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How it makes sense is simple - people who lease cars don't pay the final payment. They give the car back and lease a new one. That way they pay a bit more for a

How it makes sense is simple - people who lease cars don't pay the final payment. They give the car back and lease a new one. That way they pay a bit more for a few years, but they avoid most of the cost of deprecation that they'd lose if they owned the car at that point. If you plan to buy a car and own it for a long time then leasing is silly. If you plan to keep a car for no more than a few years then leasing is a pretty good option.

pdonis 5y ago
> How it makes sense is simple - people who lease cars don't pay the final payment. They give the car back and lease a new one. That way they pay a bit more for a few years, but they avoid most of the cost of deprecation that they'd lose if they owned the car at that point. If you don't plan to keep the car more than the few years you can get with a lease term, then yes, the comparison is different than the one I made, but what might tip the scales in favor of leasing isn't the depreciation cost but what options are (or aren't) available to you for terminating your old loan (which probably won't be paid off at that point) and getting a new one when you either trade in or sell your old car and buy a new one. Another downside of leasing is that, since you don't own the car, there are probably going to be restrictions on how you can treat it and what you can do with it (for example, mileage restrictions). That gets back to the more general issue of the pros and cons of ownership vs. renting, which is relevant for subscription business models more generally.
sandworm101 5y ago
>> but they avoid most of the cost of deprecation Except that they don't. The dealer is taking the depreciated car back at the end of the lease. The dealer isn't giving customers a gift by taking the vehicle back at a loss. The lease price covers the entire cost of depreciation over the term of the lease. The customer may avoid seeing the depreciation but they are most definitely paying for it. Worse still, they are coving the most expensive part of total depreciation: the time between new to slightly-used. The people getting the real deal are those buying post-lease vehicles. By buying a slightly used vehicle they avoid the initial depreciation covered by the from-new lease.

pdonis 5y ago

> How it makes sense is simple - people who lease cars don't pay the final payment. They give the car back and lease a new one. That way they pay a bit more for a few years, but they avoid most of the cost of deprecation that they'd lose if they owned the car at that point. If you don't plan to keep the car more than the few years you can get with a lease term, then yes, the comparison is different than the one I made, but what might tip the scales in favor of leasing isn't the depreciation cost but what options are (or aren't) available to you for terminating your old loan (which probably won't be paid off at that point) and getting a new one when you either trade in or sell your old car and buy a new one. Another downside of leasing is that, since you don't own the car, there are probably going to be restrictions on how you can treat it and what you can do with it (for example, mileage restrictions). That gets back to the more general issue of the pros and cons of ownership vs. renting, which is relevant for subscription business models more generally.

sandworm101 5y ago

>> but they avoid most of the cost of deprecation Except that they don't. The dealer is taking the depreciated car back at the end of the lease. The dealer isn't giving customers a gift by taking the vehicle back at a loss. The lease price covers the entire cost of depreciation over the term of the lease. The customer may avoid seeing the depreciation but they are most definitely paying for it. Worse still, they are coving the most expensive part of total depreciation: the time between new to slightly-used. The people getting the real deal are those buying post-lease vehicles. By buying a slightly used vehicle they avoid the initial depreciation covered by the from-new lease.