Why Lease?


Most shoppers aren't able to pay cash for a new car, so you'll need to decide how you're going to finance it. While many people take out a car loan, leasing a new car is simply another form of new car financing. Let's look to see if leasing or buying makes the most sense for you.

Benefits of Leasing a Car
Leasing a car is similar to financing the purchase of the car in many ways, but there are some key differences. You might be able to get more car for less money by leasing. That's because a car loan is based on the full price of a new car, while a lease is based on only a percentage of the car's price. For example, on a $30,000 car, you'd finance the entire $30,000 purchase price with a conventional car loan. With a car lease, you only pay the difference between the car's price and what it's expected to be worth at the end of the lease, with is a car's residual value. So if the car's residual value is 55 percent after three years, for example, that means the $30,000 car would be worth $16,500 at the end of the lease. You'd make lease payments on the remaining $13,500 and not the full $30,000.

I've leased my last nine vehicles and know leasing like the back-side of my hand. Here are the reasons I personally lease my cars:

No Negative Equity
Your typical car buyer only keeps their vehicle for 2 to 3 years. As you all know, cars depreciate in value and they depreciate fast. Many of these purchased cars are worth less than the money owed. At the end of my lease, I can either choose to walk away from my car or purchase my Lease at the residual value. If the car is worth more than the residual value, this can be to my benefit, as I can purchase the car and resell it for a profit. However, if the car isn't worth the residual value, I can simply walk away.

More Car for the Money
I drive a 2013 Subaru Outback 2.5i Premium, which cost about $27,000. Using a 3.9% interest rate and financing $27,000, my monthly payment would be $496 for 60 months. This payment doesn't include taxes or fees. However, because I lease my Subaru Outback and taking advantage of a tax advantage leasing, my payments are $366 (includes taxes). Mathematically, my payment wouldn't be possible in a purchase without putting $10,000 down. In a lease, I only pay for what I use.

Tax Benefit
You can save money on a lease! When you purchase a new car, your taxes are calculated on the entire purchase price of the vehicle. Based on the purchase price of $27,000 on my 2013 Subaru Outback and you live in the city of Grand Junction, you'll pay an additional $2,065.50 in city sales tax. In a lease, because you are only paying for what you use, your taxes are based on your monthly payment. Over a 36 month lease, and your payment is $340 a month, your taxes add up to $26.01 a month ($936.36 over 36 months).

I'm Always Under Factory Warranty
Most leases last between 24 and 36 months and 12,000 miles a year. Most manufacturer's limited Bumper-to-Bumper Warranty last 36 months or 36,000 miles (whichever comes first). Because I lease my cars for 36 months, at 12,000 miles a year, I am always under the full protection of the manufacturer's warranty and never have any out-of-pocket expenses if anything unexpected happens. 

Leasing isn't the best choice for everyone. There are some drawbacks.

Drawbacks of Leasing a Car

Lease contracts limit the number of miles you can drive. These mileage restrictions typically are 12,000 and 15,000 miles a year. You need to estimate how many miles you drive per year so you can determine how many miles to purchase. If you go over that amount, you'll pay a fee per mile at the end of the lease when you turn the car in. These overage charges can be very expensive.

With Leasing, you can sometimes make minor alterations to the vehicle that can be reversed before you turn the car back in, but you can't make make any major alterations. Make sure you read the lease contract carefully before signing.

Another drawback is that when you lease, you're really just renting the car for a few years. You're not building any equity in the vehicle you're leasing. That means that when the lease ends, you either have to get a new car, with new payments, or take out a loan to buy the car you were leasing.

When it comes to buying or leasing a car, there's no one-size-fits-all answer. Consider your budget, driving needs, lifestyle and credit history before you decide whether to purchase or lease. At Grand Junction Subaru, we have auto lenders that can provide you with financing that works best for you, no matter whether you decide to buy or lease your next vehicle.

If you have questions regarding leasing or purchasing your next car, please feel free to call me on my personal cell phone. I am always happy to help.

John Wampler
Internet Director
970-250-2971

 

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