Sean O'Sullivan
Irish Central Community News is pleased to continue with our bi-weekly financial column, courtesy of Sean O’Sullivan of Arlington Financial.
Leasing Explained:
You negotiate the best deal and agree to the purchase. The best deal is usually the auto dealers purchase price from the factory known as tissue in the automobile industry. Most dealers today will show you their tissue and sell you the vehicle for it. How do they make their money if they do that? The auto manufacture that sold them the vehicle has what is known as a dealer hold back. This is usually 3% of the auto dealers vehicle cost. When they sell the vehicle this is released back to the dealer. Most auto dealers are happy to work for the dealer hold back.
Is not as straight forward as finance. Firstly the vehicle is not owned by you and as a result the title is kept by the leasing company and the registration by you. You can negotiate a purchase price on a lease the same way you do with a financed vehicle. Also the payments are tax deductible if you are a business owner or you’re self-employed.
How do I know if I’m getting a good deal or not? I don’t see a purchase price on the application. Instead I see what seems to be a whole new language with terms such as;
· Capitalized Cost:
This is the price that you have negotiated to purchase the vehicle for.
· Capitalized Cost Reduction:
If you decide to trade in an existing vehicle or put money down.
· Adjusted Capitalized Cost:
Is the net of the purchase less the trade or money down.
· Acquisition Fee:
Is a charge similar to an application fee, not all companies charge this.
· Depreciation:
Is what the leasing companies charge for the vehicles decline in value over the lease term. This is the main factor in arriving at your monthly payment.
· Residual:
What the vehicle is worth at the end of the lease term. This is arrived at by taking the capitalized cost, less the depreciation which equals the residual. Most leasing companies will sell you the vehicle at the end of the lease for this number.
· Excess Millage:
Most leasing companies offer 10, 12 or 15 thousand miles. If you go over the agreed mileage you will be charged .20c per mile thereafter. Make sure that the allocated mileage is sufficient for you needs. It usually equates to about .08c per mile having it included the payment verses being charged at the end of the lease. It can be very easy to have done an extra 30,000 miles over a four year lease. At .20c per mile you will owe the leasing company an extra $6,000, ouch.
· Gap Insurance:
In the event of an accident your insurance carrier pays out the value of the vehicle. However you may owe the leasing company at that time the value of the vehicle along with unpaid lease payments. This difference is referred to as Guaranteed Asset Protection or GAP Insurance. Check with your insurance carrier and/or your leasing company that you’re covered.
· Term:
The numbers of months that you have decided to lease the vehicle.
· Leasee:
The person leasing the vehicle.
· Lessor:
The company leasing the vehicle to you.
· Security Deposit:
In case there is additional damage over and above the age of the vehicle when you return it. Again not all companies charge this.
· Money Factor:
This is the interest rate that’s being charged on a lease and is referred to as the money factor. It’s actually very easy when you know the factor of 2400 and how it’s applied. For example if the dealer promised you a leasing rate of 5.00% and you see a money factor of 0.0021, then just take 0.0021 x 2400 = 5.00%. However if you see a money factor of 0.0025 x 2400 = 6.00%, then you know that the rate promised is not the rate you’re getting.
· Summary:
As long as you remain within the allocated mileage and keep the vehicle in its age related condition, you will get more vehicle for your money than if you financed it. A $30,000 vehicle with no money down at 5.000% over 36 months is $899.00 monthly if financed, whereas you can lease it for $415.00 a month.
For any additional information, or questions regarding other subject matter, contact Sean O’Sullivan at Arlington Financial. Phone: 914-793-1122, email: [email protected]