Is Leasing a Vehicle worth it? from Matt Scott @ Toyota of the Black Hills


There has been much talk in today’s marketplace weather or not you should buy a car or lease one?  One of the benefits of leasing is that you can consider it a 3 year test drive.  You get all the benefits of owning the car without all the risk.  Since vehicles are a depreciating asset leasing can be advantageous for companies as well as individuals.  Lets take a look at the benefits.

1. Guaranteed Future Value: At time of signing you are given a contract with the value spelled out clearly for you to see.

2. Market Protection:  Since the vehicle has a guaranteed market value, you can be assured that if the market takes a significant downturn you can turn the vehicle in without the losses normally associated with a long term loan.

3. Updated Safety and features:  Every 3 years or so, you can move into the next model with the latest updates and features.

4.  Warranty:  The majority of the time you will be under the factory warranty during your lease contract, so less maintenance costs.

So you are wondering how does it work?

Here we go.

1. Select a vehicle.

2. If you have a trade in.  You can use it as a down payment or if you owe more than it is worth, you may need cash down or to add the extra to the lease payments.

3.  Look at how many miles you drive a year?  12,000-15,000 or higher.  Determine what you will do.  This is a grey area for some leasing customers, if they have a major lifestyle change and go from 12,000 miles to 20,000 miles a year.  Be sure you know you are going to be fairly consistent in your driving.

4.  Lets take a look at the term of the lease.  I recommend no higher than 48 months and 36 months being the preferred method.

5.  Getting your payment.  There are 3 things to consider in the lease agreement that affect your payment.   The first in the Guaranteed Future Value or Residual this is a set number supplied by the leasing company.   The higher this number the lower the monthly payment will be.  The next one is the Money Factor.  This is a long set of digits like .00124 this is how you determine the rate on the lease.  You take this number multiply it by 2400 so here is how it would look .00034 x 2400=.816% would be the lease rate on this particular example.  So lets take a look at how all this ties together to get you your lease options.

1. Residual: $15,099 example

2. Selling Price: $25387 example

3. Rate .0816%

4. Term 36 Months.

5. 1st Payment due at signing.

6. Estimated Payment $199 a month not including tax on the payment.  Most states require you to pay tax on the use not on the full vehicle price like in a purchase.

Lets compare this to a purchase on this same vehicle:

Selling Price $25387 @ 5.5% for 36 months =$767 a month Estimate on a 48 month term at the same rate the payment would be $591 a month estimate and on a 60 month term at the same rate the payment would be $485 a month at the same rate stretching it out to 72 months would have your payment at about $415 a month.  So as you can see in this example the lease can free up some of your cashflow when getting a new vehicle.  This was just an example, not all vehicles are going to fall in the same parameters.   Hopefully this helps you better understanding when leasing a vehicle.

Matt Scott @ Toyota of the Black Hills

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