 Leasing an Automobile
You see the ads all the time saying how
cheap your monthly payments will be if you lease your next new car.
The payments are actually affordable on a car that you could never
afford to go out and buy the normal way.
Leasing is basically a way to finance that is similar to a normal car
loan. But, you should not lease unless you have an understanding
of what all a lease entails.
Leasing is not renting. When you rent a car, you can take it
back and swap it for another one if you want. You cannot do that
with a lease. It is not easy to terminate a lease.
Leasing seems attractive. You have lower payments, you can
switch out cars more often, and financing is often easier than on a
loan. About 75% of all luxury cars are leased.
So why is it that everyone seems afraid to lease?
Is leasing a car the smart move financially?
Leasing seems to be a better deal for drivers who like to have a new
car every few years. The payments are less than on a purchase and
you can drive a nicer car for the same price as a purchase payment.
But, if you drive the same car for more than 5 years, leasing is
definitely not for you.
Normally, leases require less money at the deal than a purchase does.
Maintenance costs are not a problem, because most lease cars have a
3-year warranty and that expires about the same time as the average
lease. A three-year lease seem to be the one that works best for
the average driver.
Leasing is more complicated than buying and you need to be prepared
or you could wind up with a bad deal.
With a lease, if you agree on a $30,000 car for 2 years, they
estimate that it will be worth $18,000 after the 24 months. You
will pay the difference of $12,000 (the depreciation) in lease payments,
plus finance charges and fees. When you buy, you pay the $30,000
plus the interest.
This is why lease payments are so much less expensive.
In most states, you will pay sales taxes on the payments you make,
there will be a something that is similar to interest on a regular load,
there will be fees and sometimes a security deposit that purchasers do
not pay, some states will have you paying property taxes on the vehicle
(can be hundreds to thousands of dollars) and you will make your first
payment when the contract is signed instead of waiting one month.
Once the deal is struck, the dealer sells the car to the leasing
company for the price you agreed upon. It is the leasing company
who is actually leasing the car to you. The dealer is basically
just a broker who gets a commission on the deal. From then on, you
will be the leasing company's customer. The dealership will only
be involved for warranty work.
The leasing company may be part of the car manufacturer's business or
it may be a bank or credit union.
It is possible to find a leasing company yourself. You may get
a better price since they are considered fleet deals. But, a car
dealer can take care of everything in one trip.
At the end of the lease, you can choose to buy the car for the
specified price or to extend the lease. This is more expensive in
nearly every case. If you do choose to let them have it back, you
will lose any equity that you have built up in the car.
The Negatives of a Lease Include:
-
Insurance rates are normally higher on a lease car, because the lease
coverage will include GAP insurance.
-
If a lease requires a down payment, you will have to pay that out of
your pocket to switch cars.
-
You must negotiate a lease just as you would a new car purchase.
Unless you are after one of the attractive leases that are advertised on
TV, you will have to haggle over the details.
-
There are expenses to leasing that you
do not incur when purchasing a car.
-
With many leases, you can only add
factory available customizations to your car without incurring a
penalty. Each lease is different and this should be addressed
before signing paperwork.
-
There will be added fees when you turn in your car. If the
dealer determines that your car has more than the normal wear and tear,
there will be fees for the repairs. Fees of anywhere from 5¢ to
20¢ per mile will be added if you go over the contracted mileage.
This can add up quickly. At 20¢ per mile, you would have to pay
$600 in fees on the mileage alone.
-
Leasing is always more expensive than buying a car and keeping it for
several years, because you will always have payments when leasing, but
purchasing payments will stop. This is true even factoring in
maintenance on the purchased car.
The Bottom Line:
If you like having a new car every two or three years and having the
latest gadgets and safety features, like having a warranty, keep your
car in good shape and don't trash it, appreciate a lower monthly payment,
do not want to deal with trading or selling your used car, do not need
to build up equity, you have an even lifestyle and drive at or below the
average miles per year, and don't mind actually paying more in the
long-run, you would be a candidate for leasing.
But, if you like the idea of having ownership, drive the same car for
years, can handle higher monthly payments, prefer paying off
your loan so that you are payment-free for periods of time,
can handle the
unexpected repairs when your warranty has expired, drive
more than the average amount of miles, want to customize your car,
or you think that your
lifestyle may change in the near future, you should buy your
new car.
|
