Posts Tagged ‘lease v buy’

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.

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5 Reasons Why You Probably Should NOT Lease a Car!

Thursday, July 28th, 2011

While leasing a car can be a great way to drive a brand new car for several years, it may not necessarily be the best option for everyone. What follows are 5 reasons why you should avoid leasing a vehicle.

1. You should NOT lease a car if you have bad credit. If your credit score does not equate to a “good” or “excellent” rating, your credit score is not as high as it should be. Unless you cannot wait several months in order to improve your credit score, it would be in your best interest to avoid leasing a car. If you do lease a car with bad credit, you will end up with a monthly payment that is higher than what can be considered a fairly good deal. Many of the special advertised lease deals offered by dealers or auto makers are often only available to those customers who have a tier 1 credit rating. A tier 1 credit score is one that typically exceeds 720.

2. You should NOT lease a car if your career or lifestyle involves frequent trips or traveling. Some people tend to take frequent trips outside of their city or state of residence for reasons that often have to do with their career or business. If this applies to you, you should probably avoid leasing a car because you probably won’t be driving the car enough in order for the monthly payment to be worthwhile.

3. You should NOT lease a car if you plan on modifying it. Many people, younger drivers in particular, like to accessorize or modify their vehicles by tinting windows, adding spoilers, replacing exhaust pipes etc. While modifications to your car may provide the car with improved performance or a more attractive appearance, keep in mind that any car that you lease is not actually yours. If you plan on returning a leased vehicle to the dealership at the maturity date of your lease (the end of your lease term), you must return it in its original form.

4. You should NOT lease a car if you drive too much. With long commutes to work or school becoming more and more common, people are driving more than ever just to get to work or school. When you lease a car, you are allotted a yearly mileage limit. This limit is typically 12,000 miles per year or 15,000 miles per year. Of course, you can exceed this limit but you will be charged a certain dollar amount for every excess mile. The amount you are charged varies from one car to another. For example, the excess mileage charge on my 2010 Honda Accord is 15 cents per excess mile. This may seem like a negligible amount, but a few thousand excess miles per year will add up to hundreds or even thousands of dollars by the end of my lease.

5. You should NOT lease a car if you plan on driving it for more than 3 years. With the length of most car lease terms hovering around 3 years, you won’t be attached to the car for a very long time. Of course, you could choose to buy the car after the term of your lease has ended, but this is a less popular choice for lessees.

Leasing a Car vs. Financing

Saturday, May 1st, 2010

Most people aren’t even aware of the fact that there are certain advantages to leasing a car compared to financing it. Many people think that it’s really a bad idea to lease as they have heard it from their friends or from those that they know. If you don’t know the advantages of leasing, then we suggest that you take a look at the advantages that it can offer you.

If you think that you drive less than 15,000 miles in a year and even have a safe place to park the car, then leasing would work just fine for you. Leasing is the way to go if you are looking to use the car for a short period of time. The typical lease installment runs for 36 months. Now the lease amount is calculated on the price of the car minus the residual value of the car. The residual value of the car is the price that the car dealer is going to get when they sell it at the end of the lease period.

For this reason, the lease value on the car works out to be a cheaper option than financing the car. You can lease a new car and pay far less than you would pay if you were financing the car. Moreover, you can even return the leased car before the bumper-to-bumper warranty on the car expires and it gives you mechanical trouble. At the end of the lease term, you don’t even have to worry about selling the car since you can just walk away worry-free. However you need to give the car back in the same conditions that it was received in from the car dealership. Leasing works better for a shorter period of time rather than a longer period of time.

Leasing means that you don’t need to pay any upfront charges unlike the finance option. The lease amount is that portion of money that is paid for when using the car for a specified period of time. Remember that leasing is not the same as renting. You don’t necessarily have to make a down payment but you would need to make monthly payments for the period that you are using the car. Moreover, you also have the option of buying the car at the end of the lease term period at the depreciated value.

To give a simple example, if the car costs $30,000 and is estimated to have a resale value of $18,000 at the end of 3 years, then the lease amount would be paid on the difference i.e. $12,000. As a lessee you would be making lease payments for $12,000 calculated on a monthly basis. Note: there are other fees including the finance fee and sales tax included in your monthly payment, but the depreciation is most of what you pay for over the term of the lease.

If you were to finance the car, you would be making a down payment for the entire $30,000 and then make monthly payments for the rest of the money for the entire period of the loan. If you were to rent the car, you would simply pay a rental value on the car. This is how all the three concepts would work. For this reason the leasing option is cheaper than financing the entire car.

It works well for those who are looking at changing their cars every 2-3 years. However, the need can vary from person to person. Lease payments have two parts. The first part is the depreciation charge or the depreciation value during the term of the lease and the second part is the finance charge, where the lessee will pay interest on the lease amount.

If you miss any of the lease installments, it will show up on your credit report, so it’s very important to make all the payments on time as well. Leasing doesn’t allow you to build equity on your car.

When a person is financing, they will need to make a down payment and also pay interest on the principal amount also. You will build up equity in the car and this works well for your credit report also.

When you finance a car, it can become expensive to pay the instalments at the end of 5 years especially when the car has depreciated quite a bit. Yes, it can become difficult for a person to pay $700 instalments even after 5 years. It’s like putting money in a loss account. However, you save money when you lease a car as, the charges are much lower and you don’t need to pay interest for the full purchase value.