Vehicle Leasing: alternative investment

» Happy - alternative investment

The decision to pay cash or lease depends on your net cost of the lease, and whether you think you can put the cash in an alternative investment such as the stock market and make more than the net cost.
When I did an IRR analysis I was being charged about 5% for keeping the use of my cash. Since this is a business auto, I am able to deduct the lease payment in full. This brings my costs down to about 3%. So, you have to ask yourself, can I beat 3% by investing the cash in an alternative investment?
In 1997 when I leased my Cadillac, I put the 40k in the S&P500 and doubled my money over the next 3 years. But since 2000, when I leased my Lexus, I have lost money, as well as paid 3%. It is a gamble. It is very similiar to the decision of whether to pay cash for a house or take a mortgage out, and invest the cash elsewhere.

Of course, all the above presupposes you have alread decided to get a car, and the only decision is whether to lease or pay cash.

-- posted by Happy