Leasing questions.

I can see there is a lot of people that don't understand what a lease is. A lease is simply financing the "portion" of the vehicle that you will be "using up". A lease consists of three parts, the "purchase price" of the vehicle, a "residual value" (what it will be worth at the end of the lease), and a "interest rate". All three are negotiable.

The "purchase price" minus the "residual value" is the portion you are financing; this is basically the value of the vehicle you are "using up" over the term of the lease. A lease is a purchase of the part of the vehicle you are "using up" at the agreed to "interest rate" over the agreed to period of time. The payments are calculated the exact same way as the payments for an outright purchase. At the end of the lease you can purchase the vehicle for the "residual value" you agreed to at the very beginning of the lease.

Whether it is a good deal or not depends on way to many variables to discuss here. But there is nothing magical about how a lease works or how the payment is calculated.

Leasing can be cheaper than buying/selling/trading for the same period of time. The out of pockets costs can be similar with lower monthly payments. Sometimes leases are subsidized more than buying (extra cash back, higher than realistic buyout prices). For any given transaction, you should compare all the actual costs.

rjstractor wrote:
Leasing has worked out well for me. It's not a bad option if you want to drive a new vehicle every three years or so, and you don't drive a lot of miles. With my lease I paid zero down, all maintenance is included. The car is under warranty the entire lease term so no repair costs. So, I basically have to put gas in it, pay for insurance and write a check each month. At the end of the lease I can walk away, get another car, or buy my current one. (probably the least attractive option) The only downsides are that I'm limited in the number of miles I can drive (12K a year) and I always have a payment. So, it works for me. It may not work for you. Also, lease terms may prevent you from installing a fifth wheel hitch.

Something to remember regarding mileage, the vehicle depreciates with every mile you drive whether you lease or buy.

I have always leased my toy vehicles. I enjoy having a luxury convertible. I don't drive them many miles a year, so the leasing works great. A huge hidden benefit is at the end of the lease there is no hassle selling or trading the car and if the market for them has crashed, resale value is not my concern.

Every time this discussion starts, people without knowledge, insist on chiming in with totally incorrect information about leasing. No one person can make a blanket statement that leasing is "not good for you" without knowing your complete financial picture, wants, and needs.

I was a dealer for more than forty years, operated multiple lease companies, and have a degree in leasing. I have leased thousands of vehicles and had this discussion thousands of times. Unequivocally the answer as to whether to lease or not is...Maybe!

The absolute lowest cost of ownership of a vehicle is to buy it new, pay cash, and keep it for more than ten years. Less than 10% of the owners do this and far more than 50% of people finance with an average term of more than 60 months. With the average down-payment, they will owe more than the value at least during the first 48 months of payments. So not leasing because you are throwing your money away is incorrect. With a zero down lease of thirty-six months, you will have lower payments and long before you are at break-even on your financed purchase, you will have turned in your lease and have no obligation.

You can lease a vehicle for any amount of miles you wish, generally up to a 100,000 mile total lease. Dealers and manufacturers often advertise 10,000 mile leases simply because the payment is lower. Often you can get even lower mileage leases for lower payments. You should lease the vehicle for the most reasonable amount of miles you are likely to drive. Leasing a vehicle for 10,000 miles a year and knowing you will be driving 20,000 miles a year is just dumb.

As even like you own the vehicle, you are going to pay for the original acquisition price, depreciation, and interest on the money whether it is lost interest by paying cash or interest on money borrowed. Generally, the leasing company sets the interest rate and it is non-negotiable unless the dealer is marking it up. Generally it is lower than borrowed funds because the leasing company receives great tax incentives. They also set the residual amount and that is also non-negotiable. The actual selling price of the vehicle is negotiable and even the low priced advertised leases are negotiable.

Leasing is only as complicated as you allow it to be. Any leasing contract has to meet government regulations and clearly spells out all the terms and conditions of the lease. If you are going to lease, seek out your best sales price of the vehicle and make sure you read both sides of the lease contract. A lease can be very beneficial for the buyer when they do their home work.

Thanks for all the replies! What I expected was a low lease due to the fact diesel trucks have tremendous resale value (at least around here thanks to oil/gas workers). The payments I've found online are higher than what I figured. certainly worth checking into more. No hurry as motor home is working well just curious about 5 wheel.

Jallen - two points.
First, the interest rate is negotiable. Different lease companies have different rates. And you can play one lease company against another. You are presuming the lease is through the dealer and the dealer's leasing company. You don't have to lease the vehicle through the dealer.

Second, the residual value is negotiable. By your own admission different mileages are available. That goes strictly to the residual value of the vehicle. But even there, different lease companies can use different residual values.

I urge anyone considering a lease to go online and determine their best lease options and shop them against the dealer's terms and conditions.

I had a leased vehicle, and the lease was not through the dealer. I shopped lease companies for rates and residual values; and shopped dealers for the best vehicle price.

JALLEN4 wrote:
The absolute lowest cost of ownership of a vehicle is to buy it new, pay cash, and keep it for more than ten years.

Shouldn't that be, buy used, pay cash, and keep it for more than 10 years?

Of course if you really know what you're doing (I don't), you can buy used, drive it for a short time and sell it for about what you paid.

When it comes to vehicle value only, the lowest cost of ownership truck I had was a '92 F-150 that I bought with 150,000 miles on it. When I let it go it had 233,000 miles. I put 83,000 miles on the thing in 7 years and sold it for $1,700 less than I paid.

wing_zealot wrote:
Jallen - two points.
First, the interest rate is negotiable. Different lease companies have different rates. And you can play one lease company against another. You are presuming the lease is through the dealer and the dealer's leasing company. You don't have to lease the vehicle through the dealer.

Second, the residual value is negotiable. By your own admission different mileages are available. That goes strictly to the residual value of the vehicle. But even there, different lease companies can use different residual values.

I urge anyone considering a lease to go online and determine their best lease options and shop them against the dealer's terms and conditions.

I had a leased vehicle, and the lease was not through the dealer. I shopped lease companies for rates and residual values; and shopped dealers for the best vehicle price.

It is true you do not have to lease through the dealer's finance source. But, around 27% of new vehicle sales are leases and the manufacturers captive finance arms lease more than 90% of those vehicles. In most cases today, the manufacturer subsidizes the lease and puts the independent lease company at a severe disadvantage because of this subsidy and their lower cost of funds. It is a rare case when you find even a competitive lease number against the manufacturers source much less one that beats the norm. While you should never say never, for 99% of the lease candidates the interest rate is non-negotiable on mainstream vehicles.

Most all residual values in the U.S. are set using the ALG Guide. Again, manufacturers can and regularly do subsidize this value. Independent leasing companies can set the residual anywhere they want but in reality they would first likely need their funding source's permission and will most likely fail when they stray too far from this guide. You are not "negotiating" the residual value when leasing for higher mileage than normal but rather paying for the increased cost of more miles and the resulting lower value of the product at termination. Again, never say never but 99% of leases will not involve any negotiation of residual value.

In today's lease market, it is simply impossible for the independent to compete against the majority of mainstream leases at the dealership. I have tried. Sometimes, on specialty vehicles that are not subsidized, the independent can be competitive but are dealing in a risky part of the business. The normal shopper almost always only has the price of the vehicle to negotiate.

Here is a free site that may help.

http://www.free-online-calculator-use.com/car-lease-vs-buy-calculator.html

JALLEN4 wrote:
Every time this discussion starts, people without knowledge, insist on chiming in with totally incorrect information about leasing. No one person can make a blanket statement that leasing is "not good for you" without knowing your complete financial picture, wants, and needs.

I was a dealer for more than forty years, operated multiple lease companies, and have a degree in leasing. I have leased thousands of vehicles and had this discussion thousands of times. Unequivocally the answer as to whether to lease or not is...Maybe!

The absolute lowest cost of ownership of a vehicle is to buy it new, pay cash, and keep it for more than ten years. Less than 10% of the owners do this and far more than 50% of people finance with an average term of more than 60 months. With the average down-payment, they will owe more than the value at least during the first 48 months of payments. So not leasing because you are throwing your money away is incorrect. With a zero down lease of thirty-six months, you will have lower payments and long before you are at break-even on your financed purchase, you will have turned in your lease and have no obligation.

You can lease a vehicle for any amount of miles you wish, generally up to a 100,000 mile total lease. Dealers and manufacturers often advertise 10,000 mile leases simply because the payment is lower. Often you can get even lower mileage leases for lower payments. You should lease the vehicle for the most reasonable amount of miles you are likely to drive. Leasing a vehicle for 10,000 miles a year and knowing you will be driving 20,000 miles a year is just dumb.

As even like you own the vehicle, you are going to pay for the original acquisition price, depreciation, and interest on the money whether it is lost interest by paying cash or interest on money borrowed. Generally, the leasing company sets the interest rate and it is non-negotiable unless the dealer is marking it up. Generally it is lower than borrowed funds because the leasing company receives great tax incentives. They also set the residual amount and that is also non-negotiable. The actual selling price of the vehicle is negotiable and even the low priced advertised leases are negotiable.

Leasing is only as complicated as you allow it to be. Any leasing contract has to meet government regulations and clearly spells out all the terms and conditions of the lease. If you are going to lease, seek out your best sales price of the vehicle and make sure you read both sides of the lease contract. A lease can be very beneficial for the buyer when they do their home work.

You ARE a “sales man”, it IS your “job” to “sell” things, it IS WHAT YOU DO.

You know the old question of.. How can you tell a salesman is lying?

Answer, when his mouth opens!

Of course YOU are going to endorse “leasing”, it is your job to sell using whatever “tools” you have at your disposal. If you don’t “sell” you won’t be in business for long..

Leasing is nothing more than another name for RENTING, in the case of a lease it is a LONG TERM RENTAL CONTRACT.

Sure, you can add more “mileage” to the contract, but it IS at a higher monthly payment cost.

Many folks get lured into leasing due to the monthly “payment” being lower than an outright purchase, often times folks use a lease to get a more expensive vehicle (IE top trim level, diesel, ect) that they may not qualify for or want to pay the larger payments with a purchase/loan.

The huge downside to that is the Leasee has two options at the end of the lease.

Option 1, give up the vehicle.

In doing so they surrender ALL the “payments” and other costs (insurance, taxes, title, tires, brakes and so on) along with the vehicle.

The result is 100% total loss of money AND they have NOTHING to show for that loss of money except for the limited time they got to use the vehicle.

They have NOTHING to “trade” or sell towards the next vehicle purchase, they start from ground zero each and every time they enter a new lease.

They also will get hit over the head for any damages inside or out including chipped paint, scratches, worn or broken interior and mileage overages.

On top of that since the leasee does not “own” the vehicle, they cannot “mod” the vehicle with their own “touches” unless it is 100% reversible and they don’t mind taking the time to fully reverse (IE remove all mods) the touches.

Any mods done that are not 100% reversible are going to hit you like a brick wall of charges when you hand it in. Drilling holes in the bed to install rails for a 5th wheel hitch isn’t going to be hid very easily during the end of lease inspection (and YES, they DO INSPECT the vehicles very closely).

Option 2, keep the vehicle and pay the “balloon” payment.

This option is by far the worst option of a lease due to the fact you now must get a loan to pay for the price of the vehicle which WILL be MORE THAN WHAT IT IS WORTH. The folks who do this will often end up with an additional 5-6yr loan at a much higher interest rate than if they bought a brand new vehicle over all they will have paid 8+yrs for a vehicle that they should have only paid no more than 5yrs!

I buy new with a cash downpayment, pay the loan off early saving a lot of interest (5yr loan I pay off in 2 to 3 yrs).

Then the money I would have been paying as monthly payments gets set aside for use as the downpayment for my next vehicle and or can be used to pay for out of warranty repairs.

Typically I will have not only a nice sized down payment but I will also have a used vehicle to trade in or sell off for the next purchase. It is how I can afford to continue to buy new and not put me in the poor farm. I keep em as long as the repairs don’t start costing me a monthly payment, typically 10-12 yrs and SEVERAL HUNDRED THOUSAND miles of driving.

I can make a vehicle last upwards of 10 yrs all without having a loan payment for at least 7 of those years!

If you don’t drive a lot of miles you actually are even FURTHER AHEAD TO BUY AND NOT LEASE!

Why?

Well, pretty simple, there are lots of folks in the used market looking for LOW MILEAGE USED VEHICLES! Less miles than average on your vehicle adds resale value and typically commands a higher sale price even on a trade in.. Its like “found” money for YOU the owner..

Be careful of a "salesman's" or "dealership owner" giving financial advice.. They have only ONE job to do and that is to find a way to get you to purchase from them no matter how much it may cost you down the road.