Leasing is an attractive way to get into a vehicle – you get a modern car, sometimes LUXURY car, for far less than buying it outright, and at the end of the lease, you turn it back in and roll to a new car. New cars have warranties and complementary maintenance, less breakdowns, and you’ll never not have AC. In truth, unless you buy a supercar, a 68 Mustang Fastback and restore it, or a limited run and very expensive car, you’ll never make money on your car. So, why not drive a new one every 24-36 months?
Those against leasing are those that dont mind the gamble of a 100k+ mile vehicle and doing maintenance OR those that drive more than 20k miles a year. Remember, much of the lease payments is based on something called the residual price. That’s the value of the cars after the lease term. It’s usually based on a percentage. Take a 3-series BMW. It’s a 45k car, but a 3 year residual is 60% for 30,000 miles That’s 40% depreciation in 3 years. Not bad, but the Toyota Highlander has a 62% depreciation over 3 years on 30,000 miles, meaning that you’re not paying as much in depreciation on a “regular car” vs a “luxury car”, and with a lower sale price, it could be worth up to $100/month. In doing research, you’ll find that the luxury brands don’t have any better residuals than Chevy, Ford or Honda or Toyota. The other part of the lease payments is the interest on the residual amount that the bank fronts for you as a leasee. This makes up your payment for the term of the lease.
Written into most leases, the bank will provide a lease buyout – a statement of the loan payoff and deprecation value of the vehicle up to that point. Those are usually “upside down” – the payoff is more than the value of the vehicle – for about the first year. Depending on the market and the vehicle, after that, it could make sense to look at a lease buyout and rolling to another lease after 13-24 months. How? The depreciation schedule – not every car depreciates the same, and less miles driven will also affect that. Now, most banks have no issue this early change over, but most people think to have to wait to the end of lease. This simply isn’t so.
Let’s take an example – $27,000 toyota camry, after 1 year, with 13k miles, no accidents or blemishes, and the lease buyout is now $21,000. If someone will PAY that $21,000 – that’s a lease buyout and you won’t owe anything. Trade-ins never that that number, so it could make sense to just list it for sale and see what someone will give you. They give you (or the bank does) the money, you pay off the lease and send them the title. That’s assuming the bank or the buyer doesn’t mind waiting. And you go get another car. This is essentially why the mileage doesn’t matter, except in cases where you turn the car over to the bank at the end of lease term – they have a contract where you only would drive, say 12k miles a year when you give it back. However, you can shop your lease payoff before then and use the payoff clause in that contract – the bank just cares about getting the money for the car. Whomever buys it – the bank will send the title, and you sign and give to the buyer. So, about 6 months before the end of your lease, get a lease payoff and see what other vehicles like your are selling for. If they’re in demand, you might actually some money back.