To Lease or Buy A New Vehicle
There are many misconceptions on whether you should Lease or Purchase your next New Vehicle. Well, I’m here to tell you that with the high rate of depreciation combined with the high cost of vehicles today, leasing may very well be the way to go. Let me explain why.
When you lease a vehicle the bank or captive lender offers you options at the end of the contract, whereas on a purchase you are obligated to the contract, in other words, you sign on the dotted line that you will fulfill the obligations of the terms and conditions as stated on the retail installment contract. A lease on the other hand provides you with 4 distinct options at the Lease Maturity Date:
Lease or Buy A New Vehicle
1. You can buy the vehicle.
2. You can sell the vehicle.
3. You can trade in the vehicle.
4. You can turn it back to the dealer and walk away.
You see on a lease the bank or captive lender guarantees the value of the vehicle over a predetermined time (I recommend not exceeding 36 months on a lease). At which point of the lease maturity you can have the vehicle appraised by an independent appraisal company and determine if you have positive or negative equity and so exercise the four options as listed above.
Let’s have a quick Q and A about the question to lease or buy a new vehicle
Q: I heard that if you drive a lot of miles you can’t lease.
A: The fact that you drive a lot of miles makes you an even better candidate to lease because the bank will assess the depreciation on the frontend, not the backend based on the average miles the Lessee feels they will drive per year.
Q: But I don’t own the vehicle.
A: If you are on a retail contract you don’t own the vehicle either the bank still holds the title.
Q: I like to pay cash for my vehicles and not have payments.
A: This is even more reason to lease. Imagine for a second that I ask you to give me $100.00 and tell you to go around the block and come back and get your cash only to have me give you back $60.00. You see that’s what happens with vehicles when you pay cash. The value drops as soon as your back tires hit the first traffic light.
Ask the dealer to give you a prepaid lease option you’ll be surprised to know that the bank will give you an even better deal on the money factor and residual.
Q: Does the dealer make more profit on me, what’s in it for them?
A: Not necessarily, the dealer is often bound to the national campaign (do your research) the incentive for the dealer and the manufacture is Owner Loyalty. They know that if the experience with the product and the dealer was a positive one the likely hood of you returning as a customer and is greater.
To choose between a vehicle lease or loan, you’ll need to compare your total costs over the term of the arrangement. you can use a lease calculator to give you a rough estimate of the costs involved, as well as a comparison between “lost interest” costs related to your initial expenses. It will even calculate your estimated monthly lease payment and/or your monthly loan payment if necessary.
I admit leasing may not be for everyone but it will behoove you to look into it with an objective approach and weigh all the options.
With that said I can only recommend leasing as the best possible option when looking at a new vehicle. I personally have leased dozens of vehicles and have been very satisfied with the outcome. Hopefully, this article proved some insights to help you decide if you want to lease or buy a new vehicle.