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I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.

Valued Contributor

I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.

I'm thinking of getting an auto lease as oppose to purchasing and obtaining an auto loan. Can you all tell me what are the things I should look or beware of when I pursue an auto lease.

 

Also, should I only obtain a lease through the car manufacturer or are other financial services companies ok.

 

Thanks!

Message 1 of 12
11 REPLIES
Moderator

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


sjt wrote:

I'm thinking of getting an auto lease as oppose to purchasing and obtaining an auto loan. Can you all tell me what are the things I should look or beware of when I pursue an auto lease.

 

Also, should I only obtain a lease through the car manufacturer or are other financial services companies ok.

 

Thanks!


Leasing can be an excellent choice as a way to pay for a new vehicle.  Questions that you need to ask yourself are one; How long do you plan on keeping you new vehicle-If you say 6 years the leasing is probably a bad choice.  If you intend on getting a new vehicle again in approximately 3 years, the leasing may be the best route to choose.  Secondly, how many miles do you average a year?  If in excess of 15K miles/year then leasing probably isn't your best option.

 

There are plenty of leasing guides online and I'd suggest you review some of them if you are unfamiliar with leasing.  The more familiar that you are then the less you'll feel intimidated when discussing the lease.  

 

Does the lease have an acquisition fee?-Most do. Does it come with Gap Insurance-again, most do.  How are taxes for leases calculated on the lease?  This varies from state to state and range from a percentage of the least payment up to full sales tax on the purchase price.  Is there a lease return fee?  What is the money factor for the lease?  This is just the interest rate shown like .00275.  Money factors can easily be converted to APRs by multiplying by 2400.  What is the residual value at of the vehicle?.  The higher this (shown as a percentage is ), the less the lease payment.

 

Most importantly what is the price of the vehicle that you are trying to lease.  Never negotiate  a lease as a payment.  Negotiate the price of the vehicle before any incentives are applied and this should be the price that you pay regardless of whether you are financing or leasing.  Once you have that established then start discussing what incentives the manufacturer is offering for both purchase and leases.  They are probably different.  This way you can then compare the payments of financing the vehicle the conventional way or leasing and decide which makes more sense for you financially.

 

In regards to your question about whether it's better to lease from the manufacturer or an outside source.  Typically payments will be lower via the manufacturer route because just like with purchases they subsidize leases.  This can be done by lowering the money factor, offering lease rebates or very commonly buying up the residual value.  As indicated, the higher residual value equals, the lower your payment will be.

 

Leasing get s a bad rep at times because people think you are 'renting' the vehicle vs 'owning'  by financing for 60-84 months.  Hah.  In neither case do you own it and often leasing is the smart decision financially.  Most people would be shocked if every vehicle that was leased had a big 'L' on it's side.  This is especially true as you look at more expensive vehicles.  Most Honda Civics aren't leased but a whole lot of BMW 3 series are.

 

I'm about to pick up a new vehicle later this month and I'm still undecided whether to lease or finance but right now I'm leaning towards leasing.

 

In no way is this is a complete guide to leasing.  If you have questions, ask away and check out some of the online guides. 

 

Hope this helps and good luck!

Message 2 of 12
Established Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


Irish80 wrote:

sjt wrote:

I'm thinking of getting an auto lease as oppose to purchasing and obtaining an auto loan. Can you all tell me what are the things I should look or beware of when I pursue an auto lease.

 

Also, should I only obtain a lease through the car manufacturer or are other financial services companies ok.

 

Thanks!


Leasing can be an excellent choice as a way to pay for a new vehicle.  Questions that you need to ask yourself are one; How long do you plan on keeping you new vehicle-If you say 6 years the leasing is probably a bad choice.  If you intend on getting a new vehicle again in approximately 3 years, the leasing may be the best route to choose.  Secondly, how many miles do you average a year?  If in excess of 15K miles/year then leasing probably isn't your best option.

 

There are plenty of leasing guides online and I'd suggest you review some of them if you are unfamiliar with leasing.  The more familiar that you are then the less you'll feel intimidated when discussing the lease.  

 

Does the lease have an acquisition fee?-Most do. Does it come with Gap Insurance-again, most do.  How are taxes for leases calculated on the lease?  This varies from state to state and range from a percentage of the least payment up to full sales tax on the purchase price.  Is there a lease return fee?  What is the money factor for the lease?  This is just the interest rate shown like .00275.  Money factors can easily be converted to APRs by multiplying by 2400.  What is the residual value at of the vehicle?.  The higher this (shown as a percentage is ), the less the lease payment.

 

Most importantly what is the price of the vehicle that you are trying to lease.  Never negotiate  a lease as a payment.  Negotiate the price of the vehicle before any incentives are applied and this should be the price that you pay regardless of whether you are financing or leasing.  Once you have that established then start discussing what incentives the manufacturer is offering for both purchase and leases.  They are probably different.  This way you can then compare the payments of financing the vehicle the conventional way or leasing and decide which makes more sense for you financially.

 

In regards to your question about whether it's better to lease from the manufacturer or an outside source.  Typically payments will be lower via the manufacturer route because just like with purchases they subsidize leases.  This can be done by lowering the money factor, offering lease rebates or very commonly buying up the residual value.  As indicated, the higher residual value equals, the lower your payment will be.

 

Leasing get s a bad rep at times because people think you are 'renting' the vehicle vs 'owning'  by financing for 60-84 months.  Hah.  In neither case do you own it and often leasing is the smart decision financially.  Most people would be shocked if every vehicle that was leased had a big 'L' on it's side.  This is especially true as you look at more expensive vehicles.  Most Honda Civics aren't leased but a whole lot of BMW 3 series are.

 

I'm about to pick up a new vehicle later this month and I'm still undecided whether to lease or finance but right now I'm leaning towards leasing.

 

In no way is this is a complete guide to leasing.  If you have questions, ask away and check out some of the online guides. 

 

Hope this helps and good luck!


I'm glad u brought that up Irish alot of people trash leasing they always say u won't own the car at the end what they fail to understand is u have options when u lease u can return the car at lease end or buy it. My neighbor all he does is lease we were talking about it i asked him why does he steady lease he said he doesn't wan't to worry about repairs.  He doesn't wan't to deal with negative equity and he likes to drive something different every 3 years.  I'm lease next time my self my current car i bought new 16 months ago barely has 2,800 miles on it I don't like it any more will be getting rid of it at end of year.  I wish people would just stop bashing leasing and say it's not for u but it could be perfect for someone else.

Message 3 of 12
Established Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


sjt wrote:

I'm thinking of getting an auto lease as oppose to purchasing and obtaining an auto loan. Can you all tell me what are the things I should look or beware of when I pursue an auto lease.

 

Also, should I only obtain a lease through the car manufacturer or are other financial services companies ok.

 

Thanks!


Me too. My current vehicle is 13 and I have decided I do not want to have an old car again. Plus, leasing is a great way to get into a nicer vehicle for a lower cost than owning-because you only pay for the part of the car you will use rather than the whole car. 

 

Irish brought up a lot of great points. Negotiate the cost of the vehicle now and what it will be worth at the end of the lease. Find out the money factor (lease interest rate) and negotiate that etc. Definitely look at the leasing guides or look into an auto broker to do it for you. 

 

What vehicle are you looking at?


Message 4 of 12
Valued Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.

Thanks every for your input. I am leaning towards a 30-36 month lease. I want the flexibility and upgrade to a lexus. A dealer mentioned they have a $1K "wear and tear" insurance plan. Is anyone fimiliar with that type of plan?

 

 

Message 5 of 12
Moderator

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


sjt wrote:

Thanks every for your input. I am leaning towards a 30-36 month lease. I want the flexibility and upgrade to a lexus. A dealer mentioned they have a $1K "wear and tear" insurance plan. Is anyone fimiliar with that type of plan?

 

 


Skip that insurance plan

Message 6 of 12
Super Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.

Can you negotiate the price of a car for a lease so that the cost to be is less then the one that is advertised?  Could lowering the price of the car cause the dealer to raise the lease payment fore the car.  I'm thinking of leasing my next car.

12/08/2017 FICO: EQ 843 TU 849 EX 844
Message 7 of 12
Moderator

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


marty56 wrote:

Can you negotiate the price of a car for a lease so that the cost to be is less then the one that is advertised?  Could lowering the price of the car cause the dealer to raise the lease payment fore the car.  I'm thinking of leasing my next car.


You absolutely can and should negotiate the price of the car and only then discuss payment options whether it be a lease or regular financing.  A lot of manufactuer's advertised leases are at full MSRP so that they can leave it to the dealership to lower the price.  Sometimes though a manufacturer's advertised lease payment requires dealer participation in the form of a discount so it's again important to know as much as possible ahead of time.  A lot of people make the mistake of seeing an advertised lease for example that says:

 

Lease X vehicle for 36 months for $399/month with no money down  .Money down in leasing means a capital cost reduction but in order to get that $399/month payment, you have to pick a car that has the exact MSRP of the advertised vehicle and pay any other costs such as taxes/tags and acquisition fee which can add up to thousands of dollars.

 

Just make sure that when negotiating the price of the car that no rebates which may only apply to a  regular purchase only are included.  Not quite sure what you mean with your second question.  By itself the lowering of a vehicle's price should lower any lease payment though the dealer in theory could raise the money factor (interest rate) to raise the lease payment.  That's why when you get around to discussing a lease to make sure you get all relevant information; price of car, residual and money factor.  It's important to do that because on a lease contract no where is the money factor shown unlike a regular finance contract where the APR must be shown.  If you get all the important numbers, it's fairly easy to calculate a lease payment.  

 

Key is to be informed because a lot of people skip looking at leases when they can be a very good option because they are intimidated by the process.  Once you familiarize yourself with leasing it gives you a very nice at times second option for paying for a new car.

 

Hope this helps.

Message 8 of 12
Community Leader
Super Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.


sjt wrote:

Thanks every for your input. I am leaning towards a 30-36 month lease. I want the flexibility and upgrade to a lexus. A dealer mentioned they have a $1K "wear and tear" insurance plan. Is anyone fimiliar with that type of plan?

 

 


I agree with @Irish80. Skip the insurance plan.  I only lease and it has been the best decision for me.  All the best and post pics once you are done with the process.

Message 9 of 12
Established Contributor

Re: I'm seriously thinking of an auto lease vs auto loan. What should I be aware of.

The simpliest answer...

 

Sometimes leases are better.

 

Sometimes buying is better.

 

It all depends on why you want to lease.  

 

If you have to lease to get a car you cant afford to buy, its a bad idea.

 

If you can lease a car for less in payments than the depreciation would be, its a great idea.

 

Take a car like a Camry.  Figure out how much a Camry depreciates in 3 years by looking at Blue Book on 3 year Camrys.

 

Now take your total lease costs for a Camry for 3 years.  If it is near the same as depriciation, great deal.

 

YOU JUST HAVE TO TAKE THE TIME TO NEGOTIATE BOTH DEALS AND DO THE MATH.  IT IS TIME CONSUMING TO DO PROPERLY BUT CAN SAVE YOU THOUSANDS OF DOLLARS.

 

--------------

 

Another option --- If you know you are going to keep the car forever and you want lowest payments, you can lease with lowest miles knowing you will buy at the end of the lease.  Not a wise decision unless you know what you are doing.  But for a Lexus or Toyota or Honda or car that really holds its value and is known for reliability, it can work out better than buying.

 

YMWV

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