Already made the mistake of leasing--buy out the car or buy new?

[Rotish]

I know leasing and then buying out the car is one of the biggest ways to waste money on a car, but already made the mistake of leasing when I was a resident, so wondering where to go from here...

I currently Lease a 2015 Honda CR-V slightly upgraded model for about 250 a month. Buy out will be 17k when it's 39 months old, which looks fairly priced based on similar prices posted online. I do like the car, and think it could last a decade easily (I only have 15k miles on it).

Would it be dumb to buy out the lease, or should i just consider the lease fees a sunk cost and go from here? Not interested in buying a used beater, nor would I ever need anything fancier, so buying a similar 25-30k car new would be the alternative.

[RogueDadMD]

The lease fees are a sunk cost regardless of whether you buy it at the end -- that's the definition of a sunk cost.

17k for a 3.5 year old CRV sounds like a lot to me, but I haven't looked at those prices and Honda's do retain resale value a long time.

However you could probably buy a different used car for $10k that isn't a beater and save $7k, or a cheaper new car for !7k, so I'm not sure the options you present are the only ones.

The 17k itself isn't unreasonable -- this is a different discussion than people buying their BMW going off lease who feel really bad after they spent 3 years leasing it at some outrageous price then have an emotional attachment to the sunk cost.

[Dr. Mom]

My husband leased a car once. His plan was to buy it out at the end of the lease. My daughter still drives it.  So if you think it is a good deal for the long term you should be fine. I would highly recommend getting a HondaCare warranty on it which must be done in the first 3 years and under 36 mos. The best place to get it is online.  We used Hyannis Honda in MA even though we live in AL since they were far cheaper than our local dealer.  With all the new electronics just one repair needed can pay for it.

[jhwkr542]

I'd consider the cost of the lease already spent.  Then, I'd shop around for cars and pick the one that best fits your wants/needs and budget.  If you only want to spend $10k, then do that on your favorite $10k car.  You also need to consider the residual value on the car (per lease terms) vs. the fair market value.  If the residual value is much cheaper than the fair market value, then I'd probably buy that one since you're getting "good value".  But don't feel obligated to buy it out just because you've spent so much already.  Chances are that you do have some "equity" in the car.  By that I mean, if the residual value of the car was 60% at the end of the lease, then you spent 40% on the car.  But if the car's fair market value at the end of the lease is actually 65% of the original purchase price, then you already have paid 5% towards the car.  If it's the reverse, don't even consider buying it unless the dealer would negotiate it.  Really though, you shouldn't feel obligated to buy this car just because of this.  60% of this car may still be more than you want to spend.

[artemis]

OP, if leasing this car is the biggest financial mistake you've made, consider yourself blessed!  You leased a Honda, not a BMW or a Porsche.

If the price of the vehicle is fair, I don't see any reason not to buy it at the end of the lease.  It will be cheaper than buying a brand new car, you know how the vehicle has been cared for, and you know it's a reliable car that should last you a very long time.  And as a physician, you really can't afford to drive a beater, as it matters that you get to work on time every day.

If the price of the car isn't fair, then when the lease expires it will be time to shop around for a decent car.  Either way, though, the lease is a sunk cost, so just ignore it in your decision making.

[VagabondMD]

If you like the car and the value is reasonable, I would not hesitate to buy it at the end of the lease. The hassle of shopping for a new car, registering, etc. comes at a cost, so keeping the car that you like and know might be the best play.

If there is a significant difference between the market value of the car and the price that the contract says that you have to pay to buy it, and you would be overpaying for it, the price may be negotiable. Remember, too, that if you turn in the car, the dealer has to find a buyer for it.

As others have said, if leasing this car is your most grave financial mistake, you are in the top 1% in physician financial acumen. Bravo!

[ENT Doc]

Agree with other posters about buying it at the end of the lease based on your needs at that time and its value (residual vs fair market).  Keep in mind too that you have more perfect information on that car than any other used car - that is worth something.  $17k for a 3.25 y/o Honda CRV is actually very reasonable.  Depends on the miles, year, features, of course - but just looking at $17k, that's not unreasonable at all.  Did a Honda CRV and RAV4 regression analysis on used cars last year before buying my wife's used RAV4 (see attached).  Not sure why I did 2 regressions on the Honda, but you get the idea.  You can see what value your car should have by plugging it into the coefficients.  Keep in mind, this was for 2016, so you'll have to do adjust accordingly.  Helps you get better value on used cars, if you're in the market for one, based on those out there in the market.  Then get the one with great value looked over by an independent mechanic.  Saved us >$1500 from the average market rate.

[StarTrekDoc]

Compare you car value coming off lease to market value. That's where you need to negotiate. The wiggle is between you desire for a known history of your current vehicle and fmv of a similar car.

The negotiations can be argued either way. To the dealer you are another buyer potential. Dont let them know you want the car....show that you are moving on unless you get fmv at the least plus warranty extension for customer loyalty

[chrisg202]

I was in the same situation and i bought out my leased car. I had a toyota camry and after the lease term i looked into same toyota camry and the buy out was cheaper than buying another similar camry.
The real question is: what is your long term need? will that car fulfill your needs over the next 7-10 years? Are you planing to have kids and needing more space and a bigger car?
Fo us; the camry fulfilled our 7-10 years need so we bought it

[etscch01]

I just went through this process and found the following article really helpful.

http://www.bankrate.com/loans/auto-loans/tips-on-buying-your-leased-car/

I was lucky enough to be in the camp where my lease residual value was lower than market value. I was really happy with the vehicle so I just ended up buying it.

[RogueDadMD]

ENT Doc wrote:

Did a Honda CRV and RAV4 regression analysis on used cars last year before buying my wife’s used RAV4 (see attached).  Not sure why I did 2 regressions on the Honda, but you get the idea.

Click to expand...

I think you get prize for biggest nerd on the forums.  I mean that in a positive way.

[Wiscoblue]

Can't go wrong with a CRV. Buy it. Keep it for 7-10 years. I'm a Toyota guy myself but I bought my daughter a CRV last year. It's a great car.

[Zaphod]

residual values are killing car companies, they arent getting anything close to what they were hoping. all these cars coming off leases are really pushing down prices. next couple years are going to be great for buying cars.

[AZdoc68]

Rotish wrote:

I know leasing and then buying out the car is one of the biggest ways to waste money on a car, but already made the mistake of leasing when I was a resident, so wondering where to go from here…

I currently Lease a 2015 Honda CR-V slightly upgraded model for about 250 a month. Buy out will be 17k when it’s 39 months old, which looks fairly priced based on similar prices posted online. I do like the car, and think it could last a decade easily (I only have 15k miles on it).

Would it be dumb to buy out the lease, or should i just consider the lease fees a sunk cost and go from here? Not interested in buying a used beater, nor would I ever need anything fancier, so buying a similar 25-30k car new would be the alternative.

Click to expand...

I'm not sure what you mean by "sunk cost lease fees".  I'm sure you paid the typical garbage expenses to the dealer when you signed the lease ("doc fee", etc.) but those get charged on purchases too.

I leased cars exclusively the last 20 years until very recently.  Under our prior practice arrangement we were allowed to write off up to 60% of the lease payment as a pre-tax business expense so it seemed logical.  I also preferred to always be driving a car under warranty so I never had any maintenance or repair expenses.   A 3rd benefit is that you only pay local sales tax on depreciation of the vehicle rather than on the entire purchase price.

My circumstances have since changed (the sweet write-off being no longer available) and I purchased the vehicle at lease-end as I had such low miles that it worth far more by Kelly Blue Book than my residual buy-out was.

Having said all that, I think it makes sense for physicians to lease cars only in very select circumstances and I generally wouldn't recommend it.  "Buying new" is also a bad idea unless you purchase a very reliable vehicle and keep it for a long time after its paid off.  Cars in general are a money pit in that they are depreciating assets and can have high maintenance costs.

The "sweet spot" IMO (and what I did for my wife and what I will do personally from now on) is to buy a lightly-used car say 1-2 years old.  that way you avoid the upfront depreciation hit that occurs the moment it's no longer "new" but still have a few years of warranty left if there are any major repair issues.