auto leasing options
Auto Leasing 101
- Is leasing for you?
Before you decide to lease a vehicle, take a moment
to determine if leasing is right for you, compared to buying.
If you agree with any of the statements below, then you're probably a good
candidate for leasing:
- I'm comfortable making regular monthly payments
- I prefer to drive a car that's always under warranty
- I like to really try out a car before buying it.
- I don't want to hassle with trade-ins.
- My car will be used for business purposes.
Many financial experts advise that you should buy
assets that appreciate in value, and lease those that depreciate in value.
Because automobiles depreciate in value, leasing makes good financial sense.
- Choosing your vehicle
Choosing a vehicle that's right for you is an important step of leasing, since it can be very costly to end a lease early. Be sure to choose a
vehicle that you'll be happy with for the duration of the lease term.
Some vehicles, compared to others, will have a better residual value. Choosing a
vehicle that will hold its value longer can lower your monthly payment.
Before making a final decision, consider taking an extensive test drive or rent the vehicle you're considering for a weekend.
- Negotiating a price
Some people think that to get a good deal, you should negotiate the lowest lease payment. While the payment is important, negotiating the actual selling price of the vehicle will help lower your capitalized cost, which in turn, reduces your payment.
- Picking an ideal term
When you lease, you must determine how long to lease
your vehicle.
The most popular term is three years (36 months).
Let's look at why:
- On average, most people keep their cars for 36 months
- Most manufacturer warranties are 36 months
- Wear and tear items, such as brakes and tires, are
typically replaced in the fourth year
If you normally keep your car five or more years and
the vehicle you want to lease has good reliability history, you may consider a longer term.
Keep in mind, it can be very costly to end a lease early.
- Mileage Considerations
Some people think they shouldn't lease a vehicle if they drive a lot of miles, but really it's okay. When you lease a vehicle you are actually paying for the use of it. Use it a little and you will pay less, use it a lot and you will pay more.
Think of it this way. If you were to purchase a vehicle and drive it 60,000 miles when you went to trade it in it would be worth less than the same vehicle driven only 30,000 miles.
The idea here is to select the miles that matches your driving habits. Be careful to always look at mileage stipulations when shopping for a lease.
Keep in mind, it can be very costly to end a lease early.
- Putting money down
Because you pay for the use of a vehicle during a
lease, you should put as little money down as possible, up front. Although
putting money down can lower your payments (by reducing your capitalized cost)
in most cases it cannot be regained in the event of early termination due to a
loss.
For example, a customer once leased a Toyota 4Runner
and put $3,000 down as a cap reduction. Five months later the vehicle was
totaled in an accident. The client's insurance paid its portion of the lease
payoff and Gap Insurance paid the balance. Our client walked away with only
paying his insurance deductible but he did not get reimbursed for his initial
down payment of $3,000. It was lost.
The moral of this true story is to put as little money down as possible, ideally
no money down. Here are some other things to consider:
- Money down is taxable
- Take the money you would have put down and invest it
- Put your down payment in a savings account and use a
portion each month to help make your payment
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