This is a bit long, but if you're thinking of leasing, please read on.
I just finished a 3 year lease on a 2005 MCS and I want to share my experience so others don't make the same mistake. I'm not making excuses, I take responsibility for my decision. It was a bad decision, and I'm dealing with the consequences. Here's the story...

In 2003, I bought (financed) my first MCS. I loved the car, but wanted to upgrade to a 2005 with shorter gears and a few more horses. At the time, I had over $5600 equity in the 2003. Payments on the 2005 would be about $355 over 5 years. But since I don't put a lot of miles on my MINI, and I planned to trade-in again after the turbo was introduced, I asked about leasing. Leasing would lower my payments to $281 and I was advised that, if the car appraised above the residual value, I'd actually have some trade in value at the end of the lease. I even bought additional miles on the lease, just in case my work situation changed and I needed to commute. I was told I could sell-back my unused miles and this, together with any above-residual value, would be similar to the equity I'd gain if I were purchasing. I suspected that, if I purchased, I'd have more equity at trade-in time, but it seemed like the lower monthly payments of the lease would make up for that.

Imagine my surprise at the end of my lease, when I was told that I could not sell-back my unused miles, and there was no offer to appraise my pristine 3-year-old 15,000mi. car for anything above the lease-end residual value of $14723. At the end of 3 years, I had paid around $15000 ($5600 down + $9327 in payments), to drive this car 15,000 mi. (about $1/mi. *not* including gas). Not a very good deal, but it gets better. It was going to cost me an additional $350, if I walked away from the lease without purchasing another car, and around $250 to replace the windshield due to a smaller-than-eraser-sized chip within the area covered by the wipers. So $600 at lease-end for the privilege of walking away. Talk about adding insult to injury.

The best option that I could find, in this bad situation, was to buy the car. (Something I should have done in the first place.) Generally, $14723 for a 3-year-old MCS, with only 15000 mi. is a great price (unless you've already got $15000 into it). So that's what I did. Even then, they tried to charge me the $350 lease-end disposition fee. Fortunately, I had a copy of my original lease agreement, and was able to show them that it clearly stated this was not charged if I bought the car.

So, unless you have a specific business reason to keep car expenses as a pure expense item vs. a capital acquisition, in other words if you're an average buyer, just buy the car. If you can't afford the payments, save up one year's worth of lease payments for a down payment, and then buy the car. If you lease, you may pay less on a monthly basis, but its going to cost you much more in the long run. After 8 years, I'll own this car and have paid over $34000. Had I just bought it in the first place, my total payments would have been around $26000 (original price $23019).

 

I'm sorry to hear you had a bad experience, it sounds like someone told you some fibs about leasing:

1. I have never heard of someone being given money for miles that aren't used. You would have to negotiate this up front or get a lease with lower miles.

2. The residual value is locked when you sign the contract, this also is standard when leasing.

3. The $350 fee can only be charged if it's in the original contract in some way, if it's not there they cannot make things up.

4. The windshield as you describe it sounds like overkill, I assume this dealer doesn't plan on another sale from you.

Last but not least, if you want to do anything with cars other than turn them over every three years leasing is ALWAYS a bad idea. The dealer will always come out ahead as they write the contract, carrying costs and final values and both you and the market have no say.

 

Unless you really can't afford the purchase payments, it doesn't make sense to lease a car with such good resale value as the Mini (resale depends on the region, obviously, but you're in CA which is one of the strongest markets). The residual value will most likely be understated so you'll end up paying way too much just to rent it. And it looks like your dealer misled you on several fronts...

 

I think the resale value of the MINI makes a big difference in the lease equation. Also, to a certain extent, the difference between 2 and 3 years on the length of the lease.

Given the resale value of the MINI, I was $5K to the good with my 2003, after just 2 years on a 5-year loan. So I don't even think it makes a lot of sense to lease a MINI on a 2-year contract. Other cars, maybe, but not the MINI. On a 3-year contract, it makes even less sense to me.

 

Sorry to hear that. Some cars lease well, some don't. I almost leased an '08 GLI for $371 after tax. Four year's of payments would be almost $18,000.

Compare that to four years in a mini that sells for $26,000 with tax, and then resells for $16,000.

 

Leasing can make sense if the money factor is lower than the interest rate on a comparable loan. You just gotta run the numbers.

 

Thanks for the cautionary tale. We are going to order our first Minni Cooper in the next few days and are uncertain how to finance it. All the little online quizzes say we are candidates for both. I have always owned my cars; my husband's lease is about to expire. His lease was a nightmare. It was an expensive American-made car. So in the end it was not even worth buying. Do you, or anyone who reads this, know anything about the Mini Select option? Sounds like it's an interest only loan. But if you make a healthy downpayment and add some principle to the payments it could work out. Or not. They say at the end you have three options: buy the car, sell the car to them or refinance. If they do buy it back from you, I have a feeling this car this is suppose to retain it's value unexpectedly loses more value than usual. Any insights?

 

I had a very similar situation with a Audi A4. They tried to stick me with everything from a less than eraser size chip in the windsheild to tires that had less than 10k on them that they charged me for...To make matters worse the Turbo blew with 44,000. miles 1000 after the warranty expired. A common problem with the 1st gen A4's, after going all the way up to the V.P. at Audi North America,( He denied a problem with the turbo, even after I gave him the A4 website that proved him wrong) I had a shade tree mechanic put a turbo from a totaled car with 100,000 miles I drove it in and walked away...I will never buy and Audi after that.

 

Was your Audi problem with the car or with the financial arrangements you made?

Leasing is not for everyone............if you get a new car every couple of years and want the lowest ownership cost and don't drive an excessive number of miles, leasing a car may be for you. In most cases it's smarter and more cost effective to buy.

In the OP's post, the best thing for him to do financially was to buy the car out of the lease and sell it outright, recouping the money he thought he would - that would have put him right where he thought he would be at lease end, out of the car with a little extra money back in his pocket, that he chose to keep the car and finance the balance is what made the deal unattractive - it would be the same for any lease deal. Chosing to finance the remaining balance over a a period is no different than getting an 8 year loan on the car - of course it will be expensive when you total the payments. Ever total the payments on a 30 year home loan? Don't do it, it will just make you sick...........

Leasing a car does not make sense for most people, especially here in the conservative midwest..........

 

A little of one (the lease) and alot of the other (the car). Luckily I had the "Platinum" lease where all I had to do was drive it in walk away...However, all of the things that were in the lease pertaining to what I would owe when I turned it in ended up costing me $1000. As the other posts have stated, if you are going to lease read the fine print very carefully. I was talked into the lease by the finance guy but never again...Most lease so they can have a much more expensive car that they couldn't normally afford. The better informed you are the more you can negotiate if you do decide to Lease...

 

i want to put my $.02 in as a Finance guy. not in a dealership but i don't want to hurt feelings. in the future i would always recommend buyng the item to build equity in. a lease is really just you paying the sealership for the pleasure of driving their vehicle. you're kind of putting yourself in a real bad situation especially since their maintenance is not going to be great and your liable for repairs that is only going to profit the dealer twice. blown turbo in that 04 Audi. most people would have paid the dealer to replace it and then the dealer is just going to be able to resell it later with a great new turbo. it kind of sucks from a consumer side unless you are expensing it as a business cost.

 

Equity in a daily driver type automobile is somewhat laughable. If you like to change cars every 3 years or sooner, then leasing is typically attractive. But, you need to make sure that a few areas are in your favor such as cap cost (purchase price more or less), interest rate and residual value. If any of these are not in line then leasing doesn't make sense.

Sounds like Mini's don't have one of these areas in alignment which would make leasing a poor option. My guess is that the residual is lower than normal and interest rate is higher than what is should be.

My .02cents says that it all depends on the deal at hand.

 

Nice to see an informed post...

The concept of building equity in a car is an interesting one. While many here might have equity in a car, the average consumer today puts little or no money down and finances the car for a longer and longer term every year. Many people take out 72 month loans, and some are even taking out 84 month loans. In these situations, the only equity you are building is negative equity... where you owe alot more on the car than it is worth.

No offense intended to anyone else, but the people that rush off to say "leasing is bad!!!" are either uninformed or just biased. Leasing can be bad in some scenarios, and it can be really good in others. The important factor is that you go in to your purchase informed about your options. It's also a great idea to find out what the rate and residual are that your dealer is using to calculate your lease, and to check their math with one of the many online lease calculators (or if you are one of the few people that can calculate the lease manually, you can do that... I can explain how to do it if anyone is curious).

When can a lease be bad? When the residual is very high but the lease rate is also very high (you pay lots of interest). When the residual is very low (below what ALG projects the car will be worth at the end, and you pay more depreciation than you have to).

I have access to the current lease programs from MINI FS, and the residuals are pretty strong, and the lease rates are not bad. They are not a bargain, but certainly not bad. The rates are tiered, and if your credit score is 700+ the rate that you are getting is not a bad rate for this type of car.

The other factor that determines if leasing makes sense is to look at how long you will keep your car, and what you figure the car will be worth at that point when you are ready to sell it. If you plan to keep a car for 4 or more years, a lease is not for you. If you typically keep a car 2-3 years, and you take good care of your cars, and you drive an average amount of mileage, a lease can be very good for you. If you are planning to get a very loaded MINI and will want to trade/sell it in 2-3 years, a lease can be a fantastic idea for you (since highly optioned cars lose more money compared to lightly equipped ones, but they use the same residual percentage of MSRP), since the residual is probably going to be higher than what the car would be worth in 2-3 years and you can avoid the resale risk.


The bottom line about leasing is to go in to it as a well informed consumer. Know all the numbers that they are using to calculate the lease-- cap cost, MSRP, residual, money factor, acquisition fee, etc. Then check all their math and make sure it looks right before you sign. Also know what you are signing... see if there is a disposition fee, know what the allowable mileage is and what they charge per mile if you go over.

 

When I was buying my new Clubman, I looked at the Mini lease program. I've leased about a half dozen cars in the past and I could not imagine ever leasing from Mini. There was nothing attractive about their program.

That said, if you lease a vehicle, it makes a huge difference where you return the car at the end of the lease. If you have to return it to a 3rd party, then you will be nickeled and dimed for every nick a defect beyond what was on the car the day it arrived at the delearship. This is the first question I ask and I get the answer in writing. I will only return a car to the dealership where I purchased it. Dealerships are much more tolerant of nicks and scrapes and typically don't try to gouge you. But 3rd parties make their money finding ways to make you pay them to return the car.

 

Looks to me that the Kelley Blue Book private-sale value on the car is around $20,000. You would come out $5000 ahead if you sold it now--except you financed it so you've got lots of interest to pay for, too. Shame you couldn't arrange the sale ahead of time.

My $.02 on leasing in general: Changing cars frequently is expensive. Here's my story: 1993 MX-6 (purchased used in 1998), 2001 Jetta 1.8T (36-mo lease), 2004 MCS (purchased new). After 10 years between all 3 cars, I will have paid a total of $50,000! It took me a long time to realize that affordable monthly payments add up to real money eventually.

 

the average consumer? this is laughable. for me at least. i've had my car for 2 years and am $1,500 away from owning entirely. a lease is always a bad idea. if you can't afford the car figure out something else. like he said he was able to buy it out at close to 15k. good deal maybe? he already put a ton into that lease. my payment to own was $364 i make payments of $550 this cut my ownership timeline to 2 years and 4 months. instead of 5 years.

if you can't understand the lease you shouldn't consider the lease. the lease creates a lot of variables and "the average consumer" only see's the monthly payment and they don't understand how the interest rate is defined.

in a lease you express the percentage as a decimal value. 9% becomes .00375! not many people understand the difference and are often confused by it.

consider that he makes payments on the loan instead of on the lease. he's paid enough into the car 17,315 using the OP's original numbers that he would be less than 6k from owning! so he paid a 9k penalty for his choice to lease and ultimately buy.

he also mentioned he had equity in the car before this one! i think this is a lesson that average joe should always buy.

other than as a business expense if you really think that leasing is a good idea raise your hand. i submit that it is not. so before you tell me building equity in a car by the end of three years is laughable you should consider that the OP HAD EQUITY IN HIS AFTER 2 YEARS why wouldn't the average JOE buy the car.

your presumptions are ill fated.

 

The #1 reason leases ARE bad have been well represented here....You lose control of the transaction. Dealers will find every reason to make lots of money on the reconditioning even if it needs little to none. These costs are not predictable and cannot be well figured going in to the deal and is part of the true cost of the lease

Secondly the whole premise of it being a good financial idea is built on a bad financial idea......buying a new car every 2-3 years is not a good financial move to begin with, the lease MAY make the bad idea cost just a smidge less but it is still a bad idea to take the constant butt kicking in depreciation.

and finally as you say...."one of the few people that can calculate a lease manually"........nobody should ever to anything with money they do not understand!....If this principle was adhered to then those who do a lease would be few....So I say that unless one CAN in fact calculate a lease manually it is NOT a good idea to lease.

 

I lease a car every 3 years for my wife. I don't mind dealing with the long-term ownership of a car for myself (more handy and prepared to be stranded on the side of the road), but I like to know that she is in a new, trustworthy car. Yes... we pay for it, but it makes sense for our situation. It isn't all 'equity' and 'finance' for us... peace of mind is worth something.

I'll admit that it can have it's downfalls. I am always sure to get a copy of the return policy (what is acceptable wear and tear and what is not) before I sign anything and pick up the car. It should state clearly who is responsible for the windshield ding.

When ready to return the car, I take it around with me to the various dealerships that we are investigating for the next car and tell 'em that I'm interested in trading it in. If negotiating, I treat the car as if I own it. Should I get a good offer (above my buy-out price, which is what I think would have happened with your MINI), I'll buy it out myself and trade it in.

A lease is some hedge against a vehicle losing its value as well. We leased an SUV for her back before SUVs got very popular. They were holding their value very well as they were more like trucks... a definate use and demand seen for them in the future market... so we got an incredible residual value. Unfortunately for the real owner (Nissan), during the lease period the market was FLOODED with SUVs and they depreciated much more rapidly than expected. The car was worth over 5k LESS than the buy-out figure, so we could hand over the car, wash our hands of the deal (smiling at the great rate we had for the previous 3.3 years) and walk away.

 

I think we were typing at the same time. If you are doing a pure $ analysis, Leasing isn't always the right choice. If you gain an emotional benefit from leasing a slightly more expensive car than you could afford, it might be worth it to some people. If you gain a peace of mind benefit from leasing, it might also offset the negative financial aspects. To make a blanket statement that it's a 'bad idea' to lease is only analyzing one aspect of the purchase. If we were to make every auto acquisition decision based on that one factor, we would all be driving 10 year-old Honda Civics... inexpensive cars with low maintenance, cheap insurance and low gas mileage. They are ugly as sin and provide no real driving pleasure, but they get you from A to B cheaply.

I'm actualy amazed to see a pure financial analysis here on NAM... a place that is dominated by modders who are flushing 1/4 of their mod value down the drain as soon as they bolt it on the car and another 1/4 in 5k miles (myself included )! Obviously we value much more than financial gain or else we wouldn't be driving a MINI, would we?

I will agree whole-heartedly about your comment regarding back-calculating the lease figures. I did that when a dealership made me an first-round offer on a Nissan Murano (Courtesy Nissan in Dallas, TX, BTW). I stopped, looked at the sales person and said loud enough for everyone in the sales floor to hear me: "I'm sorry... your first offer must be a mistake! You really expect me to pay $2000 OVER sticker for a Murano when you have 40 of them on the back lot and the other 4 dealers in town have the same inventory? I suggest that you find a manager and have them check your numbers... then I would like them to come over to me and explain your error to me." (of course, there was no error and everyone in the place knew it).

BTW: When their next offer came down to the sticker price, I said (again, a bit louder than I needed to) "I'm sorry... I bought my last car here because you gave me a fair deal and I trusted you. I assumed that you would make me another fair offer. That was obviously my mistake. Consider that trust gone and make me another offer while I call another dealership. This one is unacceptable." I pulled out the cell phone and called another dealership and asked for an available sales person. I told him my credit score, gave him the inventory # of the Murano I was looking at, told him the story of what just happened and said that I had a check in-hand to sign that afternoon. He called me back in 5 minutes with a price that backed out to $500 over invoice... a fair price for them to make a profit and a fair price to me to get the car. I went over to sign the paperwork that afternoon while the sales manager at Courtesy chased me out the door, promising to match the price.

 

agranger, i love your posts in all the categories i've ever seen. i lay claim to making some blanket statements on lease. i think i was pretty clear that there are the exceptions but for the most part "average joe" should avoid the lease because tabulating lease rates in the mind is not a typical strong point for people. you did quite well in your dealings and i'm sure some others have too. IF YOU CAN FOLLOW THIS MODEL AGRANGER LAID OUT, then you stand a much lower likelihood of being beat up on your lease.

however given that the mini's popularity, production #'s and resale value have held steady for 6 years i would back my financial model that owning our cars is better than leasing them.

 

Since you are being so nice (blush), I'll admit that a lot of people lease who have absolutely no business doing so... financially, at least. I'm a pretty low-risk and responsible kind of guy when it comes to finances. There are a lot of people who took those 'interest only' mortgages who are wondering why the government isn't bailing 'em out of the bad decisions that they made... buying too much of a house for their situation.

Leasing definately isn't for the feint of heart or the financially careless. If you are someone who will sign a contract before reading it thoroughly and negotiating every point, it probably isn't for you.

PS: I had some great lease software on my old Palm Pilot. It was well worth the $40 I paid for the software just to watch the sales manager sprint towards my raised voice when I figured the $2000 over STICKER play they were trying to make! :D

 

I'm leasing my Audi; I'm buying my MCS outright.

With my lease deal, the interest rate was so low that I could lease it for 3.5 years, see where the residual is compared to what the car's worth, and buy it without losing any money versus financing the car. I'd have all the upsides of buying without the downsides--more money up front, having to sell your car, and potential diminished value.

Leasing becomes very attractive when you get into an accident. You get the car fixed by insurance and turn it in without any problems. However, I could easily take a $5K hit if I tried to sell a car that had been in an accident.

 

I've just signed a contract to lease a mini - however not with the dealer, as they wanted $200 per month more than the deal I eventually got. The best deals were fairly easily available on the internet, with a lot of competttion driving the price down. I appreciate over say 6 yrs it would be cheaper to buy, but being realistic I'm going to change cars every couple of years, so leasing looks ok to me. (I hope!)

 

If you want slighly lower payments, and a new car every 2-3 years. It may make sense to lease, since you're never going to see much equity from a purchase over that time frame. But, you also need to use almost exactly the number of miles permitted by the lease to 'break even', since the residual value is based on that. Even so, if you think you would accumulate *any* equity over a lease term (above and beyond the difference in monthly payments between leasing and financing), you're probably better off buying, because those are dollars you *won't* see at the end of a lease.

Keep in mind, leasing is a 'product' separate and apart from the car. As such, its designed to be a money maker. Its a bit like Las Vegas, in that the numbers have been crunched to give the advantage to the 'house.'

 

That was incredibly well said!