In spite of surging popularity, numerous misconceptions about vehicle leasing remain:
MISCONCEPTION#1: Leasing a new car costs far more than buying it.
When you finance your car with a loan, you gradually build equity as you pay it off. The value of the vehicle may be considered equity only if the total amount you have paid on the loan, including your down payment, is less than its current market value.
E.g. $30,000 vehicle = $32,800 after tax, tags and fees with $2800 down financing $30,000 @ 7% for 60 months is $594 per month. So after 3 years you have paid $24,184. What the vehicle is worth has many factors but on average we will estimate 50% value = $15,000. The remaining payoff is $14256. By more than half way through the term of the loan you are in an equity position (possibly based on current market conditions on the vehicle). Depending on the type of vehicle the lease payment would have been half of the finance payment for 3 years and the end value is guaranteed in writing. $297 for 36 months with half the down payment =$12,092 paid out vs. $24,184 for the same car.
Today most drivers are ready to trade their vehicles long before paying them off. This makes the idea of building equity a false hope. Lease agreements guarantee the value of your car at the end regardless of market conditions. If it does happen to be worth more exercise your purchase option, sell or trade the car and keep the equity. If not simply turn the car in and pocket your savings. The value of the money saved from less or no down payment and lower lease payments during the life of the lease could actually be greater than the vehicles market value at the end of a conventional loan.
More to follow…
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2 comments:
You may find the following helpful:
http://www.autosavant.net/2006/11/maybe-you-should-lease-your-next-car.html
It is a detailed look at why it makes sense for many people to lease instead of financing their car through an installment loan. The name of the article is "Maybe You Should Lease Your Next Car" and it was posted in our November 2006 issue.
Brendan Moore
Also, you might want to check out our April 10 post titled "Long-Term Auto Loans Continue to Rise". I would give you the link, but from my previous comment above, it is obvious live links are not allowed, so just go to the main page and look in the April archive.
To the blog editor: you may want to put links in your blog to both of these articles as they certainly support your statements about leasing. . .
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