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Vehicle Leasing: Three Must-Know Factors Before You Decide


 

2011 Cadillac CTS Sedan

2011 Cadillac CTS Sedan

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There’s an old sales adage that a confused mind will not act. This means that if a customer is unclear as to a product's benefits or even why they should buy, they might not act to complete the purchase. With so much confusion around vehicle leasing, it’s no wonder that many car buyers won’t even consider the leasing option even though it could work to their advantage.

There are three things that most car buyers should take into account as they research the pros and cons of leasing versus an outright purchase.

1.  Less expensive  

Leasing is a good solution for someone who has good credit but is on a tight budget. If they don’t qualify for a regular car loan because of income or debt limits, they might be approved for the leasing option. Leases generally offer lower monthly fees when compared to a comparable loan payment.

Here’s the key: If you plan on keeping the vehicle for many years—until the wheels fall off or the engine wears out—it will probably be less expensive to take out a loan and buy the vehicle outright. However, if you plan on trading the car in every three years like most people, chances are your overall cost will be less if you lease.

2. Negotiable

Many car buyers don’t realize that most lease agreements are negotiable. If leasing works to your advantage, make it work even better by getting your costs lowered before you sign the contract. Pay particular attention to the capitalized cost. Haggle away, because lowering this figure is comparable to lowering the selling price when purchasing a car outright.

When comparing one lease to another, pay attention to the money factor. This is similar to the interest rate on a car loan and directly affects your monthly fee. Also pay attention to the “residual value,” or the value of the vehicle at the end of the lease.

Here’s the key: Look for national lease promotions from the manufacturer. These usually offer lower money factors, which is comparable to incentive financing when purchasing. It translates into big savings by lowering the monthly fee. There are often other benefits with national lease programs that effectively keep more of your hard-earned money in your pocket.

3. Flexible

One of the great things about leasing a vehicle is the many options you have at the end of the contract. Let’s say that due to no fault of your own the vehicle was severely damaged in an accident one year into your two year lease agreement. Insurance covered the repairs, but it’s not a vehicle you want to pass along to your kids. One of the benefits of leasing is having the option to simply turn in the keys and walk away at the end of the contract.

This option also benefits those who leased big, gas-guzzling SUVs before the price of gas shot up above $4 per gallon. Instead of facing a lower resale or trade value for that big behemoth, with a lease you simply walk away. Now you can buy or lease a more fuel-efficient vehicle without having to deal with the SUVs lower value.

What if you leased a hard-to-find hybrid that everyone wants? This vehicle has held its value and is in big demand. You have the option of trading it in based on the current higher market value and applying your equity to the next vehicle you want to lease or purchase. You can also buy it outright. After making the purchase, you then have the option of continuing to drive it yourself or selling it privately to turn that equity into cash.

Here’s the key: When you lease a car, truck, or SUV you are effectively buying future options that allow you to make decisions that work in your favor two or three years down the road. Such flexibility can be priceless.

 
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Comments (4)
  1. L. James, these are terrific points that should really help consumers not all that familiar with leasing. As the past owner and lessee of several cars myself, I know there are profound advantages and disadvantages of each form of vehicle ownership. You put things in a different perspective than most of what's on the Internet, information that I find very valuable.
     
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  2. Hi Suzanne....thanks for the feedback, and yes, there are good and bad points about both buying and leasing. Its important to point out factors that most people miss so they can take them into account as they decide what's best for their situation because it's never a one-size-fits-all. Thanks again.
     
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  3. Thanks for drilling down beyond the obvious. I only leased one time and then purchased the vehicle. It seemed like I bought a house because of the endless payments. Now I can see where I went wrong.
     
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  4. I've leased a few times, and I love working with numbers. I've got enough experience with it so that I usually end up explaining the lease to the sales person and even to the finance manager, rather than the other way around!
     
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