Leasing Uncensored

Car loans and leasing are the most common sources for obtaining a new car.  Many people think when they are leasing a car they are simply renting it.  While on the surface leasing does appear to be similar to renting, it is actually a different arrangement.  When a person rents there is usually no option for purchasing when the rental agreement ends.  However, when a leasing agreement ends, a person can either return the vehicle or buy the car at a lump sum.  In the automobile industry this lump sum is known as “residual value.”

The actual monthly payment associated with a leasing arrangement is determined largely by a car’s depreciation over the time in which the contract is valid.  Other fees that are factored in include interest and taxes.  Individuals interested in leasing a car can try to negotiate lower fees, just like they would if they were buying a car outright.  They can also get a better deal by trading in their previous cars and/or paying a down payment.  The lease is a completely different contract from the car loan but the negotiations can be very similar and should not be ignored.  You can negotiate the upfront costs, such as the acquisition fee and security deposit, to try and get a hold of a better deal.

When it comes to the selling appeal of leasing, most car salesmen will try to woo customers through the monthly payment.  However, in trying to negotiate a low monthly payment, something else will get raised, such as the interest rate, residual value or the general term of the lease.  Remember, when you lease a car, what you are paying for is the car’s depreciation over the term of the contract, plus interest, taxes and fees.  If something must get raised in exchange for the monthly payment, it should be the residual value.  And this is only if the person leasing has no intention on buying the car once the terms of the lease have ended. 

Again, there is a similarity to the car loan, don’t just focus on the monthly payment.  If the lease terms change to get a lower payment that is similar to lengthening the car loan to reduce the monthly payment and the costs can be high.  The smaller you can make that spread between the purchase price and the residual value, for instance, the less you have to pay back every month.  Likewise, the more months over which you spread the lease, the lower the monthly payments.

Once a leasing arrangement has been finalized, dealership must provide the complete terms of the lease in a document that can not exceed a page.  This is has been legally mandated by the Federal Reserve, for the protection of the consumption.  Individuals interested in leasing need to make sure they don’t ignore this document.  In fact, they may want to run the numbers through a leasing calculator before making a final purchase to make sure they are getting the best deal available. 

With all that being said, how can a person determine if leasing is right for them?  Individuals who are interested in getting the latest models without a long-term commitment tend to be more attracted to leasing.  However, they should have good credit, just like if they were trying to obtain a car loan to buy the car.  Car lease terms and car loan interest rates are very dependent on an individual’s credit profile.

Another situation in which leasing might be appropriate is if a person is expecting a larger sum of money in the near future.  They can lease the car of their dreams right now and buy it later when the money comes through.  When they are ready to buy, they will find that they will get a significantly better deal than what they would have gotten if they had purchased the car without a leasing arrangement.

In conclusion, leasing is an alternative for individuals that are not ready or willing to make a ‘regular’ car purchase.  Before jumping into a lease review car prices and compare existing car loan rates and terms so you know what the alternatives are.  While a person still needs to be vigilant to make sure they aren’t getting a shoddy deal, overall leasing is not a bad alternative for certain types of situations.

Tags: auto finance, auto loan, car lease, Car loan, car loan interest rates

This entry was posted on Sunday, March 1st, 2009 at 8:54 am and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.