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evnow
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Comprehensive Lease vs Buy Financial Comparisons

I'm going to show various comparison calculations - and also post the spread sheets for you to make changes and do your own calculations. The posts will evolve over next couple of weeks.

I've a separate thread on non-financial basis of comparison (but more from my POV of why leasing is better for me).

http://www.mynissanleaf.com/viewtopic.php?f=23&t=1628

The key takeaway is that lease vs buy comes down to
- Extra fees you pay for leasing (Acquisition of 595 and disposition of 350)
- Difference between the 4.9% offered by Nissan and the interest rate offered by your lender

Hope this will help demystify the lease.

We are dealing with 2 basic scenarios.

1. Lease the car and buy it after the end of lease term. Correct comparison to this would be buying the car and keeping it for the long term.
2. Lease the car and return it after the end of lease term. Correct comparison to this would be buying the car and selling it off within a few years.

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 ;-)

2. Use NPV method to compare. I'll also show the "dumb" adding up of all amounts. But that is always incorrect since money has time value. Afterall, this is the principle of modern economic setup (yes, even in "no-interest" Islamic countries).

3. Assume you can sell the car for residual value, when you buy the car. This won't be correct, but helps you understand what happens if the actual reslae value is higher or lower.
1st Leaf : 2/28/2011 to 5/6/2013
2nd Leaf : 5/4/2013 to 3/21/2017
Volt : 3/25/2017 to 5/25/2018
Model 3 : 5/10/2018 to ?
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evnow
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Posts: 11480
Joined: Thu Apr 22, 2010 11:41 am
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Leaf Number: 303
Location: Seattle, WA

Re: Comprehensive Lease vs Buy Financial Comparisons

Update : I've cleaned up a bit and uploaded the spreadsheet. But it is nowhere being close to self-service. It is just for reference.

https://docs.google.com/leaf?id=0B1CIl2 ... y=COfpjZMB

Buy Out : Lease & Hold. Buy & Keep.
Sell Off : Lease & Return. Buy & Sell.

As you can see the a discount rate of 5% gives a difference of only $400 in the buy out scenario and $700 in the Sell off.

If you reduce the discount rate, the difference between leasing & buying keeps going up - all the way to what you see in Non NPV i.e. just simple addition of all payments when discount rate is 0.

Image

There are a bunch of assumptions here. I'll mention the important ones.
- This uses the Net Present Value to calculate the current value of future revenues (like when you sell the car) or costs (like lease and residue payments). See this article in wiki http://en.wikipedia.org/wiki/Net_present_value .
- No sales taxes
- 3 Year lease
- I'm assuming December delivery and April Income Tax returns - so you get the 7,500 in April
- Using the SV model's MSRP as the selling price

Since discount rate plays such an important role, here is the table showing the numbers for 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.

Image

In the next post I'll use the example of lease vs financed buy. I'll cleanup my excel sheet and post for everyone's use later.
1st Leaf : 2/28/2011 to 5/6/2013
2nd Leaf : 5/4/2013 to 3/21/2017
Volt : 3/25/2017 to 5/25/2018
Model 3 : 5/10/2018 to ?
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evnow
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Re: Comprehensive Lease vs Buy Financial Comparisons

Here is another way to compare. In this case, I'm taking a loan such that the pay off left on loan is exactly equal to the lease residual (balloon loan). In the case of buy out, you would either pay the residual or pay cash to close the loan. In the case of sell off, you would sell the car and use that money to pay off the loan.

Notice that since I'm using 5%, the difference is close to the acquisition cost, which is extra in lease. I've left out any financing fees etc you may have to pay to the bank in the case of financed buy. In the case of sell off - the difference is greater because of disposition fee. Again, I'm ignoring the selling cost.

Again, as you lower the int rate, the bigger the difference between lease and buy becomes.

Image

So, when you compare this way, you see that lease vs buy comes down to
- Extra fees you pay for leasing (Acquisition of 595 and disposition of 350)
- Difference between the 4.9% offered by Nissan and the interest rate offered by your lender

Hope this helps demystifying the lease.
1st Leaf : 2/28/2011 to 5/6/2013
2nd Leaf : 5/4/2013 to 3/21/2017
Volt : 3/25/2017 to 5/25/2018
Model 3 : 5/10/2018 to ?
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evnow
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Posts: 11480
Joined: Thu Apr 22, 2010 11:41 am
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Re: Comprehensive Lease vs Buy Financial Comparisons

Reserved :twisted:
1st Leaf : 2/28/2011 to 5/6/2013
2nd Leaf : 5/4/2013 to 3/21/2017
Volt : 3/25/2017 to 5/25/2018
Model 3 : 5/10/2018 to ?
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planet4ever
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Leaf Number: 1537
Location: Morgan Hill, CA, south of San Jose

Re: Comprehensive Lease vs Buy Financial Comparisons

I think you messed up on NPV of tax credit. You are assuming 1/3 year, but if you buy in January, as you say, and file on a standard year basis, then you can't claim the credit until you file your 2011 tax return in 2012, so you would need to calculate NPV for 1.33 years. (Of course there are ways around this, like reducing payroll deductions, but that's another subject.)
End of April 2013: Traded my 2011 SL for a 2013 S with charge pkg.
DaveinOlyWA
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Re: Comprehensive Lease vs Buy Financial Comparisons

nice to see you added the discount from Rairdons.

i think one that varies it by down payment amounts and interest rates. i my very limited investigations, i have noticed that new car purchases seem to qualify for lower interest rates. ~3 % verses top tier lease of 5%?

the chart is nonetheless eyeopening. its easy to see now that unless you can easily max your tax deduction then the financial difference is much smaller. i am not married but have a child so its much more advantage for us to file single and single/head of household. so most of our tax liability is on me, but i have 20% of my income is being diverted which lowers my tax liability quite a bit.
2011 SL; 44,598 mi, 87% SOH. 2013 S; 44,840 mi, 91% SOH. 2016 S30; 29,413 mi, 99% SOH. 2018 S; 25,185 mi, SOH 92.23%. 2019 S Plus; 25,047 mi, 92.12% SOH
My Blog; http://daveinolywa.blogspot.com" onclick="window.open(this.href);return false;
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ttweed
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Location: La Jolla, CA
Contact: Website

Re: Comprehensive Lease vs Buy Financial Comparisons

Question: Is a discount rate of 5% realistic in the present economic environment, considering what is projected to occur in the next 3 years? Seems like this is a key assumption.

I have to agree w/ planet4ever that the time frame for tax credit should be longer if purchasing in Jan. Payback will not occur until 2011 return is filed in 2012. Even assuming some strategy of reducing withholding, it will take many months for cash equivalent to return to the buyer's pocket.

Looking forward to your modeling including finance charges for purchase. My CU is offering a promotional rate of 1.99% through the end of the year. Compared to the lease rate of 4.9% that I've heard mentioned, there should be some savings there.

Other than the cost factors, there are still some large variables involved in the lease/buy decision for me revolving around the unknown details of the battery life, warranty and replacement cost. Only time and explicit details being released by Nissan will resolve some of those questions, while the unknown pace of technological/manufacturing advances over the next decade leave the question on battery replacement cost pretty wide open. If I wanted to keep this car for 20 years, like my previous vehicles, what am I really facing when I need to replace the battery pack completely after 8-10 years? That's a big question mark.

TT
Tom Tweed
La Jolla, CA
Plowshare Media
2011 SLe #1317 del. 4/1/11
1st bar lost at 31,953 miles
2nd bar lost at 38,685 miles
3rd bar lost at 50,711 miles
4th bar lost at 59,758 miles after 64 months
Battery replaced at 61,307 miles.
DaveinOlyWA
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Joined: Sat Apr 24, 2010 7:43 pm
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Re: Comprehensive Lease vs Buy Financial Comparisons

1.99% wow, that is awesome
2011 SL; 44,598 mi, 87% SOH. 2013 S; 44,840 mi, 91% SOH. 2016 S30; 29,413 mi, 99% SOH. 2018 S; 25,185 mi, SOH 92.23%. 2019 S Plus; 25,047 mi, 92.12% SOH
My Blog; http://daveinolywa.blogspot.com" onclick="window.open(this.href);return false;
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ttweed
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Re: Comprehensive Lease vs Buy Financial Comparisons

DaveinOlyWA wrote:1.99% wow, that is awesome
Ya, but we haven't met with them yet to see if we qualify--there is some "fine print" involved in the offer that I noticed. Our credit score is excellent, but there are some minimum income requirements that we may not meet due to being retired. That should be negotiable, though, as we have assets that could be moved to the CU to guarantee loan payments, etc. We'll see in Dec. when we apply, if and only if we decide to purchase and not lease. Fortunately, financing is not a necessity--we could just pay cash for the car if necessary, but a 1.99% rate is hard to ignore.

TT
Tom Tweed
La Jolla, CA
Plowshare Media
2011 SLe #1317 del. 4/1/11
1st bar lost at 31,953 miles
2nd bar lost at 38,685 miles
3rd bar lost at 50,711 miles
4th bar lost at 59,758 miles after 64 months
Battery replaced at 61,307 miles.
DaveinOlyWA
Posts: 16058
Joined: Sat Apr 24, 2010 7:43 pm
Delivery Date: 16 Nov 2019
Leaf Number: 319862
Location: Olympia, WA
Contact: Website

Re: Comprehensive Lease vs Buy Financial Comparisons

ttweed wrote:
DaveinOlyWA wrote:1.99% wow, that is awesome
Ya, but we haven't met with them yet to see if we qualify--there is some "fine print" involved in the offer that I noticed. Our credit score is excellent, but there are some minimum income requirements that we may not meet due to being retired. That should be negotiable, though, as we have assets that could be moved to the CU to guarantee loan payments, etc. We'll see in Dec. when we apply, if and only if we decide to purchase and not lease. Fortunately, financing is not a necessity--we could just pay cash for the car if necessary, but a 1.99% rate is hard to ignore.

TT
LOL!@ oh ya, been there, done that! i did a Cap One auto finance online and was approved for loan at 2.94% then received letter in the mail 3 weeks later stating that i was declined based on my credit report. reason; incomplete or missing credit history

income wise, i am kinda in the same boat. i am single (living with partner and have child we raise) diverting 20% of income to 401K and making slave wages (done to maintain my custom work schedule so we do not have to do outside day care)

now, i did sell my house at a very good time and banked money which i used to pay cash for the cars i have, so although my income is not great, i do have assets both personal and liquid.
2011 SL; 44,598 mi, 87% SOH. 2013 S; 44,840 mi, 91% SOH. 2016 S30; 29,413 mi, 99% SOH. 2018 S; 25,185 mi, SOH 92.23%. 2019 S Plus; 25,047 mi, 92.12% SOH
My Blog; http://daveinolywa.blogspot.com" onclick="window.open(this.href);return false;

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