BUFFALO NY — Should I Lease or Finance a New Car? How do you avoid getting ripped off at the dealership? Should you buy off your lease?
Leasing a new car or truck instead of buying one is similar to renting a home versus owning a home. Which option is best for you will depend upon your needs, circumstances and your financial position.
In some ways, leasing a vehicle is like renting an apartment; you pay a monthly fee to use it but don’t own it, and aren’t making payments toward ownership. The leased vehicle remains the property of the lessor (the company that issued the lease).
You’re obliged to make monthly payments for the length of the contract, and while you can get out of the lease before then if you want to, there will be extra costs. And as is often the case with renting an apartment, you’ll likely have to put down some cash as a “security deposit” at the lease inception.
It can make sense to lease:
Leasing can make sense, the big advantage is that you aren’t making a long-term commitment. When the lease period is up, you can simply bring the car back and walk away, or you can buy it if you like by paying off the remaining balance — called the “residual value” — which you’ll negotiate in advance at the time of lease inception.
Since you are effectively renting the car, your total cash outlay should be much less. You won’t have to make as large a down payment (a security deposit and the first month’s payment are typical when you buy a car) as you would if you were buying. And monthly lease payments are almost always less than payments would be if you bought the car.
You can usually afford to drive a more expensive car when you lease, since the monthly payments will be comparatively lower. This is one of the biggest single attractions of leasing for many people.
Another benefit of leasing is that you’re always driving a new car, and you won’t have to worry about the major repair and maintenance problems that inevitably crop up as a car ages and gets out of warranty. The leased car will typically be under factory warranty for the duration of the lease.
Buying makes more sense for some people because you are building equity (value) in the car or truck. Even though it will depreciate with each passing year, so long as it’s still serviceable transportation, it will always be worth something. That value can be used as a trade-in, or the vehicle sold privately to help raise money to pay for a new one or some other need.
There’s also the mileage issue. If you lease, your contract will typically stipulate the maximum number of miles you’re allowed before the end of the lease. If you exceed the figure, it can get very expensive. Per-mile charges over the stated maximum are often exorbitant — so if you drive more than about 15,000 miles annually, leasing could be a terrible move for you financially. Be extremely careful about this.
The person who owns his car, meanwhile, can drive it as much as you want, and do pretty much whatever you feels like with it. You can swap out the stereo, add different wheels and tires, change the exhaust system, whatever. Do this with a leased car and you’ll have to pay whatever if takes to put the car back the way it was. If you own your vehicle, the inevitable door dings and dents can be shrugged off, if you lease, then you can expect to be charged for every nick, tear or spill at the end of the lease.
Leasing is also more complex than buying, always closely read and be sure you understand every bit of the lease contract before you sign.
Negotiate the price, even if you lease, the ultimate costs will be based upon the agreed-upon sales price of the vehicle. In a lease, this amount is called the “capitalized cost” — but it’s essentially the same thing as the sales price of the car. Don’t be put off by the intimidating verbiage; you negotiate the “cap cost” in the same way you’d negotiate if you were buying rather than leasing. (“Cap cost reduction” is the price of the vehicle after you factor in any trade-in or cash down, etc. The “adjusted capitalized cost” will be the final figure upon which your monthly lease payments will be based.)
Never tell the salesman whether you will be buying or leasing until after you have negotiated the price — or “cap cost” — based on dealer invoice vs. the MSRP sticker price, factoring in all rebates, discounts, etc. Concentrate on getting the best price first; worry about whether to lease or buy after you’ve done that.
Shop around for financing. As with buying a car or truck, it pays to consider several lenders before you commit. Banks, credit unions, even the financing arms of the automakers themselves often have varying rates and deals. Your credit rating will affect what you pay but don’t be too eager to accept the first deal that comes along or take whatever the dealer offers. Ideally, arrange your financing before you begin the process of actually buying (or leasing) the vehicle; this way, you’ll have eliminated one more variable and possible source of confusion and can concentrate on the actual deal itself.
Many people who are good negotiators get tired after hours of haggling, and when faced with the second-tier task of arranging financing, often accept whatever is put before them. Don’t get caught in that trap.
Check out more from Lauren at: www.laurenfix.com