Leasing, True Cost to Own & Payments | Car Questions Answered

Hey, it's Eric Smith here with Larry Miller Subaru. Today we're here at Black Rock coffee, it's a place we love, it's right around the corner from our store, and right, there's nothing better than just having a nice cup of coffee in the afternoon. And I want to talk to you today at what we call our coffee and car shopping questions answered. So, one of the most common questions I see in and out every day is, "How do leases work?" And you know, everybody has a uncle or brother or dad that's told them you shouldn't do at least they're crazy, and there was a time where it wasn't a great investment, and it might not be on certain cars today. But it's certainly something to consider, just make sure you know something about it.

I always look at it like a pizza, whether you purchase or lease a new car you're buying the same thing and so the cost shouldn't be different. Let's say, like, we're looking at a car that's $30,000. Well if you were to purchase that car, you're buying the whole pizza, $30,000 worth, and you'll make equal payments until you own that whole car. Okay. Well if you're to lease a car it'd be very similar. You're buying the whole pizza, it's $30,000 when you buy it. But really you're just buying a third of it for right now, and you're agreeing to pay for these slices and at the end of that time, you can buy the rest of the pizza for yourself. Or, you can start over and buy another pizza, a third at a time. So, really there is no difference. 

What I like about a lease is you get low upfront payment, and 36 or 42, whatever your term of the lease is into it, you can decide if you want to start over and do that on another car or if you love the car you're in just buy it from yourself. You're gonna know what you can pay for it up front, it's called its residual value, you'll know that the day you start your lease. And it's a great way to get an awesome car at a great price and if you love it, buy it from yourself at the end because there's no better used car on the market than a car that you know the exact history of. So, lease versus purchase, They're very similar, but it's a great way to get an affordable price on a new car. Okay. 

One of the things that comes up all the time too is true cost to own. If you're really doing your research you'll hear this all the time, true cost to own. What that is, is the cost of the car that you paid for at the store, whether it's newer used, plus things that you may not have thought about, like depreciation interest on your loan, maintenance on the car, registration, taxes, fees, things like that. It will calculate what it'll cost you to own that car over the next five years. This is a really great great way to compare and contrast different brands. I work in a Subaru dealer, I'm really fond of Subaru, but you'll find that even though a Subaru might cost today fifteen hundred dollars more than a competitor's similar vehicle, over the cost the next five years will cost you less to own the car because of its reliability ratings and things like its fuel economy. So, true cost to own is a great way to compare and contrast brands. There's two great places to find it, you don't have to calculate it yourself. Probably the most popular is the Edmunds website for the Edmunds true cost to own, they call it Edmunds TCO, and there's another great calculator that you can use on the NerdWallet website.

Another popular question all the time, right, "How do I calculate my monthly payment?" There's a zillion websites you can use to calculate payment, just Google "calculating car payments." A bank rate will have a lot of loan calculators, most dealer websites will have car loan calculators too. But a really quick and simple way to do it if you have average credit I think if you google average credit, right now we'll call it 680 Fico, you can figure your loan is gonna be about twenty dollars for every thousand dollars you financed. So, a $10,000 car is gonna have a $200 loan, $15,000 - $300, $20,0000 - $400, and so on. Now remember your down payment plays into that but so do taxes and fees. But if you were to have a five thousand dollar down payment on a twenty five thousand dollar car, your loan with average financing is gonna be around four hundred dollars a month. So just remember, $20 per $1,0000, or one thousand dollar in loan, twenty dollars in payment and that will get you really close. Now if your credit is excellent or the economic environment changed a little bit, it might be 15 or seventeen eighteen dollars per thousand. But general rule of thumb, that will get you right where you need to be so you're not surprised when you get to the store and the car is more than you thought per month.