One quick review before we move on.
Remember when you’re contemplating a lease vs buying a car, either way the car has a selling price.
People always remember this little nugget when they are buying, but few remember when they are looking at leasing a car.
With all the different types of leases, terms, and incentives in the market place today, it is sometimes at best difficult to tell whether you are comparing apples to apples.
One of the problems is determining what all of the ‘up front fees’ and the down payment requirements of the leases. How can you compare one lease offer that requires no or very little down to those that have attractive monthly payments but require more cash down?
One way to clear the muddy waters would be to take the amount of money that a lease requires you to put down at signing and divide that amount by the total number of monthly payments.
For example, if a lease ad promises a $199 a month payment for 36 months with $1800 down (due at signing), you would simply divide the $1800 by 36 and you would get $50 per month.
So, take the $50 per month and add it to the $199 promised in the ad and you have an effective monthly payment of $249 per month. Then, what you need to do is multiply the $249 per month by the number of payments (36 in this example), and you’ll be coughing up $8964 plus fees for the privilege of leasing this car.
You can use either of these numbers to compare car leasing deals.
Be familiar with the most common leasing terminology. Scrutinize all of the end of lease charges, security deposits, and other extra charges. They can all be possibly negotiated.
It’s a good idea to make sure the manufacturer’s warranty covers the entire duration of the lease and the number of miles you are likely to drive. Usually this isn’t a problem since the normal car lease deal runs for 36 months which would easily fall within the manufacturer’s warranty and leasing longer than 36 months really doesn’t make good financial sense.
Generally speaking, in the long run leasing is more expensive than actually purchasing the car. Remember though it is a viable option and really a matter of personal preference and priorities.
Is getting the most car for your buck each month tops on your list? If so, and the mileage restrictions are workable, take a look at leasing.
Getting to all the facts, figures, and the bottom line overall cost of leasing a car will take a bit more work than if you are purchasing the car. You’ll have to do some serious prying to get some of the figures from the dealer….. but by all means pry!
Be wary of leasing companies that quote you widely different residual values in you favor to lower your monthly payments. This could be a tip-off that the company is baiting you into the lease and will try to hit you with high back end mileage or wear and tear penalties.
As with any contract, take the time to read it carefully before you sign it. In fact, a dealer should allow you to take a copy of the agreement home with you so you can peruse it in the comfort of your home. If the dealer is unwilling to let you do this, then you should be unwilling to sign it.
Should I buy or lease a car?
Bottom line… leasing is just a form of financing a vehicle in which you only pay for the part of the car you use. Simply put…. with car leasing you pay for the depreciation that is projected to occur on the car.
The operative thought here is method of financing. Remember, if you have to finance you will incur financing costs as part of your overall ownership experience. And with financing costs involved there is serious negotiating to be done.
Always know and be prepared to negotiate the capitalized cost. If the sales person tells you the cap cost is fixed and cannot be negotiated, find another sales person or dealership.
Here is a quick summary of the pro’s and con’s if you are looking leasing versus buying a car.
Also, I have included a quick conversion chart to help you determine what the effective interest rate is when looking a lease money factor.
