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1. What
are the up front costs associated with an auto lease and how do they compare to
up front costs when buying?
When you lease a vehicle the up front costs are generally less than they are
when buying a car.
Up front
costs are the amounts which are due immediately upon entering a lease or
purchase agreement.
The up front
costs of leasing a vehicle may include:
Security deposit (which is refunded upon termination of the lease agreement)
First month's payment
Registration
Any applicable taxes
Capitalized cost reduction (a one time payment like a down payment but less)
Misc. leasing fees the dealer may have
When buying a car, typically, the up front costs are relatively high when
compared to a lease.
The up front
costs when buying a vehicle may include:
Down payment (generally a rather large sum. Often 20%-30% of the total
cost of the car)
Any applicable taxes
Registration
Licensing fees
Extended warranty costs
Additional Dealer fees are often charged
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2.
How does mileage work on an auto lease program vs. buying a car?
When leasing
a vehicle, the amount of miles is limited by the amount agreed upon in the lease
agreement--typically, between 12,000 and 18,000 per year. If you exceed the
agreed upon amount of miles, you will be assessed a fee for these extra miles.
The fee is typically between 10 and 15 cents per mile.
If you
anticipate using more than the allotted amount of miles you might consider
agreeing upon higher miles per year in the beginning of the lease and increasing
your monthly payment, in lieu of paying fees at the end of your lease.
When buying a car, mileage has a direct impact on the cars resale value. Higher
than average miles on a car will greatly reduce the trade-in value or the
overall worth of the car.
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3. How do monthly payments work in
an auto lease program, compared to buying a car?
When leasing
a vehicle the monthly payments are usually significantly less than that of
buying. The monthly payments are lower because you are not paying for the entire
vehicle you are only paying for the amount you use. Depreciation value,
taxes and rent charges (interest payments) are what you will be paying for in
your monthly auto lease payments. The depreciation value also includes an
allowance for mileage.
When buying
a car the monthly payments are usually significantly higher than those of
leasing. When you buy a car, your monthly payments are not merely a rental fee
as in leasing, they are also a breakdown of the actual cost of the car, as well
as, fees and taxes that were added on to the total price. Your down payment also
affects the size of your monthly payments. As in leasing, a higher down payment
will result in a lower monthly payment.
Simply put:
a car is a depreciating asset, and as any accountant, broker or financial
advisor will tell you: "Buy what appreciates, lease what depreciates."
When leasing, you are not investing your money in a car which will depreciate
significantly over the course of the lease, you are simply paying for your use
of it. You would never invest in a stock from a company who projects
significant losses which will continue over the course of it's existence, would
you? That is what you are doing when you buy a car! So, unless you
anticipate using more than 20,000 miles per year or have an overwhelming desire
to watch your assets depreciate, leasing is probably the right choice for you.
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4. What is the difference when
ending a lease agreement early, compared to buying?
When leasing
a vehicle, if you wish to terminate early, you may be responsible for contract
termination charges.
When buying a vehicle, if you want to end your financing agreement early, you
will be required to pay off the balance owed on the car. This will include
everything you still owe on the car plus any finance charges.
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