St. Augustine Woman's Journal - Educational Resource to the Women of St. Johns County Since 2009

By Joe DiFeo
GM-partner Volkswagen of St. Augustine 

Take a Surefire Bet and Lease Your Next Vehicle!

 

August 1, 2017 | View PDF

2018 VW Tiguan

What was that? Another car dealer gimmick? I keep my car longer than three years and besides, I like to own my automobile.

It's still the best bet you can make right now. Let me explain why. You see, auto manufacturers are competing fiercely for your business and although better style, safety, and technology help them win customers they know in the end it comes down to affordability - affordability of the monthly payment for most of us.

That's why they put a lot of incentives in their leasing programs, as an aggressive lease always gets you a lower monthly payment than financing.

Why is that? Let's look at how a lease works to get to the bottom of it.

We'll start with the price. In a lease, it's called the capitalized cost. Regardless of what you call it, many times the manufacturer will add more rebate or other incentive money to the lease to make the payment lower.

Next is the residual value - what the manufacturer guesses the car will be worth at the end of the lease. It's a guess because the value depends on many variables occurring at the time the lease ends – gas prices, consumer tastes, etc. The manufacturer can't help guessing high because the higher the residual value the lower the monthly payment of the lease. Lower payments = more cars sold.

The last variable that affects the payment is the rent charge. It is like interest on a loan and would be the bank's/leasing company's source of profit on the lease, but in this case the manufacturer is subsidizing them to sell more cars and therefore the rent charge is usually very low.

Those variables combine to make the lease a winning deal for you, but in the event you want to keep your car longer than the usual three-year lease term the lease still may be your best option. Here's why:

The most important factor in the deal is the selling price/capitalized cost of the car. If the lease is incentivized more you are most likely able to get a lower starting cost leasing a car than purchasing or financing it. If you finance you pay back that starting figure plus interest over the course of the loan. If you lease you pay the starting figure minus the residual plus rental fee over the course of the lease and pay (or finance) the residual value at the end if you want to keep it – or...

You can walk away at the end of the lease, returning the car knowing that the manufacturer guessed high at the end value which gave you a lower cost of usage of the lease!

Like Rome, no great things last forever. Periods of highly incenticized leasing like the one we are in now usually come to an end when the manufacturers must sell large amounts of returned leases at huge losses due their overly optimistic guesses at residual values.

If you are shopping for a new car, remember to look at a lease. You might be able to get a lower price, and you'll be able to return it a few years later without the fear of being "upside-down." Sounds like a surefire bet to me!

Joe DiFeo operates VW of St. Augustine, the newest New Car dealership in St. Augustine and one of eighteen DiFeo family dealerships on the East Coast. Joe has just completed work on his soon to be published book – The Insider's Guide to How and Where to Buy a Car, Strike a Deal at the Dealership. He and his wife Sway have lived in St. Augustine for seven years and are thrilled to be a part of the St. Augustine community along with their young twins Charlie and Sophia.

 
 

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