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HomeMy WebLinkAboutThe Citizen, 1997-10-15, Page 17THE CITIZEN, WEDNESDAY, OCTOBER 15,1997. PAGE 17. Cruising — Fall 1997 Leasing — the right option for you? By Janice Becker Citizen staff Is leasing a new vehicle a viable option or one which will just cost more money? The answer to the leasing option question is not one which can be answered simply as it depends greatly on the owner, the intended use of the vehicle, the reasoning behind the lease and the informa­ tion provided by the dealership. Most mainstream dealerships have gone to "full-disclosure" leas­ es, prior to the proposed legislation, to ensure their customers know exactly what is involved in every aspect of the lease, said Colin Andrews, general manager of Strickland Toyota, Goderich. One of the more common reasons given by numerous dealers for the increased interest in new car leases is the customer's ability to drive a new vehicle with a smaller monthly outlay. "With the prices of cars going up, customers are finding it harder to purchase new models. To amortize the cost over five years (a common bank loan term), there are still big payments," said Andrews. "By breaking the financing into two parts (a lease then loan) payment can be spread over as much as seven years. Keeping the monthly payments low can appeal to a wide variety of customers, he said. "It may be good for retired peo­ ple on a fixed income. They may have the money to afford a $20,000 or $30,000 car, but once it is spent, it will not replace itself as quickly if invested in interest-bearing investments such as GICs." Retired lessees will not have to worry about large maintenance costs as the car will be under war­ ranty throughout the lease, he said. Lease are most often two to four- year terms. Andrews also points out that the difference between the payments for a purchase and a lease can be invested to help cover the cost of the car. The people who may bene­ fit the most are those who can afford the $500 per month pay­ ment, but take the lower payment and invest the saved money in areas which give a greater return than the interest being paid on the lease. "If the saved $200 is being wast­ ed, leasing may not be the right option," he said. Many of his customers are in their mid-40s and can use the saved money to pay down a mortgage or invest in RRSPs, he said. "Thirty per cent of the saving from leasing can come in the first year as rein­ vesting can reduce taxable income." Parents with children leaving for college may also look at leasing a reliable, economy vehicle which will keep extra payments down yet give peace of mind to the parents, suggests Andrews. "With low payments, the student may also be able to buy out the lease at the end of their four years of study." Though a lease may be an option for come people, Andrews said it is not for others. "If one tends to be a short-distance or in-town driver, a good used vehicle would be suffi­ cient." A potential lessee must also be a good caretaker of their car because they could pay for it in the end, said Andrews. "Leasing is not for everyone," said Bob Richmond of J.L. McCutcheon Motors in Brussels. "However, it is a new way of doing business and is a growing market." When talking leases, Andrews said there are several points to cover with the dealer. Customers must look at the buy­ out price and the equity left in the vehicle at the end of the term. "Hondas and Toyotas have good value at the end (residual value of 59 per cent) and it may be applied to a new lease or other vehicle," he said. It was suggested by one dealer that with the high value of four- year-old Hondas and Toyotas, a customer might buy-out the lease and be able to get a larger return by then selling the car. Andrews said approximately 60 per cent of his customers buy out the lease at the end of the term and 49 per cent of his new car cus­ tomers are leasing. The numbers are even higher at Ford dealership Bridge Motors, Wingham, where 90 per cent of new cars leaving the lot are through leases. For Ford, the two-year lease is a popular option. At Bob Evans Chev Olds in Goderich, Scott Fletcher said about 40 per cent of their new car busi­ ness is in leasing. "Much of it is for people who want more car for less money. It is more flexible as the customer only pays for what they are using instead of putting more money out to get it back in a trade-in later." Leasing is also a viable option for businesses, said Fletcher. It is not written off as a liability as when loans are outstanding and depreciation does not have to be calculated. However, before considering a lease, "customers must investigate all avenues," said Andrews. "They must look at interest rates, kilome­ tres allowed and penalties applied if kilometres are exceeded, lease­ end value and what are the require­ ments for the condition of the vehicle upon return if not buying it." Fletcher also suggests getting the full up front price as dealers may calculate the total differently. A cash down price of $2,500 may reach $4,000 with taxes plus first and last month payments included, said Fletcher. Another option could see the $2,500 cover taxes, but not the first and last, or the $2,500 could be a flat rate upon delivery. Customers must also realize it is not cheaper to lease than to buy; it is just spread out over a longer time, he said. Andrews suggests customers read the literature on leasing, check with insurance companies and ask about the down payment. "Read the small print," he said. For Fletcher, one of the most important aspects of leasing a car is to find a dealer who is trustworthy and reputable. "They must know leasing and be professional," he said. "Leasing has been slower to catch on in rural areas," Andrews said, "because there were some very bad ones in the 70s and 80s. However, with full-disclosure leas­ es and car manufacturers helping to control leasing, it is being done much better." Not all dealers have a good opin­ ion of lease. Larry Rice of Brussels Motors, a Chrysler dealership, said "leasing is expensive." "It may be convenient for the customer, but it is good (financial­ ly) for the dealer and manufacturer. It may not economically be worth it." Rice believes leases are dealer driven as it guarantees a customer back at a specific time in the future. He also warns that customers may be stuck at the end of the lease with no deposit, no down payment and no trade-in for a new vehicle. 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