Buy vs. Lease
What Affects the Future Vehicle Value?
Customer is responsible for controllable and non-controllable factors:
- Higher gas prices
- New models/Enhanced technology
- New vehicle Incentives
- Poor third-party reviews
- Economy/market conditions
- Weak resale value
Finance end-of-term options
- Keep the vehicle
- Sell or trade the vehicle
Customer is responsible for controllable factors:
Residual = purchase price
Lease end -of- term options
- Purchase the vehicle
- Sell privately/pay off residual
- Negotiate trade-in
- Extend the lease
- Return lease vehicle
- Customer will own the vehicle without a lien after the term of the loan.
When LEASING, customer delays the purchase decision and has options:
- Buy it and keep the vehicle
- Buy it and sell the vehicle at a profit (If market above residual value).
- Buy it and trade it for another vehicle (if market above residual value).
- Extend the lease
- Return the vehicle to the dealer with no resale or trade-in hassles.
Choosing to lease may offer the additional benefits of lower monthly payments and less cash outlay than with a retail contract.
Wear & Use Considerations
- Owner is responsible for all wear and use.
- As wear and use increases, vehicle depreciates
- At time of trade or sale, wear and use negatively affects the market value of vehicles.
- Lender is responsible for all normal wear & use.
- Lessee is charged for excess wear and use.
Refer to sample condition report for example of both normal and excess wear, as callout as to the Excess Wear & Use Protection Plan brochure and the Lease-End brochure. Note that the EWU Protection Plan is not available in all states.
- Owner is responsible for miles - ALL
- AAA Study mid-size sedan, 5 years*. - .374/mile
- Standard mileage allowance - 15,000/year
- Additional miles at inception - .10/mile
- Excess miles at lease end - .15/mile
*AAA's 2012 "Your Driving Costs" study
Considering Paying Cash?
If paying cash to avoid interest:
- In exchange for all the payment upfront, the Lender discounts the money factor and rent charge.
- The cost of money represented by the rent charge may be lower than other lease or finance programs
If Paying cash to avoid monthly payments:
- There are no monthly payments with a 1-Pay lease
Investment or Expense?
- It may not be the best use of a customer's cash to tie it up in a fixed asset (the vehicle that depreciates), rather than something that might increase in value.
- Leaves cash available for an emergency or opportunity
- Fixed residual value (based on mileage and condition) provides market protection.