January 21, 2019 Bell Ringer Do you know anyone who leases their vehicle? - If so, what is their strategy? - If not, what do you imagine this is?
Leasing A (New) Vehicle • Instead of buying a car, you may decide to lease one. You sign a contract to least the car for a period of time. • Leasing a car is different from buying. The monthly payments are usually lower than those of car loans (good credit). You do not need to make a down payment (but you can to lower your lease payments). You pay no interest while leasing a vehicle. • When the lease is over, you do not own the car. You have 2 choices. You may return the car to the car dealer or you may buy it.
Returning Your Lease • When you decide to return your lease, you will likely need to get a different car. Maybe you will decide to lease another one? • Leases are contingent upon mileage. When you sign a lease you agree to only drive the car a set number of miles. If you drive too many miles, you will depreciate your car beyond what the car dealership is prepared to re-sell. Therefore, you will have to pay a fee (such as $0.10 per mile that you are over). If it is close, this is not a big deal. If you are way over, returning your lease will cost you a lot of money
Purchasing Your Lease • If you choose to buy your car, you will have to pay the residual value of the car. The residual value is the retail price of the car minus the amount of anticipated depreciation. • Practice: At the end of the lease, the value of the car has depreciated by 40%. The retail price is $12,000. How much is the residual value (your purchase price)?
Same Car Now Returned • Practice: At the end of the lease, the value of the car has depreciated by 40%. The retail price is $12,000. You agreed to drive only 36,000 miles in the two years of your lease. You actually drove 37,950. The fee is $0.15 per each extra mile. How much do you owe for the return?
Strategies for Leasing • If you do not do a lot of traveling, leasing may be a good option for you (no need to worry about extra mileage). • If you have good credit, you may be eligible for a lease and you can save money on your interest payments. • If you plan to save to own your car, you can lease it for a set amount of time (while saving for your purchase). Then purchase the car at the residual value. You have avoided interest charges.
Assignment • Leasing A Vehicle & Problem Solving (Jan 21) Microsoft Word Document