Leaf - Lease vs Buy : A purely financial comparison

Update : Aug-25

Nissan has just released the lease information. For a 3 year lease,

SV : 45% or $14,751 with a Money Factor of 0.00204 or 4.9%

SL : 44% or $14,834 with a Money Factor of 0.00204 or 4.9%

So, you will note that from below that in case you want to buy after lease, you will be paying some $750 more with leasing.

Original Post :

We have discussed lease vs buy earlier. Here is some math to help you decide - purely based on financial sense. The calculations are for the SV model.

Let us consider two cases.

Buy Out : Here, after 3 years of leasing, you decide to buy out. The residual is paid using a 2 year loan. In the buy scenario, a loan for 5 years is taken. The large downpayment is to it equivalent to the lease case and includes the 7,500 that would be got back in tax credit. So, the final row shows the total money paid out after 5 years.

Sell Off : In this case, after 3 years of leasing, you return the car to the dealer. In the buy scenario, a loan for 3 years is taken. After that the car is sold off for exactly the residual of the lease scenario - to help us compare apples to apples. Again, the final row shows the total money paid out after 3 years.

Ofcourse, we don't know the residual. So in this I calculate the "break even" residual for the two cases. If the residual announced by Nissan is lower than the one calculated below, leasing is better. If the residual is higher buying is better. The other variable is the interest rate. I've used the national average insterest rate from Yahoo finance.

Note that I've not taken sales tax into account. For one thing, it varies from state to state, for another - whether the tax is on lease payments or the entire MSRP depends on the state as well. Ofcourse, in WA, there is no sales tax on EVs

Another thing I've not included is disposition fee. Thanks to LEAFer for reminding me.



Here is a look at the differences between leasing & buying by the Fed.

http://www.federalreserve.gov/pubs/leasing/resource/default.cfm?WhichTopic=Different

NICE ! Thanks for doing this.

Trying to "tell" Nissan what the residual should be ?

Now -- from a reality standpoint -- we also need to include sales tax in the calculation. I know it varies for everyone. But how about 9% for kicks ? The reason I mention this, with a few exceptions, for most lessees (most states), you don't pay sales tax on the MSRP. You pay it on the total of your lease payments. That creates another advantage for the lease. How much ? Well it depends of course on the rate, but it's worth just running the numbers to see how much the "break even" residual changes.

Sorry did not mean to create more "work"

Edit: And there's a disposition fee at end of lease, which I don't know if it applies of you do buy-out. Let's assume $350, as the actual $ has not yet been published AFAIK.

LEAFer said:

Sorry did not mean to create more "work"

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I've noted the missing sales tax & disposition fee. Thanks for reminding me.

I'll share the excel sheet for anyone to take and play around with ...

These numbers are for the SV model?

AndyH said:

These numbers are for the SV model?

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Yes.

Question about the large downpayment: This certainly reduces the Loan Principle. But is it realistic ? (Unless you have a trade-in.) From the bank's point of view ... do they really require 29% down ?

LEAFer said:

Question about the large downpayment: This certainly reduces the Loan Principle. But is it realistic ? (Unless you have a trade-in.) From the bank's point of view ... do they really require 29% down ?

Click to expand...

Good question. I'll explain that in the post - I've taken the large downpayment to cover the 7,500 tax credit. I toyed with the idea of having a larger loan in the beginning being paid off in April - but that becomes dependant on the month in which you get the car.

The Nissan 'fine print' on the website says the prices exclude tax, title, and license - but don't say they exclude the destination charge. A poster in another thread (a Nissan dealer rep) reported that there's the MSRP near the top of the label and the bottom MSRP - the bottom includes the destination charge and any/all option charges.

Which MSRP is the $32.780?

AndyH said:

Which MSRP is the $32.780?

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The fine print on lease says this ...

Based upon $32,780 MSRP plus $820 destination charge

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evnow said:

Ofcourse, we don't know the residual. So in this I calculate the "break even" residual for the two cases. If the residual announced by Nissan is lower than the one calculated below, leasing is better. If the residual is higher buying is better.

Click to expand...

I would argue that the residual has to be substantially higher to make buying a good idea, because the lease provides additional value by shifting risk to Nissan. Hard to quantify that value, but it could be substantial. If three years from now they are selling Leaf 2.0 with a 250 mile range for $3k less than the 1.0 model went for these cars aren't going to be anywhere near what you think. You'll be like the chump that paid 8 grand for a 50" EDTV plasma set a few years ago.

There has also been some comparisons to the EV1 with respect to leasing. Someone who is more knowledgeable about leasing could comment on different kinds of leases. As I understand it the kind of lease the EV1 had kept sole ownership of the vehicle with GM, unlike most leases where there is a buyout option. I assume the Leaf lease will be the more common type with a buyout, but do we know that for sure?

This comparison looks like apples vs oranges judging by number of month. Buying a car and keeping it long terms always pays off, where with lease you'll be loosing money when you give the car back. Also, I personally don't care if we have 250 mile range EV 3 years down the road for cheaper. Current leaf will be 2nd car that will be used for daily commute <30 miles, so even with battery degradation it will last me a while.

IBELEAF said:

Buying a car and keeping it long terms always pays off, where with lease you'll be loosing money when you give the car back.

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That is just a cliche - since you can buy the car at the end of the lease. Lease really is another way of financing the car.

But what is they want 20k for the car after the lease?

I'm not sure what I will do. I have never leased before, and I didn't think I would here...but I'm not sure...I have also never had a car payment of around 600 bucks...so 350 sounds so much better...and I will likely get a fiat 500 ev in a few years anyway...

But I still might buy and give the car to my daughter when I do get the fiat.

Gavin

evnow said:

IBELEAF said:

Buying a car and keeping it long terms always pays off, where with lease you'll be loosing money when you give the car back.

Click to expand...

That is just a cliche - since you can buy the car at the end of the lease. Lease really is another way of financing the car.

Click to expand...

IBELEAF's rule of thumb holds true in general because when you lease you are forced into this pattern of getting a new car every three years... which is far costlier that buying a (good quality) car and keeping it for 10 or more years.

That's a good question, I've never leased before, but do they give you a "price to buy at the end of the lease" amount when you sign the lease?

I would happily lease if I knew the end buy back price was a fair price compared to buying.

Gavin

LTLFTcomposite said:

evnow said:

IBELEAF said:

Buying a car and keeping it long terms always pays off, where with lease you'll be loosing money when you give the car back.

Click to expand...

That is just a cliche - since you can buy the car at the end of the lease. Lease really is another way of financing the car.

Click to expand...

IBELEAF's rule of thumb holds true in general because when you lease you are forced into this pattern of getting a new car every three years... which is far costlier that buying a (good quality) car and keeping it for 10 or more years.

Click to expand...

I guess it all varies on each situation (residual value, depreciation, car costs etc...) but specific to Leaf and without doing any extensive number crunching I would say buying and keeping it long term is more cost effective then leasing it for 3 years... especially with battery warranty

Gavin said:

That's a good question, I've never leased before, but do they give you a "price to buy at the end of the lease" amount when you sign the lease?

I would happily lease if I knew the end buy back price was a fair price compared to buying.

Gavin

Click to expand...

I'm no expert but my understanding is that most leases do specify a buyout price at the end, although people rarely exercise that option, through some combination of the buyout price not being that attractive and the fact that people who lease cars would rather get something new by then anyway.

IBELEAF said:

I guess it all varies on each situation (residual value, depreciation, car costs etc...) but specific to Leaf and without doing any extensive number crunching I would say buying and keeping it long term is more cost effective then leasing it for 3 years... especially with battery warranty

Click to expand...

Ah but what could be an even better deal is leasing one, then at the end of three years giving that one back to Nissan and buying a used one in the market for $6000 because they turned out to be lemons or the new EV models (from Nissan or anyone else) are so much better nobody wants the old ones.

Gavin said:

I would happily lease if I knew the end buy back price was a fair price compared to buying.

Click to expand...

Yes, the "buy out" price will be known before you sign (unless Nissan is planning on doing something screwy or EV1 like, which I doubt).

What evnow said about "… you can buy the car at the end of the lease. Lease really is another way of financing the car." is an interesting way of looking at it.

I know many of us are a little unfamiliar with or biased against leasing. (I have only leased once.) And at first look it's just not a good deal. You are "renting" ! And the comparison to renting a home versus owning it comes naturally. In that comparison the "renter" always loses (until the recent economic turmoil), because you're just throwing money out the window (that's what our parents taught us) as a result of not building up equity in the house like an owner does. But there is (?was) a fundamental difference between homes and cars (until the recent economic turmoil ?). Homes (generally) appreciate over time. Cars (almost) never do. Cars have a relatively well known depreciation factor. Every time you buy one, you'll be selling it later (for example after 3 years) for a lot less. This depreciation is very steep in the early years and then starts slowing over the years. If you lease … the dominant portion of the monthly payment is the depreciation, which is the same depreciation that the buyer of the car will experience (if the lease is a fair deal). The remainder of the monthly payment is a money factor, or interest rate. Then there are a few other fees and charges (acquisition fee, disposition fee, etc). The money factor (interest rate) is the equivalent that a buyer of the car would experience if he/she finances the car, or experiences in the form of “time value of money” if he/she pays cash up front.

So … don’t let leasing scare you. The key is … is the lease a “good deal” ? The critical financial analysis that can tell us more about whether the lease versus the purchase is a good deal is what evnow is attempting here.

There is, however, one additional major issue not yet discussed (at least not in this thread) to keep in mind: the mileage. A lease has penalties for exceeding a set amount of miles per year (to make up for the extra reduced BlueBook value at the end of 3 years, but excessively so). Any such penalty would put the lease in a bad light compared to the purchase. So … the number of miles expected should match what the lease offers. Sometimes you can negotiate with the dealer to get the mileage threshold adjusted to the number of miles you will be driving your “rental”, sometime not. So, if you only expect to drive it 5k miles a year, your lease payment should go down significantly ($40 ???). If you drive much more than 12k miles, you can either increase your monthly payment or just forget it … you should purchase.

Think of it this way. If you buy the LEAF, then keep it for 3 years, how much will it be worth ? (The analysis is complicated by this new technology car due to the unknowns of battery longevity. And the fact that the depreciation factors for this game changing vehicle are still unknown due to the little experience that exists with it.) Will it be worth more or less than the lease’s residual ?

Another way of looking at it. If you lease, you are renting, with the option to buy the car after 3 years. You don’t have the obligation to buy, but the decision will be in your hands. You’ll know up front what you need to pay in three years, and if it sounds reasonable, go ahead and do it. Then when the three years comes … you’ll know if the value of the car still makes sense and you have one more chance to accept or turn it down. The price you pay for all this “flexibility” is the acquisition and disposition fee, the possible mileage penalty, and the money factor (which may or may not compare favorably to financing a purchase of the car).

Sorry to be so long-winded. I am hoping it adds education to those not familiar with leasing. And may be makes it more the “apples-to-apples” that evnow intended. (Thanks again, evnow!) And it took me a while to write it … and there have been other replies in the meantime …

IBELEAF said:

I guess it all varies on each situation (residual value, depreciation, car costs etc...) but specific to Leaf and without doing any extensive number crunching I would say buying and keeping it long term is more cost effective then leasing it for 3 years... especially with battery warranty

Click to expand...

But the whole point of this thread is to do the number crunching - instead of just going by received wisdom :lol: