Did you know that approximately one-third of all new-vehicle transactions are leases? In today’s highly competitive automotive market consumers are looking to get the most car for their money and leases are they way they are doing it.
Leasing provides a number of potential benefits to a customer: Generally, the amount of up-front money necessary to initiate a lease is less than the standard down payment required for a finance contract. This is particularly helpful for people who don’t have a lot of cash on hand, but who have good credit and are financially sound. In addition, the monthly payment on a lease is generally less than that on a finance contract for the same term with a minimum down payment. This means that with a lease the same model can be driven for less money – or a more expensive vehicle can be driven for the same money. Finally, those people who trade vehicles every two to four years avoid tying up a large sum of their money (their down payment) in a vehicle.
Example of Lease vs. Finance
| LEASING | FINANCING |
| Lease Price: $23,000 | Purchase Price: $23,000 |
| Term: 36 months | Term: 36 months |
| Interest: 5.99% | Interest: 5.99% |
| Depreciation $12,000 | |
| Monthly Payment: $388.06 | Monthly Payment: $669.28 |
The downside of leasing is that the person doesn’t catch up with depreciation (the amount owed is more than the vehicle is worth) and, therefore, isn’t in a position to trade-in the vehicle until near the end of the lease term. In addition, many leases provide penalties for terminating the lease early.
Overall, leasing offers a viable alternative to suit the customer’s wants and needs. Leasing is ideally suited for those people who trade vehicles every two to four years and drive 15,000 miles a year or less. These people never really own their vehicle anyway, so a lease term designed to match their ownership cycle makes more sense.
Benefits of Leasing
- Lower monthly payments
- More vehicle for customer’s dollar
- Less money up front
- Shorter term
- Short turn-around time for a new vehicle
- Guaranteed trade–in value
- Lease-end option to buy or walk away
- Benefit of GAP protection at no additional charge
on August 8th, 2007 at 8:47 am
The residual is oftentimes negotiable at lease-end. The finance company offers a better price for you to buy it so they don’t have to take the car back and sell it themselves in this age of car glut.
on March 30th, 2008 at 11:10 am
How did you calculate the example? On a simple financial calculator or in Excel, I can’t seen to end up with the payment you have listed under the financing column.