Leasing can be a great option for many people, but there are some pitfalls that you will want to understand. Be sure to avoid these before you take the plunge into leasing. This is part 3 of our series on leasing. Click here to catch up on parts 1 and 2.
Trading in a vehicle that you own outright toward a leased vehicle
If you are like most people you likely own a vehicle. If you owe more on your car or truck that it is worth, leasing maybe a good option for you. However, if you have equity in your trade, you need to be very careful about how you move into leasing. When leasing, you pay a relatively small amount of interest and a fixed amount of tax, regardless of how much cash or trade you put against the lease. This is different from a typical purchase where you save the sales tax on your trade value and you save much more in interest by putting cash down.
For you, this means that putting cash down on a lease or trading in your vehicle toward your lease is simply prepaying on your payments. If your 36 month lease payment with no trade is $300, then your payment with $1000 trade value will be $1000 / 36months or approximately $27 per month less. While this can make for a nice low payment over the next three years, when you go to lease your next one, you will need to come up with $1000 to keep the payment the same. So be careful when trading in toward a lease.
Unstable or unknown future
Leasing is renting. When you are lease, your are renting a vehicle from the leasing company for a certain number of miles. Typical leases are for 12000 or 15000 miles per year. If you exceed your total allowed miles you are going to pay 15 – 25 cents per mile at the end of the lease. If you go over by 100 miles that is no big deal, but if you go over by 5000 miles you will owe $750 or more. Make sure you have a stable life situation, or you have another vehicle you can use for unexpected events before you lease. Otherwise you many find yourself with a large bill at the end of the lease.
Low mileage drivers
When you lease you are essentially paying for miles. With Ford the lowest amount of miles you can buy are 10,500 per year. For Example, lets pretend you are going to do a 36 month lease on a Ford Escape with 10,500 miles per year and the payment is $279 per month. You can go up to 12,000 miles per year for $295 per month, or up to 15,000 miles per year for $314 per month. The trouble comes in when you only drive 8,000 miles per year. There is no mileage band for these lower mileage drivers and so at the end of lease you end up giving back the vehicle with 7,500 unused miles that you paid for. I’m not saying low mileage drivers should never lease, I have plenty of customers who do. Just remember that when you lease you are buying miles and if you don’t use them you loose them!
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