Learn the advantages of auto leasing over most purchase installment agreements. Every one has different vehicle needs. There are also important tax considerations to consider. Consideration of your options can save you money in short and long term.
Reasons for auto leasing
Whether you choose to buy or lease your new car should depend on a number of factors. If you are the kind of person who likes to get a new car every few years and don’t drive more than 15,000 miles per year, leasing might be the best way to go.
You will want to make sure that the term of the lease is not longer than 3 years, unless you really plan on driving the vehicle for longer. It is also important that you make sure that the mileage specified on the lease will cover the number of miles you intend to drive annually. Getting out of a lease early can be very costly. When leasing, one of the advantages is that it normally requires less money down and will give you a lower payment than if you were to purchase the same vehicle.
The reason is that you never buy it down to a zero balance. The “residual” or guaranteed cash value at the end of the lease is what you are buying down. In addition there might be tax advantages for auto leasing is being used for business. It is best to check with your accountant to see if it would be to your advantage to lease.
What is a lease residual?
Residual is the dollar amount that the bank guarantees your new car will be worth at the end of the lease as long as you stay within the terms of the lease. At the end of the lease this is also the amount you would pay for the car if you wanted to purchase it, plus tax, license, doc & any other applicable fees.
The residual is set by the bank and is a percentage of MSRP regardless of what the actual purchase price is. Residual is not negotiable as the bank is guaranteeing the value and therefore they set it. If at the end of the lease, you have stayed within the terms of the lease, if the car is worth more than the residual, you might want to buy it, sell it or trade it in. If however at lease end the value is less than the residual, you can give it back to the bank and not be responsible for anything (As long as you have stayed within the terms of the lease).
On: Car Buying & Car Selling, Consumer Tips, Used Car & Trade-In Tips…