Today I want to talk to you about the benefits of leasing a car versus buying a car. When I grew up, my parents always said, “Own everything. Make sure you own it.” But nowadays, when you go to sell your car, there are so many layers of profit built into getting rid of that car. You really get so little for it, selling it doesn’t make any sense.
Advantages Of Leasing
There are certain advantages to leasing a car. It can result in a lower down payment, a lower monthly note, more tax advantages, and the reason for that makes them very attractive. However, the devil is in the details that you need to know about.
Car salesmen are masters at playing shell games with the different elements of what constitutes a purchase price, a down payment, or a monthly note. And you need to know about those things.
The Money Factor
First of all, there’s something called the money factor. And the money factor is ultimately used to calculate the percentage rate that you’ll be charged over the life of the lease. The benefit of a lease is that you’re really only paying for what you use. So if it’s going to be a 3-year lease, you know upfront you’re paying for 3 years of the use of that car.
The Residual Value
One of the other factors that affect the lease rate is how well that car maintains its value. That’s what’s called the residual value. So the higher the calculation of the residual value at the end of the lease, the less of that amount you’re using.
So what you’re looking at is what would be the retail price, or the price that you would pay, minus the residual, and that’s what you are going to pay during the lease term.
A Useful Resource
Now, some of these things are very confusing, but I want to break the code for you here today. There is a website called leasehackr.com, and it will teach you everything you need to know about what each factor of a lease means, so that you can then go negotiate it.
What About The Mileage?
Everything is negotiable on a car: The money factor. You can also limit your mileage. Let’s say you drive 12,000 miles a year. Generally, it’s more advantageous to lease a car for 10,000 miles a year.
Then you’d pay the overage at the end of the lease because it is a lesser amount than you would pay up front. And if you don’t use that mileage, you don’t get that money back, so there’s an advantage there.
One Potential Problem
Now, one of the big problems with leases is let’s say that there’s a downturn in the economy, you lose your job, whatever, and you have to get out of that lease. What do you do?
Well, the worst-case scenario is that you pay out the remainder of the lease and you lose that money. But there are also different sites that help you move that lease to another person.
There’s a big segment of the population out there that likes to get cars that are coming off of leases and have them for the last year or 18 months of the lease.
There is a site called Swapalease. You can go there, take some pictures with your phone, post it for a couple of hundred dollars, and many times, people will take that lease off your hands.
So, I am a proponent of leasing. I do think that it provides a lot of tax advantages and some protections. There is one big benefit I also want to tell you about it.
One More Benefit
Let’s say you wreck the car during the term of the lease. If you owned the car, you would suffer diminished value. And what I mean by that is if you compare your wrecked car that’s been repaired to an identical car that hasn’t been wrecked, obviously yours will fetch a lot less.
But with a lease, there is no penalty for that. As long as the car is fixed at an authorized body shop, you suffer no penalty for the car having been wrecked. So that’s an additional advantage.
If you have any questions about this, please feel free to email me at [email protected].