REDLINEN

Hello guys, Basically im looking for the basics on leasing from you guys out there that are lease savy. I am 24 years old and im on my 7th car. Not because they dont last, But because I loose intrest quick. The problem is that I always as everyone does when it comes too cars is I sink tons of money into them and hope too get half what the thing is worth back on trade. Now what I am wondering is, What is leasing all about? I know its like long term renting with terms but is it worth it for someone like me? And another thing what I should look out for? And also are lease terms negotionable? Any help with these questions and any enlightment into the world of car leasing would be very helpfull. Thanks in advance guys.

vp911

You can negotiate your lease, generally you will get a 3 year lease at a reasonable amount. So if you can deal with a new car every 3 years, go for it. If you change more often, you may want to buy a car with a few thousand miles on it so the original owner has taken the hit on depreciation.

Pure Adrenaline

iTrader: (2)

There are a lot of lease options in annual mileage and term length.

In a lease, you only pay for the depreciation value of the vehicle which is projected by the company. Of course, there's a profit margin built in.

Say you purchase/finance a 30k-dollar car for 5 years. The car is supposed to have a residual value of 50% after 3 years. Let's put aside the interest rates and all that for now for the simplicity. After 3 years of ownership, your car has lost 50% of its value, meaning it is only worth 15k dollars. You sell that car after 3 years, and you will get half or less of its original value, and you will have to pay off the loan, which would be oustanding at 12,000 at that point. So let's say you sell for 15k and pay off the loan of 12k. You have 3,000 dollars left over. You have some cash left over, which is great.

Now let's take the same car and lease it for 3 years. Same residual value of 50% of 3 years, and let's say you lease for 3 years. You pay only for the depreciation value of the vehicle, so you pay 15k dollars over the term of the lease and you have no cash left over.

However, more often than not, people end up upside down in a purchase/finance. In other words, after 3 years, they end up owing more than what the car is worth. With cars that hold up their value well, this isn't usually a problem, but it is a very common occurrence. With a lease, you don't have that problem, not to mention you don't have to worry about trying to sell it, negotiating, and last resort, you say screw selling because it's not easy and trade it in, taking a big hit which will eat into the positive equity, if any. If you're already at a negative equity, then you will be screwed even more.

But for people who plan to keep the car for a long time, even after paying off the loan completely, this is not a factor at all because they don't plan on selling. But some people prefer to get a new car every 2-3 years or whatever, and some of them would rather not go through the pain of trying to sell the car or trading it in and taking a hit. For them, leasing would probably work better.

With financing, the APR determines the interest rate of the loan. With leasing, it's the lease factor. It will be in the form of a .00xxxx and you need to multiply that by 2400 to get the equivalent of an APR. And just like the APR, the lease factor varies by term length, model, options, mileage allowed, etc.

I've seen a lot of people get RAPED in leasing, because they don't properly educate themselves on it, or honestly, they would rather not bother crunching all the numbers. You need to sit down and figure out how long you want the car for. Let's say you want to lease for 3 years at 12k miles per year. You need to get the quotes for a 2 1/2 year term, 3 year term, and a 3 1/2 year term to see how much more or less you have to pay per month and also how much more or less you will be paying overall. Then you need to compare those figures to the different residual values of each term to determine if you're paying too much or too little for each specific lease deal for that specific lease term length.

It's A LOT more numbers to deal with than financing, so like I said, people either don't know enough, or get frustrated and just sign the papers if the numbers look okay enough. But you need to remember that while the monthly payments may look lower, the dealership might have lengthened the term of the lease, so that you will end up paying more in the end.

Which brings me to the next point... NEVER, EVER deal on terms of monthly payment amount. Like I said just now, it's a common practice for dealerships to ask you how much you want the monthly payment to be, then meet your target amount by changing other factors such as length, mileage, etc.

Let's say you didn't like the 400/month payment for 36 months, and you wanted 380/month. The dealerhsip will meet your target amount, by lengthen the term to 42 months. You would've paid 14,400 on a 36-month lease, but now you will keep the car for 6 months longer and end up paying 15,960. Now, here's another factor, and it has to do with the different term lengths and comparisons to residual values I mentioned earlier -- Will the car depreciate by more than the difference during those 6 months, which is 1,560 dollars? That's what you have to figure out. You like the monthly payment, but you're not sure about the longer term now. But if the car will depreciate by more than 1,560 during those 6 months based on the projected residual values, then you should take the deal, because you will keep the car for longer, and pay less than the actual depreciation. However, if the car would not depreciate by 1,560 or more, then you're getting the shaft, because now you're keeping the car for longer and pay more than the actual depreciation.

I hope this is making sense.

So let's run through the process.

You walk into a dealership and run some numbers with a salesman. He may or may not ask you to negotiate based on monthly payments, depending how straightforward the dealership does its business. By no mean, it's illegal to negotiate that way, but in my opinion, it's a shady practice by the dealership to squeeze more money out its buyers.

So remember that the process of negotiation is NO DIFFERENT than purchasing and financing the car... which is always negotiate based on the price of the vehicle. The residual value is figured in terms of percentage, and it is a percentage of the final negotiated price. Therefore, the lower you negotiate, the lower the monthly payments will be, just like buying. So with the same 30k-dollar car above, the sticker might have been 33k. But instead of taking 50% of 33k dollars, you're now only paying 50% of 30k dollars, which is 1,500 dollars less overall.

After landing on a final price, you need to do what I said above, and get quotes for different lease term lengths and other factors and decide what will work out best for you, and what would be the best deal, not necessarily the cheapest.

Look at the lease factor. Multiply by 2400 to get the APR-equivalent. See if it's reasonable. If you don't like it, then try to negotiate. The lease factors are projected by the company, so in a lot of cases, it's not negotiable. But it is worth a shot to see if they will budge. They just might.

Other benefits of leasing are things like free dent/scratch repair. For instance, Acura will repair up to 3 dents or scratched for free at the end of the lease term so you don't have to pay for those damages. On a purchased car, you would have to file with insurance or pay out of pocket to get them fixed. Another pro is that at the end of the term, you simply drop it off and that's it. No fussing with selling the car or anything. You're free and clear of it. Or you can opt to buy it out, of course.


Bottom line is that it takes a lot of number crunching to see if it's a good deal, and YOU have to decide if the terms are right for you.

Tripp11

Nice post, Pure.

Might I suggest perusing www.leaseguide.com for further information as well. Quite an informative site and breaks down the intricacies of leasing vs. buying.