{"id":46,"date":"2008-01-15T20:29:30","date_gmt":"2008-01-16T03:29:30","guid":{"rendered":"http:\/\/www.accurateautoadvice.com\/leasing\/leasing-basics\/"},"modified":"2017-01-09T04:19:33","modified_gmt":"2017-01-09T04:19:33","slug":"leasing-basics","status":"publish","type":"post","link":"https:\/\/www.accurateautoadvice.com\/leasing\/leasing-basics\/","title":{"rendered":"Should You Buy or Lease? How To Decide"},"content":{"rendered":"
A lot of people are uncertain about leasing.<\/p>\n
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Part of the problem\u00a0is that lenders and car dealers make leasing confusing – they have a bunch of special leasing terms, tricks, and information that’s designed to confuse.<\/li>\n
Part of the problem is that a lot of so-called “experts” make blanket statements like “You should NEVER lease” or “Leasing is TERRIBLE.” These types of statements are obviously incorrect.<\/li>\n<\/ul>\n
If you’re thinking about leasing, our advice is to make sure you understand what leasing will mean for you<\/em>. Don’t listen to some pundit or something your father-in-law told you once about leasing. Take the time to read this guide and decide for yourself.<\/p>\n
Here Are The Main Reasons That People Decide To Lease:<\/strong><\/p>\n
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The monthly payment needed to lease a car is usually lower than the payment needed to buy that same car<\/li>\n
Since most leases only last two or three years, people who lease cars usually never have to mess with repairs or most\u00a0basic maintenance<\/li>\n
Leasing\u00a0has tax benefits for self-employed people, businesses, and people who can expense vehicle costs<\/li>\n
Leasing is fun – you get to drive a new car every 2-3 years<\/li>\n<\/ul>\n
Here Are The Main Reasons People Do\u00a0NOT Decide To Lease:<\/strong><\/p>\n
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They drive more than 15k miles per year, which is\u00a0usually the most you can drive if you lease a car<\/li>\n
They want to spend as little on transportation as possible, and they’re willing to “commit” to a car for a decade as part of that desire to save money<\/li>\n
They don’t understand leasing<\/li>\n<\/ul>\n
To be blunt, the last reason is the biggest. Leasing has a bad reputation, but the fact is that leasing makes an awful lot of sense for a lot of people.<\/p>\nThis comparison of buying vs. leasing a new Tacoma shows\u00a0how much lower lease payments can be. For some, the lower payment, the convenience and luxury of driving a nearly new car, and the flexibility of not being “tied down” to a car for 5, 6, or 7 years is a good\u00a0idea. For others, it’s not.<\/figcaption><\/figure>\n
Quick Questions\u00a0To Figure Out If Leasing Is For You<\/h2>\n
If you’re thinking about leasing a car, there are 5 quick questions you can answer to decide whether or not you’re a good candidate for leasing:<\/p>\n
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Do you like to keep your cars until the wheels fall off?<\/strong> If the answer is yes, don’t lease. Leasing is all about convenience and getting a new car every 2-3 years. If these things don’t matter to you, buying and keeping a car is the way to go.<\/li>\n
Are you trying to maximize every one of your hard-earned dollars?<\/strong> If the answer is yes, good for you…don’t lease. In a purely dollars-and-cents analysis, leasing is almost always more expensive than buying.*<\/li>\n
Have you taken great care of every car you’ve ever had?<\/strong> People who worry about dents and scratches are good leasing candidates. People who don’t notice\u00a0scratches or dents, torn seats, or carpet stains are not good leasing candidates.<\/li>\n
Do you drive less than 15,000 miles a year?<\/strong> If not, leasing probably doesn’t make sense for you.<\/li>\n
Are you a business owner, self-employed, and\/or is someone else paying your vehicle expenses?<\/strong> If the answer to any of these questions is yes, check with your CPA about the benefits of leasing. You’re probably a good candidate for a lease.<\/li>\n<\/ul>\n
*NOTE: If you’ve answered yes to this question, you need to look at the smallest, least expensive vehicle that will meet your basic needs. If you say “I want to maximize every dollar,” and then turn around and buy a $60,000 luxury pickup truck as a commute vehicle…let’s just say that doesn’t make a lot of sense.<\/p>\n
Second, Some Terminology<\/h2>\n
If you’ve answered all the questions above and you’re still reading, the next thing for us to do is define some terms.<\/p>\n
Residual Value<\/em> \u2013 Often called the \u201clease end value\u201d, the residual value is how much money the leasing company believes the car will be worth when the lease is over. Residual values rise and fall based on lease length, lease mileage, vehicle trim level, engine package, etc.<\/p>\n
Lease Factor<\/em> \u2013 This is a confusing number that’s basically just an interest rate. Lease factors are used because they are very small numbers \u2013 like .00425 \u2013 that make the lease interest seem less expensive. If you multiply the lease factor by 2,400, you\u2019ll get the actual interest rate (.00425 = 10.2%).<\/p>\n
Gross Cap Cost<\/em> \u2013 This is the total cost of the vehicle, before any rebates, money down, or trade equity are taken out of the price.<\/p>\n
Cap Cost Reduction<\/em> \u2013 This is basically the down payment on the lease, minus any up-front fees (like taxes, dealer fees, and first payment).<\/p>\n
Net Cap Cost<\/em> \u2013 This is simply the gross cap cost minus the cap cost reduction.<\/p>\n
Acquisition Fee<\/em> \u2013 This is the fee that the leasing company charges to \u201cacquire\u201d your lease<\/p>\n
Security Deposit\u00a0<\/em>\u2013 This is usually about one month\u2019s payment, and it\u2019s held by the bank until you return the car. It will go towards paying for any damage, extra miles, or lease termination fees.<\/p>\n
WearCare or “Wear and Tear” protection<\/em>– This is essentially an insurance policy that covers minor damage to your vehicle during the term of the lease. Things like pitted or cracked windshields, worn tires, dents, etc. It’s usually offered in place of a security deposit.<\/p>\n
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