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Leasing Cost Rule of Thumb

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Nov 9, 2013
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Leasing Cost Rule of Thumb

In the next year I'm thinking about getting a new car. Due to a variety of reasons I think I'm likely to lease, rather than finance or cash purchase.

My question is what is a good rule of thumb for what my monthly payment should be. I'm not looking for a "whatever you can afford" type answer, rather as a % of my net monthly income.

I googled it and a few sources suggested as high as 20%, which seems way to high for me. What do you guys think? For those of you that lease, what % of your net monthly income is your lease payment?
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Dec 23, 2009
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That 20% is supposed to include insurance, and fuel costs.

Mine is around 14% fwiw
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Jan 27, 2007
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treva84 wrote: In the next year I'm thinking about getting a new car. Due to a variety of reasons I think I'm likely to lease, rather than finance or cash purchase.

My question is what is a good rule of thumb for what my monthly payment should be. I'm not looking for a "whatever you can afford" type answer, rather as a % of my net monthly income.

I googled it and a few sources suggested as high as 20%, which seems way to high for me. What do you guys think? For those of you that lease, what % of your net monthly income is your lease payment?
What are the reasons?

Very rarely is it ever advisable to lease a vehicle.
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Jul 22, 2015
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I am currently leasing a 2015 Mazda 3. My pay is ~1500 biweekly and my car payment is ~101 biweekly.
A big 6.7%!
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dutchca wrote: What are the reasons?

Very rarely is it ever advisable to lease a vehicle.
I figured this would eventually come up - I don't want this to turn into a lease vs finance vs cash thread - but I'll bite.

Basically it'll be through my prof corp and I want a specific German vehicle with a new, unproven technology so I anticipate I'll replace it with something else before the warranty expires.
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keano wrote: That 20% is supposed to include insurance, and fuel costs.

Mine is around 14% fwiw
MoneyHypeMike wrote: I am currently leasing a 2015 Mazda 3. My pay is ~1500 biweekly and my car payment is ~101 biweekly.
A big 6.7%!
Cool, thanks for the info.
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Apr 21, 2009
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treva84 wrote: I figured this would eventually come up - I don't want this to turn into a lease vs finance vs cash thread - but I'll bite.

Basically it'll be through my prof corp and I want a specific German vehicle with a new, unproven technology so I anticipate I'll replace it with something else before the warranty expires.
Mind I ask which car you're getting?

For what it's worth I've never really looked at those types of values (20% of income), but man that to me would sound high.
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Sep 20, 2014
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Leasing is fine if you're worried about potential out of warranty expenses later on or want to get something new in a few years.

As for % of income...well it also depends on what your income is and what your other expenses are. 20% for someone with no other expenses and a reasonable income ($5,000/month) is probably okay. But if you're already paying $3,500 of that in other expenses then you're stretching yourself thin.

Just make sure that after including extras like fuel and maintenance costs, you still have some cash left over for savings.
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joey003 wrote: Mind I ask which car you're getting?

For what it's worth I've never really looked at those types of values (20% of income), but man that to me would sound high.
Initially, I was thinking a Tesla Model S or a BMW i8 but those are greatly out of my price range. Currently, I'm thinking of possibly leasing an Audi A3 e tron plug in, just trying to figure out if it makes personal finance sense.

Yes, I will definitely have to include fuel, maintenance and insurance in my cost projections.
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treva84 wrote: Initially, I was thinking a Tesla Model S or a BMW i8 but those are greatly out of my price range. Currently, I'm thinking of possibly leasing an Audi A3 e tron plug in, just trying to figure out if it makes personal finance sense.

Yes, I will definitely have to include fuel, maintenance and insurance in my cost projections.
Nice. Lol, based on the description I was wondering if it was the A3 e-tron. I recently ordered one myself.

Best of luck with decision. Having a PC to use will be nice.
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treva84 wrote: Initially, I was thinking a Tesla Model S or a BMW i8 but those are greatly out of my price range. Currently, I'm thinking of possibly leasing an Audi A3 e tron plug in, just trying to figure out if it makes personal finance sense.

Yes, I will definitely have to include fuel, maintenance and insurance in my cost projections.
Do you "need" the vehicle, or do you "want" it.

Im all for leasing if used as a business write off, k.m. are kept below the allowable limit, term is less than or equal to the manufacturer's warranty period and there's no down payment.
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dutchca wrote: Do you "need" the vehicle, or do you "want" it.

Im all for leasing if used as a business write off, k.m. are kept below the allowable limit, term is less than or equal to the manufacturer's warranty period and there's no down payment.
Currently, I don't need the vehicle - my 16 year old Lexus has been very good for me so far although it's starting to leak oil from many places in the engine block and I anticipate it'll soon need to be replaced. A new (lower cost) luxury vehicle, one that is preferably a plug in hybrid, is defiantly not a need; rather a want. Hence, I'm trying to come up with a heuristic to keep my costs in check.

Via my PC I should be able to write off a portion of the car payments, fuel, maintenance costs and claim some kms.
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joey003 wrote: Nice. Lol, based on the description I was wondering if it was the A3 e-tron. I recently ordered one myself.

Best of luck with decision. Having a PC to use will be nice.
Sweet! What's the wait time if you don't mind me asking?
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treva84 wrote: Sweet! What's the wait time if you don't mind me asking?
I did a custom order in the last week of February. Tentative delivery date was marked as May 31. Roughly 3 months for a custom order. There are a few in stock (this is around the GTA though, maybe different for Edmonton?)
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Apr 16, 2007
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treva84 wrote: In the next year I'm thinking about getting a new car. Due to a variety of reasons I think I'm likely to lease, rather than finance or cash purchase.

My question is what is a good rule of thumb for what my monthly payment should be. I'm not looking for a "whatever you can afford" type answer, rather as a % of my net monthly income.

I googled it and a few sources suggested as high as 20%, which seems way to high for me. What do you guys think? For those of you that lease, what % of your net monthly income is your lease payment?
Such percentage does not exist and is not even an equation or evaluation whatsoever in the finance world of personal or automotive lending.

Capacity is purely evaluated by calculating total debt service ratios(tdsr)
Whether finance or lease the debt service ratio is underwritten and assessed the same way.

Example, not too long ago we had a client with an income of $130k year and could not service a used auto loan more than $220/mth, non extended term.
Why? he had a huge mortgage(home and cottage), child support payments, and fairly large revolving debt plus LOC balance.
So with this said, income to assumed auto loan qualifying is senseless.

Your current income less current debt will determine how much car you can afford.
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[OP]
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mikeymike1 wrote: Such percentage does not exist and is not even an equation or evaluation whatsoever in the finance world of personal or automotive lending.

Capacity is purely evaluated by calculating total debt service ratios(tdsr)
Whether finance or lease the debt service ratio is underwritten and assessed the same way.

Example, not too long ago we had a client with an income of $130k year and could not service a used auto loan more than $220/mth, non extended term.
Why? he had a huge mortgage(home and cottage), child support payments, and fairly large revolving debt plus LOC balance.
So with this said, income to assumed auto loan qualifying is senseless.

Your current income less current debt will determine how much car you can afford.
Fair point; so from your point of view what's a prudent % of my TDS that could feasibly be directed to a lease payment? Whatever keeps me under a max of 40%?
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treva84 wrote: Fair point; so from your point of view what's a prudent % of my TDS that could feasibly be directed to a lease payment? Whatever keeps me under a max of 40%?
Majority of all automotive lenders including manufacturers leasing finance arms calculate tdsr of no more than 40% of your gross income, normal term qualifying.(60mth finance/48mth lease)
Conditional qualifying on marginal can include additional cap cost reduction or extended terms.
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[OP]
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mikeymike1 wrote: Majority of all automotive lenders including manufacturers leasing finance arms calculate tdsr of no more than 40% of your gross income, normal term qualifying.(60mth finance/48mth lease)
Conditional qualifying on marginal can include additional cap cost reduction or extended terms.
So If the lenders think 40% max TDSR in reality I should aim for 30 % or less ;-). Thanks for the info.
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Aug 29, 2004
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treva84 wrote: Fair point; so from your point of view what's a prudent % of my TDS that could feasibly be directed to a lease payment? Whatever keeps me under a max of 40%?
From a lending standpoint? Less than 40%.

From a general personal finance standpoint, this isn't a lease vs loan argument - its an overspending on a car argument.

IMO one shouldn't spend more than 10%, all in, on vehicle payments, whether they are lease or loan.

Of course that depends on what you do with your money - If you are going to spend it on useless stuff, no amount of savings is enough.
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There is no correct answer to your question as everyone's financial picture is unique- such as myself, as I have other hobbies that are on the expensive side (e.g. sports, photography).


It also depends on your income. Someone taking home 3K a month will have a lot more painful time handling 20% vehicle carrying cost versus someone taking home 6K. I tried doing a $490/month car payment on 3K/month and I don't recommend it. If I could go back, I'd say at that level just buy used with cash.

I usually go by absolute amount saving instead of percentage. To me a 2K+/month buffer is ideal, but then it's not possible on lower incomes. If you take home 3K, I think you should save at least a few hundred per month, then adjust from there.

Personally I can tolerate my vehicle being about 20% of my budget, but there is nothing I want that fits that currently. Now including insurance and putting away 200/month for maintenance I spend about 15%. I have enough cash to pay off the remainder of my vehicle loan, but my investments beat the interest rate so I can't be bothered.
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