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car lease vs 0% finance vs cash

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Deal Addict
Apr 9, 2008
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car lease vs 0% finance vs cash

How to calculate which option is cheapest or if all of them are the same, specially when you can lease car under your business when purchasing a used vehicle.

what factors to consider, what are tax benefits etc
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Newbie
Nov 15, 2014
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Victoria, BC
lease vs finance you would need to do a bit of analysis to determine which is best. check out this thread: vehicle-leasing-vs-finance-business-write-off-978063/

.. but solely between 0% finance vs cash, I'd probably do 0% finance, which acts like an interest free loan. take the $ you would've spent on a the cash purchase and put it into a short term guaranteed investment or something.
Deal Expert
Aug 2, 2004
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East Gwillimbury
First off, there is no free lunch. 0% finance usually means you have no negotiation power. You pay full price. Typically there is $2000 to $3000 in the car, with 0% you just end up paying for the interest up front.

0% is not an option

Cash is always best, you can negotiate a huge discount and drive off owning a car with no interest payments. This works best if your driving habits allows you to stretch the life of the car beyond 6 years.

Lease is a great option if you own a profitable business and would like to change cars every few years. On a lease, you only pay for the portion you use. Typically a four year lease has a 40% buy back. Than means you only pay for 60% of the car's value. Interest is typically lower and you only pay HST for the lease amount and not the whole value of the car. You can write off the lease portion against the income of your business and claim the HST back.

The only draw back to a lease, is a perpetual car payment. But a smart shopper can pay the residual value at the end of the lease and flip the car for a small profit.
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May 2, 2006
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Impossible to calculate because there are hidden rebates that dealer does not have to tell you about, but, generally, cash will always give you the most negotiating room. There is no free lunch. "0% financing" is fake. "Dealer invoice pricing" is also a fake. See http://www.wheels.ca/news/ten-car-buyin ... u-to-know/
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Apr 11, 2008
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izzyzz wrote: Impossible to calculate because there are hidden rebates that dealer does not have to tell you about, but, generally, cash will always give you the most negotiating room. There is no free lunch. "0% financing" is fake. "Dealer invoice pricing" is also a fake. See http://www.wheels.ca/news/ten-car-buyin ... u-to-know/
If "It is designed to set a starting point for negotiating and everything after that is profit", then it's not fake, it's the bottom line. Unless he meant "additional profit".
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Archanfel wrote: If "It is designed to set a starting point for negotiating and everything after that is profit", then it's not fake, it's the bottom line. Unless he meant "additional profit".
He meant it is not dealer invoice price.
Sr. Member
Sep 24, 2010
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Gee wrote: But a smart shopper can pay the residual value at the end of the lease and flip the car for a small profit.
Really? My impression was that cars are one of those things that you can never profit from.
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Nov 2, 2013
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panda470 wrote: Really? My impression was that cars are one of those things that you can never profit from.
I think he/she means that you can get a bit of your money back you paid over the years.

BMW and Mercedes also have a payment system where it is somewhat in between financing and leasing. Instead of financing the whole vehicle amount, you make payments only towards part of the loan, and are then left with a residual at the end of the term that usually is what they expect the vehicle to be worth by then.
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Mar 22, 2010
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Cash is the cheapest option available. If you own your business, then lease would be the ideal option next to the cash. Things gets quite complicated if you have an investment portfolio that generates high return % (then you would want to use the cash for investing purpose rather than putting into your car, the depreciating asset)

Like other posters said, 0% financing has implicit costs embedded in their financing program so it is not entirely interest free but certainly cheaper than 0.9% or 1.9% APR.

Flipping a car at the end of lease term for a profit is highly risky. Often, residual value is set higher than the market value down the road. The car happens to be the popular color/style/brand with good reputation of low maintenance cost and this is 4 or 5 years later from today. Can you pick a car that magically meets above criteria? I doubt it...
Deal Expert
Aug 2, 2004
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rapashoo wrote: Flipping a car at the end of lease term for a profit is highly risky. Often, residual value is set higher than the market value down the road. The car happens to be the popular color/style/brand with good reputation of low maintenance cost and this is 4 or 5 years later from today. Can you pick a car that magically meets above criteria? I doubt it...
There is minimal risk

The residual value is always lower than market value. If the residual value is high, then your monthly lease payments would be lower.

If you're coming to the end of your lease, you can easily try to flip the car. I find that it is usually about $2000 - $3000 cheaper than retail. Find s buyer before the lease term ends. Cars off lease are a lot more desirable than regular used cars. If you can't find a buyer, then return the car at the end of the lease. No risk
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Feb 24, 2015
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This is true 99% of the time: full cash purchase of used car > financing of used car >> full cash purchase of new car > 0% financing of new car > residual value financing of new car > leasing. That's speaking financially. Peace of mind and shininess cost money, as does borrowing money in any fashion.
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Apr 16, 2007
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bsobaid wrote: How to calculate which option is cheapest or if all of them are the same, specially when you can lease car under your business when purchasing a used vehicle.

what factors to consider, what are tax benefits etc
You will first have to define what's 'cheapest' to you.

Most people, if not all, will define large purchases which require financing in monthly payment terms.
Some of these terms can be reduced via extending the total amort term but in the end this does not necessarily mean its the cheapest or advisable unless rate permitted.

If amort terms being equal leasing will usually be less mainly due to the residual plus non financing of entire HST.

The total usage under business is also an important factor as it will be a determining factor as a business expense. Consult with your accountant.

0% financing is indeed 0% if you cant secure 3-4% at your own funding institution.
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Jul 17, 2008
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Gee wrote: First off, there is no free lunch. 0% finance usually means you have no negotiation power. You pay full price. Typically there is $2000 to $3000 in the car, with 0% you just end up paying for the interest up front.

0% is not an option

Cash is always best, you can negotiate a huge discount and drive off owning a car with no interest payments. This works best if your driving habits allows you to stretch the life of the car beyond 6 years.

Lease is a great option if you own a profitable business and would like to change cars every few years. On a lease, you only pay for the portion you use. Typically a four year lease has a 40% buy back. Than means you only pay for 60% of the car's value. Interest is typically lower and you only pay HST for the lease amount and not the whole value of the car. You can write off the lease portion against the income of your business and claim the HST back.

The only draw back to a lease, is a perpetual car payment. But a smart shopper can pay the residual value at the end of the lease and flip the car for a small profit.
Unless you negotiate upfront, then you make them throw 0% finance to close the deal. But be prepared to walk away.

or even easier, email dealerships your price (and price breakdown for credibility) and see if any agree. If not, try it another time. Also, do it towards end of month, as dealerships have targets to meet, and some will sell at invoice price just so they can achieve their target bonuses from the manufacturer, even tho they aren't making any money on the actual car sale.
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Mar 1, 2004
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Gee wrote: There is minimal risk

The residual value is always lower than market value. If the residual value is high, then your monthly lease payments would be lower.

If you're coming to the end of your lease, you can easily try to flip the car. I find that it is usually about $2000 - $3000 cheaper than retail. Find s buyer before the lease term ends. Cars off lease are a lot more desirable than regular used cars. If you can't find a buyer, then return the car at the end of the lease. No risk
This.^^

I've paid $22k on a car with a $21k buyout on a three year lease. Dealers were selling the same car as low as $25k and as high as $28k.

The guy used the extra cash towards his next lease and I saved money and taxes. The company holding the lease folded and a Honda dealership bought all the leases, so they don't want a German car back.

Side note. The Honda dealership DID lease him a new German car...
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Jan 27, 2007
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Leases are always set up to get the dealer full MSRP. That being, the lease costs plus the residual is usually equal to the full msrp of the vehicle.

Your payments are either low and residual high or high and residual lower.

The only people making money off leases are dealers. In Audidude's example, the guy probably had a big DP and high payments. He got the benefit of that.

No way someone can lease themselves, buy out, and make a profit UNLESS you have very low km or a very in demand car.
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Deal Expert
Aug 22, 2011
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Since this question is in the finance section...lease is the way to go.
A vehicle is a depreciating (money pit) asset.

It's a "luxury" to own a vehicle, definitely not a necessity unless you live in rural areas!
Everything associated with a vehicle has a cost (gas, insurance, maintenance and payments+interest if not fully bought out!)

With that being said, I do enjoy driving and owning vehicles and don't mind the cost of owning them.
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Mar 22, 2010
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dutchca wrote: Leases are always set up to get the dealer full MSRP. That being, the lease costs plus the residual is usually equal to the full msrp of the vehicle.

Your payments are either low and residual high or high and residual lower.

The only people making money off leases are dealers. In Audidude's example, the guy probably had a big DP and high payments. He got the benefit of that.

No way someone can lease themselves, buy out, and make a profit UNLESS you have very low km or a very in demand car.
I agree. with $0 down payment on lease, there is no way a customer can make profit at the end of the term by flipping his/her own lease. (in other words, residual value will be higher than the market value). Source? I am in automotive industry and working with people who set the residual value at the end of the term.

When your residual value is lower, financial companies set the payment high so that they can offset the cost.
Jr. Member
Jun 17, 2011
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panda470 wrote: Really? My impression was that cars are one of those things that you can never profit from.
Exclusive exotic cars appreciate.

An Enzo Ferrari bought at 1 million 12 years ago could easily fetch 4 or 5 million dollars usd nowadays.

A McLaren F1 from the 90s is now worth about 12-13 Millions usd.
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Aug 2, 2004
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dutchca wrote: No way someone can lease themselves, buy out, and make a profit UNLESS you have very low km or a very in demand car.
There is a big misunderstanding. It is mathematically impossible to lease a car and make a profit. That means you sell the car for more than all your payments and buy out combined.

What I meant was buying the car at the end of the lease term and then selling it immediately.

Treat the lease payments as a business expense. Write that off against the income from your business. Then treat the buy out as a personal investment.

There are two transactions. The first one has nothing to do with the second one.
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Gee wrote: There is a big misunderstanding. It is mathematically impossible to lease a car and make a profit. That means you sell the car for more than all your payments and buy out combined.

What I meant was buying the car at the end of the lease term and then selling it immediately.

Treat the lease payments as a business expense. Write that off against the income from your business. Then treat the buy out as a personal investment.

There are two transactions. The first one has nothing to do with the second one.
For clarification - I was referring to making a profit on the difference between the buyout and the market value of the vehicle at the end of the lease.
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