How Does Leasing Work?
Many financial experts advise that you should buy assets that appreciate in value, and lease those that depreciate in value. Because vehicles depreciate in value, leasing makes good financial sense.
Leasing is essentially a way of obtaining a vehicle for a set period of time. Leasing is not renting and renting is not leasing, nor is it financing. There is a big difference between leasing a car, renting a car and financing a car.
When you lease a car, you're paying for the depreciation in a car's value. The leasing company determines how much the car is going to cost at the end of the lease, and you contract to pay the difference between the current cost and the cost at the end of the lease. For example, if the car you're buying costs $30K and in 3 years when your lease ends that car is going to cost $18K, you'll have pay $12K plus lease charges for 3 years.
Should you consider Leasing?
When you finance a vehicle, you are faced with a series of obligations until your last payment is made. With depreciation and interest charges, most consumers do not have equity in their vehicles until 42 to 48 months into their finance contract. Your only option to change vehicles may be to pay the difference yourself or roll that negative equity into your next car which further increases your next vehicle’s payments. When you finally make your last finance payment to the bank, you are often left with a vehicle that is out of warranty with additional maintenance coming due in terms of tires, brakes, belts, hoses and normal wear and tear for a four to five year old vehicle.
When you rent a vehicle, your only option at the end of the rental agreement is to turn the vehicle in, and you are responsible for any damage done to the vehicle. Furthermore, you are heavily restricted on its use.
In a lease you contract to use your Honda for the first, and best, period of its life, while it is newer, and generally covered by the factory warranty. At the end of the lease, you are given options rather than obligations. These include the ability to complete the purchase of your vehicle for a preset amount, to turn the vehicle in and renew into a new lease, or in certain circumstances the option to extend your lease further.
The following are some additional benefits to leasing a Honda:
Less Cash Up Front: One of the biggest advantages of a lease is that it does not require a substantial down payment. You defer paying the sales tax as part of your monthly lease payment, rather than paying taxes upfront in one lump sum on a purchase.
Lower Monthly Payment: If the finance period is the same, your monthly payments will be lower when leasing (vs. financing) because your payments will be based on the vehicle’s estimated depreciation. You are contracting the use of a portion of the car’s value, rather than buying the entire vehicle.
A New Car More Often: Your taste and preference may change, and a short term lease makes it easy to drive a new car more frequently. Additionally, you may have needs for a larger or smaller car in a few years, and a lease makes it easy to plan for such changes.
Depreciation Protection: You don’t have to worry about resale value. If your car depreciates more than the estimated residual value in your lease contract at full term, simply turn it in at the end of your lease term. But if it’s worth more, you can buy it if you’d like to. Leasing gives you options rather than obligations.
Lower Maintenance Costs: While under a lease, you are responsible for any regular maintenance for the vehicle, but having a new vehicle can protect from having the higher maintenance costs associated with a much older vehicle. It is a great option for those that simply want to be able to walk out to and drive their car without having to worry about a vehicle breakdown.
Excessive Wear at Termination: Honda will waive one or more events, each of which totals less than $500 to a maximum of $1500 waived. This means that you don’t need to worry about being charged for every little scratch and dent.
Total Loss Protection: Commonly called GAP insurance, this limits the amount you will owe if the vehicle is lost or totaled, and it is provided in every Honda lease at no additional cost. You are responsible only for any past due payments and your insurance deductible, not the “gap” between the insurance company settlement and the balance due on your lease. This can result in significant savings, and peace of mind.
JL Freed Service: When leasing a vehicle, you don’t to worry about excessive maintenance costs. Our “Finishing Touch” program offers you savings over the course of your lease, and our experienced service staff will offer you the finest, personalized service for your Honda. And when it comes to reliability and low maintenance costs, nothing beats a Honda!
Who should lease a car? It's not for everyone, it's up to you, the consumer to weigh the options and see which vehicle financing option suites your needs and lifestyle best. If you would like a more detailed explanation, contact one of our lease specialists here at the dealership. They will be happy to answer any further questions that you may have.