1.)
What is the difference between buying/financing versus leasing?
2.) Why is a lease payment
generally lower than a loan payment on a purchase?
3.) How much cash should
I put down?
4.) What happens at the end
of a lease?
5.) Why do people lease?
6.) Can I drive a leased
car high mileage?
7.) How do I figure the interest
cost in a lease? Is it higher than if I finance?
8.) It seems to me that I
pay all that money each month, and yet I have nothing to show
for it at the end. Is that smart?
9.) Give me a quick guide
as to who should lease and who should buy.
Unfortunately, there
are a lot of people who lease and shouldn’t, and a lot more
who should be leasing and aren’t. And, it is almost universal
knowledge that most people don’t really understand how leasing
works, or how to get leasing to work for them. But, wait, there
is another leasing issue, which Sharp Cars is extremely concerned
about: Many car dealers hide thousands of dollars in extra profit
when they write you a lease. And, since leasing disclosure is
very different from loan disclosures, you may never know they
did it to you. It is our goal to get the right people leasing,
the others to buy and finance, and to do true full-disclosure
leasing. Our commitment: If you lease a vehicle from us, you will
understand exactly what you did and how it works before you sign
or drive anything home. Here’s a really “short version”
of how leasing works. Our main goal is to help you determine if
YOU should consider leasing. We’ll do it in a question and
answer format.
1.) What
is the difference between buying/financing versus leasing?
When you buy a car, you pay for the whole car (sooner or later)
plus tax and license on the whole price. Plus, you pay interest
on the whole loan. When you lease a car, you agree to pay ONLY
THE VALUE THE CAR IS PROJECTED TO LOSE WHILE YOU HAVE IT, plus
tax ONLY on what you pay, and license. And, of course, you pay
interest on what you borrow.
2.)
Why is a lease payment generally lower than a loan payment on
a purchase?
When you lease a car, your “principal” payment represents
only the depreciation while you own it. If you purchase and finance
it, you essentially make the car into a “savings account”,
in which you attempt to pay for it faster than it loses value,
so the payment MUST be higher. Although, this often doesn’t
work out, and you often owe more than your financed car is worth
anyway, the loan payment is almost always higher than a comparable
lease payment.
3.)
How much cash should I put “down” toward a lease?
Normally, we recommend that you pay a minimum “up front”
payment on a lease. If you’re going to “pay as you
go”, then pay as you go! Not up front, and not at the end.
Certain situations cause a larger up front payment to be appropriate
in some cases.
4.)
What happens at the end of a lease?
If you used the car the way you agreed to, and kept it for the
term of the lease, you normally bring it back to us, pay a small
disposition fee, and walk away (or DRIVE away in a new lease!).
At the beginning of the lease, we agreed with you in writing that
you would only pay a certain amount in depreciation, leaving a
“residual” value (call it a balloon payoff for simplicity),
which we guarantee to buy the car back for. If the car is worth
more than the residual, you have the option of selling or buying
it and pocketing the profit. If it is worth less than the residual,
you simply drop it off to us and we have to accept it at the pre-arranged
value anyway, as long as you used the car as you agreed in the
lease. Heads you win, tails, somebody else loses. One of the big
benefits of leasing is that we guarantee the trade in value up
front. If the market changes, you can only win or break even,
5.)
Why do people lease?
There are lots of reasons, but here are a few of the most popular
ones. First, for a minimum monthly payment, a repeat lessee can
drive new cars and replace them regularly, forever. Since the
leased car you have is always nearly new, there are usually few
repair costs. Just make the payment and enjoy always having a
newer vehicle. Another good reason is that you save a lot of sales
tax on a lease, since you only pay tax on your payments, not on
the whole car. And an outstanding reason to lease is to LEVERAGE
the excellent value retention on some more popular vehicles, which
allows you to regularly drive a MUCH nicer car than you otherwise
could justify. If a car loses very little value, the lease payment
is lower. Conversely, if the car loses a lot of value, the payment
is higher, so the lease payment is an accurate reflection of the
TRUE cost of having a given car.
6.)
Can I drive a leased car high mileage?
Most leases have a penalty fee if you drive farther than you promised,
since that changes the depreciation of the car. Sharp Cars,
however, can write a lease with up to 60,000 miles per year usage.
7.)
How do I figure the interest cost in a lease? Is it higher than
if I finance?
This can be a tough question for you to answer, since lease interest
rates are not disclosed in lease documents. The fact is that lease
and finance interest rate cost TO US are about the same, almost
all the time, so a lease SHOULDN’T represent much difference
in money cost from a comparable loan. But, unfortunately, this
is the biggest area where many dealers seriously abuse the leasing
system. Since the rate is not disclosed, they mark it up dramatically
and the deal still looks good to the client, since the lease payment
is inherently lower, anyway. The only effective way to shop leases
between dealers is to add the up-front cash charge, the payments
over the term, plus the residual (buyout) price of each lease
you are comparing. The lowest total wins, regardless of whether
it is the lowest payment. We can give you a lease with a $1 payment
per month, but you won’t like the front and back end charges
a bit!! You see why this is so hard? The best thing to do is to
spend some serious time with a Sharp Cars broker and let us
guide and train you till you KNOW what’s best!
8.)
It seems to me that I pay all that money each month, and yet I
have nothing to show for it at the end. Is that smart??
OK…Let’s be pragmatic, here. Your new car will depreciate
exactly the same in value, whether you buy it, lease it, rent
it, or steal it. So, the true cost of owning, leasing or whatever
should net out about the same. The question is just WHEN you wish
to pay the depreciation. If you PREPAY (buy), you will get money
back, since you paid too much into the car. If you LEASE, you
“break even”. If you don’t pay enough while
you have the car, you will owe the rest of the depreciation at
the end, unless you lease with a guaranteed end value. The equity
you DON’T have at the end of a lease is MONEY YOU DIDN’T
PAY, so you don’t get it back. Simple, right? No? Better
call us!
9.
) Give me a quick guide as to who should lease and who should
buy.
Here you go…but check with us to be sure this applies to
you! IF you normally finance the majority of your purchase, and
you frequently trade (or would like to trade) vehicles, you should
consider leasing. IF you pay substantial money upfront and keep
a car a long time, you should generally consider buying. That
being said, we can’t think of a better reason to consult
with someone you trust like Sharp Cars, before making a decision
like this!!
