The concept of leasing is fairly simple, yet many automotive consumers don't completely understand it and are often skeptical, even afraid of it. It is frequently misunderstood as a kind of "rent-to-own" scheme hatched up by clever dealers to separate good people from their money.
There are even well-meaning but misinformed "experts" who are quick to advise against leasing because "it's all a scam" or "it's the same as renting and you throw your money away" or "it's only good for businesses."
In fact, leasing is a well-respected and common financial concept that has been used in the commercial world for decades as a method of financing buildings, equipment, and vehicles — although it is still relatively new to most automotive consumers.
Car leasing is not renting, as many people mistakenly believe. Because many consumers still are not sufficiently informed, there have certainly been cases in which mistakes have been made and in which customers' lack of knowledge has been taken advantage of, sometimes fraudulently.
Showing posts with label Auto Leasing. Show all posts
Showing posts with label Auto Leasing. Show all posts
Understand how car leasing works
As with any business transaction, the key to successful and intelligent auto leasing is understanding how the process works, taking the time to properly prepare yourself before making decisions, and learning to use leasing to your benefit rather than to your disadvantage.
Without at least a basic understanding of leasing concepts, knowing how to get a good deal, and knowing how payments are figured; you expose yourself to the very real possibility of making mistakes, significantly overpaying, or worse, being cheated.
Leasing is a method of financing, similar to a loan. It would be a mistake to think that consumer car leasing is like apartment leasing, apartment renting, or car renting. It is not. The differences are so significant that any attempt to try to understand one by drawing on your knowledge of the other will only result in a serious misunderstanding.
Let's make an important statement here: You shouldn't consider leasing an automobile unless you have an understanding of car leasing fundamentals and how it works. Don't lease if you don't understand it. Understand how car leasing works and it can work for you.
That is what this Lease Guide is all about.
Without at least a basic understanding of leasing concepts, knowing how to get a good deal, and knowing how payments are figured; you expose yourself to the very real possibility of making mistakes, significantly overpaying, or worse, being cheated.
Leasing is a method of financing, similar to a loan. It would be a mistake to think that consumer car leasing is like apartment leasing, apartment renting, or car renting. It is not. The differences are so significant that any attempt to try to understand one by drawing on your knowledge of the other will only result in a serious misunderstanding.
Let's make an important statement here: You shouldn't consider leasing an automobile unless you have an understanding of car leasing fundamentals and how it works. Don't lease if you don't understand it. Understand how car leasing works and it can work for you.
That is what this Lease Guide is all about.
Why is car leasing popular?
Two factors helped cause the shift to leasing. First, the cost of new cars has rapidly spiraled upwards over the last few decades, often putting prices out of reach of average buyers. Second, federal tax law changes in the late 1980's eliminated finance interest deductions on automobile loans, which further increased ownership cost. The net effect is that people have become increasingly eager to find ways to make personal vehicles more affordable.
Auto manufacturers and finance companies have come to the rescue in a big way with consumer car leasing programs. These programs are simply a modified version of business leasing that have been around for years. This helps explain much of the strange language and confusing concepts associated with consumer leasing today.
In a nutshell, leasing has become popular because it offers people a way to drive the vehicles they want — often better vehicles than they could buy — for less money and less hassle. Low monthly payments are the big attraction, although we'll soon find out why it's important to look at other factors before deciding to lease.
Auto manufacturers and finance companies have come to the rescue in a big way with consumer car leasing programs. These programs are simply a modified version of business leasing that have been around for years. This helps explain much of the strange language and confusing concepts associated with consumer leasing today.
In a nutshell, leasing has become popular because it offers people a way to drive the vehicles they want — often better vehicles than they could buy — for less money and less hassle. Low monthly payments are the big attraction, although we'll soon find out why it's important to look at other factors before deciding to lease.
Truck Leasing - Lease Your Truck
Some things you need to know about truck leasing
Personal Use
To lease a truck for personal use is no different than leasing a car or SUV. A lease offers lower monthly payments than buying with a loan, and may not require a down payment. There are also savings on sales tax in most states. Therefore, leasing may cost you less to get into a new truck, and can save you on monthly cost as well.
However, before making a decision about whether to lease or buy, understand that leasing is best for people who drive no more than about 15,000 miles per year, like to have a new truck every 3-4 years, take good care of their vehicles, don't care about building ownership equity, and have a stable lifestyle such that they won't need to end the lease early.
Ending a lease early can be very expensive. It's more than simply paying termination fees. It means paying the balance of the lease, considering the wholesale auction value of the truck. In most cases, ending a lease early is very impractical. Therefore, if you think you might not be able to complete a lease, then don't lease.
If you plan on using your truck for heavy duty or rough utility purposes, such that the body and bed might be damaged or scratched, you might not want to lease. The reason is you may have to pay for those damages at lease-end when you return your truck to the lease company. Any damages beyond "normal" wear and tear can result in charges to you. Of course, you could get the repairs done yourself prior to returning your leased truck. Or, if you decide to purchase your vehicle at lease-end, the damages won't matter.
Also be aware that many trucks do not have high lease-end residual values as would a luxury car. This makes it more expensive to lease most trucks than a comparable car lease. There are exceptions of course. The Ford F-150 is an example of a truck that maintains good residual value and makes a good lease vehicle. Our Lease Kit contains a full list of all car and truck residual values and lease ratings.
You can expect lease payments on your truck to be approximately 30%-50% less than comparable loan payments for the same vehicle, same terms. If you watch for manufacturer-sponsored lease deals, you can get even better terms.
Since price is the most important factor in a lease deal, look for rebates and dealer discounts. We recommend getting dealer price quotes, which will include any available rebates and discounts, from InvoiceDealers, Edmunds, and Yahoo! Autos. It is best to get multiple quotes so that you have plenty of prices to compare and choose from.
Business and Commercial Use
Truck leasing for commercial or business use is different than personal vehicle leasing, although the purposes are about the same.
First, the type of lease used for commercial truck leasing is different. Most business vehicle leases are "open-end" leases, while personal leases are "closed-end."
Open-end leases have flexible lease-end residuals and are less structured to allow a company to use the vehicle as they need to, and pay for that use at lease-end. Monthly payments are higher than for personal leases and lease-end cost risk is higher. However, these costs are all tax deductible.
Commercial truck leasing offers a number of advantages over outright purchases or financed ownership:
No up-front investment and lower monthly expenses. Operating funds and capital are preserved for more useful purposes.
Predictable expenses when the lease plan includes fixed monthly payments, maintenance, and service
Most commercial truck leases are operating leases and considered off-balance-sheet financing. Leased trucks do not show up on the company balance sheet as an asset and will not affect financial ratios, making it easier to keep credit options open.
Truck lease payments are tax deductible and reduce AMT (Alternative Minimum Tax ) liability.
Truck leasing companies exist all over the U.S. and Canada. Companies such as Penske, Ryder, PacLease, NationaLease and many others are examples. Search online or look in your local telephone yellow pages for truck lease companies in your area.
Personal Use
To lease a truck for personal use is no different than leasing a car or SUV. A lease offers lower monthly payments than buying with a loan, and may not require a down payment. There are also savings on sales tax in most states. Therefore, leasing may cost you less to get into a new truck, and can save you on monthly cost as well.
However, before making a decision about whether to lease or buy, understand that leasing is best for people who drive no more than about 15,000 miles per year, like to have a new truck every 3-4 years, take good care of their vehicles, don't care about building ownership equity, and have a stable lifestyle such that they won't need to end the lease early.
Ending a lease early can be very expensive. It's more than simply paying termination fees. It means paying the balance of the lease, considering the wholesale auction value of the truck. In most cases, ending a lease early is very impractical. Therefore, if you think you might not be able to complete a lease, then don't lease.
If you plan on using your truck for heavy duty or rough utility purposes, such that the body and bed might be damaged or scratched, you might not want to lease. The reason is you may have to pay for those damages at lease-end when you return your truck to the lease company. Any damages beyond "normal" wear and tear can result in charges to you. Of course, you could get the repairs done yourself prior to returning your leased truck. Or, if you decide to purchase your vehicle at lease-end, the damages won't matter.
Also be aware that many trucks do not have high lease-end residual values as would a luxury car. This makes it more expensive to lease most trucks than a comparable car lease. There are exceptions of course. The Ford F-150 is an example of a truck that maintains good residual value and makes a good lease vehicle. Our Lease Kit contains a full list of all car and truck residual values and lease ratings.
You can expect lease payments on your truck to be approximately 30%-50% less than comparable loan payments for the same vehicle, same terms. If you watch for manufacturer-sponsored lease deals, you can get even better terms.
Since price is the most important factor in a lease deal, look for rebates and dealer discounts. We recommend getting dealer price quotes, which will include any available rebates and discounts, from InvoiceDealers, Edmunds, and Yahoo! Autos. It is best to get multiple quotes so that you have plenty of prices to compare and choose from.
Business and Commercial Use
Truck leasing for commercial or business use is different than personal vehicle leasing, although the purposes are about the same.
First, the type of lease used for commercial truck leasing is different. Most business vehicle leases are "open-end" leases, while personal leases are "closed-end."
Open-end leases have flexible lease-end residuals and are less structured to allow a company to use the vehicle as they need to, and pay for that use at lease-end. Monthly payments are higher than for personal leases and lease-end cost risk is higher. However, these costs are all tax deductible.
Commercial truck leasing offers a number of advantages over outright purchases or financed ownership:
No up-front investment and lower monthly expenses. Operating funds and capital are preserved for more useful purposes.
Predictable expenses when the lease plan includes fixed monthly payments, maintenance, and service
Most commercial truck leases are operating leases and considered off-balance-sheet financing. Leased trucks do not show up on the company balance sheet as an asset and will not affect financial ratios, making it easier to keep credit options open.
Truck lease payments are tax deductible and reduce AMT (Alternative Minimum Tax ) liability.
Truck leasing companies exist all over the U.S. and Canada. Companies such as Penske, Ryder, PacLease, NationaLease and many others are examples. Search online or look in your local telephone yellow pages for truck lease companies in your area.
Car Leasing and Car Renting - What's the Difference?
Many automotive consumers assume that car renting and car leasing are the same thing, or are very similar.
Not true.
This misconception may come about from the fact that apartment renting – which is very familiar to most people – and apartment leasing are essentially the same thing.
It is therefore natural for someone not familiar with car leasing to assume that it is much like apartment renting or leasing.
It is not.
What is car renting?
Car rental companies exist to fulfill the short-term automobile use needs of traveling business people, vacationers, or those who might need a particular type of vehicle for temporary use.
Rental cars are owned by a rental company and are made available to customers for relatively short-term use. The company maintains and services its vehicles and carries basic insurance. Customers agree to not damage the vehicle, to buy gas, to purchase additional insurance if personal auto insurance is not applicable, and to return the vehicle within a specified time. All maintenance is handled by the rental company.
Rent rates are determined by the car rental company, based on a daily or weekly fee, and includes either unlimited mileage or an additional mileage rate. The method by which rates are determined is not revealed to customers and can vary widely, even within the same rental company, based on various discount schemes.
Rental companies make money by renting the same car over and over again.
Car renting is not a form of financing, as is leasing.
Car renting is much the same as apartment renting or leasing.
What is leasing?
By contrast, leasing is actually a method of vehicle financing that is very similar to loan financing. A lease company — or manufacturer's finance company – only gets involved after a customer decides he wants lease financing. The lease company buys the car from the dealer at the customer-negotiated price and loans it back to the customer.
The "loan" in this case is not money, but a vehicle. Since the lease company has invested money in the vehicle, they expect to be paid interest on that money. Since all cars depreciate in value, they also want to be compensated for the reduced value of the vehicle as the customer adds miles to it and as the vehicle becomes older. It will not be worth as much when it's returned to them as when it was new.
At lease-end, vehicles are returned to the lease company as the final payment of the "loan." Lease payments are easy to calculate using a well-defined formula used throughout the leasing industry, unlike car renting for which there is no way for customers to calculate rental rates.
In short, lease payments are determined by the negotiated selling price of the vehicle, anticipated depreciated value at lease-end (residual value), term (length of lease), and the money factor (financing rate, similar to interest rate). See How Car Lease Payments are Calculated.
A leased vehicle is usually only leased once, when it's new, not over and over again like a rental car.
How are car renting and car leasing different
Leasing is a form of financing; renting is not. Lease terms begin at 24 months; renting can be for as little as a day or less.
You may be able to swap cars in the middle of a rental; not so with leasing. Since leasing is a form of financing, customer credit scores, income, and debt are important; not so with renting.
Leasing appears on your credit report just like a loan; renting does not. Defaulting on a lease damages your credit score; defaulting on a rental does not.
With renting, you choose your vehicle from rental companies' available makes and models. With leasing, you can lease any new vehicle make and model you want.
It's easy to end a rental early by simply returning the car, while ending a lease early can be very costly, because it's a long-term contract.
For the same length of time, renting is much more expensive than leasing.
Why car leasing is not like apartment leasing
Cars depreciate in value and require money to purchase. Leasing pays for the depreciation and interest on the money provided by a lease company to purchase the car.
Apartments are real estate and generally don't rapidly depreciate in value, as do automobiles. In fact, many increase in value unless they are not maintained well. Therefore apartment rental fees do not pay for specifically depreciation or anything else specific. There is no interest or finance charges. An apartment owner needs to make enough money to pay the mortgage, taxes, utilities, upkeep, and make a profit. He can rent his apartment over and over again, long after it's new.
There is no formula to calculate apartment rental rates, as there is with car leasing.
Nothing to show for your money
It's true with apartment renting that you have absolutely nothing to show for the money you've paid, and rental rates can easily be higher than mortgage payments for a home.
It's also true with car leasing that you have nothing to show for your money. However....you've paid 30%-60% less than loan payments for the same car, and you have specifically paid for your car's depreciation, and only the depreciation, not the entire vehicle cost.
The money you've lost to depreciation is exactly the same money that is lost by someone who has purchased the same car with a loan. His car depreciates exactly the same amount as your leased car, but he pays for the entire vehicle. He therefore has nothing to show for that part of the money that is lost to depreciation if he sells or trades. That money is gone, for both a buyer and a leaser.
Not true.
This misconception may come about from the fact that apartment renting – which is very familiar to most people – and apartment leasing are essentially the same thing.
It is therefore natural for someone not familiar with car leasing to assume that it is much like apartment renting or leasing.
It is not.
What is car renting?
Car rental companies exist to fulfill the short-term automobile use needs of traveling business people, vacationers, or those who might need a particular type of vehicle for temporary use.
Rental cars are owned by a rental company and are made available to customers for relatively short-term use. The company maintains and services its vehicles and carries basic insurance. Customers agree to not damage the vehicle, to buy gas, to purchase additional insurance if personal auto insurance is not applicable, and to return the vehicle within a specified time. All maintenance is handled by the rental company.
Rent rates are determined by the car rental company, based on a daily or weekly fee, and includes either unlimited mileage or an additional mileage rate. The method by which rates are determined is not revealed to customers and can vary widely, even within the same rental company, based on various discount schemes.
Rental companies make money by renting the same car over and over again.
Car renting is not a form of financing, as is leasing.
Car renting is much the same as apartment renting or leasing.
What is leasing?
By contrast, leasing is actually a method of vehicle financing that is very similar to loan financing. A lease company — or manufacturer's finance company – only gets involved after a customer decides he wants lease financing. The lease company buys the car from the dealer at the customer-negotiated price and loans it back to the customer.
The "loan" in this case is not money, but a vehicle. Since the lease company has invested money in the vehicle, they expect to be paid interest on that money. Since all cars depreciate in value, they also want to be compensated for the reduced value of the vehicle as the customer adds miles to it and as the vehicle becomes older. It will not be worth as much when it's returned to them as when it was new.
At lease-end, vehicles are returned to the lease company as the final payment of the "loan." Lease payments are easy to calculate using a well-defined formula used throughout the leasing industry, unlike car renting for which there is no way for customers to calculate rental rates.
In short, lease payments are determined by the negotiated selling price of the vehicle, anticipated depreciated value at lease-end (residual value), term (length of lease), and the money factor (financing rate, similar to interest rate). See How Car Lease Payments are Calculated.
A leased vehicle is usually only leased once, when it's new, not over and over again like a rental car.
How are car renting and car leasing different
Leasing is a form of financing; renting is not. Lease terms begin at 24 months; renting can be for as little as a day or less.
You may be able to swap cars in the middle of a rental; not so with leasing. Since leasing is a form of financing, customer credit scores, income, and debt are important; not so with renting.
Leasing appears on your credit report just like a loan; renting does not. Defaulting on a lease damages your credit score; defaulting on a rental does not.
With renting, you choose your vehicle from rental companies' available makes and models. With leasing, you can lease any new vehicle make and model you want.
It's easy to end a rental early by simply returning the car, while ending a lease early can be very costly, because it's a long-term contract.
For the same length of time, renting is much more expensive than leasing.
Why car leasing is not like apartment leasing
Cars depreciate in value and require money to purchase. Leasing pays for the depreciation and interest on the money provided by a lease company to purchase the car.
Apartments are real estate and generally don't rapidly depreciate in value, as do automobiles. In fact, many increase in value unless they are not maintained well. Therefore apartment rental fees do not pay for specifically depreciation or anything else specific. There is no interest or finance charges. An apartment owner needs to make enough money to pay the mortgage, taxes, utilities, upkeep, and make a profit. He can rent his apartment over and over again, long after it's new.
There is no formula to calculate apartment rental rates, as there is with car leasing.
Nothing to show for your money
It's true with apartment renting that you have absolutely nothing to show for the money you've paid, and rental rates can easily be higher than mortgage payments for a home.
It's also true with car leasing that you have nothing to show for your money. However....you've paid 30%-60% less than loan payments for the same car, and you have specifically paid for your car's depreciation, and only the depreciation, not the entire vehicle cost.
The money you've lost to depreciation is exactly the same money that is lost by someone who has purchased the same car with a loan. His car depreciates exactly the same amount as your leased car, but he pays for the entire vehicle. He therefore has nothing to show for that part of the money that is lost to depreciation if he sells or trades. That money is gone, for both a buyer and a leaser.
Advantages of Car Leasing
Car leasing can offer advantages and be an attractive alternative to buying, although it's not for everyone, as we'll discuss later. You must decide about the importance and priority of these benefits to you.
So, what are the potential advantages of leasing?
Lower Monthly Payments
Because you only pay for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan for the same car and same term.
More Car, More Often
Since your monthly payments are lower, you get more car for the same money and drive a new vehicle every two to four years, depending on the term length of your leases.
Fewer Maintenance Headaches
Most people like to lease for a term that coincides with the length of the manufacturer's warranty coverage so that if something goes wrong with the car, the repairs are always covered.
Lower Upfront Cash Outlay
Most leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment, or trade in your old vehicle, to lower your monthly payment amount.
Lower Tax Bite
In most states of the U.S. and in Canada, you don't pay sales tax on the entire value of a leased vehicle as you would if you purchased. You're only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment instead of being paid all at once.
No Used-Car Hassles
With leasing, the headaches of selling a used car are eliminated. When your lease ends, you simply turn it back to the leasing company and walk away, unless you decide to buy it or trade it.
Gap Coverage Included
Most leases automatically include free "gap" protection in case your vehicle is totaled in an accident or stolen, and you still owe more than the vehicle is worth. Loans do not generally come with gap protection.
So, what are the potential advantages of leasing?
Lower Monthly Payments
Because you only pay for the portion of the car or truck that you actually use, your monthly payments are 30%-60% lower than for a purchase loan for the same car and same term.
More Car, More Often
Since your monthly payments are lower, you get more car for the same money and drive a new vehicle every two to four years, depending on the term length of your leases.
Fewer Maintenance Headaches
Most people like to lease for a term that coincides with the length of the manufacturer's warranty coverage so that if something goes wrong with the car, the repairs are always covered.
Lower Upfront Cash Outlay
Most leases require little or no down payment, which makes getting into a new car more affordable and frees up your cash for other things. However, you can choose to make a down payment, or trade in your old vehicle, to lower your monthly payment amount.
Lower Tax Bite
In most states of the U.S. and in Canada, you don't pay sales tax on the entire value of a leased vehicle as you would if you purchased. You're only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment instead of being paid all at once.
No Used-Car Hassles
With leasing, the headaches of selling a used car are eliminated. When your lease ends, you simply turn it back to the leasing company and walk away, unless you decide to buy it or trade it.
Gap Coverage Included
Most leases automatically include free "gap" protection in case your vehicle is totaled in an accident or stolen, and you still owe more than the vehicle is worth. Loans do not generally come with gap protection.
Luxury Car Lease
Why lease a luxury car? What's different about luxury car leasing?
Luxury car leasing is different
How is it different? It's not that luxury cars are more expensive, or that the leasing process is different, but because the consumer doing the leasing is typically different.
Luxury car consumer
High-end automotive consumers have different priorities, different values, bigger bank accounts, and prefer to transact business differently than people acquiring less expensive vehicles.
They have a tendency to lease rather than buy. "High-line" vehicles are leased at the rate of 50% - 70%, depending on brand, compared to only 20% - 30% for non-luxury models.
Luxury auto consumers tend to value time, efficiency, quality of service, and business relationship when dealing with financing. Spending a great deal of time shopping and haggling for bargain deals is less important that establishing a relationship with a company they can trust and depend on to genuinely look out for their interests.
High-end customrs tend to be more loyal to a brand and a dealership over a long period of time.
Luxury cars make good leases
Luxury automobiles make the best lease values, dollar for dollar, due to high lease-end residual values relative to MSRP. In fact, luxury vehicles, as a category, are leased significantly more often than vehicles in any other category.
The best lease deals are for those vehicles, such as Lexus, Mercedes, Porsche, Land Rover, and BMW, with the highest future resale values, or residual values, relative to their original cost. A high residual value creates a low monthly lease payment.
In fact, a better lease deal can often be obtained by leasing a high-residual luxury car than by leasing a car with a lower residual value, even though the price of the luxury car is the same or greater. This is the reason smart automotive consumers tend to lease a luxury vehicle.
Being smart about money is a typical characteristic of high-end car leasers. High-line leasing consumers are not trying to save a few bucks — they have the money to buy the car they want. They simply know that it's not smart to put money into depreciating assets (automobiles) when that money could be used for more productive purposes.
Independent lease companies and luxury cars
More than 20% of luxury automobile consumers finance their loans and leases outside of car dealerships, according to a recent report by JD Power and Associates.
Independent lease companies such as Primelease can, in most cases, beat luxury car dealers on prices and lease rates because high-end manufacturers don't subsidize deals and offer incentives nearly to the extent that low-mid-range vehicle manufacturers do. Furthermore, luxury car dealers don't like to be viewed as "discounters."
Finance companies who lease luxury cars typically require their clients to have "prime" credit ratings. This means a high FICO® credit score of 700 or greater. Lower credit scores can mean higher lease rates, large down payments, and security deposits — and possibly higher insurance rates.
For high-line vehicle leases an independent lease company can be more flexible and responsive to customers' needs than dealers, who are restrained by car manufacturers' rules. For example, when new models come out and are limited in dealers' inventories, independent lease companies can search the entire country for the exact car you want.
Benefits of leasing luxury cars
People who lease high-line cars like the convenience of a quick easy business transaction, like having a new style car every two or three years, like avoiding maintenace and repair headaches, and like avoiding disposing of used cars. They also like the option of minimizing cash outlay.
In summary, luxury car leasing is different, the people who lease luxury cars are different, and the companies who lease luxury cars are different.
Luxury car leasing is different
How is it different? It's not that luxury cars are more expensive, or that the leasing process is different, but because the consumer doing the leasing is typically different.
Luxury car consumer
High-end automotive consumers have different priorities, different values, bigger bank accounts, and prefer to transact business differently than people acquiring less expensive vehicles.
They have a tendency to lease rather than buy. "High-line" vehicles are leased at the rate of 50% - 70%, depending on brand, compared to only 20% - 30% for non-luxury models.
Luxury auto consumers tend to value time, efficiency, quality of service, and business relationship when dealing with financing. Spending a great deal of time shopping and haggling for bargain deals is less important that establishing a relationship with a company they can trust and depend on to genuinely look out for their interests.
High-end customrs tend to be more loyal to a brand and a dealership over a long period of time.
Luxury cars make good leases
Luxury automobiles make the best lease values, dollar for dollar, due to high lease-end residual values relative to MSRP. In fact, luxury vehicles, as a category, are leased significantly more often than vehicles in any other category.
The best lease deals are for those vehicles, such as Lexus, Mercedes, Porsche, Land Rover, and BMW, with the highest future resale values, or residual values, relative to their original cost. A high residual value creates a low monthly lease payment.
In fact, a better lease deal can often be obtained by leasing a high-residual luxury car than by leasing a car with a lower residual value, even though the price of the luxury car is the same or greater. This is the reason smart automotive consumers tend to lease a luxury vehicle.
Being smart about money is a typical characteristic of high-end car leasers. High-line leasing consumers are not trying to save a few bucks — they have the money to buy the car they want. They simply know that it's not smart to put money into depreciating assets (automobiles) when that money could be used for more productive purposes.
Independent lease companies and luxury cars
More than 20% of luxury automobile consumers finance their loans and leases outside of car dealerships, according to a recent report by JD Power and Associates.
Independent lease companies such as Primelease can, in most cases, beat luxury car dealers on prices and lease rates because high-end manufacturers don't subsidize deals and offer incentives nearly to the extent that low-mid-range vehicle manufacturers do. Furthermore, luxury car dealers don't like to be viewed as "discounters."
Finance companies who lease luxury cars typically require their clients to have "prime" credit ratings. This means a high FICO® credit score of 700 or greater. Lower credit scores can mean higher lease rates, large down payments, and security deposits — and possibly higher insurance rates.
For high-line vehicle leases an independent lease company can be more flexible and responsive to customers' needs than dealers, who are restrained by car manufacturers' rules. For example, when new models come out and are limited in dealers' inventories, independent lease companies can search the entire country for the exact car you want.
Benefits of leasing luxury cars
People who lease high-line cars like the convenience of a quick easy business transaction, like having a new style car every two or three years, like avoiding maintenace and repair headaches, and like avoiding disposing of used cars. They also like the option of minimizing cash outlay.
In summary, luxury car leasing is different, the people who lease luxury cars are different, and the companies who lease luxury cars are different.
Car Lease Insurance
Some things you need to know about insurance before you lease
Most auto lease companies require you to maintain insurance coverage as follows:
Liability coverage: $100,000 per person / $300,000 per occurrence
Property liability coverage: $50,000
Comprehensive and collision for actual value with no more than $500 deductible.
In Canada, $1,000,000 in liability coverage is required for car insurance when leasing.
This may be more coverage than you would normally buy, which could mean an additional leasing expense — unless you know how to get better rates. Most people are already paying too much for insurance, before they lease.
Most auto lease companies require you to maintain insurance coverage as follows:
Liability coverage: $100,000 per person / $300,000 per occurrence
Property liability coverage: $50,000
Comprehensive and collision for actual value with no more than $500 deductible.
In Canada, $1,000,000 in liability coverage is required for car insurance when leasing.
This may be more coverage than you would normally buy, which could mean an additional leasing expense — unless you know how to get better rates. Most people are already paying too much for insurance, before they lease.
What's the deal with car insurance when leasing?
When you lease, your vehicle belongs to the lease company. They want to make sure that their investment is covered should you have an accident that damages or destroys the vehicle, or if the vehicle is stolen. They may also want you to have sufficient liability coverage in case you are at fault in causing an accident. This not only protects you from financial disaster, but it also protects the lease company if they should be held partly responsible.
Of course, having sufficient car insurance coverage is smart whether you are leasing or not. Many people attempt to get by with minimum coverage required by law but it's a big risk since there's so much to lose. Accidents do happen. Large lawsuits are common. If you have insufficient car insurance coverage, you can be personally sued for additional money after your insurance has been paid. Many smart consumers add additional coverage with "umbrella" policies.
Of course, having sufficient car insurance coverage is smart whether you are leasing or not. Many people attempt to get by with minimum coverage required by law but it's a big risk since there's so much to lose. Accidents do happen. Large lawsuits are common. If you have insufficient car insurance coverage, you can be personally sued for additional money after your insurance has been paid. Many smart consumers add additional coverage with "umbrella" policies.
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