New Vehicle Leasing Vs. Buying
When it comes to deciding the best way to get into a new vehicle, there are many factors to put into consideration. Driving a new car from Dyer Kia in Lake Wales could either be by leasing the vehicle which is essentially paying a certain percentage of the vehicle price or an outright purchase of a new vehicle that involves purchase price financing or of course an asset purchase with trade equity in access of the new vehicle price or a cash purchase of the new vehicle. One of the most important factors to consider is the money involved with this purchase. Are you financially buoyant to buy a new car in an absolute term? Do you prefer to spend less out of pocket and/or in the short or long-term?
The story of car leasing is not the same as it used to be. Leasing a car was usually for business purposes and customers who derive great pleasure from luxury cars. However, as it stands in the market of vehicles today, car leasing extends across sub-compact cars to include CUVs, SUVs and Small/Midsize and HD pickups. One-third of the cars that leaves a dealer in modern times is on leasing terms. So in other words leasing has become mainstream form of driving new vehicles from a new car dealership.
To gain in-depth knowledge about new vehicle leasing vs. buying, we look at various terms related to buying and leasing of new vehicles. Our goal at Dyer Kia is to inform you so that you can make an educated decision of the benefits for each and how it will affect you of the course of driving your new vehicle.
New Vehicle Leasing (Meaning and Related Terms)
New vehicle leasing is an agreement between an individual or a business and a car dealer that involves car financing on a monthly basis excluding the outright payment to own the car. Leasing a new car entails depreciation payment throughout the lease term, fees and interest payment inclusive. At the initial point of the vehicle transaction, an individual is subject to pay signing on fees, and then the other cost involved will be paid as agreed in the leasing contract. New vehicle leasing looks simple and straightforward, but in real terms, it requires a complex transaction with its terminologies and a complicated cluster of numbers.
Related terms that you need to get accustomed to are below;
• Capitalized Cost:
The capitalized cost, also known as the cap cost is an essential property of a leasing contract. It is essentially the price of the vehicle in a lease contract. It is at time negotiable and can be agreed to just like when purchasing a vehicle. Any discounts off the capitalized cost from the manufacturer in form of lease incentives or discounts from the dealership you are leasing the vehicle from is referred to as adjusted capitalized cost or cap cost reduction.
• Residual Value:
This is a non-negotiable value of the vehicles at the end of the lease term. This too is an essential part of a lease contract. Residual value plays an important part in factoring the amount of the lease term and the monthly payments associated with the lease contract. It is the worth or expected value at the end of the lease term which is as a result of the depreciation within the leasing period.
• Money Factor:
This is the interest rate that is payable on the leased vehicle. You can determine the annual percentage rate by merely multiplying it by 2,400, which is essentially, is a low interest rate. Alternatively, you can depend on an online money factor converter for conversion of the interest rate.
In the process of leasing a new vehicle, the price you pay is the capitalized cost plus money factor (interest), minus the residual value. Also, inclusive in the price are several fees such as vehicle registration cost and lease origination and security deposit. For instance, you intend to lease an SUV with a capitalized cost of $50,000 and a residual fee of $20,000 after three years or 36 months; you are subject to pay $30,000 plus the money factor (interest) and other fees over that period of your lease term.
Lease contracts usually last for twenty four (24) to thirty nine (39) months, but in some cases, it depends on the agreed terms negotiated term with the dealer, which could be more than the normal lease period of two to three years.
The merit of new vehicle leasing:
Some have said that leasing is a great way to drive a new vehicle without actually having to own it, it’s like an extended rental agreement. This is possible when you lease a car; you do not necessarily need a down payment when entering a leasing contract where you pay on a monthly basis and leasing could actually get you into a new vehicle that could potentially be out of your normal budget range to purchase.
Highlighted below are the benefits you derived from leasing a new vehicle:
- Insignificant down payments, sometimes $0 and minimal monthly fees.
- You get access to higher priced vehicles at an overall lower cost to drive in most cases.
- In most states the tax is paid monthly as part of your payment.
- The absence of trade-in value at the end of the lease, takes negative equity out of the equation.
- Ease of trade-in-turning in a lease vehicle is a fairly simple process
- When you negotiate for leasing to buy option, you get the privilege to start with low advance payments. At the end of the lease, you can refinance with a guaranteed buyout price.
- Every leased vehicle comes with the manufacturer warranty and sometimes even maintenance included during the duration of the lease term.
- Majority of leased vehicles comes with insurance which implies that you are not responsible for paying off the full value of the car if there are damages that depreciate the total value of the vehicle. In most cases It is the responsibility of the insurance company to cover up the gaps that set in. Please seek the guidance of a licensed insurance agent for full details if considering a leased vehicle.
The demerit of new vehicle leasing:
Leasing a new vehicle does have its advantage to some but with that in mind there are also some disadvantages to consider. However, it is ideal for customers to consider the downside of leasing contracts to determine the cost and benefits that surrounds it and see how that plays into their overall needs.
Below are few downsides to mention that customers must carefully ponder before deciding between leasing a new vehicle or buying one:
- You don’t have ownership title to the car, hence, there may be usage restriction.
- There is a limitation to the mileage you can drive the vehicle, in most cases leases come with 7,500-12,000 miles annually.
- Contracts and terminologies of leasing are complex and ambiguous.
- Leasing a vehicle for more than the typical lease terms of up to 39 months can start to become more costly then purchasing the vehicle.
- You are still responsible for excess wear and tear on the vehicle when you turn it in and depending on its overall condition can cost you additional money at the end of your lease term.
- If something happens and you have to terminate your lease early you are still responsible for the amount of the original lease agreement and could become very costly.
Buying and Financing a New Vehicle
There are several option to compare when Buying a new vehicle from a new car dealership. Buying a new vehicle outright, this will require you to have accessible assets to purchase the entire price of the vehicle. The total purchase price of the vehicle will include any taxes and fees. Another more common option for purchasing a new vehicle will be financing the vehicle with an auto loan through a private lender or bank. Once a price for the vehicle is settled on between you and the dealership it comes time to pay for the vehicle. When buying your new vehicle, if you have a trade, you will have to consider how your trade value will affect your purchase price. Take, for example, someone who buys a new vehicle for a negotiated price of $40,000, you will have to consider how your trade-in if trading, affects that price and your taxes and fee associated with the transaction. Your down payment if any will be deducted from the total sales price of the vehicle and if financing, you will be responsible for the remaindered owned to the dealer.
Purchasing and financing a new car is somewhat like leasing in the fact that you still do not own the vehicle outright until the total amount of loan is paid in full at which time the title will be released by the financial institution you financed through. The most common means of acquiring a new vehicle by Americans remains buying, rather than leasing them.
The Merits of Buying and Financing
Buying a car offers you the freedom to use the car anyhow it suits you. Buying a car in most cases involves taking a car loan which someone needs to settle on a monthly basis till the end of the loan. One outstanding advantage is after completing all loan payments; you become the owner of the car with no further restrictions.
Below are some reasons why buying and financing of a car have some significant advantages:
- The car becomes yours after completing all loan payments.
- You can design the car to suit your taste, that is, tailored to meet your preference.
- Long-term usage of the car saves you cost. When you own the car for more than six years, it saves you a long-term cost and in most cases becomes a financial asset.
- No mileage restriction as you can drive the car to any extent.
- You build equity within the vehicle, at a certain point in owner ship the vehicle will be worth more than you owe, at that point you could sell your vehicle and make money from the sale.
- There is the possibility of using your car as a trade-in for next car purchase, which can help offset costs on your next vehicle.
- You have no excess wear and tear expenses owned to the financial institution, you will be responsible for the upkeep of your vehicle.
The Demerits of Buying and Financing
Owning a car is ideal, but considering the drawbacks associated with purchasing a vehicle is important to the decision process. Even when you can buy a new car, there are some downsides to financing your new vehicle.
- Higher monthly payments unless you have a down payment or trade equity from a vehicle being trade-in as part of this new car purchase.
- A higher loan amount, you are financing the entire cost of the vehicle as opposed to a portion of the cost when leasing.
- On the expiry date of the warranty that comes with the car, it is the owner’s responsibility to repair the car, typically your loan term is longer then the new car warranty.
- Every vehicle is subject to depreciation, which shows your vehicles value will depreciate over time.
- You are restricted to your car for a long time compared to leasing a new vehicle where you can get access to a new car quicker in some cases.
Having differentiated new vehicle leasing from buying, you then need to answer the question of the option that will best work for you. It is a decision for you to make by considering the circumstances and your current financial situation. This article is constructed to provide you with important information associated with these options.
It’s important to understand how these options will affect you finances and the vehicle you are looking to purchase. For additional information one of our Finance Specialist are here to assist you anyway we can. At Dyer Kia in LakeWales we are here to make the process as simple and hassle free as possible. You are just a few steps away from buying or leasing the new vehicle of your dreams and we are here to help.
Contact us by calling, e-mailing or texting we will help answer any additional question you may have and we can get the process started quickly and have you on the road in your new vehicle in no time.