9 Myths About Auto Leasing
In spite of its surging popularity, numerous misconceptions
about vehicle leasing remain:
Misconception #1: Leasing a new car costs far more than buying
it.
Leasing can actually cost less in the long run. Besides the
lower up front costs and monthly payments of leasing, consider
the economic power of money that's not put into the down payment
and large monthly payments on a purchase deal. Investing that
money or buying down debt could put you ahead financially,
compared with tying up money in a vehicle, which is losing
value.
In addition, most leases offer GAP insurance, which covers the
difference between the lease payoff and the insurance settlement
if the car is totaled or stolen. This is usually not available
when you buy a vehicle.
Misconception #2: There's equity in buying, but nothing at the
end of the lease.
Buying a new car is not typically a good investment, since the
vehicle depreciates. Its value may be considered equity only if
the amount owed on the loan is less than its value.
Leasing offers the potential for cash value at the end of its
term as well--by keeping your equity out of the vehicle. The
cash flow derived from no or a lower down payment and lower
lease payments during the life of the lease, together with
interest, can produce an amount roughly equal to the used
vehicle's value at the end of a conventional loan.
Misconception #3: A lease consigns you to always making
payments.
At the end of most leases, the contract entitles you to buy the
vehicle at a set price. If you choose not to, you can just walk
away. Had you purchased the car, you would be stuck with selling
it or trading it in, at a price that may not meet your
expectations.
Misconception #4: There are additional expenses at lease end.
If all requirements concerning vehicle condition and mileage are
fulfilled, there is no further obligation at lease end. You may
simply walk away, purchase the vehicle for a predetermined value
or lease another vehicle.
Misconception #5: Excess wear and tear charges are unfair.
Regardless of leasing or buying your vehicle, you would face the
same financial hit for wear and tear. The lease contract just
puts that reality in black and white.
Misconception #6: Early termination fees exact a heavier penalty
than changing your mind when you buy a car.
Whether you lease or take out a loan, the decision to bail out
early comes at a price. If you purchased the vehicle, the loan
balance may be far more than what the car is worth. If you
leased, the vehicle may be worth far less than its residual
value, particularly if you made no down payment. The lessor uses
the early-termination fee to compensate for that loss.
Misconception #7: It's a mistake to lease if you put high
mileage on a car.
High mileage takes its toll whether you lease or buy. When you
buy, the cost comes as a lower trade-in value. When you lease,
your cost is out of pocket when you turn in the car. To avoid
such an expense at the end of a lease, PROLEASE will structure
your lease to your driving habits using a realistic number of
miles over the right number of months.
Misconception #8: Leasing only makes sense for vehicles used in
business.
The Tax Reform Act of 1986 removed the incentives for
individuals to purchase their vehicles, since buying no longer
offered deductions for sales tax and consumer interest. As a
result, leasing is definitely a viable option for personal use
drivers who change vehicles every few years.
Misconception #9: The only way to dispose of your current
vehicle when you lease is to sell it yourself.
ProLease can secure the best possible price for your trade-in
vehicle at no cost to you.
Auto Lease Responsibilities
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