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Car Leasing vs. Car Buying
Strategies to Save Money
When debating auto leasing vs. buying, there are many things to consider. Leasing a car has become a very popular option in recent years, and nearly 30 percent of all vehicles are now leased. Despite the popularity of auto leasing, most people do not understand the details of a lease, and consequently overpay on nearly all leases. There are many differences when leasing vs. buying a vehicle, and auto leasing is definitely much more complicated than auto buying.
Negotiating the Deal
Getting the best deal on your auto lease requires more than skilled "negotiation" techniques, there are actually steps which can be taken to make the process as easy as possible. While some aspects are similar to buying a car, auto leasing is definitely a unique process which must be understood.
First, remember that whether you are buying or leasing a car, price is the most important factor. Some people are not aware you do not have to pay full sticker price because the vehicle is a lease. However, for a dealership, the lease works the same as a purchase and they will attempt to have you pay as much as possible.
Second, when possible skip the salesperson directly and work directly with the leasing manager. The sales person will receive a commission, as well as the leasing manager. When you deal directly with the leasing manager, they will make a slightly larger commission, however you will pay an overall lower price. As an added bonus, when someone walks into a dealership and asks to deal directly with the leasing manager, the dealership knows they are serious about the transaction and will often provide better service, as well as more accurate quotes.
Third, you do not have to use the dealers leasing company. You can find a credit union, a bank, or some other lease for the vehicle. A lease is a financial instrument, and just like a car loan, you can use any company you choose to fund the lease, just like you do when buying a car. A credit union will typically offer your more competitive rates than a dealership.
When to Trade in a Vehicle
If you currently own a vehicle, you are probably best selling it on your own before you attempt leasing a car. In the vast majority of cases, you should never use a trade in as part of a lease negotiation. However, if you are going to use a trade in for some reason or another, you should only do so if you own the vehicle outright (meaning there are no bank leans or loans on the vehicle).
If you still carry a balance on your vehicle, and attempt to use it as collateral for auto leasing, you will most likely experience some difficulty. Dealers will always pay below market value for a used vehicle (as they will only be able to sell it at market value). It is very common to have a higher balance remaining on the vehicle loan than the dealer is willing to pay for the vehicle. This means they will either add the extra cost onto the lease price, or will decline the trade in. However, if you sell the vehicle on your own at market value, you will most likely sell it for enough to cover the balance of the loan and perhaps even have some money left over to use in leasing negotiations.
Simplify, Simplify, Simplify
For some reason, dealers like to complicate the leasing process more than they do when you are buying a car. Auto buying allows you to finance or purchase the entire vehicle. With auto leasing, however, you are only paying for a portion (years) of the vehicle's use. As such, your lease is going to have two terms in the payment, a depreciation charge and a finance charge.
The finance charge is the cost of the loan, and many dealers like to refer to this as a money factor instead of an APR (Annual Percentage Rate), however they both refer to the rate you pay to use someone else's money to lease the vehicle. As such, you should attempt to keep this rate as low as possible. If necessary use a credit union, or another bank, in order to get the lowest rate possible. Don’t be afraid to shop around.
The depreciation charge refers to the vehicle's value which is lost during the time which you are using the vehicle. If this were a standard purchase loan, this would be equivalent to the principal. This charge is meant to cover only the depreciation value, and should not be used to build up equity in the car.
Remember, when you are leasing a car, you are expected to lease the car for the full term of 12, 24, 48, (or however many) months you want to drive it. This is different than auto buying, where you will be able to sell the car at any time, provided you meet the terms of your loan. You will often face stiff penalties, or have to deal with complicated transactions in order to get out of your lease early. It is important to decide up front the number of months you want to drive the vehicle. Do not sign a lease for a longer term than you believe you will be comfortable with.
Beyond the Basics
Auto leasing is obviously much more complicated than buying a car, and as such only a few tips and tricks have been covered here. In reality, there is a lot more to know about leasing vs. buying. If you really want to get the most value out of your lease, and save yourself thousands of dollars, take some time to read a comprehensive guide about the subject of car leasing.
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Car Leasing vs. Car Buying
Strategies to Save Money |
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