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Originally Posted by GreyWolf
The incentives are bit misleading... they will offer you a "reduced" buy-out after the lease, but it's a bit of a shell game. A 3-year lease on a $20,000 car assumes you will use up $10,000 of the car's value, leaving the leasing company still "holding" $10,000. However, the car's market value is perhaps $12,000, and they will then offer to let you buy-out the lease for $11,000, a full $1,000 less than they plan to offer the car to the public. But you've already given them $10,000 through the lease payments, so they're getting $21,000 for a $20,000 vehicle.
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That's assuming that he purchases the car at the end of the lease. If he wants to roll into a new lease, then the manufacturer will give him incentives to do so. The issue is whether or not he views the car as an investment or not. There are arguments either way, but if the intention is to lease new vehicles every few years ad infinitum then that could potentially be the cheaper way to go since he'll never be with a car more than 4-5 years old and will have less cash outlay over that time. If the intention is to buy the car at the end of the lease, then leasing is a bad idea for all the reasons you've laid out, Grey Wolf. If he's going to jump from lease to lease and would be buying new cars every 3-6 years, then leasing is probably the cheaper option (depending on the deal).
If your work gives you a car allowance, then leasing is your best option. If you own your own business, you can lease it in the company name and get tax benefits that way.
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Sorry... I explained that poorly. If you normally carry only minimum insurance, the leasing company won't like that. They will insist on full coverage, a higher priced insurance package. A bank won't necessarily require that on a loan (it may). So the extra cost is that you might have to carry more insurance than you really want, not that the insurance is higher priced. If you, like I, carry full coverage, then there is no extra cost, except that you are always insuring a new car, as opposed to the slightly reduced cost of insuring an older vehicle when you purchase & hold on to the vehicle.
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If you only carry the state minimums (which is, in my professional opinion, a fantastically bad idea), then you're right. That said, the premium difference between the state minimum liability limit and $100k or $500k isn't really all THAT much.
In terms of physical damage, the bank lending you the money would be fiscally irresponsible if they let you insure the vehicle for less than the cost. Over time, the cost will drop as the value of the car drops, but that's an automatic thing, and it's unusual that an insurance buyer can state the value of the vehicle they want insured. The insurance carrier usually bases the insured value on the details of the vehicle when you take it off the lot, which won't be appreciably different on lease vs. purchase/loan.