superswiss

Yes, boring subject, but still to clarify. What costs you money is the lease/loan (liability) you have not the car (asset). Yes, the car has operating costs such as fuel, insurance and wear items, but that's operation costs. The car also has depreciation, so that's capital loss essentially and depending on the situation depreciation can be written off. For example if you have a business, you can write off the lease payment or part of it.

I'm not defining these terms. These terms were defined by people who know more about finance than I do and there is a common understanding of what an asset is and what a liability is in accounting.

I have no debt against my cars, so they are not a liability. They are pure assets, albeit value losing assets and they incur operating costs, but if I decide to not operate my cars, they will stop incurring operating costs, but continue to have a capital loss.

You do have a point when it comes to leasing and that's how a lease differs from a loan. In case of a lease you are not the owner, so it's not your asset. You only have a liability. The bank owns the car/asset. So in your case you are perfectly correct. Your car is nothing but a liability to you. The bank on the other hand makes money off of their asset.

N8!

Great discussion and very educational, thank you all and keep posting.

SCarGuy

If it generates me positive cashflow after expenses, it's an asset. If it doesn't, it's a liability. I choose to look at these things not by utility, which of course is an obvious benefit, but in terms of pure dollars. The utility of a thing certainly gives it value, both a tangible cash value and a quality of life value. All important things, no doubt. I personal place emphasis on things that cashflow vs. things that do not. This is how I was taught, and how my accountant to this day makes me look at things. Through my journey of outright ownership, financing, leasing, I do not find a benefit in ownership, or ownership with a note attached to it. Others situations, whether business or personal, can mean a finance or an outright cash purchase works best for them. I just know, having tried it all, what works best for me.

I fully get what you're saying about prevailing definitions of these terms and that is all well and good. But there are always a wide array of economic theories out there, and for me, the way I was taught and continue to be taught, is what works for me.

MrBlahBlah

I'm so confused about what is actually being debated here.

With a lease, you're basically taking a loan out for the part of the value of the car that you will use over the term of the lease. You of course need to pay interest on that loan, so in absolute dollars it will cost you more than buying it outright and selling it yourself after three years. However you get the added flexibility of not having to front $65k or whatever it costs to buy the car outright, as well as not having to deal with actually selling the car ever - at the end of the lease you just drop the car off at the dealer and wash your hands of it. Both of these things have differing levels of value to different people. Some people don't like the idea of paying interest or making payments based on some made up residual - they'd rather be in full control. Others, even if they did have $65k in cash on hand, may not want to have it tied up in the car - for example they may try to invest it and make a return on that money (though that in and of itself can be risky).

What really interesting about a lease is that the car isn't really yours - you're really just renting it from Audi Financial Services. AFS is basically buying the car, fronting that money, and renting it to you over the three year term, and then the car is its problem at the end of the lease - it assumes the upside and downside of the asset and what it can then sell it for on a pre-owned basis. For example, let's say that your lease lets you put 10k miles on the car per year, but you only put 5k miles on it per year. Audi FS will enjoy a car that is more highly valued at the end of the lease than they anticipated, and they'll keep that benefit. On the other hand, if the economy tanks, and used car prices plummet, they bear the downside.

SCarGuy

Precisely

Maybebuyaudi

njspeedfreak

Don't forget that you have the first option to buy the car outright at the end of the lease for the agreed upon residual (plus fees). So in that sense Audi owns the downside risk and you own an option on the upside. There have been many stories on these forums where people did just this at end of lease. Instead of turning it in, they bought it and traded it in all in one transaction. That to me is the most attractive part of leasing, although it's also part of what you are paying for in a lease via fees and slightly higher interest rates than what they offer for new car purchases.

SCarGuy

To add to this, sometimes the net interest rate is higher on the lease vs the buy (and sometimes, like on RS cars, it can be higher still). Other times, the rates are insanely low on the lease - like 2% range low, which often will beat a finance rate

MrBlahBlah

good point. I guess I'm coming from BMW where the residual is set pretty high so it almost never pays to buy it out. I've put way under the number of miles I contracted for and the buyout is still a few thousand more than the KBB value. But it's this very scenario that caused me to look around at other options and led to my ordering a S5 SB

farmerjones

Have you ever noticed sales people that sell cars for a living 99% of the time lease the cars they personally have? I'd like to think someone that makes it his/her business to sell cars as an occupation has "run the numbers" endless times and sees the value in leasing. A car salesman sees every scenario under the sun and I'm pretty confident they don't waste their own money on their own personal car...and they almost always lease. I worked in the industry for a long time and sold cars part of it...I've leased every car since then except for one (which was a specific model that was discontinued, so I had no choice but to buy it a CPO as a new order was impossible).

Nearly the only way a lease doesn't make sense is if you keep your cars for a long time (10 years), you always pay cash for the entire purchase, or you do not absolutely go crazy with excitement every time you get a new car. Nearly every other scenarios pans out that a lease is nearly the same cost as owning, simply having more/newer cars all the time. As an enthusiast, that's a win-win for me. If I thought buying was cheaper I'd be buying, and so would your salesman. The TDI scandal is the perfect example of why leasing can be so beneficial. Besides, if you want to own the car at lease end, buy it and own it...you have options. Leasing isn't for everyone....but it sure is for a lot of folks, and it would work beautifully for a whole lot of "anti-leasers" if they could ditch the misconceptions about leasing. I have friends that never lease they always own....and yet they trade every time before their even have their loan payed off...they never owned their car because it was never paid for. Sales tax savings alone has a huge benefit to leasing.

Lease for the win the majority of time, and the numbers prove it, not emotion.