Lease quote questions...

David Darby · July 29, 2016

Hello all!

I am new here because we're interested in leasing a 2016 GMC Sierrra 1500 Denali. We have visited some dealerships and we got quotes for $398 with $998 down plus tax, title, and licensing fees. This is with OUR GM Employee discount and competitive lease rebate. Does this all sound like a good price? We never leased one before, so we don't know what to expect.

Thank you all!

fbachman · July 29, 2016

There are so many more variables in the leasing equation than there are in the straight financing equation that it is impossible to determine this with the information you provided.

Also, leasing is very very sensitive to the lease contract vs. your driving needs/habits (in terms of mileage per year).

Depends on the residual, mileage allowance, mileage overage charge, money factor and other things.

For example, if you average 50,000 miles per year of driving, and the lease you refer to provides 10,000 free miles per year, this is most likely an awful deal for YOUR NEEDS.

It is very difficult from a cash flow diagram perspective to determine parity between leases. With straight financing, it is easy to determine parity between two finance deals.

There is a pretty strict "truth in financing" law. There is no "truth in leasing" law. That's just a fact.

My recommendation: Educate yourself on leases--- what all of the variables are and your good understanding of it. A quick google search should provide loads of good information on how lease deals get configured. Also, understand your driving requirements. Do you consistently drive the same mileage per year?---- or is there a significant chance that a eminent life change may all of a sudden require you to drive 2x the mileage next year than this year?

There are never guarantees, but this must be considered. If the lease is paid monthly, there is a hidden finance charge called the "money factor", for which there is no law indicating that it has to be explicitly exposed. Yes, you are financing the lease amount for the duration of the lease (monthly), and they charge interest for that. Do NOT rely on the dealer to explain this. Chances are the guy doing the deal has no clue. He is a software operator, not an accountant/mathematician.

Speaking from a strict mathematical/financial perspective, leasing (for a private individual) is almost NEVER beneficial over financing outright. That being said, a lease can put you in a pretty nice vehicle for what appears to be a reasonable cost per month. I made the point of mathematics because, no matter how you twist it, leasing is money that is "gone", period. Financing still gives you the benefit of building equity and more flexibility/independence on a future vehicle swap. This is more true with a truck, as they tend to hold their value better than almost any other class of vehicle today.

Back when leasing first became extremely popular (some 20 years ago, i believe), the big three finance companies didn't call leasing "fleecing" for nothing. It was a new way for car companies to sell a vehicle to someone that truly couldn't afford it outright. Sounds harsh, but that's the truth.

Just some stuff to consider. I am not passing judgement on leasing. For fleets and businesses, leasing can make a tremendous amount of sense and save money. There are tax benefits, and other implications regarding fleet maintenance, depreciation and the like. For individuals, it is SELDOM that a lease makes financial sense when viewing the entire transaction at face value--- as opposed to a straight finance.

Better off financing slightly used than leasing new (IMO only).

Boardmember · July 29, 2016

Leasing is renting the vehicle. When you move out of the apartment, you have nothing. If you leave holes in the sheet rock, stain the carpet and drive too many miles, they keep your deposit AND make you pay additional.

Imcrazy · July 29, 2016

I've leased about a dozen vehicles, it's a great way to go, it has it's pros and cons. That sounds like a really fair deal assuming you're getting 12k miles per year. I'm paying that much for a 48k sticker price LT Silverado.

Imcrazy · July 29, 2016

. For individuals, it is SELDOM that a lease makes financial sense when viewing the entire transaction at face value--- as opposed to a straight finance.

Better off financing slightly used than leasing new (IMO only).

Care to elaborate? Except for cases where people keep their vehicles long beyond the finance terms I don't really see much of an advantage as long as you negotiate a good deal. Lets say you do two 36 month leases vs a 72 month buy for arguments sake and you trade in the 72 month buy vehicle in month 73 of ownership. Granted some people get hosed on leases, I've always been able to save about $200 a month over buying, with sign and drive leases. For instance my 48k sticker SIlverado LT lease payment w/ tax, sign and drive is $310 a month 39k total miles over 39 months, to finance the truck at the negotiated price would be right around $600 a month. I don't see how to justify the extra $290 months in my book, I drive the truck, never pay a dime to maintain it outside of a few oil changes. I'd have to keep that same truck for 12 years (assuming zero maintenance cost) to get the monthly cost down to $300.00. However assuming 12k miles per year you're gonna hit 144k miles in that period of time I'm thinking you're gonna drop 3-5k in up keep which adds $25 a month to your operation cost, granted the truck is probably still worth 10k at that point so now you trade it in on a new one and wind up with a payment closer to what you'd pay on a lease however, you're driving older technology after year 3-5 and having to deal with keeping it up. Buying used CPO seems like a good value if I didn't lease new I'd buy CPO but, I sure do like having a new ride every 2-3 years.

David Darby · July 29, 2016

There are so many more variables in the leasing equation than there are in the straight financing equation that it is impossible to determine this with the information you provided.

Also, leasing is very very sensitive to the lease contract vs. your driving needs/habits (in terms of mileage per year).

Depends on the residual, mileage allowance, mileage overage charge, money factor and other things.

For example, if you average 50,000 miles per year of driving, and the lease you refer to provides 10,000 free miles per year, this is most likely an awful deal for YOUR NEEDS.

It is very difficult from a cash flow diagram perspective to determine parity between leases. With straight financing, it is easy to determine parity between two finance deals.

There is a pretty strict "truth in financing" law. There is no "truth in leasing" law. That's just a fact.

My recommendation: Educate yourself on leases--- what all of the variables are and your good understanding of it. A quick google search should provide loads of good information on how lease deals get configured. Also, understand your driving requirements. Do you consistently drive the same mileage per year?---- or is there a significant chance that a eminent life change may all of a sudden require you to drive 2x the mileage next year than this year?

There are never guarantees, but this must be considered. If the lease is paid monthly, there is a hidden finance charge called the "money factor", for which there is no law indicating that it has to be explicitly exposed. Yes, you are financing the lease amount for the duration of the lease (monthly), and they charge interest for that. Do NOT rely on the dealer to explain this. Chances are the guy doing the deal has no clue. He is a software operator, not an accountant/mathematician.

Speaking from a strict mathematical/financial perspective, leasing (for a private individual) is almost NEVER beneficial over financing outright. That being said, a lease can put you in a pretty nice vehicle for what appears to be a reasonable cost per month. I made the point of mathematics because, no matter how you twist it, leasing is money that is "gone", period. Financing still gives you the benefit of building equity and more flexibility/independence on a future vehicle swap. This is more true with a truck, as they tend to hold their value better than almost any other class of vehicle today.

Back when leasing first became extremely popular (some 20 years ago, i believe), the big three finance companies didn't call leasing "fleecing" for nothing. It was a new way for car companies to sell a vehicle to someone that truly couldn't afford it outright. Sounds harsh, but that's the truth.

Just some stuff to consider. I am not passing judgement on leasing. For fleets and businesses, leasing can make a tremendous amount of sense and save money. There are tax benefits, and other implications regarding fleet maintenance, depreciation and the like. For individuals, it is SELDOM that a lease makes financial sense when viewing the entire transaction at face value--- as opposed to a straight finance.

Better off financing slightly used than leasing new (IMO only).

Well I do understand how leasing works. I have leased many vehicles before and it's the perfect option for me since I like new vehicles often and I do not have to worry much about the vehicle because it's not mine. Thank you for all this information but my only real question was if my lease quote sounded reasonable as I have never leased a Sierra before...

Leasing is renting the vehicle. When you move out of the apartment, you have nothing. If you leave holes in the sheet rock, stain the carpet and drive too many miles, they keep your deposit AND make you pay additional.

I understand thank you! I will not be putting a deposit down and I have never had any of those happen in my previous leases but good things to keep in mind.

I've leased about a dozen vehicles, it's a great way to go, it has it's pros and cons. That sounds like a really fair deal assuming you're getting 12k miles per year. I'm paying that much for a 48k sticker price LT Silverado.

Yeah I got the 12k miles. I have leased so many vehicles it's just a great option for me, for others not so much.

hurricanoday · July 29, 2016

I think this is a great topic. I bought a 15 denali and plan on leasing my next gen truck, but have no idea about leasing. So for a example I got my almost 60k msrp denali for just under 52k, how would that equate to a lease?

fbachman · July 29, 2016

I think this is a great topic. I bought a 15 denali and plan on leasing my next gen truck, but have no idea about leasing. So for a example I got my almost 60k msrp denali for just under 52k, how would that equate to a lease?

The answer to that question lies in developing a cash flow diagram for both options, discounting them both back to net present value, and comparing said NPV (net present value).

Again, from a mathematical perspective, the NPV on a lease is RARELY (like never) more the the NPV on a purchase.

This is not the venue for an engineering economy lecture. It would get boring real quick.

The argument above that you do not pay for maintenanceon a lease is true whether you buy OR lease. Both cases have the same warranty if you are looking at an identical vehicle. Thus, that is not an argument FOR or AGAINST leasing. It is an equivalence. If you hold a purchased vehicle longer than the warranty, then you have to factor in equity in the comparison, and the lease has no equity, ever.

The "renting an apartment" analogy above is a good one. Essentially, the lease/finance agency holds all the cards. You're paying (more than) the anticipated depreciation on the asset for the time you have it (trust me you are, it's how they make their money), you're financing the lease cost and paying the money factor (more money they are making), AND, you are obligated to cover any damage, etc.. No equity is being built.

One can have a little fun by asking a dealer how much the lease would be if you paid the entire lease fee up front. Try it. You'll get strange stares, and they will have to call someone. If the say, "well, take your payment and multiply by the number of months and pay it up front," RUN. It it is a reputable dealer, they will say they have to call the lease/finance agency. If you get a legitimate number on that question, look at the difference between what you pay if you pay all up front, or monthly. That let's you determine the money factor. It will surprise you.

Bottom line, if everyone (but the customer) didn't clean up on a lease, they (leases) wouldn't even be offered to us.

Again, we all have to do what we find is the best solution for our needs. If you want to lease, and it works for you, then lease. I only encourage everyone to understand the financial instrument, whether it is a finance or a lease.

I am not criticizing anyone for their choices.

fbachman · July 29, 2016

Care to elaborate? Except for cases where people keep their vehicles long beyond the finance terms I don't really see much of an advantage as long as you negotiate a good deal. Lets say you do two 36 month leases vs a 72 month buy for arguments sake and you trade in the 72 month buy vehicle in month 73 of ownership. Granted some people get hosed on leases, I've always been able to save about $200 a month over buying, with sign and drive leases. For instance my 48k sticker SIlverado LT lease payment w/ tax, sign and drive is $310 a month 39k total miles over 39 months, to finance the truck at the negotiated price would be right around $600 a month. I don't see how to justify the extra $290 months in my book, I drive the truck, never pay a dime to maintain it outside of a few oil changes. I'd have to keep that same truck for 12 years (assuming zero maintenance cost) to get the monthly cost down to $300.00. However assuming 12k miles per year you're gonna hit 144k miles in that period of time I'm thinking you're gonna drop 3-5k in up keep which adds $25 a month to your operation cost, granted the truck is probably still worth 10k at that point so now you trade it in on a new one and wind up with a payment closer to what you'd pay on a lease however, you're driving older technology after year 3-5 and having to deal with keeping it up. Buying used CPO seems like a good value if I didn't lease new I'd buy CPO but, I sure do like having a new ride every 2-3 years.

What happens if you keep the leased vehicle for 73 months? Right, you end up financing the car for the residual. Again, you have to maintain equivalence in the comparison. Again, gotta look at it that way as well.

Again, there's financial equivalency, and then there's your personal needs. Again, if it works for you, and you are comfortable, then that is good.

Take your example above :

" Lets say you do two 36 month leases vs a 72 month buy for arguments sake and you trade in the 72 month buy vehicle in month 73 of ownership."

Well, that's a perfect example, and one that I have used on final exams for an engineering economy course. If you are that interested, ping me off line, and we can run the cash flow diagrams for both leases, add them together, and compare that to one 72 month finance.

2 leases = 2 deposits (potentially), two finance streams at a (generally unknown) money factor. Also, don't forget the financed vehicle will have equity at the end.

My 9 year old Sierra with 120,000 miles on it still got me $13000 when I sold it last month. I believe the price I purchased it for in '07 was $37k, or so. So, (excluding maintenance), that cost to me was $222 per month for those 9 years. I actually ran the numbers, and for that Sierra, with maintenance costs included, the $222 ends up being about $255/month.

9 years is three 3 year leases. I seriously DOUBT one could lease three new equivalent cars for 3 years, at a pop, for an equivalent/average of $255 / month out of pocket.

True, I didn't have a "new" car every 3 years, but, hey. Again, whatever cranks one's tractor.

JacobC1983 · July 29, 2016

Well I do understand how leasing works. I have leased many vehicles before and it's the perfect option for me ................................... as I have never leased a Sierra before...

What does this even mean? You say you leased many vehicles and then in the same paragraph you save you have never leased a Sierra before and don't know what to expect? Its the same process, different vehicle.

Silvern Sentry · July 29, 2016

Hello all!

I am new here because we're interested in leasing a 2016 GMC Sierrra 1500 Denali. We have visited some dealerships and we got quotes for $398 with $998 down plus tax, title, and licensing fees. This is with OUR GM Employee discount and competitive lease rebate. Does this all sound like a good price? We never leased one before, so we don't know what to expect.

Thank you all!

If you are shopping by monthly payment amount you are doing it wrong period.

Only ever shop by your out the door price, you then figured out the lease terms which set the obligation. Your residual value is the out the door - obligation. Your payments are obligation+tax / number of months and interest rate.

You need to work the numbers form the top down. NEVER EVER work the numbers from the bottom up for if you are, you have already lost the battle.

Andy Seibel · July 29, 2016

If you are shopping by monthly payment amount you are doing it wrong period.

Winner!

People who think leasing is a good deal are only looking at the monthly payment and not the total cost. Grumpy Aero Guy is right on, but his long explanation of facts may be lost on some.

There are only two people who should lease (financially speaking):

1) the guy who has money to burn and wants to be in a brand new denali every 3rd year.

2) the stupid guy who can't figure out the math and doesn't care he is burning money.

If you have money to burn, bless you. I wish I was in your shoes.

fbachman · July 29, 2016

Winner!

People who think leasing is a good deal are only looking at the monthly payment and not the total cost. Grumpy Aero Guy is right on, but his long explanation of facts may be lost on some.

There are only two people who should lease (financially speaking):

1) the guy who has money to burn and wants to be in a brand new denali every 3rd year.

2) the stupid guy who can't figure out the math and doesn't care he is burning money.

If you have money to burn, bless you. I wish I was in your shoes.

heh, I was trying not to state it that bluntly.... LOL

kind of like gambling or the lottery: A tax for folks with bad math skills

njk4o5 · July 29, 2016

the thing that scared me on the lease was the "wear and tear" charge at the end. I feel like the dealer could screw you on that.

gmckeef · July 29, 2016

if you are budgeted for a car payment and know how many miles you drive, leasing is by far the best option. I've had a car payment since my first car 18 years ago. It all depends on you. If you keep your cars for 10 years than obviously purchase. If you plan on buying out your lease, DON'T, just purchase it now. If you buy out your lease you will lose thousands of dollars in the 3 years. If you get bored with cars (like I do) every 2 or 3 years, lease. Those stupid 20% rebates gm started throwing out don't affect leases what-so-ever.

To answer the OP question, yes that's a good lease price. GMC employee discount can lease a Denali cheaper than an SLT. CHeapest i've seen an employee lease for is $350. The residual dropped a bit over the last few months but that is still a heck of a cheap lease on a 60k truck.