When it comes to buying a vehicle these days there are several options to choose from. You can lease, finance or pay cash. But what do these options mean to you the consumer? Which option is best suited to your needs? There is usually one option that makes more sense for your current situation and for your future plans.
As your Finance Manager it is my job to help you figure that out, to present you with all the options so you can make an informed decision.
Let’s start with finance, the most popular choice. This is the most popular choice because more people know what it is and how it works. As a representative of 9 different financial institutions I can tell you that there are a multitude of terms, amortizations, interest rates and payment plans to help almost anyone with good or bad
credit obtain a vehicle.
With financing you are taking the full amount of the vehicle, less any down payment and divide it up over a certain amount of equal monthly payments. You can select from 12- 96 month terms and in some cases longer.
One of the positive sides of financing is that unlike a mortgage, there is no penalty to pay out a loan early.
We all know that a car is a depreciating asset, a car will not be worth what you paid for it, 5, 6 or 10 years down the road. Cars tend to do the majority of their depreciating within the first 4 years, the most within the first year.
This brings us to leasing, a subject of much debate and controversy. First we need to establish that there are two kinds of leasing, open and closed ended.
Most of the people who have had a bad leasing experience usually had an open ended contract. An open ended lease is a contract where you are given a residual value that is not guaranteed. An open-ended lease is very similar to balloon financing, the difference being how they calculate interest and with a balloon finance there is no return option.
Closed ended leasing is where the residual value, or buyout price, is a guaranteed by the lessor (leasing
company).
Closed ended leasing offers customers many other benefits as well. With a lease, a customer gets to drive a vehicle while it is covered under the manufacturer’s warranty eliminating any extra costs that could potentially arise. If you keep your vehicles shorter terms you can have lower monthly payments with a lease then the same term in traditional financing and allow yourself the freedom of flexibility at lease end. In the event you have an accident and the vehicle is not written off but repaired, return it to the leasing company and let them deal with selling it. Cars with excess of 00 damages tend to cause most customers to shy away from purchasing it. If you own a company or can write off car payments, leasing is much easier to do especially on the accounting end. Lease payments can be assumed by others allowing you some additional flexibility if you need to sell the car. Leasing allows you to take advantage of the ever changing market. Should your car depreciate greatly you know you can return it and you have not lost anything. Should your car maintain its value, you could potentially turn around and
the sell the car for more than its buyout, thereby giving you a return on your investment.
With my customers I often relate a lease to a 8 year finance. If you are considering the payments on a 7 or 8 year finance, consider leasing. If you lease for 4 years and then finance the residual over 4 years, it is the same financial commitment as having taken out an 8 year finance, except with the lease you have the option half way through to get something more accommodating to your ever changing lifestyle and it won’t cost you anything.
There are many positive aspects about leasing that makes it a very smart and economical choice for almost anyone. The only negative aspects to leasing that I can think of are mileage restrictions and abnormal wear and tear, with most leasing contracts you have to commit to a certain number of kilometers per year. As you can see from what was outlined above there are a number of reasons for and against all methods
of paying for your new car. It is our job as your salesman, finance manager and dealership to make sure we ask the questions to help better serve your needs. At South Centre Volkswagen we are committed to you, the customer, to making sure that you leave here knowing you have been given all the information to make an informed decision.
