You have heard about bad leases… Many, many drivers have had big problems terminating bad auto leases. You may have heard the horror stories. Like auto finance plans, there are good and bad leases. Do you know the difference?
A bad lease is usually structured by an auto manufacturer and presented by their dealerships to help them sell new cars and retain market share. They twist the government’s intended lease structure for their own use. They do that by raising the residual value above the future value to offer a lower payment, applying ‘The Rule of 78’ (collecting 78% of all interest charges within the first 12 months) so the lessee doesn’t pay on the depreciation until it’s too late, adding unfair early termination clauses, and adding unfair lease-end charges and mileage charge clauses. There is a lot more to it than this… If you need more specific information, contact us.
The unknowing lessee is trapped into the bad lease contract during the term… and beyond! He cannot terminate early in the event of a driving-needs change. He did not realize or did not consider the mileage/termination penalties involved at lease-end. The average charge to terminate one of these bad leases is $2250… Unless you lease another vehicle from the same lessor in which case they let you out of all or part of it. That’s how they retain their customers! What if you don’t want the same make? You are stuck or pay big money. This is why leasing has a bad name… when a true lease is really the best option for you.
In contrast, a TRUE used car lease has a completely fair structure and can be used by consumers to safely and significantly lower their cost of transportation. Leasing a slightly used car is smarter because the first, heaviest year of depreciation is removed from the cost. Also, there is no manufacturer benefit when you buy or lease a used car so there are no market retention games played with how your lease pays out.
A true lease is simply creative financing (regulated by the US government IRS Tax Code 168) that removes/guarantees the future value from your payment stream while offering the same use value of the vehicle. If at lease end you choose to pay the residual value, you may do so and own the car. If you choose not to buy it, the lessor guarantees the amount and you can simply walk away. With our true leases, you can also choose to sell it to another party, or trade it in.
A true lease has a level-yield payout with a true early termination payoff. That means that the same amount is subtracted from the lease balance each month when a payment is made. The same amount is paid to interest every month and if you terminate early, your lease payoff will NOT include interest charges for the remaining term. It is a straight pay-down method designed to cover the depreciation on the car while you have it. We can predict the payoff at any future point. You are NOT stuck in the lease.
Additionally, good leases have an ‘assumption clause’. Since a lease car is titled to the lessor during the term, another qualified driver can take over your payments and obligations during the lease without changing the lease structure. You are released from obligation and free to obtain another vehicle. This valuable financial tool can be used at any time during the original term. It may be necessary if you want to terminate during the first half of your long-term lease or if there is a radical change to the depreciation suffered by your leased car due to market changes or increased mileage.
Most true leases are terminated in 27 months. Smart drivers exercise their options to avoid maintenance costs or just because they want to upgrade their transportation.
A good lease also has a fixed purchase option to buy the vehicle at lease end for an amount equal to the residual value (the part you did not pay during the lease). At today’s car prices and maintenance costs, ownership seldom has value except in extreme situations. All true leases have a fixed purchase option for the lease-end-value (residual value). A fixed purchase option is only important to retrieve any equity that was established during the lease. You are going to want us to extract that money for you if the buy-out amount is LOWER than the appraised value of the car at lease-end.
You can look at a good lease, a true lease, like it is a conventional finance agreement with an optional down payment at the end of the contract. A flexible, safe auto financial tool where you pay for what you get, while you get it.