Leasing!? Why would I?

I always thought leasing was a bad idea but working in the car business has taught me a  few things about it. My fear of it and distrust was really just a case of misunderstanding. Leasing, although not for everybody, is not a bad thing. It used to be, and a lot of people were taken advantage of in the past but new laws have been passed in recent years to prevent this. It used to be that dealerships were not required to disclose the "price" of the car that they were leasing to the individual and the focus was only on payment. These days the "purchase" amount of the car is disclosed.

Here is how leasing works.

Leasing a car is a lot like buying one. A purchase price is agreed upon for the vehicle (similar to negotiations in the buying process), a term (the length of time the lease will be for is set), a monthly payment amount is established and in many cases a down payment or "customer participation" is required. Down payments are not always required. These days there are many "sign and drive" deals available where all that is required is the first payment.

The main difference is this between buying a car and a lease is this; at the end of the term you give the car back. However, you do have the option to buy the vehicle for what it's worth at the time of the lease conclusion.

Here are the benefits of a lease:

You don't end up "financing" the entire value of the car, so you can get more car for a lower monthly payment.

Here's how it works: First off, when you agree on a lease term (lets say 3 years) then what happens is the dealer takes the value of the car and subtracts the depreciation amount is for that particular vehicle for the term and then they add the interest and the cost for the amount of miles you'd like for each year. This all adds up to your monthly payment. This means you are really not paying for the total value of the car because at the end of the lease the car is worth what the current market value of it is at that time, so the dealer then has to deal with it any difference between any projected market value differing from the, then current, market value. In the case of Toyota those who leased a few years ago were much better off then those who bought one and financed it because there were so many recalls that the value to the cars dropped, so those who bought one owed more then they were worth (we call that being "up-side down" in the car business). But those who leased were able to escape unscathed by what the recalls did to the vehicle values and at the conclusion of their leases they could buy the car for the lesser value and the dealers took a hit because the cars were worth less then was projected a few years before. In this way it really paid off for those who leased instead of bought because those who bought and financed ended up, like I said earlier, "up-side down", owing more on the car then it was worth.

If you love the car you can buy it at the conclusion of the lease.

This is great about leasing. You already got more car for your money (the fancy wheels, the higher quality sound system, the navigation package, etc) for the monthly price of the base model and, well, three or four years later you still love the car. This means you can buy it for much less then the original sticker price was because you have been paying it down for three or four years already! The next benefit beyond getting the car you love with the features you have to have is that you can, at the conclusion of the lease, buy it for the price of a used car! You can even finance the rest of it. And since you are the only owner, you know the history of this “used” car and you know it has been taken care of and serviced because you have been doing it. You can also buy an extended warranty at this point and extend the manufactures warranty and since it is a used car the price will be less then the extended warranty on a new car. And again, your monthly payment is going to be less because you are going to be financing only what you have not already paid.

As I have shown, if monthly payment is what it is all about, then you can get more care for your money if you lease and you can buy it later and keep that monthly payment low. There is a downside to this but if it is all about payment then this next bit of information is really is irrelevant to you. When you finance the car after leasing it, you end up paying used car interest rates which are a little higher then new car rates. Also, the term of financing the remainder of your car can put you paying for the vehicle for a total of up to eight years. This would be the case if you leased if for four years and then financed it for four years to pay it off. That does add up to quite a bit of interest in the end. It is better to save money side while you are leasing it and pay off the total amount when you go to buy it at the conclusion of the lease term.

Never worry about costly repairs.

Another benefit to leasing a new vehicle is that the vehicle is covered under warranty. Almost all of car manufactures warranty their vehicles for a longer term then that of their lease. This gives some peace of mind. All that is left is the standard stuff, change the oil, keep the fluids up and depending on the amount of miles you drive you may need new tires in that time but generally most tires will last for the lease term. This standard maintenance is required to keep the warranty valid so it is pretty important to keep up with it.

You never know what happen in four years, you may need a bigger car by then! So trade it in for a new lease.

You never know what will happen a few years down the road. Marriage, kids, adoption, change of employer, you never know what the road a head will bring. With a lease these things are less daunting because you can simply trade the car in.

Let me give an example.

You have a family car that you purchased and then you decide to lease a second car that you use drive to work. Now, because of the economy, no fault of your own, your spouse looses their job and the household income decreases! What now! You all of a sudden can’t afford the lease payment for the second vehicle! Well, the car you leased you can turn in early. There will be a penalty but this is much better then repossession and hurting your credit score that way.

Also, what if you had to have that sporty little car and then needed the minivan in a few years but still had three years to go on that auto loan! Well, if you leased you'd be done and could simply buy or lease the vehicel that better fits you current lifestyle.

Responsibility beats stupidity.

In order to lease a car your credit score needs to be near 660 to lease but score is not everything. The bank looks at other aspects like homeownership and things like that which show financial responsibility. This shows the bank that they can trust you to pay back what they let you borrow. And the bank rewards you for our responsibility by giving you low interest rates whether you lease of buy. Now it is important once you get that lease to keep up with your credit. Don’t get dumb! This can affect your current lease and disqualify you from getting a lease when this one is up and can also disqualify you from being able to buy the car at the end of the term or buy a different car at that time. So don’t be dumb, be responsible and it will pay off, literally, by saving you money now and in the future!

Leasing is not for everyone.

Like I said earlier; leasing is not for everyone. If you drive a lot of miles per year (like in excess of 15,000) then leasing is probably not a great idea for you. Some people complain that leasing is dumb because you don't own the car but in all reality if you finance the car you don't own it, the bank does until that last payment is made. Only when it's paid off do you get the title, until then the car simply is not yours, so you are in the same boat as someone paying on a lease in that regard.

It is all a matter of choice. Weigh out your options, do more homework, and make the best choice for you. But remember that leasing is not "evil" nor is it bad. It all just comes down to your situation and what will work best for you.