[ibamars]

First, buying a car every three years or so is very expensive, but if you must .. then leasing is a better option over time. Especially cars that do not depreciate as much like a Lexus. You can get 60% residual for a $70,000 car and drive for much less down and much less car payments than buying. You would be in about the same position as far as equity if you bought. (about broke even -- owing about as much as the car is worth)

Again your spending money on something you do not OWN. Leasing is cheaper on a monthly basis yes. But if you look at the overall value you are paying for the car you are getting gouged. We buy cars based on payments nowadays.

Ex I like that car. The dealer says, I can put you in it for $350 a month. You say, ok. But, when you break down the math what are you really paying for that car.

$18,000 MSRP. Finance term 60 months at, we will use 6% if you have somewhat good credit. $350x60 =$20890. thats just the car. Dont forget taxes, did you sign up for the exetended warranty, how about gap insurance. add that all up and your into it for $22,000-$23,000. Ok so now five years go by and guess what you need another car. So you go out and do it again!!! Waste of money. What if you bought a $2,000 car and paid cash, then in 12 months you saved up $8,000. now you can go out and buy a $10,000 car cause you have a $2,000 car and you have $8,000. so now you are not invovled with payments and you own the car. PLus you gave yourself negotiating power cause you are not based on what it costs you a month. I will not go into leases cause if you really sit down and look at what you are spendning on those you would choke. A car is the worst investment out there based on the depreciation value.

But, this requires capital, a credit rating above 780, and convincing the bank you are going to be successful where other have not

Absolutely, so if you cannot afford it why put yourself into debt and set yourself up for failure right away. Again the lease is set up for the leasing company not the consumer.

I lease a 2005 freightliner from XYZ company. They tell me it will cost me $400 a week. Well thats $1600 a month. I sign the agreement for 3 years. Now, $1600 x 12 (1 year) = $19200 x 3 (years) = $57,600. Well the company has already been paying on the truck for 2 years. We will figure the truck has $25,000 paid against it. Plus, you have a ballon payment at the end, if you decide to own it for $10,000. So you bought a truck for $67,600 but $25,000 of it has already been paid and the truck listed for $57,000. So we spent $67,600 on a truck that has already had $25,000 paid on it. The value has definitly gone down since 2005. So, we are spending approximatley 3 times more money on something of lesser value. Think of it as like a credit card. I buy a computer for $1,000 but because I dont pay it off at the end of the month, now I have interest tacked on. So now my computer, Which I payed a $1,000 for, with interest, cause I dont pay it off every month and I only make the minimums. I am into that computer for $1200 or more depending on when I pay it off. The only difference is I didnt sign up to pay for the computer for 3 years. Anyways, hope that one made sense.

Know matter what dreams guys have of owning their own truck this is not the way to do it.

Enough said.

Spencerian sorry I rambled so long in your post. Obviously you realize you learned a hard lesson here. Make sure you are analyzing the original paperwork you signed and see if the stuff you are mentioning is covered in there. If you cannot figure it out before you pay one dime have an attorney look at it. Dont give them anymore than you have to.

Good Luck

[Rev.Vassago]

Originally Posted by ibamars

I lease a 2005 freightliner from XYZ company. They tell me it will cost me $400 a week. Well thats $1600 a month.

Therein lies the difference between leasing a car and leasing a truck. Usually, these Lease Purchase companies charge a rate that is HIGHER than purchasing a truck outright. C.R.E. charges around $600 a week, I believe. That comes out to $2600 per month to rent a Freightliner. I am paying a hundred dollars less per month for my 379 Peterbilt, and I OWN it. I can take it wherever I want, and I don't have to pay a company an inflated "maintainance cost" that they take out per-mile.

[kc0iv]

Originally Posted by ibamars

Again your spending money on something you do not OWN. Leasing is cheaper on a monthly basis yes. But if you look at the overall value you are paying for the car you are getting gouged. We buy cars based on payments nowadays.

Ex I like that car. The dealer says, I can put you in it for $350 a month. You say, ok. But, when you break down the math what are you really paying for that car.

$18,000 MSRP. Finance term 60 months at, we will use 6% if you have somewhat good credit. $350x60 =$20890. thats just the car. Dont forget taxes, did you sign up for the exetended warranty, how about gap insurance. add that all up and your into it for $22,000-$23,000. Ok so now five years go by and guess what you need another car. So you go out and do it again!!! Waste of money. What if you bought a $2,000 car and paid cash, then in 12 months you saved up $8,000. now you can go out and buy a $10,000 car cause you have a $2,000 car and you have $8,000. so now you are not invovled with payments and you own the car. PLus you gave yourself negotiating power cause you are not based on what it costs you a month. I will not go into leases cause if you really sit down and look at what you are spendning on those you would choke. A car is the worst investment out there based on the depreciation value.

Let me say up front I am not talking about these FLEECE programs.

Leasing vs buying depends on many factors. Most of the time buying is the best approach for private purchases. When it comes to businesses most of the time leasing is the better approach. Again it depends on what it is and what tax advantage you have on leasing vs buying. One other factor has to do with maintenance.

One thing Ramsey never seems to discuss is the additional cost of repairs and who pays for these repairs. The last numbers I have for auto repair cost is the national average is over $6000 per year. Needless to say that average goes up and down depending on such things as age, type of vehicle, and how much work you are capable of doing yourself. Your example of paying $2000 for an auto and saving $8000 toward a newer vehicle goes out the window with just one major repair.

In todays world very few people have the ability (nor the equipment) to do their own maintenance. It was thing to fix your own vehicle back in the 50's and 60's. It's a total different matter fixing one today. When it comes to big trucks it is even worst. That diagnostic tool for your auto might cost you $200 while for your big truck is going to cost well over $2000 if you can buy one.

While I agree with most of what Ramsey says most of what he address is directed toward consumers not businesses. Business purchases is a totally different matter. As an example SCORE (Counselors to America's Small Business) says 8 out of 10 businesses in the US use equipment leasing and approximately one-third of all new equipment is leased. See: http://www.score.org/advantages_leasing.html

In the end leasing vs buying is a matter between you and your accountant. What works for one person may not work for another. The one thing I will say is the purchase of a new vehicle normally is not a good idea. It is normally better to get something that is a couple of years old.

Let me say again -- IT IS NEVER good deal to purchase a truck through the company you are leased to. Purchase your truck and then lease on with a company.

kc0iv

[Uturn2001]

One thing I learned years ago is that when someone says never or always it is often not an accurate statement. It may be 99% true 99% of the time, but there is usually at least that 1% of the time when it is not.

Since every one's situation is different, be it consumer or "industrial/commercial" the option of lease vs. buy is one that must be carefully considered for every item.

Take automobiles for instance. If you are the type who needs or wants a new vehicle every 2 or 3 years then leasing may be a better alternative since the major depreciation occurs during the first couple of years. If on the other hand you plan to drive the wheels of it, then of course leasing would not be the most attractive way to go.

When it comes to trucking however, 99% of the lease/purchase deals offered by carriers have long proved themselves to be high risk with low gain ventures. Leasing a truck may be the right thing for your business at any given time, but leasing or buying a truck and financing it through the same company that basically controls your income is foolhardy to say the least.
===============================================
For you wannabe O/O"s

Here is something to consider. If you look at the pay rates of general freight companies, those companies who do not have an age requirement on trucks are often the ones who pay the best. The only requirements for many of these companies is the truck is DOT qualified and looks decent.

[Crackaces]

Originally Posted by Rev.Vassago

Therein lies the difference between leasing a car and leasing a truck. Usually, these Lease Purchase companies charge a rate that is HIGHER than purchasing a truck outright. C.R.E. charges around $600 a week, I believe. That comes out to $2600 per month to rent a Freightliner. I am paying a hundred dollars less per month for my 379 Peterbilt, and I OWN it. I can take it wherever I want, and I don't have to pay a company an inflated "maintainance cost" that they take out per-mile.

Just to clarify.

When you lease, you borrow the money to pay for the cost between the Settled price of the item and the depricated or resdiual value at the end of the lease. The plus for a lease is no money down, increasing cash flow, better tax breaks (business), and the ability to keep vechicles in warentte.

The negative is that you never own the truck or car.

So let us assume we decide that what is best is that we need cash flow.

When I used this in my orginal post I was calcualting the deprciation fee only and not money factor. That will equate to about 400 per week for a 100,000 truck with a 40% residual after three years.

However ... Companies like Prime, CRE, etc are using APR to borrow the only to pay for deprciation (and even higher!!) That is how you get $600 .. $700 a week payments. How many people can afford three year $60,000 loan at 21%?

OK somebody on this group is going to tell me that Leases do not use APR .. they use Money Factor OK What is Money Factor?

Money Factor = Lease Charge ÷ ( (Net Cap Cost + Residual) x Term )

To compare apples to apples you can convert the money factor into APR:
Interest Rate = Money Factor x 2400

The interest rate right now for buying a truck for an indvidual with good credit is around 14.5%. It requries at least 10% down and 20% will be more like it.

Here is where companies are Usary in perfroming their duties:

1. Charging an outragious money factor for what is a secured item.
2. Charging an outragious Net Cap cost (You are leasing a used truck for new cap cost)
3. Charging outragius fees to execute the deal.

Then we get into the companies starving the driver out of the truck ....

So to figure out a lease ..

First figure out how much depreciation or residual value you are paying for ...

Depreciation Fee = ( Net Cap Cost – Residual ) ÷ Term

Let us assume 100,000 truck at 40% residual over 3 years.
1666.66 or about $416 per week.

Now we have to pay interest on the money we are borrowing to pay off the depreciation.

Finance Fee = ( Net Cap Cost + Residual ) × Money Factor

(Yes you add captial cost to Resdiaul to get the average cost of the money)

So a money factor for 21.75% interest is 0.0090625
For 5.75% interest is .002395

(If you do the math do not covert 21% to .21 .. the constant 2400 compensates for this)

Finace charges for 140,000 at 21.75% = $1268 per month or $317 per week

Finace charges for 140,000 at 5.75% = $335 per month or $83.75 per week

So Under CRE, Prime etc my $100,000 truck cost $300 per week to finance the loan to lease the truck at 21.75% and about $416 to pay for depreciation.

Now it gets worse because CRE is not providing a 100,000 truck ...
Funny ... many are paying $600 a week for a Columbia .... :shock:

85,000 MSRP at 40% resdiual .. 34,000 51K financed ... at $600 per week you figure the Money factor and the APR :idea:

HEY WHAT happend to spell check?

[Crackaces]

In my previous post I wrote how to figure out the cost of a lease ...

Now the really expensive part of breaking a lease ..

All the payments are due .. now

So for our truck say we are a newbie and we do the typcial three months and quit. You are in a 36 month lease or 156 week lease and you make say 12 payments.

You owe ... 144 payments .. now!!! Plus any penalties for breaking the lease and added fees for recover. Leases are very very expensive to break. Typcially for a car teh break even point is about 6 - 12 months from the end of the lease period. They figure out the money factor and residual to make that happen .. so you will be on the hook to lease again.

However, they take possession of the truck/car and the FMV is subtracted from the total amount of payments due .. however figure the lowest of blue book values not the value you see in TruckPaper.com

So along with paying 21% interest, added fees, maintiance costs, having your company starve you out ... Let us say that companies were less than usary ... the Leasing deal has one more major risk .. you do not like living on the road and you decide to quit. The leasing deal has a huge hook that is very expensive to unhook. Even if you got 5.75% from a bank .. it is going to cost you more than you have in captial to get out of the lease.

Newbies .. do not lease .. old timers already know the deal ..