Tag Archives: leasing
So you’ve got your eye on a shiny new Putt Putt Intimidator XE. It’s got all the features that you want; navigation, shiatsu massage seats, power-folding running boards, a bazillion horsepower. But there’s one problem; it cost an arm, a leg, a kidney, and you’ll have to sell one of your children just to afford the insurance.
Then one night, you see a TV ad proclaiming the new Putt Putt Intimidator to be just $299 per month, “for well qualified customers”. But how? The thing starts at $30k, which would put your payments on the north side of $700 per month. Oh crap, that must be a lease! But is that really such a bad thing?
Car Lease Explained
Leasing a car is just like renting one at the airport. You pay to use it for a set amount of time, then you return it, and fly back to Cleveland. Sure the details are slightly different, but that’s the gist of a car lease. Those details however, could make a lease look pretty good.
1. You don’t actually own the car – While this may seem disconcerting to some, it can actually save you money in the long run. During the lease, you’re not liable for repairs, and in some cases, maintenance is included too. Other common leasing terms include;
- Yearly mileage restrictions – The leasing company has to sell the car once your lease is over, and a bagillion miles would make your Putt Putt Intimidator virtually worthless.
- No modifications allowed – No 40-inch wheels. No bumble bee exhaust. No loud stereo equipment, or anything else that might void the car’s warranty.
Good news – At the end of the lease, you can turn in your Intimidator for the latest model, or you can buy the thing outright.
2. You’re not financing the price of the vehicle, you’re financing the depreciation – The reason that your payments are so low is because you’re financing a smaller number. For example; If your $30,000 Putt Putt Intimidator XE is expected to be worth $19,500 at the end of your 24 month lease, your payments will be based on the $10,500 in depreciation, plus interest and leasing fees.
Buying the Vehicle
If you actually purchase the Putt Putt Intimidator, you’re financing the entire $30k plus interest and finance charges. You’ll be free to install all of the chromed out chachka, and flame-throwing exhaust kits that you want. And you can drive as many miles as you want too. However, you’ll be liable for any out-of-warranty repairs. Plus, regular maintenance will be on your dime too.
Once you’ve paid the vehicle off, it’s yours to keep. By contrast, when your lease expires, you have to turn the vehicle in and get a new model. Or, you can buy the vehicle from the leasing company. In which case, your payments will continue.
If you’re the type of person that likes to drive a new vehicle every few years. And you value convenience over ownership, then leasing a car would make the most sense for you. However, if you’re the type of person that likes to modify your car, then drive it till it dies. Purchasing a vehicle would be your best bet.
Not surprisingly, many people don’t understand all the reasons why you might buy versus lease a car. If your parents always got cars one way, there’s a good chance you’ll do the same without considering both choices.
But there are compelling arguments for each option. Not everyone is in the same boat and there are several questions you should ask before making a decision.
Car Buying Tip: Before you even consider a loan or lease, you should negotiate the purchase price of a car. In order to get the best deal, discussions about a loan or a lease should be postponed until the car price is settled.
Is a car lease right for you?
In most cases, the monthly payments on a car lease will be lower than a car loan. But there are a number of other features you need to take into account when considering if a lease is the right option.
Leasing a car may be right for you if you answer yes to one or more of these questions:
- Do you usually upgrade your cars every three or four years?
- Do you own a business which can make the payments?
- Do you drive less than 15,000 miles a year?
- Do you always want to be covered by a manufacturer’s warranty?
- Would you like to spend less for car payments in the short term?
- Do you want to try a vehicle for a while before buying it outright?
Alternatively, car leasing probably isn’t a good option if you answer yes to one or more of these questions:
- Do you rarely buy a new car and typically keep vehicles for longer than five years?
- Do you look for ways to maximize the value of every dollar you spend?
- Do you drive over than 15,000 miles each year?
- Are you able to repay a car loan in full over the next five years?
How does a car lease work?
When you lease a vehicle you never actually own the car. Leasing is much like renting – you pay a proportion of the value to the owner for the use of their car, and give it back at the end of the agreed term. Leasing is popular with people who cannot afford to buy an expensive car outright, but are willing to make lower payments to drive the car for a few years and give it back at the end of the term.
If you use your car for work or you run your own business, then you may be able to make deductions on your taxes for car payments and some maintenance costs.
Even though leasing a car means you are paying more in the long run, it does enable you to free up funds in your budget in the short term while providing you and your family with a new, reliable, and comfortable drive.
What are the pros and cons for buying or leasing a car?
The decision to buy or lease a new car comes down to the type of person you are, and what is important to you. However, considering the pros and cons for both leasing and buying a car will allow you to make an informed decision with both your heart and your head.
Car Payment Calculators: Enter your own numbers into a loan or lease payment calculator to see how much you'll spend.
If you're looking for the most economical option in the long run, car buying is probably the best option. A key advantage is that after the loan term ends, the vehicle belongs to you. You can avoid many car payments by keeping cars for a long time.
However, if you can treat your car as a business expense or like to have the new model every few years, then leasing might be a better option for you.