Take the Simple LEASE TEST Answer the following questions. The results of this test are only meant to determine if you are a good candidate for a lease. Remember the final decision must come from you, the customer. 1. Do you prefer to drive a vehicle between 2-4 years? 2. Do you average about 12,000 - 15,000 miles on your vehicle annually? 3. Do you keep your vehicle in great condition and maintained? 4. Do like the idea of driving a more expensive vehicle for a lower monthly payment? 5. Does the idea of tying up money on a depreciating asset upset you? 6. Do you like the idea of only paying for what you use? 7. Are you concerned with high down payments, sales tax and high monthly payments? 8. Is my vehicle used for business? If you answered yes to most of these questions, than you could be a good candidate for a lease. If you answered no, than purchasing is probably the way to go. Consider all of your options and negotiate a good price on the vehicle before you decide. Note: Get an experienced leasing salesperson! Make sure to ask your salesperson all the right questions. He or She should know all these terms: You should also know these terms in order to better understand leasing. These are four important terms you should know before considering a lease. CAPITALIZED COST The Capitalized Cost is the total value of the vehicle at the inception of the lease. If you were purchasing the vehicle, this would represent what you are paying for the vehicle. The Cap Cost will effect your monthly payment. If you do not negotiate the selling price as you would in a purchase, your payments will be higher and you’ll probably pay MSRP or higher. Ask to see the Cap Cost to avoid any misunderstandings. RESIDUAL VALUE This is what the lease company projects will be the value of the car at the end of your lease term. Remember, you are only paying for the time that you use the vehicle. A higher Residual Value usually results in lower payments and you will probably turn the vehicle in at the end of the lease term. A lower Residual Value means higher payments but probably some equity in the vehicle at the end of the lease. If you are considering buying the vehicle at the end of the lease this would be the better option. Most dealers will use any equity in your vehicle as a down payment on a new vehicle. MONEY FACTOR Ask the Dealer to translate into an interest rate. The money Factor is the cost of money and is determined by the Federal Reserve. By multiplying the money factor by 2400 you can determine the interest rate. (Example .00210 times 2400 = 5.04%) Remember the higher the Money factor, the higher the interest rate. GAP INSURANCE Your lease agreement should include this coverage. This is where the lease company has insurance to cover you and them in such dilemmas if the unfortunate should happen. BUYING VS LEASING Determining whether you should buy or lease is not as simple as a little math and a few facts. Do your research on the vehicle before you make a decision. It is also a lifestyle decision and you must evaluate your what's and needs as well as the figures before you decide. Mile Limitations When you purchase a vehicle you can put as many miles as you like. Most lease programs have strict limitations on mileage. Depending on your contract it is usually between 12,000 and 15,000 miles annually. Driving over the allotted miles can result in additional charges when your lease ends. Make sure you know what these charges are, just in case. (Price per Mile) Normal Wear and Tear A lease contract always allows for normal wear and tear. Always ask the amount of damage waiver from the leasing company. Most manufactures offer a normal wear and tear amount. If you do not normally keep your vehicles maintained you should probably buy to avoid additional charges at the end of your lease. Find out what your lease company considers to be normal wear and tear. Normal Ownership Time If you typically buy a new car every two or three years a lease may be right for you. If you traditionally like to keep your vehicle for many years, an outright purchase may be the ticket. Keep in mind that if you are able to purchase the vehicle at the end of your lease term and the current terms are exceptional this may be a good way to avoid a lot of up front money. (ACV) Actual Cash Value Whether you purchase or lease, this is the amount of money you can expect for a trade in. Miles, Condition, Market Value, Geographical, the trade market of each dealer might give you a different figure. When you lease you don't have to trade it in, simply turn it in at the dealer (Most dealers will do this when you purchase another vehicle.) Check the lease company. Ask questions, Read your lease. Term This would be the time you sign the lease/purchase to the last day of pay-off. 24-48 months for lease and 48-84 months on purchase Benefits when leasing 1.Instead of paying sales tax up front, each monthly payment is taxed as opposed to paying the entire sum on the value of the vehicle when you purchase. Ask your accountant because there may be tax incentives especially if you are self-employed and use the vehicle for business reasons. 2.When you purchase and finance a vehicle there is about a 2-3 year period where you owe more than the vehicle is worth. In other words, if you total the vehicle you may actually owe the lender some money.(Up-Side Down) 3.Shorter Terms 36-48 vs 60-84 Questions you should ask 1) What is the Cap Cost? Remember to negotiate the price just as a purchase. 2) What is the Money Factor? This is the Interest amount you will be paying for the term x2400. 3) What is the Residual? Cost of the vehicle in the event the lease company expects the value of the vehicle. This would be the buy out of the vehicle at the term of the lease should you decide to purchase.. 4) Does the payment include GAP insurance? This insurance is the difference between the amount owed and the Actual Current Market Value 5) How many miles do I receive? 12K, 15K, 18K? What is the penalty for over mileage? Can I purchase more miles? If so the cost. 6) Ask about fees, total inception at the time of signing (This could be different between dealers, manufactures and leasing companies) 7) What is the total cost of Ownership? Including all fees, payments & taxes (The same as OTD or out the door on a purchase) 8) Read the Lease in full, Ask questions to be explained, Get everything in writing before you sign. Negotiations It does not matter if you purchase or lease your new vehicle, both are negotiable. You should negotiate a lease just as you would a purchase. Hopefully the information on this page will help you to be better informed on Buying vs Leasing. Knowledge is King ! Good Luck ! Negotiate like a pro ! Enjoy your new vehicle. |
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