And here's the post
Basically with a lease you're paying for the portion of the car you will use, so its the depreciated value of the vehicle consumed within a specified period of time, added onto the interest for the finance company spread out and financed for an equal amount of time.
So basically lets say theoretically you lease a $35,000 car for 3 years, and the residual value is $20,000 (generous but easy to work with). So basically you'll be paying, on installment the $15,000 worth of the vehicle you consumed over a period of 36 months coupled with the interest acrued during that period. If all is done at the end of the lease, theres no overage on mileage and no excess wear and tear you just walk away from the car, or you can buy it for a price negotiated from the residual value.
Couple terms (in the states) that you MUST know when you lease:
1. Capitalized Cost. The "cap cost" is a fancy way to say "agreed upon price less any downpayment or trade". So lets say you are buying that $35,000 car but you get a good deal and get it for $32,000. Well, thats icing for you. The MSRP price is still used to compute the residual (which is standardized), and your agreed upon discount simply lowers the amount you owe over the term. Discounts are MORE important to the final payment on a lease than they are on a finance so negotiate the car hard. For every $1000 you get off, thats $25 or so a month.
2. Cap Cost Reduction. This is a fancy way of saying "downpayment", this can come from trade in or just cash. Generally since you're renting you dont want to put a lot down, you also have the issue that if you total the vehicle you risk losing any downpayment since YOU dont get paid by the insurance company unlike a purchase. With a purchase you want to put everything down you can, not so with a lease, put as little down as you can afford. I usually put $0 down.
So the "Capitalized Cost" is the "agreed upon price" less the "capitalized cost reduction" and will be the amount you owe before interest.
3. Money factor. This is a fancy way of saying "interest rate". This is going to be some very unfriendly number, like .0024. To figure out what you're really paying in interest, multiply this number by 2400 (its always 2400) and you'll get a standard percentage rate. As you can see .0024 is 5.76% a good rate on a lease
4. Gap insurance. This is a must, and most leases have it built in. This protects you in the event that the insurance company refuses to pay the leasing company the payoff in the event the car is declared a total loss. The gap insurance pays the "gap".
5. Security deposit. This can be $600 or so, or it can be waived depending on your credit. You will get this back after the lease, just as if you were leasing an apartment.
Dealers love leasing, because its about 200 times easier to screw the customer than with a finance. Basically today a finance is something everyone is familiar with today, but leasing is made intentionally complex (you can see how they give everything a complex name) to dupe the customer. Remember how I said every $1000 is worth $25 a month? That works the same way. Every time they can hide $25 a month worth of profit into the lease they make an extra $1000. Now, leasing is great, when you know what you're doing. Here in the US we have federal lease disclosure laws that make it hard for dealers to hid profit, don't know how that works in Australia.
For years I leased my own car because I could write off most of the payment as a business expense. Nowadays my company leases my car for me (the Lexus) and pays all gas, maintenance, repairs, insurance etc. Is this what you're looking to do for an employee of yours? If you were in the states it could be a good tax shelter for you, you could write off the entire lease and force your employee to declare it as his own income and pay tax on it.
I love leasing, its perfect for me. Every 3 years I get a new car, I never have a car out of warranty, I save a few hundred $$ a month (the more expensive the car and the better the resale the more money you'll save by leasing, for instance it makes no sense to lease something like a Jeep or an Explorer because it doesnt save you any money (actually can cost you more) because the resale is so low. On a BMW or a Lexus though, it can save you $2-300 a month. Also keep mileage in consideration. Used to be 15k a year was standard, now its 12 or 10 and you have to chip in for the difference. I usually lease for almost 30k a year and I STILL save money. You can buy miles up front or at the end, no difference. Most leasing cos will refund you for any un-used miles. Good thing about buying upfront is you can roll them into the lease. In some states in the US you even have sales tax savings because they allow you to pay a "monthly use tax" or sales tax on every payment as opposed to the entire purchase price. Unfortunately MD is unfair and we have to pay sales tax on the purchase price of the car, even portions we'll never use.
Hope this has helped, and feel free to post more questions. Like I said I've been doing this for over 20 years (it has gotten much safer and easier over those 20 years trust me)
A site for you to look at is
www.leasecompare.com
