Think leasing a vehicle is a scam? So do a lot of people, but the reality is it’s not any worse or harder than financing a vehicle.
Over 30% of all vehicle purchases made this year were leases, but some people believe it should be much higher, and that more people should be using this option of getting into a new car. Unfortunately, this isn’t happening because leasing a vehicle has gotten a really bad reputation over the last few years, and chances are you if you thought about doing it but haven’t, a family member or friend talked you out of it.
Auto leasing is often looked down upon by many car enthusiasts, because of the confusing terms, and because everyone knows someone that was duped into a bad lease deal by a crooked salesman. At Auto Credit Express we want to show you that not all lease deals are bad, and that many of the things you hear about are just myths, and don’t happen to everyone.
Myth 1: Leasing is a Bad Deal for the Customer
Let’s be honest, if you plan to have the car for 10 years or so, financing the purchase is probably the best option. However, you may want to turn the car in before your loan term is up, so leasing may be the better option for you.
Many people believe that you don’t have the ability to negotiate a lease deal like you do a new car deal, but that is simply not true. If you shop and negotiate as hard for your lease as you do for your finance purchase, you could end up getting a great deal on a brand new car. For example: if you finance a vehicle for $25,000 with a five year loan, but decide that you want to turn it in after only three years, chances are the trade-in value will not cover the balance of your loan.
If you decide to lease that same car for three years (the same amount of time you would have it if you financed and traded it in early), your payments will be lower because you are only charged for the value of the car you use in that three years. After your lease period is up, you can turn the car back into the dealership and walk away, without having to worry about where you’re going to come up with extra money out of our own pocket to cover the remaining balance of a loan.
Myth 2: You Can’t Negotiate a Good Deal for a Leased Vehicle
This is completely false. Just as you can negotiate every aspect a finance agreement, you can negotiate every aspect of a lease agreement. The problem is there are words thrown around when leasing that you may have never heard before, and they can sound intimidating, so you don’t bargain. For instance:
- Capitalized cost – This is the actual vehicle price which is always negotiable. You should haggle with the dealer to get the absolute best price available to you. You can negotiate the vehicle price of a new car when financing, so negotiate the vehicle price of a new car when leasing!
- Money factor – This is essentially equivalent to the interest rate on a car loan. The lower this number is, the lower your monthly payment will be. Don’t be fooled when you’re given these numbers, however, because they are always expressed as very small numbers making them seem better than they are. If you are given a number of .00275 you need to multiply it by 2400 to get the actual percentage rate, which is 6.6%; not terrible, but not great.
- Residual value – This is the estimated value of the vehicle at the end of your lease period.
The higher the residual value is estimated at, the lower your monthly payment is, but it can also hurt you at the end of your lease. If you decide to trade the car in early, sell the lease to someone or even buy it at the end of your lease, you could find yourself coughing up extra money to cover the value. Just remember, this price is definitely negotiable – both before you sign the lease and at the end of your lease term.
Myth 3: Businesses are the Only Ones to Get a Tax Break on Leased Vehicles
It’s true that when businesses lease vehicles for company use, they are given a tax break by deducting it as a monthly expense, but it’s not true that individuals don’t get a break as well. In most states, you only have to pay taxes on your monthly payments, not the financed amount of the loan. In fact, the only states that don’t give you this tax break on a leased vehicle are Arkansas, Illinois, Maryland, Oakland, Texas and Virginia – in these states you are taxed on the price of the vehicle.
Myth 4: You will be Subject to Large Fees
This can certainly happen to some people, but it is not something that every person is subject to. Most leases allow you only 10,000-15,000 miles per year on your vehicle. If you’re someone that does a lot of driving, this may not be enough for you, and you run the risk of going over your miles. Most leasing companies charge you $0.20 or $0.25 per mile you go over, which can add up very quickly. Another thing you may be charged for is any damaged caused while the vehicle is in your possession. If you’re a careful driver, it shouldn’t be a problem.
Keep in mind, that while it does not look appealing to only have the option of driving a limited amount of miles per year with a lease, you could take a big hit on a financed vehicle with a lot of miles also. People don’t want to buy a car that has a ton of miles on the engine already, because chances are that car won’t run much longer. Therefore, if you are financing your car, and you turn it in after three years with an excessive amount of miles on it, you won’t be getting the trade amount you were hoping for. So, it may not cost you out of pocket like a lease, but it can still cost you.
Myth 5: You Can’t Trade It In Early
Taking out an auto loan for a new vehicle allows you the opportunity to trade that vehicle back into the dealership for a new one at any time, but what you didn’t know is you can do the same with the a lease. If you have a 39 month lease deal, but you’ve decided you don’t like the car or you just can’t afford it, you have different options.
Some leasing companies will charge you a fee to turn it in early, but some do not. Ask your leasing agent what the deal is, and if there is no fee, you can turn it back over the dealership and work out a new car deal. If there is a fee, you can still turn it in and pay the fee, or you can explore the option of trading your lease. This is when you find someone who wants a short-term lease to take over your payments. We suggest always doing a bill of sale to keep everyone in the situation truthful; but this can be a great option for you if you don’t want your car anymore, and don’t want to pay a large fee to turn it in early.
As We See It
It’s been a battle for ages – should you lease or finance a new vehicle – but there will never be a clear winner. Both choices have great benefits, and both choices have big disadvantages; it’s up to you to determine which is best for your personal situation. If you are someone that does not like to keep cars for a long time, we suggest leasing; it really isn’t as bad as everyone says – even with bad credit!
At Auto Credit Express we work with a network of bad credit car dealerships that can get you into a new vehicle regardless of your past financial mistakes. Whether you decide to lease or finance, you will be able to drive away today. Get started today by filling out our pre-approval car loan application!