Comprehensive Lease vs Buy Financial Comparisons

[evnow]

Discount rate of 5% seems high. Current 3yr t-bills are running 0.5%.

T-bills are in the toilet right now. A $20K, 3-year CD is earning around 2% APY right now, and meets your qualification of a "low risk investment." I think a reasonable discount rate for this exercise might be 1/2 of the 5% used above.

TT

One way to do a "low risk investment" would be to pay into your mortgage instead of on the car - so that would be more than 3.5%. Ofcourse your after tax rate would be still lower.

 

[evnow]

I've now added in the NPV method, numbers with different discount rates.

Note that the main reason for the difference is that Nissan lease rate is 4.9%. Obvisouly if we use lower interest rates, lease will look more expensive.

 

[ttweed]

One way to do a "low risk investment" would be to pay into your mortgage instead of on the car - so that would be more than 3.5%.

Paid off the mortgage 5 years ago before I retired, so that alternative isn't available to me, unfortunately. No outstanding debt at all.

TT

 

[evnow]

Paid off the mortgage 5 years ago before I retired, so that alternative isn't available to me, unfortunately. No outstanding debt at all.

If you are retired - but have enough income to get all 7,500 of tax credit - then I guess you have to balance the extra you pay for the lease with the benefits of lease. That may tilt the balance in favor of buy instead of lease - assuming you are fine with the risks involved in a Gen 1 product.

 

[opencar]

another delta would be that is one were to buy, then the typical discount from MSRP might be -$1K (just based on our member feedback), whereas on a lease the residual value would most certainly be a % of the straight MSRP.

 

[evnow]

another delta would be that is one were to buy, then the typical discount from MSRP might be -$1K (just based on our member feedback), whereas on a lease the residual value would most certainly be a % of the straight MSRP.

Hmmmm .... I should put in some numbers and see how that works.

 

[ttweed]

I'm going to show various comparison calculations

Thanks for the various iterations. The discount rate makes a huge difference!

To make things simple, I'm going to make a few assumption.

1. No sales taxe. I know this doesn't hold good for most states - except NW states (WA, OR). I may do a special comparison for CA, since we have a large contingent from the "golden" state - if I understand the situation well enough ;-)

Taxes are an issue in these scenarios and change drastically according to the decisions made re: buy out/sell off. I am struggling with understanding it myself, but it appears that if you lease, you only pay sales tax on the amount of the lease payment each month. If you buy the car, you pay the sales tax on the full transaction amount up front. This is a substantial difference, it seems to me, unless you decide to keep the car and pay off the lease residual, at which time you will pay the sales tax on the balance and it is a wash. If lease payments total ~$15K and purchase is ~$35K, that is a difference of $20K--at my 8.75% local rate (possible going to 9.25% in the near future) it amounts to somewhere around $1800 less tax for the lease compared to buying the car and selling it in 3 years. Of course if you keep the car and avoid paying tax on a new purchase or lease, it's moot, although who knows what might happen in 3 years regarding changes in local sales tax or even a national VAT being introduced? Then there are the incentives that may increase or disappear, the price of gas, who knows?

There are a lot of variables involved. The difference between the 1.99% financing I might get and the 4.9% of the lease rate could make $1K difference in 3 years. My head is starting to hurt. I think I'll wait for the battery details to come out and then see how afraid it makes me feel. A $1K "insurance policy" I could stomach, depending on the risk, a $3K policy--I don't know, until I get a better handle on what I'm afraid of....

TT

 

[smkettner]

I would like to see the formula for the years of ownership to see the break even point.
So what is the lease vs buy to close out at year 1,2,3....8,9,10 etc.

 

[planet4ever]

another delta would be that is one were to buy, then the typical discount from MSRP might be -$1K (just based on our member feedback), whereas on a lease the residual value would most certainly be a % of the straight MSRP.

No, that can't be right. You negotiate a price (MSRP +/- x) when you order the car. You don't have to make a lease/buy decision until you sign the papers three months later. Assuming that you have picked a reputable dealer, the negotiated price will apply no matter which way you go on the purchase/lease decision.

 

[evnow]

I would like to see the formula for the years of ownership to see the break even point.
So what is the lease vs buy to close out at year 1,2,3....8,9,10 etc.

Don't fully understand the question. You want to vary the lease period or the buy/sell period ? BTW, I don't have all the numbers for lease period variations ...

 

[evnow]

No, that can't be right. You negotiate a price (MSRP +/- x) when you order the car. You don't have to make a lease/buy decision until you sign the papers three months later. Assuming that you have picked a reputable dealer, the negotiated price will apply no matter which way you go on the purchase/lease decision.

No - he is talking about a discount on MSRP affecting lease & buy somewhat differently.

 

[LEAFer]

another delta would be that is one were to buy, then the typical discount from MSRP might be -$1K (just based on our member feedback), whereas on a lease the residual value would most certainly be a % of the straight MSRP.

No, that can't be right. You negotiate a price (MSRP +/- x) when you order the car. You don't have to make a lease/buy decision until you sign the papers three months later. Assuming that you have picked a reputable dealer, the negotiated price will apply no matter which way you go on the purchase/lease decision.

Actually ... this has me confused a little, too. When the dealer computes the residual value at a given percentage (for example 44%) ... what $$ number is multiplied by the 44% ? The MSRP ? The "Transaction Price" (what you negotiated) ? The reduced capital cost (after $7,500 Federal tax credit taken by NILT) ? etc etc.

(I assume the $820 is not included, but accessories probably are, before multiplying by 44%.)

 

[LEAFfan]

another delta would be that is one were to buy, then the typical discount from MSRP might be -$1K (just based on our member feedback), whereas on a lease the residual value would most certainly be a % of the straight MSRP.

No, that can't be right. You negotiate a price (MSRP +/- x) when you order the car. You don't have to make a lease/buy decision until you sign the papers three months later. Assuming that you have picked a reputable dealer, the negotiated price will apply no matter which way you go on the purchase/lease decision.

Actually ... this has me confused a little, too. When the dealer computes the residual value at a given percentage (for example 44%) ... what $$ number is multiplied by the 44% ? The MSRP ? The "Transaction Price" (what you negotiated) ? The reduced capital cost (after $7,500 Federal tax credit taken by NILT) ? etc etc.

(I assume the $820 is not included, but accessories probably are, before multiplying by 44%.)

You multiply the 44% by the TOTAL MSRP, not the negotiated price.

 

[DaveinOlyWA]

You multiply the 44% by the TOTAL MSRP, not the negotiated price.

that is also my understanding. iow, even if you were to put a larger downpayment on it, the residual stays the same no matter what.

 

[Coffee_Slurry]

So for us lease noobs.. break it down a bit..
How does the negotiated discount (from MSRP) make the lease cheaper?

Less up-front cash? Lower monthly payments?

 

[evnow]

Less up-front cash? Lower monthly payments?

Lower monthly payments.

 

[Boomer23]

You multiply the 44% by the TOTAL MSRP, not the negotiated price.

that is also my understanding. iow, even if you were to put a larger downpayment on it, the residual stays the same no matter what.

That makes sense when you think about it. The residual reflects Nissan's best guess as to what the car will be worth on the open market at the end of the lease. That value doesn't change because you paid less for it during the lease because of a dealer discount.

[As an aside, the residual is much more of a guess for the manufacturers of EVs right now than it has been for conventional cars. They have no way to read the future to know how the used car buying public will regard a used EV in three years. I think that Nissan is using something close to the percentages that it uses for its ICE cars, while GM is taking a huge leap by using high residual numbers for the Volt to bring the lease monthly costs down to where they compare with the LEAF lease.]

 

[ttweed]

Taxes are an issue in these scenarios and change drastically according to the decisions made re: buy out/sell off. I am struggling with understanding it myself, but it appears that if you lease, you only pay sales tax on the amount of the lease payment each month. If you buy the car, you pay the sales tax on the full transaction amount up front. This is a substantial difference, it seems to me, unless you decide to keep the car and pay off the lease residual, at which time you will pay the sales tax on the balance and it is a wash. If lease payments total ~$15K and purchase is ~$35K, that is a difference of $20K--at my 8.75% local rate (possible going to 9.25% in the near future) it amounts to somewhere around $1800 less tax for the lease compared to buying the car and selling it in 3 years.

Quoting myself here to update with some new info offered by Leon from Mossy in another thread. If you lease, the $7500 fed. tax credit goes to Nissan, so they give it back to you as a rebate. This means that you must pay tax on it as part of your lease payments. In my example above, that would reduce the equation by $600--it would be $1200 not $1800 less in sales tax for the lease compared to buying the car and selling it in 3 years.

TT

 

[greenleaf]

A noob question: is it usually in the contract that you can buy out the car at the residue value at the end of the lease? Or is it something that needs to be negotiated?

 

[evnow]

A noob question: is it usually in the contract that you can buy out the car at the residue value at the end of the lease? Or is it something that needs to be negotiated?

Lease contracts are open ended or closed ended. They may also be without an option to buy. There are FTC rules on these with prescribed formats. Nissan is giving close (i.e. with fixed residual value) ended lease - just like all other leases.