Consider leasing instead of buying

Compare Financing Options
Sellers are not the only source of financing. Your bank or credit union loans money to make purchases. Also use websites such as bankrate.com or interest.com. Be on the lookout for “same as cash” offers on furniture, appliances, and electronics that allow you to delay interest or payment for, perhaps, 90 days to one year.  If the product is paid off during this time period, you will not incur any finance charges. Be wary, however. Interest may be charged retroactively if a payment is late or if the purchase isn’t fully paid off during the required time period

Leasing a new vehicle is an increasingly attractive option to people who are in the market for a car. About 20 percent of the new cars “sold” each year are actually leased. It is even possible to lease used cars. Is leasing a better deal than financing? You cannot answer this question until you understand some basics of leasing. When leasing a vehicle or any other product, you are, in effect, renting the productwhile the ownership title remains with the lease grantor. Regulation M issued bythe Federal Reserve Board governs lease contracts. A requirement of this regulation is a mandatory disclosure of pertinent information about the lease that the consumer is considering. The disclosure form must summarize the offer of the lessor (leasing agency) to the lessee (consumer). The information in this form should be compared with the actual lease contract prior to signing to ensure that the lease signed is actuallywhat was agreed upon verbally.

Leasing Terminology Five terms are important in leasing:

1.  The gross capitalized cost (gross cap cost) includes the price of the vehicle plus what the leasor paid to finance the purchase plus any other items the lessee agree to pay for over the life of the lease, including insurance or a maintenance agreement.
2.  Capitalized cost reductions (cap cost reductions) are monies paid on the lease at its inception, including any down payment, trade-in value, or rebate.
3.  The adjusted capitalized cost (adjusted cap cost) is determined by subtracting the capitalized cost reductions from the gross capitalized cost.
4. The residual value is the projected value of a leased asset at the end of the lease time period.
5. The money factor (or lease rate or lease factor) measures the rent charge portion of your payment. Although the money factor is sometimes described by dealers as a figure for comparing leases, lease forms must carry the following disclosure about the money factor: “This percentage may not measure the overall cost of financing this lease.”

Always negotiate the purchase price before discussing a lease. Leasing requires an initial outlay of cash to pay for the first month’s lease payment and a security deposit. Payments are based on the capitalized cost of the asset minus any capitalized cost reductions and the residual value. This difference represents the cost of using the asset during the lease period; when divided by the number of months in the contract, it serves to establish the base for the monthly lease payment. (Some new vehicles are offered with single-payment leases in which the entire difference between the capitalized cost and residual value is paid up-front.) With monthly payment leases, the payments are lower than monthly loan payments for equivalent time periods because you are paying for only the reduction in the asset’s value—not its entire cost. To compare the costs of leasing versus buying, use the Decision-Making Worksheet, “Comparing Automobile Financing and Leasing.”

Open- and Closed-End Leases
 A lease may be either open end or closed end. In an open-end lease, you must pay any difference between the projected residual value of the vehicle and its actual market value at the end of the lease period. When a vehicle depreciates more rapidly than expected, the holder of an open-end lease has to pay extra money when the lease expires. For example, a vehicle with an $11,000 residual value but a $10,250 market value would require an end-of-lease payment of $750 ($11,000 - $10,250). The Consumer Leasing Act limits this end-of-lease payment to a maximum of three times the average monthly payment. Most vehicle leases are closed-end leases. In a closed-end lease (also called a walkaway lease), the holder pays no charge if the endof- lease market value of the vehicle is lower than the originally projected residual value. However, closed-end leases may carry some type of end-of-lease charge if the vehicle has greater than normal wear or excess mileage. For example, a four-year closed-end lease might require a $0.30 per mile excess mileage charge in excess of 55,000 miles. If you actually drove the vehicle 60,000 miles during the four years, you would be charged an  extra $1500 [$0.30 X 5000 (60,000 - 55,000)].

Additional Leasing Fees
Other charges are possible with a lease. An acquisition fee is either paid in cash or included in the gross capitalization cost. It pays for a credit report, application fee, and other paperwork. A disposition fee is assessed when you turn in the vehicle at the end of the lease and the lessor must prepare it for resale. An early termination charge may also be levied if you decide to end the lease prematurely. Be wary of a lease with an early termination charge, even if you do not plan to end the lease early, because termination also occurs when a leased vehicle is traded in or is totally wrecked or stolen. Make sure you obtain a written disclosure of these charges well before you actually make your decision. The early termination   payoff is the total amount you would need to repay if you end the lease agreement early; it includes both the early termination charge and the unpaid lease balance. In its early years, your lease may be financially upside down, which means that you owe more on the vehicle than it is worth.

Be Cautious About Leasing 

Getting a good deal on any vehicle can be very complicated leasing is even more so. First, be cautious if you talk about buying all through the negotiation process only to be offered a lease at the last minute. Because the monthly charge will be lower, you may be tempted to sign a deal that actually costs considerably more. Second, make sure all oral agreements related to trade-in value, mileage charges, and rebates are included in the lease contract. Third, watch out for additional fees being assessed, especially near the very end of the negotiations or in the final written lease.
One option for people considering a lease is a balloon automobile loan. You can arrange this type of financing through your bank or credit union. With a balloon automobile loan, you actually buy the vehicle with the last monthly payment equal- ing the projected residual value of the vehicle at the end of the loan period. This arrangement effectively lowers all the other earlier monthly payments to make them more competitive with lease payments. When the final balloon payment is due, perhaps $1000 to $7000, the borrower generally has three options:
1. Sell the car and pay the balloon payment with the proceeds (with luck, the vehicle will sell for a high enough amount).
2. Pay the balloon payment and keep the vehicle.
3. Return the vehicle to the lender to cover the balloon payment

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