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lease or buy and make payments

hmm strange, those numbers are slightly confusing, possibly because of the opportunity cost added in

whoever it was that was trying to get a 94 for 38k your getting ripped
the average market price for a 94 is around 32 i believe.

these numbers i get are from manheim...
yes at the age of 18 i have found a way to get a car hook up.. so i get them straight from the auctions that dealers pick them up before they jack the prices up.

how else would i afford a 94? haha i was lookin to drop 2k on it and then finance for 60 months, someone tell me tis is a (bad/very bad) idea?
soooo, im really curious about what you guys do now. seems like we have some fi or mortgage guys in our midst?

some really good analysis here. one of my simplified ways of looking at it: ive got 38k.

i spend it on the car and it depreciates no matter what i do--i lose money.

i borrow the money at x percent interest and invest the 38k money. my investment returns at y percent yield. as long as x < y - depreciation then i am money ahead.

or something like that.

any mortgage bankers here?
This has gotten to be way more confusing than necessary.

Think of it this way:

1. One way or another, you are going to be paying for the depreciation of the car. If you buy it (with or without a loan), you will own a car whose value is going down. If you lease it, you are financing the reduction in value from your purchase price to the lower residual value at the end of the lease.

2. One way or another, you are going to be paying for the money that's tied up in the car. If you buy it for cash, you are forfeiting the interest/investment income the cash could be earning. If you take out a car loan OR lease it, someone else's money is tied up in the car, and you are paying that someone else interest on it.

Bottom line is that, lease or buy, finance or not, you're going to be paying for these costs of ownership. The numbers aren't ALL that different either way.

There are certain factors that tend to skew the analysis in one direction or another. If the car is used for business, the lease payments may be tax-deductible. Buying it and taking out a loan is "forced savings". But even taking these factors into account, there is no absolute, clear-cut winner in the analysis. It's close either way. Do whatever you're most comfortable with.
Great conversation...

I thought of a reason why, if given the choice, one may want to pay cash.

When you are qualifying for a mortgage, you may be subjected to the 28%/36% (or similar percentages) rule. The lenders will only allow your monthly mortgage/tax/insurance payment to be 28% of your gross monthly income. Likewise, your monthly mortgage/tax/insurance and debt payments can only be 36% of your monthly income.

Although financing the car shouldn't affect your ability to afford the house (since the payments are withdrawn from your invested cash), it potentially limits your ability to borrow.

Based on Todd's example above, a monthly payment of $1275 could reduce your borrowing ability by up to $190,000.

A mortgage is the easiest way for most people to highly leverage their cash. The irony is, however, that sometimes cash isn't the obstacle- it's income.

[This message has been edited by milz50 (edited 20 February 2002).]
Ken, well said. And Milz50, you are correct also, but I hope that any of us that are looking at ~1200/mo. car payments really aren't letting that interfere with mortgage qualification. IMO, if you spend 12 bucks on a car payment, you BETTER make upwards of 150 - 200k. Otherwise, you're pushing it in my opinion. And lastly, hypelite911, you are entirely out of the ballpark in your assumption of the value of a 94 NSX. There are 94 NSXs for 32k of course, but if you are using Manheim figures to determine the values of cars like the NSX, you seriously need ot spend much more time researching and learning about the business. Yikes. Maybe I should've bought the 99 F355 Spyder that just went through this week. It was only 92k. Darn I wish I knew all this before I saw this car. I would've snatched it up. Ahem.
It is a good idea to have all debt cleared and most credit cards closed before deciding to dive into a mortgage.

My wife and I have decided that her BMW and my NSX are going to be it. Once these two are paid off (next few years), no more new cars. By then, we should be in a no loan, no credit card debt (hopefully) situation and ready for a mortgage.

Of course, we both tend to spend way too much money and being able to rent a nice sized apartment and two car garage from her parents for dirt cheap has made it worse, but we're going to try hard to stick to the plan
Thanks for the info guys.

To hypelite911,
I only used the numbers as an example.
When you get on a board advertising about how much you can get a car at an auction for, You not only devalue your car but everyone elses as well. Not the best way to make friends. Not to mention most people can't buy from these auctions. I got offered more than 32k from my local Acura dealer and this was for cash.

I didn't realize you had hypelite911's credit
in front of you. I was merely giving him a safe rate, I don't know how old he is or how many cars he has financed. But thanks for the lesson.
nsxxtreme i apologize if i offended you and i apologize if i offend anyone else on this forum by stating the price of the 94 nsx
honestly i meant no harm and i was only trying to save anyone who would spend 38 on a 94, 7 thousand dollars. i feel there is no wrong in speaking the straight truth about the price of the car, you can fool the world with a 91 nsx some average person thinks is a 2001, simple, that was my plan because thats a good marketing in some sense. but on the forum i believe everyone "knows whats what" so i would just like to apologize again to anyone i offended.

ps. read up on my new topic "it is a sad day today"
Everyone always quotes all these great prices they "know" excellent condition NSXs are going for. Yet oddly I never see anyone with what I consider an excellent condition NSX who got it for a really low price.

Every NSX I've actually seen in person which sold for a really good price was sold at that price for a reason.
Listen to Todd, he's a smart guy and knows what he's talking about. I say to use your money to buy houses and buildings!
and good point Lud, about car prices.