Leasing VS Buying a Car:

Leasing offers an attractive and affordable means of driving a new car every few years. But it's not for everyone, and should be entered into with both eyes wide open. Leasing rather than financing or paying cash has become a popular method of acquiring a new car or truck. Studies have shown that in 1999 35 percent of vehicle sales to consumers were paid for with lease financing. It's hard to shop for a car these days without being tempted by promises of "zero down" and low monthly payments on two or three-year leases. And often you can lease a more luxurious car for the same monthly payment as financing the economy model. It sounds great, but what is it really all about?

What is leasing, in a nutshell? paying for the car itself. The bottom line is that your lease payments cover the cost of the vehicle's depreciation over the length of the term of the lease, instead of the vehicle's actual purchase price. You (the "lessee") are expected to maintain the car during the lease, but when the lease is over you can either return the car or exercise the option to purchase it. Theoretically, that's how it works. But in practice, there are a number of factors to consider before you decide whether or not leasing is appropriate for you.

Is leasing right for you?
Leasing isn't for everyone, but for those willing to accept certain limits, leasing offers an attractive and affordable means of driving a new car every few years. If you're interested in leasing, you should make sure you're comfortable with some of the basic aspects of leasing over buying. Ask yourself the following questions:

Do you become easily bored with a car after only a couple of years of use?
Do you feel the need to drive a new car every two or three years?
Is driving a new car more important to you than actually owning one?
Are you comfortable with continuous car payments, year in and year out?
Do you maintain your car regularly, keeping it in good condition at all times?
Are you comfortable with keeping your car the way it left the dealership, feeling no need to modify it in any way to suit your personal tastes?
Do you drive a consistent number of kilometers each year? Are you comfortable selecting and following an annual mileage limit?
Do you have a legitimate business use for your car? Do you plan on claiming your lease payments as a business expense?

If you answered "yes" to three or more of the questions, then leasing may be right for you.

Differences between leasing and buying
There are many differences between leasing and buying, but the primary difference is with buying you're paying to own the car and with leasing you're paying to use the car. Below are some specific differences between buying and leasing a new vehicle.

 


Buying:
Monthly payments are applied to the actual purchase of the vehicle. Once the car is paid off, you're free to do as you please with it. You can keep it for the next ten years or sell it. Buying allows you to keep the vehicle for as long or as short a period as you'd like.  Financing a vehicle usually requires a down payment. This can be in the form of cash or a trade-in. Monthly payments are higher than monthly lease payments because they're based on the total cost of the vehicle, not just its depreciation. A typical financing period is 48-72 months. After that, you own the vehicle outright with no more payments for as many years as you choose to keep it. Maintenance is totally voluntary. While you should always keep your vehicle maintained for optimal performance and resale, there are no set requirements as there are with leasing. Because finance periods usually extend beyond the typical manufacturer warranty period, maintenance costs during a four? or five-year financing period will be higher than with a two or three-year lease. There are no predetermined mileage limits, but higher mileage still causes greater depreciation. There are no limits to modifications you can perform on a financed vehicle. If you like fancy wheels, you're free to put them on.

Leasing:
Monthly payments are applied to the depreciation and use of the vehicle, not the actual purchase. At the end of the lease term you can either return the vehicle or purchase it from the lessor. Monthly lease payments for the same vehicle are lower than financing payments. Leasing often does not require a down payment. But a down payment can be applied as a means of lowering monthly payments. Leasing typically requires the  replacement of the vehicle every two or three years. Once your lease is over, you'll need to buy the car or lease another right away. Early termination of the lease typically requires coming up with a significant amount of cash. Once you're committed to a lease, you have to stay with it for the duration or come up with the money to terminate early. The early termination penalty varies from lease to lease and the method of calculating the amount is explained in the lease. For some people, lease payments can seem endless. Once their current lease term is over, many simply start a new lease on another vehicle. Moving from one lease to another is convenient, but unless the lessee chooses to purchase the vehicle at lease end, it often ties the lessee into a seemingly continuous cycle of leasing. Leasing sets predetermined annual mileage limits, usually 25,000 kilometers per year. Additional kilometers can usually be purchased before the lease inception to increase the annual limit. Lease vehicles are usually covered under the factory warranty for the entire duration of the lease.

Lower Payments and Zero Down...
It may sound like a dream, but leasing makes it possible. Since the amount a vehicle depreciates over a two? or three-year lease is less than the cost to finance that vehicle over the same time period, monthly lease payments can be less and considerably so in many cases. This allows consumers to use the money they save for other things, or to lease a more expensive vehicle than they could normally afford to finance for the same monthly payment. To arrive at this monthly lease payment, a leasing institution (the "lessor" combines the vehicle's estimated depreciation over the lease period with the interest being paid by the lessor to finance the car, plus assorted dealer fees. Most leases can be initiated without a down payment (known as a :”capitalized cost reduction," in leasing terms). Again, because lease payments are based on a smaller amount of money than if the vehicle is financed, less money is needed up front to initiate a lease. A down payment may be utilized in some instances to lower monthly payments to an especially attractive figure; however, this counters one of the main benefits of leasing, which is getting a new car with little money down.

Two and three year?
The short lease periods available are very attractive to consumers who like the idea of driving a new car every two or three years. It also helps keep maintenance costs down by avoiding the high cost of maintenance and repairs that an older vehicle with high mileage often requires. Since most manufacturer warranties cover vehicles for at least the first two or three years with the exception of required routine servicing most serious maintenance costs get absorbed by the manufacturer anyway. Beware: those who may be thinking of terminating a lease early should think twice since there are severe penalties for early lease termination.

Returning the vehicle at lease?
At the end of the lease, you have the option of returning the vehicle to the lessor, extending the lease or purchasing the vehicle. If you choose to return it, some basic requirements must be met:

  1. The vehicle must be in good shape (as determined by the lessor) and free of excessive wear and tear. Any evidence of rough or abusive treatment will result in repair costs being charged back to you.
  2. The vehicle must be returned as delivered. Any performance modifications or after market  parts and accessories that had been installed by the lessee during the lease must be removed and  the vehicle returned to the same condition that it was in when it was first leased.
  3. Total mileage must not exceed the annual mileage cap set by the lease. If the vehicle has more kilometers than  the leasing agreement stipulates (the normal mileage cap is usually 25,000 kilometers per year), you may be charged anywhere from 10 to 20 cents per kilometers driven over the mileage cap. It pays to stay within the set limits.

Buying the vehicle at lease?
If your lease includes a purchase option, you may choose to purchase the vehicle at the end of the  lease. In evaluating this option, another set of factors must be considered, foremost of which is the vehicle's Lease-end value, or residual value. With the more common closed-end lease, the residual value is actually calculated at the lease's inception. This ensures that you pay a predetermined amount regardless of the vehicle's actual market value. If the market value is higher than the residual value, then you're getting a good deal. If the residual value is less than the market value, the lessor absorbs the loss, not you. Regardless of market value, you pay the same.

The Leasing Checklist
Leasing may sound straightforward, but it is important to pay attention to the details. Here's some advice that will help make leasing your next vehicle a little less mysterious and intimidating:

  1. Shop around. Different dealers and manufacturers will offer different lease rates and are willing to negotiate for your business.
  2. Read the fine print. Find out ahead of time about all hidden charges, i.e. destination, security  deposit, registration fees, lease-end service charges, etc. Make sure you know the full story behind the "special" advertised price of $199 a month.
  3. Stipulate a closed-end lease. If the actual value of the car at the end of the lease is less than its residual value, the lessor pays the difference, not you. Conversely, if the actual value is more, you have the option of buying the car for the fixed residual value, then selling it at a profit.
  4. Check on insurance rates for the level of coverage required by the lessor. The lease agreement may require higher liability limits and lower deductibles than you currently carry, and both will increase your insurance premium.
  5. Lease vehicles that tend to hold their value well. The sexiest cars are not always the best buys in the world of leasing.
  6. Negotiate the price of the vehicle before negotiating a lease arrangement. This prevents the selling price from influencing lease negotiation. Go into the lease negotiation with the selling price already set.
  7. To avoid Lease-end excess mileage charges, increase the mileage limit before you enter into the lease. Buying extra kilometers over the term of the lease is less costly than paying for the extra kilometers at the end.
  8. To avoid Lease-end wear and tear charges, maintain the vehicle well during the lease period.  Lessors will not hesitate to charge you for perceived ill treatment.
  9. Remember that if you decide to purchase the vehicle at the end of the lease, in the long run  leasing may end up being more expensive than financing.

No matter what you may decide to lease or buy remember maintenance is an important factor in protecting your vehicle. Performing regularly scheduled service as per the manufactures recommendation  will save you dollars in the end and the vehicle is usually worth more for resale. The conclusion from this is that regular maintenance pays dividends. If you have any other questions pertaining to caring for your car feel free to call or stop by, our staff at Buehler Automotive & Transmission Inc. will be more than happy to take care of you or book an appointment.

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