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Lease or buy?

Humandev
New Visitor

Lease or buy?

Hi all! 

I'm coming off a few years of hell, starting a business, medical issues, making a lot of mistakes. Today I've turned the corner, the business is thriving, my income is turning out to be excellent but it's poor timing.

 

Ive paid off mountains of debt in the last few months, but as you all know it takes time for these things to have a real positive impact on your credit score. 

My score is currently hovering between 600-650 and will likely be pushing 700 by the end of the year but my wife's car lease is up in six weeks so I can't wait unfortunately. 

So my question is, do I take a lease (which I prefer for the vehicle we are getting because they don't hold their value well) with higher rates I'm guessing since my credit isn't great yet or do I buy and refinance later and take the hit on the value which will decrease significantly over a few years. 

Thanks in advance! 

Message 1 of 15
14 REPLIES 14
iced
Valued Contributor

Re: Lease or buy?


@Humandev wrote:

Hi all! 

I'm coming off a few years of hell, starting a business, medical issues, making a lot of mistakes. Today I've turned the corner, the business is thriving, my income is turning out to be excellent but it's poor timing.

 

Ive paid off mountains of debt in the last few months, but as you all know it takes time for these things to have a real positive impact on your credit score. 

My score is currently hovering between 600-650 and will likely be pushing 700 by the end of the year but my wife's car lease is up in six weeks so I can't wait unfortunately. 

So my question is, do I take a lease (which I prefer for the vehicle we are getting because they don't hold their value well) with higher rates I'm guessing since my credit isn't great yet or do I buy and refinance later and take the hit on the value which will decrease significantly over a few years. 

Thanks in advance! 


Leases are effectively paying the dealer the value of depreciation in return for borrowing the car for a few years, which makes leasing cars that lose their value quickly among the worst cars to lease.

 

If you're looking to drive a new car with no intention of keeping after 2-3 years, leasing is (probably) the way to go, but if you're doing it to not buy a car that loses value quickly, leasing makes no sense.

Message 2 of 15
4sallypat
Frequent Contributor

Re: Lease or buy?

If you can't get into a decent lease and you are waiting for your scores to go up, I'd extend the current lease.

 

I am doing just that on my Honda lease up for expiration.

 

Asked for 6 month extension until this crazy market turns around...

Message 3 of 15
Humandev
New Visitor

Re: Lease or buy?

I already did that and this is the end of the extension unfortunately 

 

I'm stuck in the 600-650 range and have to just make the most of it 

Message 4 of 15
aj2121
Frequent Contributor

Re: Lease or buy?


@Humandev wrote:

I already did that and this is the end of the extension unfortunately 

 

I'm stuck in the 600-650 range and have to just make the most of it 


Are you leasing from the same manufacturer of your current vehicle? If so that can help with the approval. I know Honda bases future approvals more heavily off of your previous relationship with them rather than your current score.

FICO8 as of 4/9/21:
Message 5 of 15
aj2121
Frequent Contributor

Re: Lease or buy?


@iced wrote:

@Humandev wrote:

Hi all! 

I'm coming off a few years of hell, starting a business, medical issues, making a lot of mistakes. Today I've turned the corner, the business is thriving, my income is turning out to be excellent but it's poor timing.

 

Ive paid off mountains of debt in the last few months, but as you all know it takes time for these things to have a real positive impact on your credit score. 

My score is currently hovering between 600-650 and will likely be pushing 700 by the end of the year but my wife's car lease is up in six weeks so I can't wait unfortunately. 

So my question is, do I take a lease (which I prefer for the vehicle we are getting because they don't hold their value well) with higher rates I'm guessing since my credit isn't great yet or do I buy and refinance later and take the hit on the value which will decrease significantly over a few years. 

Thanks in advance! 


Leases are effectively paying the dealer the value of depreciation in return for borrowing the car for a few years, which makes leasing cars that lose their value quickly among the worst cars to lease.

 

If you're looking to drive a new car with no intention of keeping after 2-3 years, leasing is (probably) the way to go, but if you're doing it to not buy a car that loses value quickly, leasing makes no sense.


This is just wrong... Leasing is most advantageous on cars that do NOT keep their value. You don't want to be stuck with a massively depreciating asset, leasing allows you to drive that depreciating vehicle for a few years with no commitment to keep it and then move to another vehicle. Leases on quickly depreciating vehicles often have inflated residual values, which means you are only going to pay a fraction of the depreciation.

FICO8 as of 4/9/21:
Message 6 of 15
iced
Valued Contributor

Re: Lease or buy?


@aj2121 wrote:


This is just wrong... Leasing is most advantageous on cars that do NOT keep their value. You don't want to be stuck with a massively depreciating asset, leasing allows you to drive that depreciating vehicle for a few years with no commitment to keep it and then move to another vehicle. Leases on quickly depreciating vehicles often have inflated residual values, which means you are only going to pay a fraction of the depreciation.


I'm getting the feeling you and I live in very different worlds. Every lease I've done has had a residual very closely correlated to its resale/depreciation -- the cars with high residuals had higher resale values to the dealers after 2-3 years, and cars that dropped in value quicker had worse residuals. I was never offered a high residual on a car with quick depreciation. Dealers wouldn't inflate residuals because they didn't need to.

Message 7 of 15
4sallypat
Frequent Contributor

Re: Lease or buy?


@aj2121 wrote:

@Humandev wrote:

I already did that and this is the end of the extension unfortunately 

 

I'm stuck in the 600-650 range and have to just make the most of it 


Are you leasing from the same manufacturer of your current vehicle? If so that can help with the approval. I know Honda bases future approvals more heavily off of your previous relationship with them rather than your current score.


Agreed!

 

Your current captive lender leasor would be so happy to get you to re-up for another lease.

 

I know, because my dealer who ran my numbers using a SP credit, said that they can put me into another car without incurring a HP.

 

The dealer does so much volume that they can "write" their own deals plus have a new lease started without the credit check that I am currently sensitive about (looking at a house purchase).

Message 8 of 15
sccredit
Valued Contributor

Re: Lease or buy?


@iced wrote:

@aj2121 wrote:


This is just wrong... Leasing is most advantageous on cars that do NOT keep their value. You don't want to be stuck with a massively depreciating asset, leasing allows you to drive that depreciating vehicle for a few years with no commitment to keep it and then move to another vehicle. Leases on quickly depreciating vehicles often have inflated residual values, which means you are only going to pay a fraction of the depreciation.


I'm getting the feeling you and I live in very different worlds. Every lease I've done has had a residual very closely correlated to its resale/depreciation -- the cars with high residuals had higher resale values to the dealers after 2-3 years, and cars that dropped in value quicker had worse residuals. I was never offered a high residual on a car with quick depreciation. Dealers wouldn't inflate residuals because they didn't need to.


This is very dependent on the manufacturer/captive. DW's Infiniti leases have always had inflated residuals where the end of the lease the residual has exceeded the actual value by thousands. The exception is her current one that ends in November but that has more to do with the crazy auto market.

Ch 7 Discharge 3/12/2018
Cap One VentureOne $3,500, CapOne Savor $5,300, Kohls $3,000, BBVA $2,500, Comenity MC $4,900
Infiniti Financial Lease
Goal: New Mortgage 3/2022
Message 9 of 15
iced
Valued Contributor

Re: Lease or buy?


@sccredit wrote:


This is very dependent on the manufacturer/captive. DW's Infiniti leases have always had inflated residuals where the end of the lease the residual has exceeded the actual value by thousands. The exception is her current one that ends in November but that has more to do with the crazy auto market.


Interesting. My last two leases resulted in buy-out prices more or less in line (obviously give or take a few thousand based on options) with what those cars could be purchased for via CPO. Leasing worked out to a lower monthly payment, but that was because the depreciation on the cars in question really only started to kick in around after the cars were 3 years old, so a lease was leveraging the lower depreciation in the first 2-3 years for a lower payment whereas someone who financed would be averaging that depreciation out over the course of 4-5 years (or 6-7, as it seems some people out there actually take 72/84 month loans...).

Message 10 of 15
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