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To Lease or Not to Lease: That is the Question
From the editors at WIFE |
If you are in the market for a new car, you may have
been tempted by the low monthly payments featured in the advertisements for leasing arrangements.
With a lease, you can expect to make little or no down payment and make lower monthly payments.
At the end of the lease period, you don’t have to worry about the trade-in or sale of the used car.
You can just turn back the keys to the leasing company, sign a lease on a new vehicle, and drive away.
That leads us to the major disadvantages of leasing a car. Granted, your monthly payment is less each month
if you lease, but at the end of the lease period, you don’t own the car. If you want to continue driving
the same car, you must purchase it from the leasing company for its current market value.
Leasing a car has other disadvantages:
- A good credit rating is more important when you lease a car than
when you purchase one, because your down payment is very small.
- You must purchase special "gap" insurance that will cover the
remaining lease payments on the leased car if it is wrecked or stolen.
- At the end of the lease period, you may be charged for miles you
drove in excess of the maximum specified in your lease.
- You also may be charged for excess wear and tear and dings on the car.
Leasing a car may save you money, if your credit rating is good, you tend to trade cars every few years, and
you don’t drive more than 15,000 miles a year.
Leasing also is useful to those who have little money for a down payment and for those who desire a lower
monthly payment than would be possible with straight financing of a purchased auto.
Here is a worksheet that you can use to compare the cost of buying versus leasing:
| Cost to Purchase |
|
| 1. Vehicle Price |
_________________ |
| 2. Less Down Payment
| _________________ |
| 3. Amount Financed (1-2) |
_________________ |
| 4. Monthly Payments |
_________________ |
| 5. Length of Loan |
_________________ |
| 6. Total Payments (4 x 5) |
_________________ |
| 7. Sales Tax and Out of Pocket Costs |
_________________ |
| 8. Residual Value |
_________________ |
| 9. Total Cost (2 + 6 + 7 - 8) |
_________________ |
| Cost to Lease |
|
| 1. Monthly Payment |
_________________ |
| 2. Length of Lease
| _________________ |
| 3. Total Payments (1 x
2) |
_________________ |
| 4. Up Front Costs, if any |
_________________ |
| 5. Disposition Fees, if
any |
_________________ |
| 6. Cost of Gap Insurance |
_________________ |
| 7. Total Cost (3 +4 + 5 +
6) |
_________________ |
If you are planning to lease a car, don’t be afraid to negotiate with the leasing company over lease terms,
up-front costs, or monthly payments, just as you would when purchasing a new car.
Here are some of the things to look for in an auto lease:
- A lease term that corresponds to the length of time you’ll
want to keep the car.
- Low up-front "capital cost reduction" (read "down
payment").
- Closed-end lease so you won’t be charged if the car is worth
less than the estimated residual value.
- Mileage limit that corresponds to your driving habits.
- No extra charge for moving the vehicle out of state.
- Guaranteed-price purchase option.
- Security deposit not in excess of one monthly payment.
- Payments that are less than you would pay on a car loan.
- No early termination fee.
- Ability to incorporate the cost of extra miles into the monthly
payments at a reduced cost.
- Refund provision for cost of extra miles you buy but don’t
drive.
The Women's Institute for Financial Education (WIFE) is a non-profit organization
which provides financial education, networking opportunities, seminars, and workshops for women of all ages.
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