Leasing

As the cost of vehicles continue to rise, we here at Simple Auto Credit have found a way to give you the monthly payment you desire while still driving the new vehicle of your choice. Lease it! Many professional Financial Advisors agree that unless you plan to keep your vehicle 6 years or longer and you must finance because you can’t afford to pay cash, you should at least consider leasing.

The concept of leasing is pretty simple. You are guaranteed a future trade in value at the end of the term you chose. But, instead of the bank giving you credit for it then, they give you credit for it now and only charge you for the period of time you drive the car. That is why the payment is lower. But, because possession reverts back to the bank at the end of the lease, the lessor has an expectation of a pre-determined amount of mileage usage per year and average wear and tear. That is certainly understandable.

Simply Auto Credit finds that the biggest objection people have to leasing is, “I don’t own anything at the end of the lease.” To that point, studies show that most people attempt to trade their vehicles after about 3 years of ownership. However, due to 60 month or longer term finance terms and the accelerated depreciation that most vehicles experience, when owners attempt to trade, the only thing they own is thousands of dollars of negative equity. But, the worst part is had the vehicle been leased for 3 years instead of financing it, the initial investment would have been lower, the monthly investment would have been the same or slightly lower and at lease end there would be no negative equity. Most people just don’t know about leasing. So, to better educate you, listed below are the advantages and disadvantages of leasing. Take a look and see if it is leasing right for you.

Advantages of Leasing

  • Lower Monthly Payments and Low Down Payment – Payments on a lease are lower than financing because you are only paying for the term of your usage.
  • Upside Down – Never worry about being upside down where the value of the vehicle is less than the amount you owe.
  • Eliminate Negative Equity – Why add your negative equity to your next auto loan and create a even bigger future problem? Instead, add it to a short term lease, enjoy a comparable payment and start fresh at lease end.
  • Always have a Payment – For most people, a car payment is like a house payment. You will always have one, so why not drive the new vehicle of your choice every 3 or 4 years?
  • Asset Sense – You should buy items that appreciate and lease items that depreciate. For example, most people would not be too excited about paying for stock at $30,000 if they knew that it would only be worth $15,000 in 4 years.
  • Low Risk – A bank or lease company is assuming the total risk of what the vehicle will be worth in the future. If your vehicle suffers accelerated deprecation in the market place for any reason, the bank takes the hit, not you.
  • Flexibility – You do not have to give up the option of owning the vehicle, you can just postpone it. This gives you time to make sure that its the right vehicle for you. This makes good sense with advances in technology that have the potential to make your vehicle outdated.
  • High Mileage – Drivers can benefit by applying for extra miles up front, usually at a reduced price. The automotive industry deducts 23-30 cents per mile over your mileage limit when you trade in a vehicle. Simple Auto Credit specializes in designing affordable leases for high mileage drivers.
  • Win Win – In many cases, the residual value is comfortably high resulting in lower monthly payments. At the end of the lease, the leasing company absorbs the loss, not you.
  • Warranty – The short-term lease leaves you covered under your factory warranty, allowing worry free driving with no unexpected repair bills.
  • Drive a Nicer Vehicle – High residuals allow you to drive a $5000 to $10,000 more expensive vehicle for about the same payment as financing.
  • Tax Savings – In states with sales tax, you only pay tax on your monthly payment, not on the whole vehicle. And in some cases, the entire lease payment may be tax deductible. Simple Auto Credit specializes in designing tax deductible business leases.

Your options at the end of your lease.

  • Return it to the bank and pay only a small disposition fee.
  • Sell the vehicle and keep any amount over the residual.
  • Trade it in on a new vehicle.
  • Buy the vehicle for the residual amount.

Lease Terminology

  • Cap Cost – The purchase price of the vehicle plus the acquisition fee.
  • Acquisition Fee – A fee charged by the lender for originating the lease.
  • Cap Cost Reductions – Any trade equity, cash or rebates used as a down payment to reduce your monthly payment.
  • Residual – A guaranteed trade-in value when you originate the lease.

Disadvantages of Leasing

The only disadvantage to leasing is a slightly higher payoff vs. a retail installment loan if you decide to terminate the lease early. Remember, the bank has guaranteed you a future trade in value, but has given you the credit for it at lease inception. So if “you” decide to terminate the contract, their trade in value is no longer guaranteed. So, the payoff calculation is the remaining payments, minus the unpaid interest, plus the residual value. It won’t be more than what a retail installment contract would be at that point in the loan, but it will be slightly higher.

A common misconception about leasing is that it is only for drivers who drive 12000 to 15000 miles per year. But, you can basically tailor a lease to have any annual or total mileage you desire. But, even if you go over the allotted annual mileage set up in the lease, the mileage penalty is still less, in most cases, than the actual vehicle depreciation. This is good for the lessor.

Lastly, there is a common misconception that there are strict “excess wear and tear” guidelines. In most cases, each lessor will have an amount that they will waive relating to excel wear and tear. This provides additional savings for the lessor as if they had purchased and traded, any wear and tear would result in a deduction from the appraisal value. So, again, this is good for the lessor.

We stand behind the belief of many financial advisors: “Unless you plan to keep your vehicle 6 years or longer and you must finance because you can’t afford to pay cash, you should at least consider leasing.”