personally, I've never had trouble selling a used car, and getting much more than bluebook or trade-in value. Because I care for my cars so well, they draw a premium.

Sounds to me that you understand the depreciation better in the owning scenario vs leasing scenario, so you avoid owning. But the asset depreciates equally in either case. For myself, I understand buying and selling better than leasing, so I am more comfortable there.

And I have yet to see a valid spreadsheet that shows a better value for leasing compared to buying <i> at a very good price</i> (which is the only way I ever buy), AND without it being a company deduction.

Still, we are talking the future, for which no one knows exact returns on investments, but which statistically will return 11% in stocks just by being in index funds. Add in a good trading strategy, and you get 20-60%.

...who got screwed big time after the whole '60 minutes' fiasco in the mid to late 80's.

I've bought (cash, straight finance, and balloon) and leased numerous times, and _usually_, leasing turns out better. Honestly though, there are SO many variables, I don't think it's fair to make any general assumptions either way. My point is that a chunk of liquid CASH can do a lot more for you when invested rather than spent. Yeah, when you lease you're forking out cash too, but the payment is _significantly_ less than a purchase. The reason you'll never see a spreadsheet that shows a real benefit is that you can't accurately predict what that cash WOULD have been doing for you if you hadn't put it into the vehicle up front.

Unless you are using it as a biz expense, then a lease or loan is an OK way to go, especially if you want extra cash not tied up that could be used for other biz investments/debts.

With todays new tax laws (remember when almost all interest was a possible tax deduction???) It only makes sense to pay cash if it is not a biz expense...

BTW, not ALL cars depreciate... Seen Barrett-Jackson Classic car auctions last week? Broke all records for purchases. Every time the economy turns south, investors sink their money into TANGIBLE assets. (With the hope they will not depreciate too badly and hopefully appreciate)

My "toys" continue to appreciate.

I did pay cash for my A6 as well as my 84 Audi 5000 and my other new cars with no regrets and analyzing the cost of cash verses loans for each one in retrospect, did better using cash over a loan. Not dramatically, but did do better.

I happen to believe that factoring a tax write-off and depreciation (for the individual) into a purchase decision is a scam layed on the American public years ago by the lending community.

Why would anyone pay interest to a bank for the chance to capture only a small portion of it back on your tax return? Plus- owning something outright affords you the opportunity to do exactly what you want when you want to. As one here put it Peace of Mind. I thik of it as blank-U power.

I might also point out that if you happen to have an extra $50K to plunk down on a new car, then it is also a fair chance that your anticipated tax write off will not be available anyway. As income rises deductions are systematically limited and they eventually reach $0

Secondly, depreciation is not a gift from the IRS.
What the Fed gives it takes away. Sell the car and you will experience what is "re-capture" of depreciation expense. Did you think the Gov't was giving you that money? Right!!






When you sell the car it must be recaptured

...and about the profitability to them of leasing, which is why they push it.

As for having cash, perhaps you think I'm advocating being cash poor. I'm not. I have tons of cash after paying 20% down and 4% over 4 years.

As for your leases "usually working out better," I'm betting you like everyone else has zero evidence of this. Subjective... you liked it better. You seem like one of the 90% of people who think they got a superior deal, but only 10% actually did. (I paid invoice for current model year plus 4% financing... I'm happy with that).

As I said, no one has shown me an analysis that shows a lower cost in NPV of a lease (aside from company tax deductions). You haven't offered diddley. Perhap <i>you</i> can't produce a spreadsheet that accurately models NPV when investments are involved, but thousands of people make their living doing this daily. One has to rely on probabilities, and the analyses show the probability that leasing is more expensive under almost all scenarios... and the 60 minutes scandal has nothing do to with it.

I think we've aired our views adequately. Let's stop here.

One is life insurance, one is investments and one is savings. These three make up my program and have done so since I started in 1975. The savings corner stone is for emergencies and short term necessities, provides a "pay cash" account for large PLANNED purchases (nice new cars), thereby avoiding overextension of credit. Savings (for me) prevent early withdrawal of dollars from long term investment accounts thereby allowing me to build an estate through uninterupted systematic investing over an extended (1975) period of time AND protects me from having to make a withdrawal from an investment account during an occasional down period in the market (like now????).

Hey, I'm a retired naval officer and I teach at public school now. In other words, I do not make a fortune like a lot of Audi owners do... But unlike most of you, I can afford nice cars without using credit. Because I plan for it in the long haul...

If it works, stick with it...many ways to save/invest...yours has apparently worked well for you...what else could someone want than a nice house, family, and an Audi! :)

Who the hell has $50-60-120k laying around in cash?! I know, some of you do. No way in hell do I...that's why I make a $4k/month car(s) payment. I don't believe paying cash in one lump is USUALLY the cheapest way to buy a car. If you have the cash and pay it all at once, you "save" 5-6-7% in interest...except for this past year, that same amount of money would have "earned" ~10% just in market funds (or 30-80% in many funds over the past 5 years)...but 8-10% is an easy fair expectation...so...you really, most often lose a little.
I don't believe for a second that leasing is a better alternative to buying, except in the corporate scenario...especially for those who don't drive much (&gt;12-15k per year).
Purchase is the only way for me to go as I drive 20-25k per year and the lease penalty for mileage is far worse than the depreciation hit for having a 65k mile car after 3 years vs. the residual on a lease. If a 65-75k mile car is kept "MINT" like I keep mine...they have excellent resale value. Hell, my 113k mile 6 1/2 year old Integra maintained 40% of its sticker price when I sold it...because it was mint and looked about 2 years old on the outside and 6 months old on the inside.

The intangible in all these scenarios...finance vs pay cash vs lease vs single payment lease...is comfort level and what makes one person happier. Some people hate having debt, some people like to manage their debt and investments actively, some have no control over wtf they're doing with their money, and some need to figure out down to the last penny, which is cheaper.
Personally, I don't keep "cash" around, investments are key to me not cash, I couldn't pay in one lump anyway and am very comfortable with the bank forking over the jack at a 3-7% interest rate. Just like those who lease have a monthly payment, so do I...I pay more, but at the end of 3 years (or 1 1/2 years, actually), I own the car and can sell it whenever I feel like or keep it without having to come up with the residual or refinance the residual. That works best for me and other scenarios work best for others. Which is cheaper varies depending on the individual situation. Some scenarios are not available to all.

That seems like an easy one to slip past her...unless it was the case that you drove a sport one and she hated it, claiming it was too hard...otherwise, I can't imagine her having any clue about sport or non-sport...I know my wife wouldn't care at all...but perhaps your wife is more alert to your schemes! ;)
Well, you can always put aftermarket springs and shocks on...I will be with my sport 4.2...not firm enough!

Umm, we've been in a nasty bear market now for 2 years. Some would say 3-4% would be a good return these days.

... you forego one financed purchase, stockpile the money you would have paid, and then pay the cash.

Plan A: buy...pay...pay...pay...pay..

Plan B: save...save...save...save... buy

Key differences being that in Plan A, you pay interest, in Plan B, a bank pays you interest.

As a financial advisor, that is the obvious answer. A good rule of thumb, however, is that you should "rent" a depreciating asset and buy an appreciating asset, given equal cost of money.

a)one kid in college (paid for w/zero coupon & corporate bonds);
b)one recent graduate of Wash U. in St. Louis (paid for w/zero coupons, CATS & TIGRS)- NOW contemplating Law School @35K pa;
c.)2 lovely homes w/an equity to debt factor of prox 9 to 1;
d) 3 cars - all owned;
e) a serious savings/retirement program designed to have me retire in 6 yrs or less, and -
f) cash investments in several businesses outside of the entity I'm CFO of;

That's what we've accomplished with our disposable income - how bout YOU??

Regards.

Rick Pardo

In fact, the rent captures the imputed interest and the anticipated depreciation. If you rent an appreciating asset, the rent will also reflect this (as a reduction in rent).

simply because the owner believes that the property will appreciate? It is basically a question of trade-off. With the cost of money in my lease at 2.9%, the cash is better off in ANYTHING that will grow faster. This is not even addressing the tax issue.

hmmm... I agree on the historical averages, but the degree of luck & speculation in your formula ["trading strategy" sounds a lot like "market timing" to me, and that's not sound investing just IMO] is so large that I'd never count on it for a cash flow stream to pay for something like a car. I've averaged a very healthy return over time, but IMO it's a mistake to count on it to fund depreciating consumer purchases, but good luck.

of course over the short term which is consistent with the term of a car loan, the situation can be considerably different...so the situation may dictate which is best at a particular time.

I suspect, though, that one would do better right now (if they were to have it) investing their $50k and paying 4.9% financing. Perhaps not in the next month or two or six, but I'm suspicious over the next year or 18 months that a 10% return will be likely if not more. I don't have $50k laying around anyway, but I'm happy to be paying 2.9% and investing the rest...maybe it won't work out and things will get worse and plummet even further...but I doubt it.

banks don't pay sh** for interest...I think I'm getting 0.5% now! (checking) and 1% savings &lt;8-O

And the car was exact to my specifications.

My last car? Same thing, except I paid less than invoice. Drove it out of the showroom. Sold it 11 years later for 60% of purchase price.

Remember, something like 90% of people think they got a superior deal. Less than 10% actually do. Seems to apply to the posters in this thread... but they'll defend their approach to the death.

about 11% return on total market index. If you are making a spreadsheet to compare lease and buy, you use either a historical average, or both a low and high estimate to assess risk.

Now, if you are willing to take a more active but still purely mechanical trading strategy (no emotion, judgement, or timing), you can get over 40% gains, historically backtested over many decades.

I don't need luck.

but I still think you have an element of luck, else others could do the same and pull the same 40% that you're doing (I'm not complaining, I'm averaging around 15-20+ for the past 10+yrs.) with predictability, or you would be rich, having sold the secret to your reliable 40% gain strategy.

But I agree, everyone should have a strategy. Mine is to look for consistent earnings growth and reasonable valuation, and to never try to time the market -- that's a loser's game, it's more fun to just go to Vegas and play red & black on the roulette wheel. But to each his own.

BTW, my buy/lease calcs presume 8% return on investment, as do my retirement planning calcs. At that rate, retirement at 57 should be doable if I want (10 yrs), even better if we get historical return over the next 10 (which I am not counting on). Of course, if I buy another A6 I may have to wait til 62 ;-) ......

I never even let the dealer discuss *how* I'm paying for it (lease/buy/cash/loan/stickup, etc.) until the price is fixed, then it's my choice/ business/ problem. I just tell them paying for it won't be a problem, assuming they can agree on a price I like.

... vary month to month, year to year. But, the back-test engines people have developed using historical data allow a mechanical screen to be run "in the past" to see how it would fare (only moderately simple screens can be reliably backtested, otherwise the peculiar data from the past leads you to screens that only work with that data).

Simple, sensible screens seem to get about 40% plus, with +/- 2 sigma still positive. One can combine screens to diversify, making +/- 3 sigma zero or even positive.

In the last 2 years, none of the screens made much money. Most lost big. That is where judgement comes in... when to stay out entirely.* I saw once-in-a-lifetime panic taking over, and pulled out of the market in Jan-March 2000. I bought my A6 with the money I didn't lose! ;^) Of course, the backtests assume staying fully invested, and one can easily get faked out, sell, and miss the runup. Timing usually doesn't work.

If the market had continued at, even, 1997 rates of growth, I WOULD be rich by now. The Mechanical Investing forum at Motley Fool was making several millionares a week back in 1999 and early 2000.

There is often a fully-negotiated cash price, but some higher number if you want to use the teaser rate.