Years ago leasing a car could be a wildly uncertain proposition.

Fast forward to 2018 and leasing versus buying has become far more common.

In this episode of iDriveSoCal David Latif, Executive Manager of Rock Honda in the Los Angeles suburb of Fontana shares some compelling reasons and builds a strong case for leasing versus buying your next new car.

Tom & David pictured talking as part of iDSC017 Rock Honda Buy vs. Lease Podcast Banner

***Transcript***

Recorded December 9, 2017

David Latif: Let’s put it really simple. Buying a car is not an investment. So if it’s not a good investment, why would you want to buy it? You know, as you drive the car, it started depreciating. Every day that you’re putting miles on it, every day that it’s getting weathered and it’s on the road, it’s losing value as you drive it, as it gets older. It’s not like wine that the older they get the more money they’re going to be worth. So you don’t want to own something that does keep going down in value because if you buy it, by the time you add the interest into the tax and license and everything, that $20,000 car is gonna cost you close to 30 grand. So and by the time you’re done paying that 30 grand, that car is probably going to be worth about five grand with all the miles on it. Tom Smith: Welcome to iDriveSoCal, the podcast all about mobility in the automotive capital of the United States – Southern California. I’m Tom Smith, and today we’re digging in to talk about something I only recently started doing and that is leasing my cars instead of buying.

I’m talking about leasing everyday drivers – the commuter that you’re putting 10,000, 15,000 miles on a year, the grocery getter, the kid hauler. Those cars are taking a beating anyway so why not lease them? Well, it took me a long time to come to the realization that I ought to be leasing and a few cars ago. My wife and I started leasing and I’m not turning back. I love it for a lot of reasons including I’m not so crazy about, “Oh my god, it’s got a little scratch.” “Oh my god, it’s got a little ding.” “I got to park it you know five rows away from all the other cars.” But with me today is my friend, David Latif. David is a longtime automotive professional. He’s also the general manager here at Rock Honda where we’re speaking to you from today. And David’s going to help walk us through the ins and outs of leasing, because it can be very intimidating. David, thank you again for joining me today and thank you for Rock Honda being a partner of iDriveSoCal.

David Latif: Sure, you’re welcome. Glad to be a part of it.

Tom Smith: So as I mentioned, leasing can be extremely intimidating. Heck, the whole car buying process can be extremely intimidating. For me, leasing was something that I didn’t do for a really long time because of the intimidation factor, and I was old school. I wanted to own the car. It was a stressful situation. And there was just more reasons to just buy and forget about it. But I’ve leased, as I mentioned in the open, I’ve started leasing. My wife and I started leasing, and I’m not turning back. I absolutely love it. Just from some high level facts first. When did leasing really become popular? So you know, in the old days, this is when I was a salesperson; we’re going back 20 years or so.

When you leased a car, the price of the car wasn’t disclosed in the contract. That was one of the biggest issue and problem with leasing because what they would tell you the price of the car is and what they would charge you would be two different things because you didn’t see anything. The price of the car could be 20,000 and they’re charging you 25,000. All you saw was a residual and the payment on the contract. The price was never disclosed. Ten years or so back, they change all the rules and laws. Now, the price shows on the contract. Since then, leasing has started picking up momentum and people are not really getting screwed leasing a car. In the past, people did. That’s why people have bad taste in their mouth when it comes to leasing. “Oh no, I don’t want to lease this.” So now whatever you negotiate with the dealership or with the salesperson on the price of the car, that’s what you’re leasing the car for and you will see that on your contracts. That was one of the biggest changes that came in that changed our whole leasing industry.

Tom Smith: We’re in Southern California. But some people might be listening outside of Southern California. Is that countrywide or is that a state?

David Latif: That’s countrywide.

Tom Smith: It is countrywide, okay. So that’s one of the factors when I’m leasing is the price of the car and one of the things that has made it more popular of recent times. What percentage of vehicles would you say are bought outright as opposed to leased?

David Latif: In today’s market, I believe about 70% of the cars are leased.

Tom Smith: Seventy percent?

David Latif: Seventy percent of the cars are leased. Nobody buys cars anymore. The new generation, they’re very computer savvy. They know how fast the technology is moving, the world of the computer and all that stuff, so these cars are going to come more equipped, and better, and safer, and better looking. So you know, with a lease, in three years, you’re out of it. Even in two years, you’re out of it. And most brands, in two years on a three year lease, you’re about break even, especially on Hondas. So, you know, why would you get stuck on a purchase? And not only that, when people purchase a car, you know, they’re excited about it. That’s a new car. And I was one of them.

They’re even planning on keeping the car forever, but it never happens. You know, I’ve been doing this forever but recently, I mean, the most they keep a car is three, four years, even people purchase them. You know, they see all these new cars on the freeway, or they see their mileage going up, or they see the car giving him problems and stuff, they change them even if it doesn’t. You know, you coming out of a car three years old or two years old with 20,000, 30,000 mile on it, and virtually can get into a brand new one for the same payment with nothing out of your pocket. I mean, you can’t beat it. And if you really love the car and you want to keep it, buy the car after the lease. You have that option.

It’s not like when the lease is done, you have to turn in the car. You have that option to buy the car. When we mentioned that residual, that residual is the balance of the loan. So if it’s a 20,000 car, for instance, and you’re leasing it, and the residual, which is the balloon payment, is 50%, that means it’s $10,000. So you can buy that car in three years for 10,000 and finance it for another two, three years. It’s yours.

Tom Smith: And the balloon payment is the leftover that you would need.

David Latif: Yes, and that’s why your payment is so much lower on a lease versus a purchase because you’re only paying for half of the car. On a purchase, that payment would be maybe 420, 430 where in a lease, it’s about 250, 260. So you’re driving more car for less money.

Tom Smith: And now, in previous talks that we’ve had using the $20,000 number, you mentioned tax, license, and all the accompanying fees that go along with it, those are based on the $10,000 price or the $20,000 price?

David Latif: Licensing you’re gonna pay regardless of whether your purchase a car or lease a car. The license fee is what the license fee is, but when you purchase a car, you’re paying tax on that whole, using that $20,000 number, you’re paying tax on that whole amount. When you’re leasing a car, you’re paying tax on every payment. In other words, you’re paying only tax for half of the car instead of paying for the whole car if you decide not to keep it. So that’s another benefit. You know, we were talking about earlier. One of the biggest thing that I experienced talking to customers, a lot of these people think that when you lease a car, it’s as if you’re renting a car, and if you buy it, you own it.

You don’t own it even if you buy it because in three years, you still owe whatever money the balance of the loan and the pink slip is with the bank until you make your last payment. By the time you pay off the car, to me, I mean, especially if you’re a commuter, there’s not going to be much left on that car. The car’s going to have over 100,000 miles on it, and that’s where you’re going to start fixing the car. And the money that you’re spending fixing the car, you could be making a payment and driving a brand new one.

Tom Smith: That was my last car. It was it was a luxury sedan, and my payment was like 750 a month, and I was out of warranty. I didn’t own the car. The bank owned it still, technically, and because it was a luxury sports sedan, I needed new tires and brakes all the way around, and that was a few thousand dollars. I’m like, okay, few thousand dollars plus 750ish, whatever the payment was, plus I don’t own the car.

David Latif: Also, remember that these cars have a lot of new technology in them. They’re not going to be cheap to fix. You cannot pull in a gas station and have a look at it and fix it for you. You know, they all have to be hooked up to the computers and all this new technology is taking a completely different toll and everything. So, yes, it’s not going to be cheap to fix these cars.

Tom Smith: You get to drive a lot more car than you could otherwise historically afford. But that’s a paradigm shift that we need to kind of… because that was the other thing, too, that kept me from leasing. It’s like, “Oh well, I don’t really own it, so I really can’t afford it.” Almost like I don’t deserve it because I can’t afford it, but it’s like, “Well, wait a minute, can I really afford to not lease because of some of those repair bills?” And then when I factor in, “Okay, now I have a family. The latest technology inevitably comes with the latest safety and I definitely want the latest safety for my family. So yeah, I don’t know.”

David Latif: Let’s put it really simple. Buying a car is not an investment. So if it’s not a good investment, why would you want to buy it? You know, as you drive the car, it started depreciating. Every day that you’re putting miles on it, every day that it’s getting weathered and it’s on the road, it’s losing value as you drive it, as it gets older. It’s not like wine that the older they get the more money they’re going to be worth. So you don’t want to own something that does keep going down in value because if you buy it, by the time you add the interest into the tax and license and everything, that $20,000 car is gonna cost you close to 30 grand. So and by the time you’re done paying that 30 grand, that car is probably going to be worth about five grand with all the miles on it.

Tom Smith: You know you, make a really good point that it’s not an investment because we think about car buying and it’s, okay, the biggest purchase that I’m making in my life is my house. The second biggest purchase is my car, but the house, that does appreciate. You do make money back on the house, typically. We’ve had some crazy times lately. But, yeah, you make a really good point that car is not an investment.

David Latif: You show me somebody that paid off their car and they spent 30 grand and they sold it for 35.

Tom Smith: So leasing makes all kinds of sense because I’m in the safest, newest technology. I’m not having to worry about the…

David Latif: Maintenance on the car, no.

Tom Smith: I’m under warranty. I don’t have to worry about the dings and the damage so much.

David Latif: No.

Tom Smith: What about the downside? And one of the downsides, for me, and another one that, you know, I was worried about this, I was worried about that. But another thing that I was worried about was the mileage. It’s like, “Okay, well, then I have to predict the miles that I’m driving.”

David Latif: That’s a really good question. People that they’re commuters, and I have a couple of my finest managers that lease cars and they live in Orange County, they drive long ways. There’s no way out of putting a lot of miles in a car. Let me give you a good example. Let’s say you buy a car and you’re a commuter, and you’re putting a lot of miles on it. And you decide in three years you’re going to trade in your car. So when that car comes in and we look at the blue book on the car, there’s a plus and a minus for mileage on the car on the blue book. So if your car books for 12,000 but it has a big deduct for miles for $3000, $4000, that’s the same as you do on a lease. There’s no difference.

So people are afraid of it. Yes, ‘m going to put a lot of miles. The end result is the same except, on the purchased car, you paid a lot more in monthly payment and at the end, you’re going to get that deduct for miles, same as a lease, no difference. So people need to realize whether you’re purchasing a car or leasing a car, if you’re putting a lot of miles on it, you are going to pay over mileage fees. So, to me, I think it’s smarter to lease a car. At least your payment is lower. You’re not paying anything for maintenance, and if you don’t like the car, you don’t have to get stuck in it for five years. You know, sometimes we get all excited about something, and a month later, we’re like, “I don’t know. I’m not too sure about this thing.”

And I’m a perfect example of it. So I think it’s old days, and I don’t really blame people for not favoring towards lease. Just the fact that there were so much kink and fraud and everything was happening on a lease contract that the consumer never knew. You know, they would hear one thing, and on the paper, it would be completely something different. And just because the price of the car wasn’t disclosed, they had no clue. All they would see is the balloon payment and the payments. And by the time they figured it out, for a $20,000 car, they paid 50,000. So thank God all of that stuff has changed. Everything is disclosed just like a purchase. Every detail on the contract is in front of you.

Tom Smith: Just going back to miles real quick, that was another thing that really what you point out, having to predict the miles, makes it all the more important if you’re putting that big time miles on on an annual basis. That was another element of my trepidation in going towards the lease, but the way that you frame it makes all the sense the world. It’s like, well, yeah, of course, the miles are actually going to cost you less if you lease as opposed to buy. So just stop being lazy…

David Latif: Yes.

Tom Smith: …and figure out what you think you’re going to do on an annual basis, which I did, but I did begrudgingly and, you know, I had a hard time doing it. Like, “Oh, I gotta figure this out, whatever.” And then I also felt like, “Well, I’m losing my freedom.” Really?

David Latif: You know, you can buy miles ahead of time. That’s the cheapest way to do it when you’re leasing a car. If you really know you’re going to go over 15,000 miles a year, you’re going to go 20,000, 25,000, buy the miles ahead of time. If you buy it ahead of time, I’m speaking for Honda, it’s 10 cents per mile, where, when you return it and you wanna pay for the miles it’s 15 cents a mile. So I always recommend to people that if you’re driving more miles than 15,000, just buy the miles ahead of time.

Tom Smith: A lot cheaper.

David Latif: A lot cheaper and it will give you freedom of driving it.

Tom Smith: Does Honda have anything…can you only buy miles either up front or on the back end? Is there any kind of midstream where you buy…?

David Latif: No, you got to buy the mile upfront.

Tom Smith: Okay. I actually also brought a car back. Some things changed my life, but I want to bring the car back with almost 20,000 miles to go on it, and I was kicking myself a little bit. I think since then, there’s some…the world has changed since then quite a bit. There’s actually a company, there’s a couple of companies out there, I believe, where you can put your car up for usage online where people would drive your car for Lyft or Uber or whatever, and I wish that that was around when I was bringing the car back. It had a lot of miles to go. So leasing makes all the sense in the world for so many reasons. When we go to buy a lease, and I started leasing four years ago, and that’s my wife’s car and my car. So I think we’ve leased now two times four cars total. I obviously work with car dealers, and I still I’m not 100% certain on all the terms and whatnot of the lease. I mean, basically, I go in and I say, “Okay, well, how much down, and how much is my monthly payment, and where’s the hidden fees? What’s hidden?”

David Latif: See, on a lease, the only thing you should really worry about and concentrate is how much out of your pocket and how much you’re paying a month because that determines the price of the car. And the best way of finding that out is going through websites. If you’re buying a Honda, you go to Rock Honda website, and the factory, usually, posts all these special leases. Those are the best deals. You don’t have to worry about anything. When a factory puts a lease together, it’s not for a dealer. It’s for consumers. They want to be aggressive on the market. The competition is tough. So these leases are very aggressive. So if you want to lease a car and you go to a website of a dealership and look at their specials, and if you can get a little bit more off that, you’re doing great.

Tom Smith: Because that’s what the factory is putting up there.

David Latif: That’s what the factory is putting out. It’s not from the dealership; it’s from the factory.

Tom Smith: What about I see it on TV, on a TV commercial? Same thing?

David Latif: Same deal.

Tom Smith: That’s the benchmark. That is a good deal because it’s a factory deal and that deal is going to be available everywhere.

David Latif: Yes, the only downfall on a lease is you’ve got to have good credit to lease. You cannot lease with marginal credit.

Tom Smith: Describe marginal credit that just barely gets into a lease. What’s the low end of somebody that can get into a lease?

David Latif: You know, it’s not just about the FICO score. Obviously, it’s the whole credit detail that pops up when you run a customer’s credit. Some people are a first time buyer and they score at 700. You know, they don’t qualify for a lease.

Tom Smith: Really?

David Latif: Yes, but you get a guy that his credit goes back 10 years, and homeowner, and obviously has some slow pays and stuff, and his credit is 626, 640, they’ll lease him a car. But if you’re just fresh or you have bad credit, especially if you’re late on car payments and stuff, that’s a no-no on the lease. W

Tom Smith: When you’re leasing a car, the paper holder is always – at least a car from Rock Honda – the lease company that I’m working with is Honda Finance.

David Latif: Yes.

Tom Smith: Is there ever a situation where it’s not Honda Finance; it’s a different bank?

David Latif: Old days, yes. Old days, Wells Fargo, BVVA, they all had very aggressive leasing and stuff, not anymore. Right now, Honda, nobody can touch Honda’s lease. They’re very with aggressive rates and everything else with the residual. So yeah, all the leases, 99.9% of them are going through Honda.

Tom Smith: I know you’re a Honda guy, but is that the case pretty much for all manufacturers, do you know?

David Latif: Yes, yes.

Tom Smith: So when I go to lease a car, the parameters that I want to look at to make sure that I’m getting a good deal.

David Latif: You mean when you go lease a Honda?

Tom Smith: When I come to Rock Honda to lease a Honda.

David Latif: Yes, yes, you come and ask for me.

Tom Smith: I come in and I say, “I’d like to speak with David Latif…”

David Latif: Yes.

Tom Smith: “…because I heard him on iDriveSoCal, and I’d like to lease the 2018 Honda Accord.” And, of course, I’m gonna get a phenomenal deal, but what am I looking at as a buyer getting down to the nitty gritty of the numbers?

David Latif: You know, I always recommend and suggest that people, before you go to a dealership, they do a little bit of homework as far as what kind of car they want. You know, it’s crazy. When people say, you know, “I hate going to a dealership because it takes forever to buy a car.” It’s not really the case because 80% of the time we spend is looking for a car that customer wants because they don’t know what they want. They want this one. Then they could change it to that one. Because if you really know what you want and you come in and you know we have the car, you’d be out of here in 45 minutes.

Tom Smith: I’m smiling real big right now because I have to admit, my wife and I, our last time we narrowed it down and I mean it was probably a three hour…we stopped short of going out for dinner as we decided between…I think it was that color was really the thing.

David Latif: Yes.

Tom Smith: I agree. We as consumers definitely prolong the process.

David Latif: Absolutely, and the consumer doesn’t see that as part of why it took four hours to do this thing.

Tom Smith: That’s your fault.

David Latif: Yeah, the first three hours we’re looking for a car for you. You drove five different cars.

Tom Smith: Man, it takes forever at the dealer. Those dealers take all my time.

David Latif: Very true.

Tom Smith: We talked about this a little bit off mic, but I want to bring this back up. The typical lease is around three years.

David Latif: Yes.

Tom Smith: In Southern California, lots of us drive great distances, and if the typical factory warranty is three years 36,000, but say I’m getting a lease for three years, and I’m putting 15,000 on a year, that puts me at 45,000. So I’m bringing a car back in that situation with a bit of a difference.

David Latif: So there’s a lot of different options you can buy when it comes to warranty. There are warranties that give you more miles, less term, and there are other warranties that you can buy that gives you long term and less miles. So if you’re driving a lot and the miles will come first, then you’ll take the shorter term as far as years. Take three years and 50,000 miles, for instance, because you know you’re going to have the car for three years, and you know you’re going to get close to 50,000 miles. So you buy that ahead of time just to cover yourself just in case something happens to the car. But in most cases, you know, the engine, transmission in most of these cars are covered for four years, 50,000 miles. And those are the two most expensive parts of the car. So they’re covered. I wouldn’t worry about covering it for another year.

Tom Smith: And even if I’m doing that, meaning even if I’m doing 15,000 or even 20,000, 25,000 miles and adding in an extended warranty, I’m still better off leasing than buying.

David Latif: Yeah, because if you bought it, wouldn’t you want to buy the same warranty? You put into miles. The warranty doesn’t change when you lease or buy a car.

Tom Smith: Yeah, and that goes back to your point earlier that you’re putting the miles on, why not put them on under lease when the miles are actually cheaper?

David Latif: Especially if you know you’re beating up the car. You know you’re going to beat up the car. You’re putting miles on it. Like you said, you’re going to run around with the kids, and the grocery, and all that stuff, the dings and scratches. Why would you want to buy something like that and own it?

Tom Smith: Not an investment.

David Latif: No, unless you’re buying an old classic 1967 Corvette or something.

Tom Smith: Right.

David Latif: Those are the ones you want to buy.

Tom Smith: Then you keep it in the garage maybe under environmental control, yeah, museum type. I got you. All right, well, this has been a big help for me, personally, so thank you. And I know everybody listening to the podcast will get great benefit out of this talk as well. Is there anything that we didn’t cover that we should regarding leases? Obviously, of course, you gotta lease your Honda at Rock Honda in Fontana.

David Latif: That was the part you forgot.

Tom Smith: I was gonna get there.

David Latif: I’m glad you mentioned it. That’s it.

Tom Smith: That’s coming next, that’s coming next. But other than that, is there anything else that I missed?

David Latif: No, no, we covered everything. Like I said, I don’t think you should be afraid of lease. Try it one time. Lease a car for three years. I think you’ll be happy with it. Once you go to leasing a car, I don’t think you’re gonna buy it anymore.

Tom Smith: Yeah, I’m not going back.

David Latif: It’s that fear of, you know, old school and rightfully so. Back then, leasing was horrible.

Tom Smith: Yeah, a little scary, it’s new, and…

David Latif: Yes.

Tom Smith: …times are different.

David Latif: I mean if you see all these professionals, doctors, attorneys, I mean, these are all educated people. They’re leasing cars. They’re no dummies. If they’re going to lease cars, it can be that bad.

Tom Smith: It’s not an investment.

David Latif: It’s not an investment. Don’t look at it that way. And it’s not yours either way. Don’t say, “My car.”

Tom Smith: The thing that I spend money on but the bank actually owns.

David Latif: Absolutely. And by the time, like I said, we’ve made the last payment, there’s not much left on that car.

Tom Smith: All right, well, David, thank you so much for all the incredibly valuable information. Your expertise is greatly appreciated. iDriveSoCal podcast listeners, you can always come see David in person right here at Rock Rhonda. Rock Honda’s on South Highland Avenue in Fontana and at rockhonda.com. For iDriveSoCal, I’m Tom Smith. Don’t forget to subscribe to our podcast. Follow us on social media and, of course, follow Rock Honda on social media as well.

David Latif: Yes, thank you. Yes, and if you mention Tom Smith, you’re going to get a special deal from us.

Tom Smith: All right, there you go. Thanks again, everybody, until next time.

David Latif: Thank you.