Thursday,March 22,2007 Welcome to our first LEASE LINE

Welcome to our first installment of LEASE LINE. In our last feature we discussed the benefits of buying a Ford 500. Now that same car would not make it into Lease Line. You see one vehicle that is good to buy may not necessarily make a good lease choice. The golden rule of leases is to put yourself into the dealers and the banks shoe's. By seeing the situation from the person's point of view behind the desk you will greater benefit from the car buying experience. Now the first bit of advise that is always given when the subject of a lease is brought up is to make no mention of the lease, make your best deal, then discuss the lease terms. Now on paper this is correct, but there are factors that do not make this your best starting point. First of all a lease is all about the monthly payment. Now I know the overall price will effect the monthly payment but the bottom line is that payment, the selling price is ultimately unimportant as long as the monthly payment is what you desire. What you must keep in mind is that the dealer wants to sell their car as close to the sticker as possible. If you start your negotiating at the payment level you will have a better chance of achieving you desired payment, and being excepted on your credit application. If you play ball with the dealer, by allowing them to make a sale as close to sticker as possible they will also make the process more advantageous to you. Now if your doing a traditional five year buy all of this is inconsequential, the smallest amount of money off the price can lower your payments, not so with a lease. So you have put yourself in the dealers position but how about the bank. Now many banks are used to doing business with dealers. From the bankers point of view what kind of vehicle would you want to repossess if the applicant fails to pay? Well it is a no-brainer, the vehicle that has the best resale value. The residual as it is called takes into account several factors but mainly the resale value of the vehicle. A vehicle that is unpopular, with poor resale may make a good candidate to buy with cash but it is the death kiss to a leaser. The whole object in leasing a vehicle is to pick a vehicle favorable to the banks. Now once you have found such a vehicle you must further refine the list to those with a beneficial price to payment ratio. Now this ratio is simply the price of the vehicle divided by the payment. Now I know you have never heard of this because this is my own invention. By dividing the two values you get an idea of the overall value of the product on a monthly basis. For example if you can lease a Cadillac for $500 a month with no money down or a Mercury Montego for the same which is the better deal? Well it doesn't take much to realize that the price to payment ratio is favored in the direction of the Caddy. You are getting a more costly vehicle for your monthly payment, finally you have dissected of a lease. But it isn't over yet, many leases are what I call "the teaser lease". A teaser lease shows a low monthly payment on the surface only to prove, after reviewing the money down, or "cap cost reduction" , that it really is not that good a value. For example a Pontiac G6 at $159 a month for 24 months sounds great compared to a Toyota Camry at $260 a month for 39 months. But a review of the money down, $3995, for the G6, $1995, for the Camry shows us that if both required no-money down the G6 would become $327 a month and the Camry would become $312 a month. Now I know you may wonder how the heck that happened, what kind of witch-craft is going on here! Well it isn't voodoo, however most dealers would like like you to think it is! To achieve those revised numbers all you have to do is to divide one thousand by the number of payments- 1000/24 for example. This gives you the amount that will need to be added to the monthly payment to achieve a zero down lease. You will soon notice that the shorter the lease the higher this number will be. After getting this number you will multiply it by the down payment, 42x4=$168. By reconfiguring any lease in this manor you can compare leases on an apples to apples basis. Now in the case of the G6 that attractive number turned out to not be a favorable deal at all. Be watchful, many vehicles with a poor residual try to come up with leases like this to make the monthly payment look more competitive. Now that you can compare leases on a level playing field now it will be up to you to decide what money you would like to put down, and the adjusted payment that correlates,. (just make sure that when you do this you change the other lease figures of the vehicles your interested in to maintain the apples to apples standing). Now you have the basics of leasing under your belt. We will flesh-out this basic primer with subsequent articles that help you understand the finer points such as deciphering the mileage question and the benefits of shorter leases over longer leases and visa -versa. Now my patient students go forth and let those dealers know that they are dealing with an informed consumer, an Automotive Declassified consumer!