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Lease is Not a Four Letter Word
Dealing with consumers on a daily basis, I have come to realize that a lot of people think LEASE is a four letter word. After further questioning, that perception came from others’ bad experiences and a lack of education. Here is some information that will hopefully help you realize that Lease is not a four letter word. I will cover the misunderstood areas, give you the benefits, and also give you some excellent advice on how to structure your lease.
The stories that many of you have heard about leasing were normally caused by a lack of understanding.
There are some keys that will allow you to avoid trouble in the future. Leasing is just another way to pay for a car. The beauty is that you only have to pay for the portion of the car that you use. It sometimes results in a lower payment than a purchase, however do not lease as a means to get more car than you can afford. Many people leased in the past only because it was presented as a lower payment than purchasing. This may be the case in many instances and is great as long as you understand your driving habits and responsibilities. A lease is set up for a certain number of miles per year. If you are planning on driving 20,000 miles per year, then you do not need to do a 12,000 mile a year lease just to get a lower payment. By doing so, you will set yourself up for over mileage penalties. Contrary to popular belief that you do not have to pay the mileage penalty if you trade in your lease, you indeed will suffer if you sign up at 12,000 miles per year and actually drive 20,000. Even though you don’t technically pay any penalties if you trade in your lease, the value of the trade takes mileage into consideration. Mileage has a huge effect on trade value.
Many of the Older Leases were ‘Opened Ended’
This meant that the residual (the amount that the bank is saying the vehicle is worth at the end) was not a guaranteed amount. If the vehicle was returned and market value was less than the estimated residual the consumer was responsible for the difference. Although I do not think that you can even find an ‘open ended retail lease’ today, make sure that it is a ‘closed end’. This means that the residual at the end is set.
Term is also a big factor in choosing the correct lease!
Choose the term length that best fits your trade cycle. The largest benefit is that you are only making a short term commitment. During a normal purchase the term is 60-72 months. The normal lease is for 36-48 months. The main advantage of this is that you are in a fairly new vehicle with low miles and usually are always under warranty. You then have a lower risk of unexpected issues resulting in added cost. Another benefit of short term commitment is that you are protected if your needs change (for instance if you have a child). The next advantage is that you are protected against changes in body style, technology and or unexpected issues. If the market value of the vehicle changes drastically because of issues outside of your control then at the end of the term you have the option of turning the vehicle in and moving forward. In this case the bank takes the loss not you. At the end of the term you have more options. You can buy the vehicle if you love it. This is a good idea if the car is worth more than the residual. If you want another new vehicle and the car is worth more than the residual, then trade it in and keep the equity. If the car of your dreams is a few months from coming out, you can extend your lease and keep making the same payments. This allows you the freedom to keep the lease vehicle a little longer if the need arises. With a lease you have lots of flexibility. You are also protected against elements outside your control and can always have a newer car. You should never do a 60 month lease unless you know you are going to keep the vehicle the full term.
And finally, Wear and Tear
Normal wear and tear is acceptable. If you are someone who mistreats your vehicle leasing may not be for you. This is because you would be responsible for the cost of getting the vehicle back to normal condition. Going with the manufacturer is a great way to reduce your chances of wear and tear charges. This is because the manufacturer has a vested interest in your lease experience. The happier you are with your experience the more likely you are to lease another vehicle from them.
Now that you understand the aspects and benefits of leasing, you need to pick the right vehicle for you.
Once this is done, proper structuring is the next step. This means getting the mileage and term that fit you. If you run across a lease special on the car you choose then take extra miles or shorten the term to keep the payments in your normal range. This will cause you to have positive equity at the end and keep your expectation on future car payments realistic. Pick a term that matches up to your normal trade cycle. If you like to get a new vehicle every three years, do a three year lease. And remember; when it comes time to lease your vehicle pick the right car, not the right payment.
As you can see with the proper knowledge a lease is a wonderful thing!
Most people who understand leasing will never purchase another vehicle. The ease and benefits of leasing makes them ecstatic. My repeat leasers LOVE leasing. So maybe leasing is a four letter word.
