This section exemplifies leasing the same vehicle for different terms and examines the risk for each. All other factors (mileage, cost, no down payment, etc.) are identical.

In this example, the ‘risk’ is limited to monetary loss assuming that we will produce the time and effort resources necessary to perform either plan. The value received is also identical – the use of the vehicle.

In this example we establish a fact that the client definitely wants to get out of the lease in 36 months or less.

Long-Term (60mo.) True Lease:

The lease payment is $295.74 w/tax

Lease payoff at 36 months is $13,145.86.

Lease end value (residual) is $8,550.43 .

Short-Term (36mo.) True Lease:

The lease payment is $364.98 w/tax

Lease payoff at 36 months is $11,087.72.

Lease end value (residual) is $11,087.72.

There is a $69.24 difference in monthly payment, but a difference in 36 month payoff of $2,058.14.

Simple math advantage by long-term leasing = $434.50 ((69.24 * 36) – 2058.14)

Compounding $69.24 at 10%APR in a series of equal deposits = $2,917.08.

Compound math advantage by long-term leasing = $858.94 (2917.08 -2058.14)

The beauty of compounding savings is that you no not necessarily have to make regular deposits in a bank account to gain the benefit. You can simply use the saved money for an appreciating asset, like extra principle payment on your home, or simply spend it on items that you would normally buy with credit.

Cash is the best risk management tool. Another powerful tool is the lease assumption clause built into your contract. Assumptions are easily performed everyday. The benefit to the one that assumes this lease will then be based on a short term lease with an exceptionally low monthly payment. We have numerous clients on a waiting list for lease assumptions.

The benefit to the original long-term lessee is to keep the entire savings created by proper risk management, $2917.08. Since the monthly payment is high on the short-term lease, a lease assumption is most likely unavailable.

Finally, is all else fails and a deficit is established by early termination of a long-term lease, the amount of the deficit will be less than the amount saved and can be rolled into your next long-term lease. One thing for sure if you chose a short-term lease… you will definitely spend the most amount of money for the same transportation