Legendary oil Barron Paul Getty once said “if it appreciates, buy it. If it depreciates, lease it”. Many would say that’s surely just common sense. But if such lessons in money management are so obvious, why then, do so many people nowadays readily buy into shrinking markets?
Take buying a house for instance. If you take out a mortgage in the current economic climate, chances are you’ll start the repayment in the negative – which, in a strange way, means a guy standing outside your house would own more of it than you do! Despite this, it’s common for people to look at renting property disparagingly – as money down the drain. Even though taking out a mortgage is a commitment that could end up losing you money. For an investment of that size not to make a decent return (if any) isn’t common sense!
The truth is that an educated customer, with greater knowledge and information at hand, will always get the best deal – whether it’s looking into property or a new car – and will be better positioned to negotiate beneficial terms of any agreement.
The problem is most people are guided by the conventional knowledge which so often is the result of uninformed hears’say. Car leasing is slightly different from taking out a mortgage to buy a house which usually appreciates in value after purchase whereas when you buy a new car the minute you drive out the dealer it loses value. Taking out a car lease or contract hire agreement to purchase a car you are simply paying a set amount a month for something that is losing, not gaining value.
Some might say what is the point in all this, pay for something that loses value and its not really yours. But there are other benefits that make car leasing more attractive than buying a new one. First, you can have a new car every 2 to 4 years depending on your leasing contract and company.
Monthly payments are on average 33% to 55% cheaper than a normal car loan, not to mention that there is no need for a huge up-front deposit, normally the majority of leasing contracts only ask for a small deposit of 3 monthly payments.
In most cases, the vehicle’s warranty covers the lease period which covers most of the maintenance costs and road taxes are usually included in the lease. But without a doubt what attracts most people to lease car is that fact that you are able to drive away a car that you might not even dream of buying if you had to buy it or ask for a loan to purchase it, if you have any questions you can always can contact great leasing companies like Alexander Stone.
How is the lease price of a car determined?
There are various factors that are taking into account to determine the leasing value of a car. First and foremost the initial purchase price then age, mileage, condition and two other factors that will need a bit more explanation.
The first factor is called depreciation and it refers to the reduction in the car’s value caused by age, mileage and condition. The make and model have great influence on the depreciation value and is worth noting that a vehicle’s depreciation is greatest during the first year.
The second factor that influences in the lease price is called residual value – this term refers to the predicted value of your car when it reaches the end of the lease.