Besides, you know all that stuff anyway. This is why leasing is so popular. Economically speaking, cars consist of three parts: equity ownership , depreciation loss in value over time , and interest expense on the loan, if any.
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If you finance the purchase of a car, you pay for all three parts, and you will own the vehicle in, say, four years. But if you lease, you are paying only for use of the vehicle. This is why monthly lease payments are lower than purchase payments. Leasing, quite simply, is the difference between owning a car and renting one. Why would a car dealer want you to rent i.
Then you give the car back, giving the dealer the chance to resell it. In other words, the dealer gets to sell the same car twice! The second buyer pays the rest at that time. Leasing, then, features lower monthly payments because dealers expect the car to retain a certain value. That would make the lease payment absurdly high, and no one would take the deal.
This game is dangerous for the dealer, but a bargain for you.
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Expensive cars tend to offer better lease deals than cheaper cars, for they retain more of their value, and the higher the residual value, the lower your lease payments. As with most financial transactions, success or failure is found in the fine print. Here are three items to keep in mind:. If you wreck the car three months before your lease expires, guess how much your insurance company will pay in settlement?
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When someone buys a car, the more money he puts down, the less his monthly payments. Similarly, to lower your lease payments, you can make a cap cost reduction, which is a large, one-time payment made at the start of the lease. And as with a down payment, the more you pay in cap short for capitalized cost reductions, the lower your monthly payments. However, this is where the similarity ends. Remember that when leasing, you do not own the car. Thus, if you make a cap cost reduction, you are making a down payment on property that is not yours. Never do that — no matter how much the dealer wants you to, and no matter how much it reduces your monthly payments — for in the long run, you are throwing your money away.
Two months later, he totaled the car. Because the only reason dealers want you to pay it is so they can offer you a monthly payment that sounds really low. You bet! Not likely. Instead of paying a cap cost reduction to lower your payments, ask the dealer to let you make additional security deposits.
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That means you must be careful when agreeing to options that the dealer offers you. Take Carmen for example. But then she decided to have the dealer install mats, fancier rims, a iPod adapter, and a navigation system.
It was a deal all right — but for the dealer, not Carmen. When the lease expired three years later, Carmen returned the car — and with it, the mats, rims, iPod adapter, and navigation system. Carmen paid the full cost of owning those items, but she only rented them. Dumb move, Carmen. What she should have done is incorporated the cost of the options into the overall price of the car, and then negotiated the lease price.
But a customer wants 20, miles per year, which is 24, total additional miles over three years. Since the residual value is now reduced, the monthly lease payment will be higher and the total cost of the lease is higher. You cannot buy extra lease miles during a lease, only at the beginning. If you are already in a lease and see that you are already exceeding your allowance, there are a number of options. See our article, Over Mileage Car Lease for more details. However, the proper way to evaluate such a lease is to get your dealer to first give you the numbers and monthly payment for a normal 12, or 15, miles lease.
The value of this base lease deal will not change by the addition of extra miles into the lease. First, lease companies do not change their wear-and-tear policies for extended mileage leases.
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Driving a car 20, miles a year is almost certainly going to create more wear-and-tear and opportunity for dents and scrapes than with a 10, mile-a-year lease. Lease companies expect the car to be returned in the same condition either way. But that advice is based on the way manufacturers specify warranties.
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Even a conventional 15, miles-a-year lease will exceed the 36, mile warranty — and an extended mileage lease will exceed it even more. The answer is to purchase an extended warranty to cover the entire term and mileage of an extra miles lease. Dealers typically offer extended warranties at the time of purchase or lease. However, they are expensive and offer little or no benefit during the first years of a lease when the manufacturer is already providing free warranty coverage.