Comparing Auto Financing, Leases and Leasebacks

Comparing Auto Financing, Leases and Leasebacks

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The choice between auto loans or leases is often a tough call. On one hand, buying and financing with a loan carries higher monthly costs, but you own something in the end. On the other, a lease or leaseback has lower monthly payments, but you get into a cycle where you never stop paying for a vehicle unless you buy it at the end of the term. Today, more people are over a conventional lease or car loan than ever before. Traditionally, vehicle leasebacks were only available to businesses and larger enterprise customers, however today they are available to everyday consumers and the leaseback boom isn’t stopping anytime soon.

The Changing Landscape

Several converging trends have shifted the leasing environment for the average customer. Generally, a large proportion of high-end cars have been leased. But over the past decade that has shifted to the mass vehicle market as well. More compact cars, sedans, trucks, and SUV’s are entering the car lease and leaseback market than ever before. Attractive finance rates have made some leases and leasebacks a better deal than an auto loan.

Automakers benefit by leasing a big portion of a car’s production. Leases help keep used-car supplies steady, which in turn raises resale values. A high resale value indicates a vehicle is slower to depreciate, which translates into cheaper leases for that model. That benefits consumers.

Furthermore, when customers return their car at lease-end, it gets those customers into the dealership in person. This is where the dealer has the chance to sell them a new car, which an “off-lease” customer urgently needs. Leaseback’s can be done at this point as well, giving a consumer the flexibility to stay in an existing vehicle for a bit longer; giving them the time to make a more informed decision without added pressure. (Click Here to See How Much Your Car Is Worth)

Industry experts see a growing number of leases with terms shorter than 36 months, which has its pros and cons. It looks good to someone who does not want to be locked into a long-term contract, but a car’s first two years commonly make up the steepest part of the depreciation curve, making for a more expensive lease term. This monthly cost can usually be brought down at the end of the term with a leaseback.

Paradoxically, it’s becoming common in the car-loan market for people to stretch out the loan for seven or eight years, simply to keep the monthly payment under control. Some of those people may be better off leasing because the depreciated value of the owned vehicle at the end of the term may not be worth the long term commitment. (Click Here to Get an Instant Leaseback Offer)

All of this makes it clear why the Leaseback is growing in popularity at an accelerating rate. With a leaseback you are provided with an offer to purchase your existing vehicle, often at or above Kelly Blue Book Value (KBB). Or if you are still in a lease, companies like industry leader Heavy Equipment Leasing, can replace your existing lease with improved terms. You are given an offer to lease-it-back for a short term, after which point you get to decide if you’d like to continue month-to-month, return it with no further payments or purchase it back at a depreciated price.

How Loans, Leases and Leaseback’s Differ

Below are some of the major differences between the major auto finance choices.

 

Owning/ Loan

Leasing

Leaseback

Title

You own the vehicle and get to keep it as long as you want it.

You don’t own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it.

You don’t own the vehicle. You get to use it and have the option to buy it or lease it on a month to month basis at the end of the term.

Up-Front Costs

They include the cash price or a down payment, taxes, registration, and other fees.

They can include the first month’s payment, a refundable security deposit, an acquisition fee, a down payment, taxes, registration, and other fees.

You receive anywhere from $5,000 to over $50,000 for your current vehicle. Transfer fees are typically between $50-$100.

Monthly Payments

Loan payments are generally higher than lease payments because you’re paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.

Lease payments are almost always lower than loan payments because you’re paying only for the vehicle’s depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees.

Leaseback payments are almost always lower than both loan or lease payments because the vehicle has already been depreciated before the term has started.

Early Termination

You can sell or trade in your vehicle at any time. If necessary, money from the sale can be used to pay off any loan balance.

If you end the lease early, charges can be as costly as sticking with the contract. On occasion a dealer may buy the car from the leasing company as a trade-in, letting you off the hook.

If you end the lease early, charges can be as costly as sticking with the contract. You can usually opt to repurchase the vehicle at any time for the remaining lease amount plus residual value.

Vehicle Return

You’ll have to deal with selling or trading in your car when you decide you want a different one.

You have to return the vehicle at lease-end, pay any end-of-lease costs, and walk away or purchase the vehicle.

You return the vehicle at lease-end, pay any end-of-lease costs, and walk away, continue leasing on a month to month basis or can purchase the vehicle.

Future Value

The vehicle will depreciate, but its cash value is yours to use as you like.

The vehicles future value doesn’t affect you financially. On the negative side but you don’t have any equity in the vehicle.

Same as a typical lease but the end of term residual value is usually much lower than traditional leases.

Mileage

You’re free to drive as many miles as you want. But keep in mind that higher mileage lowers the vehicle’s trade-in or resale value.

Most leases limit the number of miles you may drive, often 12,000 to 15,000 per year. (You can negotiate a higher mileage limit.) You’ll have to pay charges for exceeding your limits.

Most leasebacks limit the number of miles you may drive, often 15,000 to 25,000 per year. You’ll have to pay charges for exceeding your limits.

Excessive Wear and Tear

You don’t have to worry about wear and tear, but it could lower the vehicle’s trade-in or resale value.

Most leases hold you responsible. You’ll have to pay extra charges for exceeding what is considered normal wear and tear.

Most leasebacks hold you responsible. You’ll have to pay extra charges for exceeding what is considered normal wear and tear.

End of Term

At the end of the loan term, you have no further payments and you have built equity to help pay for your next vehicle.

At the end of the lease (usually two to three years), you can finance the purchase of the car, or lease or buy another.

At the end of the lease (usually two to three years), you can finance the purchase of the car, or lease or buy another or keep the leaseback on a month to month basis.

Customizing

The vehicle is yours to modify or customize as you like, although doing so may void your warranty.

Because you must return the vehicle in salable condition, any modifications or custom parts you add have to be removed. If there is any residual damage, you’ll have to pay to have it fixed or you’ll need to file an insurance claim and pay a deductible.

Because you must return the vehicle in salable condition, any modifications or custom parts you add have to be removed. If there is any residual damage, you’ll have to pay to have it fixed or you’ll need to file an insurance claim and pay a deductible.

This example below compares the costs of financing a car with a six-year loan vs. two back-to-back three-year leases, based on leasing an identical car twice vs. a 3 year leaseback with 3 years month to month thereafter. Each example assumes you currently own or are near the end of the lease term for a 6 year old car. The $2,000 cash due at signing is paid at the start of each three-year lease. This hypothetical example is based on a $29,429 2020 Honda Accord Sport FWD with automatic transmission. The figures are rounded to whole numbers.

 

6-Year Loan

2 separate 3-Year Leases

3 Year Leaseback with 3 years month to month 

Monthly Payment

$416

$287

$250

Down Payment

$2,000

-0-

-0-

Cash Due at Signing

-0-

$2,000

-0-

Payment to Customer

-0-

-0-

$12,500

Interest Rate

2.9%

0.024% (Money Factor .00001)

0.024% (Money Factor .00001)

Total Paid After 3 Years

$16,976

$12,332

$9,000

Residual Buyout After 3 Years

-0-

$16,994

$6,597

Total Paid After 6 Years

$31,952

$24,664 (two leases back to back, including two payments of $2,000 at signing)

$18,000

Should You Buy, Finance, Lease or Leaseback a New Car?

There are pros and cons to every option but having more information and more options is always a good decision. Visit www.heavyequipmentleasing.com/auto to get an instant offer on a leaseback from the leading company in the industry. (CLICK HERE NOW FOR THE BEST OFFER)

Contact us at info@lowerrate.ca or call 1-866-800-1360