When Is A Car Lease Preferable To Purchase?
Questions to Ask

When Is A Car Lease Preferable To Purchase?

Leasing is the most advertised and yet least understood way to finance a car. Just think about how many ads for auto leases are loaded across print, TV and the internet medias each week. All car dealers claim to have the best deal for you. But,they also have the small print. The unusual ad is a 1998 ad featuring Isuzu Trooper. This ad actually makes fun of the legalese embedded in the lease. The language makes it difficult to understand all the terms of the lease transactions. Despite the clutter, the message is getting out that leasing can be low-priced option to obtain a vehicle. The Wall Street Journal reported that during 1996 about 25 percent of all new cars and 50 percent of the very costly new cars were leased. Per CNW Marketing Research, used car leasing is also very hot. They expect in excess of 250,000 vehicles to be leased in 1997 alone. These trends are expected to continue. In fact,PM Buyers Guide predicts that by the year 2000 half of all new cars will be leased. Leasing is one of three options for most customers. The other options are cash purchase & installment loan. Each option has its pros & cons. Your life style and personal needs are part of the decision process. Don't forget the dealer makes a bigger profit on leasing. You must negotiate the car price first, comparison shop, then tell the dealer you want to lease. This gives you the best price.

Cash Purchase

When you pay cash for a vehicle, you will have the lowest total out-of-pocket cost. You have no monthly payments or interest to contend with, and you own your vehicle from the outset. On the other side, you are tying up a large sum of money in an asset that is rapidly losing its value.Your money might be better invested in other instruments that appreciate in value. Also, a cash purchase may cause you to miss out on substantial car company incentives offered to lessees or those who purchase on installment notes.

Installment Loan

The installment note option is the most well known method of vehicle acquisition. Ownership is the ultimate goal, and you may realize lower payments via longer term financing and the payment of additional interest. Hefty down payments between 10 & 20% may be required. Another risk is the balance on your loan may be higher than the market value of your vehicle when you are ready to sell or trade-in.

Leasing

The auto lease is an agreement that is used mainly for personal, private and non-business use. There are several advantages to leasing when it suits your lifestyle. Typically, a low down payment is required,or none at all. You simply turn in the vehicle at end of the term, avoiding the pains of trying to trade or sell a vehicle that has lost significant market value. Your leasing company will bear this end of the term risk, while you pay only for the use of vehicle throughout the term. The resulting monthly payment will be significantly lower, perhaps providing you an opportunity for a more expensive car at your $$ cost. In some states, you also gain taxwise. For many people the best advantage is the opportunity to drive a brand new car with the latest styling, safety and convenience features every two to three yrs. It is generally cheaper to lease if you hold the car for less than 3 years.

Evaluating A Lease

There are a few key components to look at when evaluating a lease to see if it indeed fits your needs. The auto industry makes leasing offers, with low payments or attractive financing. When you read the fine print many items are revealed, which affect each person differently.

Questions To Ask:

How Many Miles Do I Drive Per Year?

Many leases will allow you to drive up to 15,000 miles per year. But frequently, lower mileage limits are used in low price leases found in ads. You will be charged for the additional miles that you exceed the limitation. Often, this is the place where leasing companies recover on their loss leader. Depending on the particular lease, you may be asked to pay excess mileage ranging from .08 to .24 cents per mile.

In What Condition Must I Return Car?

You must look at the lease terms to determine the assessment method and the basis used for determining wear and tear. Normally, the leasing company indicates in the agreement its rights to assess the vehicle's condition for damages incurred during the lease period.

Who Is Responsible For Accident's Or Stolen Vehicle?

Check the lease to make sure it provides gap insurance. This covers the difference between the amount due on the lease and what the insurance Company covered on a total loss. This is usually an Optional coverage at minimal cost.

What Happens If I Terminate The Lease Early?

You must read and fully understand all the terms of lease agreement. There is a possibility that if you turn in the vehicle before the end of the first year, or prior to lease expiration, you may be hit with significant termination penalties.

New Information From Leasing Companies!!

On September 27, 1996, the Federal Reserve Board issued rules to simplify leasing transactions & clarify the actual costs for customers. The Federal Reserve Board also issued a standardized form that you can submit to the dealer to breakdown all the costs. The form requires dealer to itemize twenty possible leasing costs, including the car gross capitalized cost or agreed-upon value, security deposits, insurance premiums, disposition fees, taxes and the estimated value of the car at the end of the lease.

The new rules are effective, October, 1997. To obtain the form, write to

Federal Reserve Board
Publication Services
20th. and C Streets NW,
Washington, DC 20551.

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