Basics of Leasing

 

Flexibility of Leasing

Leasing is an option that works well for almost everyone.  Business customers can use the full payment as a write-off. People who drive less than 15,000 miles per year and ones who like a new car every 2-3 years are ideal (the national average trade-in cycle is 39 months).

When a customer leases a vehicle, they have 3 options at the end. They can return the vehicle, in exchange for the residual value.  Buy it from the leasing company for the residual value (plus tax and tags). Or, if they have equity, trade it in and apply the equity to the next vehicle they purchase. Equity is determined the same way it would be for a customer with a loan on their trade.  We appraise the trade in and call for a payoff and the difference is either positive or negative.  

A lease payoff is calculated by the residual value on the contract plus any remaining payments and possibly an early termination fee (also disclosed on the contract).  Most of the leasing companies now will charge a "dealer for stock" payoff quote which goes more with current market values rather than what is on the customers contract.  If the customer wants to purchase the lease at the end, it will follow the contract residual, plus any remaining payments and possibly a purchase option fee.

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Most dealers will run ads or even quote a customer in the showroom without tax in the payment quote. Ads on TV or in the paper will usually disclose $2-4,000 cap cost reduction but then you need to add the inception fees to that number to get to the advertised payment. Negative equity on a trade will move your payment up quickly.  

Lease terms are about half of the normal loan term, so $1000 (positive or negative) will move the payment drastically. Manufacturers will manage their vehicle portfolio with leasing programs. If they need to sell more fuel efficient cars or maybe pickups, to get their numbers up, they will put incentives into leasing.  Raising residual percentages, lowering money factors, adding lease rebates or all of the above will help them achieve this quickly. This is why some units will lease better than others. This can change month to month or sometimes week to week.