Archive for the ‘Lease vs Buy’ Category

Why do People Lease Cars Instead of Buying Them?

Monday, April 23rd, 2012

There are plenty of reasons why people lease cars or prefer to lease cars instead of buying them. In the past decade or so, car leasing has actually become a popular way to drive a brand new vehicle for several years without the burden of owning it. In fact, according to the Bureau of Transportation Statistics, car leases made up approximately 20 percent of the total vehicles sold and leased in 2010. What follows are several reasons why people lease cars instead of buying them.

Leasing a car costs less than buying or financing a car. If you are looking for lower monthly payments, leasing a car is the way to go. The reason why leasing a car costs much less than financing a car is pretty simple. When you lease a car, what makes up the most sizable portion of your monthly payment is the difference between the selling price of the car and its value at the end of the lease. This difference is called the “depreciation” and what you pay as a result of this difference is called the “depreciation fee.” However, when you finance a new car, you are paying for the entire agreed upon value of the vehicle over a specific number of years, which generally leads to higher monthly payments when compared to lease payments.

Leasing a car helps build or improve credit. Some people view leasing a car as an effective means to build their credit or to even improve their credit if they have suffered from credit problems in the past. One of the factors that affect your credit rating is types of credit that you have used. In fact, 10 percent of your FICO credit score is determined by the types of credit you are using now and that you have used in the past. Therefore, by using different types of credit, you can help build or improve your credit score.

Leasing allows people to drive new cars every few years. Some people do not want to be permanently attached to their cars. By leasing cars instead of buying them cash or financing them, they can simply return their cars to the dealership at the end of the lease term and subsequently lease another car that they like. This is one major reason why leasing is quite popular for luxury cars. Since many luxury car drivers may get tired of driving the same car, they tend to lease their cars so that they can choose a new luxury vehicle once every few years.


Difference between MSRP and Invoice Price

Friday, April 20th, 2012

What is the difference between the MSRP and the invoice price? The MSRP is the manufacturer’s suggested retail price which is also known as the “sticker price.” It is essentially the “suggested” retail price but it isn’t necessarily the price that dealers use as the selling price for their cars. Depending on various factors such as demand and availability, the actual selling price could be higher or even lower than the MSRP.

The invoice price is simply the price that dealerships pay for cars. The invoice price is significantly lower than the MSRP, but how much lower depends on the make and model of the vehicle. Many car buyers today look up the invoice prices for the cars that they are interested in purchasing or leasing so that they have an idea of how much the MSRP can be negotiated without reaching a price that is lower than the invoice. In some cases, dealers will even offer a deal where the selling price is lower than the invoice price.


What is the Difference Between Gross Capitalized Cost and MSRP?

Monday, April 16th, 2012

The difference between the gross capitalized cost and the MSRP has to do with two things. The first is pricing and the second is the actual price that is used to come up with the monthly lease payment. The MSRP, or the “sticker price” is the price that you’ll find printed on a car’s window at the car dealership. The MSRP is not the final price that the dealership uses in order to calculate your monthly car lease payment. The gross capitalized cost is the final negotiated price of a vehicle which is used to calculate the monthly lease payment. The gross capitalized cost is also known as the “selling price.” If the gross capitalized cost is significantly lower than the MSRP, the lease deal can be considered a “good” deal.


Can a Lease Price be Negotiated Lower than MSRP?

Sunday, April 15th, 2012

A lease price is quite often negotiated lower than the MSRP. The lease price, which in technical leasing terms is known as the “selling price” or “gross capitalized cost,” is used to come up with the monthly car lease payment. The lower the selling price of a car, the lower the monthly car lease payment. Therefore, it is in the best interest of people interested in leasing a car to negotiate the selling price of the car to bring it as low as possible.

If the dealer offers you a lease deal that uses the MSRP as the selling price, you have not necessarily received a good deal. Most good lease deals use selling prices that are significantly lower than the MSRP. Prior to visiting a dealership, you should look up invoice prices for the cars that you are interested in leasing. Invoice prices are the prices that dealers pay the manufacturers in order to buy their cars. The selling price of a car lease deal should be as close to the invoice price as possible in order for it to be considered a good lease deal. In some cases, the selling price is even lower than the invoice price.


What to Know When Leasing a Car

Thursday, March 15th, 2012

When shopping for a new car to lease, many people tend to visit car dealerships without much prior preparation or knowledge about car leasing and what it entails. Most people will probably have a fair idea of the make and model vehicle they are interested in leasing, but knowing this piece of information by itself is far from sufficient when it comes to what you should know when leasing a car. In this article, we will provide specific information regarding what to know when leasing a car so that you are well-prepared and well-informed.

1. You should know that you are absolutely sure that you want to lease a car. Keep in mind that once you lease a car, you have signed a legally binding contract that obligates you to make a payment every month until the end of your lease. Of course, there are ways to end your car lease early, but they aren’t always available or easy to do.

2. You should know what car you want. It is important to know what car you are looking for so that you don’t waste your own time or the dealer’s time. Do your research before going to the dealership and come up with the ideal car that you plan on leasing. This significantly reduces the time that you will spend at the dealership.

3. You should know your credit score and be familiar with your credit history. Your credit score will essentially determine how good of a lease deal you can get. People with tier 1 credit can get the best deals available because they have exceptionally high credit scores. If your credit hasn’t been established, which is common for younger people whose access to credit is more limited, you may not qualify to lease a car and you should seek a co-signer to help you get approved.

4. You should know the invoice price of the car you plan on leasing. The invoice price of a car is the price the dealer pays the manufacturer to buy the car and place it in the showroom or lot. It is important to know the invoice price because it tells you just how much you can reduce the selling price to bring it as close as possible to the invoice price in order to get the lowest monthly payment. The selling price is the negotiated price of the car that the dealer uses to calculate your monthly lease payment. The lower the selling price, the lower your monthly lease payment.

5. You should know how to calculate your car lease payment. If you understand how a car lease payment is calculated, you stand in a better position to negotiate because you have familiarized yourself with with what can or cannot be changed or adjusted with respect to a lease deal provided by the dealer.


What is an Open End Lease?

Monday, February 27th, 2012

There are generally two types of automobile leases available including the open end lease and the closed end lease. In this article, we will discuss the open end lease. The open end lease is a type of car lease that is primarily used for business customers and allows for a bit more flexibility at the end of the lease, which can often times be advantageous or perhaps disadvantageous to the lessee (the individual or business that has leased the vehicle).

The essential distinguishing feature of the open end lease is that the difference between the residual value and the market value of the vehicle at the end of the lease is taken into consideration. Depending on the terms of the lease, the lessor or leasing company could be held responsible for paying you, the lessee, for the difference between the residual value and the market value if the market value is higher. However, the opposite can also be true. That is, if the market value of the car at the end of the lease is lower than the agreed upon residual value, you the lessee can be held responsible for paying for that difference.

Generally, open end leases are rarely the option chosen or provided to most customers that plan to use their cars for everyday, personal needs. To learn more about the differences between open end leases and a closed end leases, visit the link below.

Related Articles:

Closed End Lease vs. Open End Lease


Video: How to Calculate Your Car Lease Payment

Saturday, January 7th, 2012

In this video, learn the secret formulas that dealers use in order to calculate car lease payments from start to finish. By learning the formulas that dealers use, you will fully understand what a lease payment consists of, which allows you to better negotiate a good deal on any future car leases.

Luxury Car Leasing

Wednesday, September 14th, 2011

Luxury car leasing has become one of most popular ways to drive more expensive luxury brand vehicles such as BMW, Mercedes, Audi, or Lexus. People who lease luxury cars are generally wealthier and part of higher income brackets. Many of these people could easily afford to drive these cars without leasing or financing, but most understand the value of money and therefore choose not to squander it on something that depreciates in value.

Car leasing has actually become more popular for luxury brand cars as opposed to the more average, less expensive car. The reason for this is quite simple. Most people who lease luxury cars are interested in paying as little as possible for a depreciating asset while driving a nice car for several years without much concern for maintenance issues. Although most luxury brand cars have very little or no car problems for at least the first few years, most car manufacturers offer generous warranty packages for the first several years of driving, which again makes leasing luxury cars a great option.

Leasing luxury cars is also a great choice for those individuals who have relatively high incomes to cover the monthly lease payments, but have little to no cash savings. Luxury car leases are available to anyone who has a decent credit rating and enough income to cover the monthly lease payments.

Luxury car leasing really isn’t much different than leasing inexpensive, everyday cars. The only difference is the potential customer and his needs and expectations. Most individuals who lease luxury cars are professionals with high incomes. This means that they typically do not go to dealerships to look for the best deals possible. They are more interested in doing business with a dealership that is ready to provide top-quality service so they can return to the same dealership in the future.


Closed End Lease vs. Open End Lease

Sunday, September 4th, 2011

There are two different types of car leases. One is called the closed end lease and the other is called the open end lease. A closed end lease is more common for most car leasing customers like you. Your car lease agreement or lease contract should specifically mention whether you have a closed end lease or an open end lease. So let’s go ahead and discuss the differences between and the advantages of each type of lease.

Closed End Lease
A closed end lease is also known as a “true lease”, “walkaway lease”, or “net lease”. A closed end lease is probably the type of lease that is most suitable for people like you and me. Designed mainly for consumers as opposed to businesses, a closed end lease allows you to return the car at the end of the lease with no questions asked. Of course, you may have to pay for excessive wear and tear or damage to the vehicle as well as for having an excessive mileage beyond what was covered according to your lease agreement.

With a closed end lease, the leasing company or finance company sets the residual value of the vehicle based upon the annual mileage limit. For instance, if you were to lease a Honda Accord with an annual mileage limit of 12,000 miles for three years, the car would probably retain about 61 percent of its original MSRP. The leasing company comes up with this residual value based upon how much they predict that the value of the car will depreciate given that the lessee will drive a certain number of miles by the end of the lease.

You also have the option to purchase the car at the original residual value that was set by the leasing company on the day that you leased the car. This is definitely a smart decision if the car is worth more than the residual value. If it is, you could probably sell it for a profit. If you don’t, you can continue to drive the car for as long as you please.

Open End Lease
So what is an open end lease? With an open end lease, a residual value is still determined at the time when the lease agreement is signed. However, you, the lessee, is held financially responsible if the value of the car is less than the agreed upon residual value at the end of the lease. This means that you would have to pay for the difference between the residual value and the value of the car at the end of the lease term if the value of the car ends up being less than the agreed upon residual. On the other hand, if the value of the car at the end of the lease term is worth more than the residual value, the leasing company will pay you the difference between that value and the residual value. As you can probably tell, open end leases can cost more than closed end leases. They are generally used more for commercial business leasing.

What Type of Lease is Better?
If you are a consumer who is interested in leasing a vehicle with a good monthly payment, you should always lease a car with a closed end lease. You will save a great deal of money by avoiding a large sum of money that you would be liable to pay with an open end lease if your car’s value has depreciated more than expected.


Tax Benefits of Leasing a Car

Friday, September 2nd, 2011

You often hear people talk about the tax benefits that are available to individuals who lease vehicles. Many people claim tax deductions or tax write-offs on their federal income taxes by leasing cars. Generally speaking, if you leased a car that is completely or even partly used for business purposes, you can significantly reduce your tax liability.

How Do You Figure Out Your Tax Deductions?
According to the IRS, there are two specific ways through which you can claim deductions on car expenses or more specifically, car leasing expenses. The first way is to use what is known as the standard mileage rate. With the standard mileage rate, your deductible expenses are calculated based on the number of miles your car was driven for business. The second way is by using actual expenses. Here, you determine tax deductions according to the amount that your car was used for business.

Here is what the IRS specifically mentions about car lease tax deductions:

“If you lease a car, truck, or van that you use in your business, you can use the standard mileage rate or actual expenses to figure your deductible expense. This section explains how to figure actual expenses for a leased car, truck, or van.

Deductible payments. If you choose to use actual expenses, you can deduct the part of each lease payment that is for the use of the vehicle in your business. You cannot deduct any part of a lease payment that is for personal use of the vehicle, such as commuting.”

Consult a Tax Advisor or an Accountant!
While the IRS does provide specific details as to how you can deduct car lease expenses on your taxes, this information can be complicated and obscure. If you would like to learn more about the tax benefits of car leasing, you should consult a reputable tax advisor or accountant.

More Information about Tax Benefits of Leasing a Car
If you would like to read more specific information about the tax benefits of leasing a car, visit the section of the IRS website that deals with business transportation expenses here.