– Hello, I'm Jimmy Becker.
Give me a couple of minutes, and you'll learn why leasing a car does not make financialsense compared to buying one.
A car lease is designed tobefuddle you with complexity and hidden fees that obscurethe full ownership cost.
What is a car lease? It is really a car loanwith the added twist of the end of lease value ofthe car and contingent fees, such as excess mileage and wear and tear, being specified up front.
The monthly cost ofthe lease is determined by the interplay of the purchase price, the terminal value, theapplied interest rate, the term, and any up front down payment.
Sounds complicated? It is.
Do you know what any of these terms mean, capitalized cost, acquisition fee, money factor, disposition fee, residual? If you don't, and you can besure your car dealer does, then you're at a disadvantage in your car leasing negotiation.
I will note that my favoriteterm is the money factor, which is a complicated way of expressing the implied interest rate in your lease.
Yes, you are borrowing money.
To convert the money factorinto your interest rate, you need to multiply it by 2,400.
Does that sound likeBabylonian mathematics to you? It does to me.
When you lease a car, youare almost certainly unaware of the implied borrowing cost,and without knowing this, you can't compare thelease terms to a loan.
Any time you see a transaction with this level of complexity, that's your clue that youare financially outgunned and should proceed atyour financial peril.
Yes, I understand why some people lease.
The monthly payment is lower than a loan with an equivalent term.
But that's a false comparison.
When a car loan is paidoff, you own a car.
When a lease is paid off, you own nothing.
You may even owe additionalfees for excess mileage or wear and tear.
Don't lease your car.
You'll end up paying morethan if you simply negotiated for the car and the car loan.
Questions about your financial planning? Get in touch.