Obviously the dealer is hiding some cash someplace, maybe some kind of rebate or a kickback from the lease company. I have to assume that the best cash price would be significantly lower than the $31,092.48 that he paid.
What you talking about? The car manufacturers offer 0% interest deals all the time. Here is one of Toyotaâs current lease deals: http://www.legacy.buyatoyota.com/specials/specials.aspx?specialId=10894 for a 2008 Camry. It isnât as good a deal as my lease since I was buying at the end of the model year, I was buying a fully loaded car not the base model, I have 15,000 miles a year instead of 12,000, I didnât do a down payment other than my first months lease payment, and most importantly I wasnât paying MSRP. The residual value is set based on the MSRP and the lease is based on the difference between the residual and the negoitated price so the closer you get to invoice the better your deal is. Still, as you can see the numbers come out pretty good. Finally, I should point out that at the time there were no APR or cash back deals on the Camry like there are now. Still, there is only up to $500 cash back available.
$2,199 down payment (included first monthly payment)
$6,965 in monthly payments ($199*35)
$12,856 residual
Total: $22,020
MSRP: $21,075
Dealer Participation: $154 (I am guessing this from the difference in capitalized cost, MSRP, and downpayment from their numbers)
Cost of lease over cash: $1099 ($22,020 - ($21,075 - $154))
âWhat you talking about? The car manufacturers offer 0% interest deals all the time.â
I really hope you are joking. There is no such thing as a real 0% loan, thatâs ridiculous. They are simply discounting the sale price of the car by the amount of the actual interest payments for the duration of the loan. Itâs just a sales gimmick, if I walked in with cash and they did not give me (at least) the equivalent discount on the price I would be an idiot to buy the car. Do you seriously think there is a source of 0% capital out there someplace?
Only if itâs an Azure or a 599 GTB Fiorano. Well, maybe a Brooklands. The rest are for the Philistines.
I agree. The dealer and manufacturer make out on the 0% loan because of the spread between MSRP and the true acquisition cost. Note that the real cost to the dealer is 2% to 3% under invoice, and that there are fees associated with the loan. And the no-interest loans are for a short period, this maximizing someone elseâs profit.
BTW, Craig, weâve been agreeing entirely too much lately. We need a good fight! ;^)
âBased on that logic, I should pull a couple of $100K of equity out of my house by refinancing at 5% (and also take a tax deduction) and put that money in a mutual fund that has been historically returning 10%.â
Thatâs basically what my financial-planner stepma told me: due to the tax-favored status of home interest, youâre usually better off paying for your house as slowly as you can get away with (same basic decision). She also advised me ALWAYS to fully-fund a 401(k), even if I had to borrow in order to do so.
She also advised me ALWAYS to fully-fund a 401(k), even if I had to borrow in order to do so.
Now, I am not a financial planner, but I do a lot of reading and that is just wrong. You should only fund a 401(k) enough to get the matching money from your employer, because youâre getting free money. While the money is initally untaxed, you must pay taxes in your current tax bracket when you retire. Most people are in a higher tax bracket at 65 than they are in their 20s and 30s, which means you pay more taxes on the same money.
There are tax benefits to funding a 401(k) now (it lowers your taxable income and can put you in a lower tax bracket), but that is certainly not good advice for everyone. Also, 401(k)s conservatively get an 8% rate of return and personal loans have a 10% interest rateâŠthat doesnât sound right to me. The advice Iâve always seen is to contribute whatever you must to get your employerâs maximum match, fully fund a Roth IRA (taxable now while youâre in a lower tax bracket), and then if youâve got money left over, increase contributions to your 401(k).
Like I said, Iâm no financial planner, but this is what Iâve always read. Sorry this is way off topic, but I didnât want people getting bad retirement saving advice.
What you talking about? The car manufacturers offer 0% interest deals all the time.
Show me ONEâŠjust ONE deal where the person who got 0% financing wasnât paying at MSRP or very very cloase to MSRP. Sure you can get 0% financing when you pay $30,000 for a car whoâs MSRP is $30,000. But Iâve NEVER EVER seen a dealer whoâs discounting the price by $3k and still offering the 0% financing. This a pitfall many many people get caught in because they donât understand the finances. Dealers play this game all the timeâŠand people keep falling for itâŠTHINKING they are getting this great deal.
ââŠdue to the tax-favored status of home interest, youâre usually better off paying for your house as slowly as you can get away with (same basic decision).â
Also consider that the figures that I listed didnât include the tax savings from putting your money in a tax-deferred account like a 401(k) or a 403(b). Putting money into a tax-deferred account lowers your taxable income.
Craig, did you know that your anti-borrowing position can potentially increase the taxes you pay to Uncle Sam?..that is, if you pay cash for something instead of putting that money into a tax-deferred account for retirement. You are choosing to pay more taxes than you have to!
âI am not a financial planner, but I do a lot of reading and that is just wrong.â
Yes, it is a good idea to also invest in a Roth IRA [or a Roth 401(k)], but the balance between the accounts is based on an analysis of each individual case. A good certified financial planner will help you find the best balance of accounts based on your circumstances and your reirement plans.
âBTW, Craig, weâve been agreeing entirely too much lately. We need a good fight! ;^)â
Yup, Iâm getting too mellow in my old age.
To jaxlw1âŠ
See what you started! 
I would have to agree you on this. I mean not everyone can afford to buy just like me.