Single-Payment Lease

A prepaid lease is a new type of lease which has made its foray into the

market in recent times. In this lease, consumers forego the cycle of lease

payments if they make a large payment at the beginning of the lease.

There are two amounts in a conventional lease that incur charges and

determine your monthly lease payments. First, there is a depreciation

charge which accounts for the value the car loses during the lease term.

Second is a residual amount which is the projected value of the vehicle at

the end of the lease. The sum of these two charges gives the monthly

payments on your lease.The idea behind a pre-paid lease is to eliminate the

finance charges for depreciation and only account for residual value

charges in a single, pre-paid payment at the beginning of the lease.

Single-payment leases are devised with spendthrifts in mind: no cycle of

monthly payments, a new car every two to three years and no interest in

purchasing the vehicle at the end of the lease. You should only consider

this type of lease if you are concerned about not being able to make monthly

payments and have a lot of cash upfront.

Buy or Lease?

It’s the classic dilemma that faces every auto-consumer out there: Pay

cash upfront or forego the ownership and pay monthly settlements instead?

Buy or lease for a new set of wheels?

As is the case with every other common dilemma, there is no slam-dunk

answer. Each option has its own benefits and drawbacks, and it all depends

on a set of financial and personal considerations.

First, your finances. Affordability is clearly key, and you need to ask the

question of how stable is your job and how healthy is your general

financial situation. The short-term monthly-cost of leasing is

significantly lower than the monthly payments when buying: you only pay for

“the portion” of the vehicle’s cost that you use up during the time you

drive it.

If you have a lot of cash upfront, then you can opt to pay the down

payment, sales taxes - in cash or rolled into a loan - and the interest

rate determined by your loan company. Buying effectively gives you

ownership of the car and that feeling of “free driving” that goes on

providing transportation.

If, say, you want to get into luxury models but can’t afford the upfront

cash of purchasing the vehicle than you’re a good candidate for leasing.

Unlike buying, it gives you the option of not having to fork out the down

payment upfront, leaving you to pay a lower money factor that is generally

similar to the interest rate on a financing loan. However, these benefits

have a price: terminating a lease early or defaulting on your monthly lease

payments will result in stiff financial penalties and can ruin your credit.

You need to make sure you carve out the monthly lease payment in your

budget for the foreseeable future, at least for the duration of the lease.

Besides the financial aspect, making a buy or lease decision depends on

your own particular lifestyle choices and preferences. Think about what the

car means to you: are you the sort of person to bond with the car or would

you rather have the excitement of something new? If you want to drive a

car for more than fives years, negotiate carefully and buy the car you

like. If, on the other hand, you don’t like the idea of ownership and

prefer to drive a new car every two to three years then you should lease.

Next, factor your transportation needs: How many miles do you drive a year?

How properly do you maintain your cars? If you answer is: “I drive 40,000

miles a year and I don’t really care much about my cars as I don’t mind

dealing with repair bills”, then you’re probably better off buying. Leasing

is based on the assumption of limited-mileage, usually no more than 12,000

to 15,000 miles a year, and wear-and-tear considerations. Unless you can

keep within the prescribed mileage limits and keep the car in a good

condition at the end of your lease, you might incur hefty end-of-lease

Single-Payment Lease

A prepaid lease is a new type of lease which has made its foray into the

market in recent times. In this lease, consumers forego the cycle of lease

payments if they make a large payment at the beginning of the lease.

There are two amounts in a conventional lease that incur charges and

determine your monthly lease payments. First, there is a depreciation

charge which accounts for the value the car loses during the lease term.

Second is a residual amount which is the projected value of the vehicle at

the end of the lease. The sum of these two charges gives the monthly

payments on your lease.The idea behind a pre-paid lease is to eliminate the

finance charges for depreciation and only account for residual value

charges in a single, pre-paid payment at the beginning of the lease.

Single-payment leases are devised with spendthrifts in mind: no cycle of

monthly payments, a new car every two to three years and no interest in

purchasing the vehicle at the end of the lease. You should only consider

this type of lease if you are concerned about not being able to make monthly

payments and have a lot of cash upfront.

Lease Trading

Ever wanted to terminate your lease early, comfortable with the thought you

weren’t going to be hit with hefty fees? You can if you transfer your lease

to someone else.

Trading a lease is the best option for people who want to terminate a lease

early and don’t want to pay the large termination imposed by most lease

agents. It can also be an alternative to get out of a lease for far less

than you would otherwise pay your original lease company for extra mileage

and wear-and-tear charges that can run into the thousands of dollars.

For a small fee, you can advertise your car lease for assumption to a large

number of potential buyers on the look-out for leases on the Internet. Such

services include LeaseTrader.com, the originator of online lease-trading

and the biggest online marketplace where most lease transfers take place,

and smaller marketplaces such as BreakAlead.com and TradeAlease.com

Before swapping your lease, make sure your leasing company approves lease

transfer transactions. Caution must be exercised in choosing a lease

swapping service: make sure they facilitate the whole lease transfer

process, offer online or telephone customer-service help and registered

buyers undergo stringent credit checks.

Lease Financing

For auto-consumers, crunching the numbers is one of the most difficult and

confusing aspects of leasing.

Take the finance charge on a lease for instance. Most people just don’t

understand how this is calculated on capitalised cost AND residual value

instead of just the capitalised cost. For most, it seems plainly obvious,

just as is the case when purchasing, that a charge should be levied on the

capitalised cost of the vehicle.

Well, no quite! When you lease a car, you’re only using the car over a

specified period of time with the option of buying the car. The residual

value represents the “loan balance” at the end of the lease. If you add it

to the capitalized cost and divide by two, you’ll get the average

capitalized cost outstanding over the lease term. Let us suppose you’re

leasing a car with a capitalized cost of $25,000 and a residual value of

$15,000. You average balance over the lease term, irrespective of how long

it is, is $20,000 – the sum of the two divided by two -.

Using this sum works because the money factor is the annual interest rate

devided by 24, rather than 12. Continuing with our example and assuming an

interest rate of 6% APR:

$30,000 X (6 per cent / 24) = $75

(Capitalized cost + residual value) X (interest rate / 24) = Monthly

finance charge

This finance charge is added to the depreciation charge to calculate the

monthly payments on your lease.

Lease Financing

For auto-consumers, crunching the numbers is one of the most difficult and

confusing aspects of leasing.

Take the finance charge on a lease for instance. Most people just don’t

understand how this is calculated on capitalised cost AND residual value

instead of just the capitalised cost. For most, it seems plainly obvious,

just as is the case when purchasing, that a charge should be levied on the

capitalised cost of the vehicle.

Well, no quite! When you lease a car, you’re only using the car over a

specified period of time with the option of buying the car. The residual

value represents the “loan balance” at the end of the lease. If you add it

to the capitalized cost and divide by two, you’ll get the average

capitalized cost outstanding over the lease term. Let us suppose you’re

leasing a car with a capitalized cost of $25,000 and a residual value of

$15,000. You average balance over the lease term, irrespective of how long

it is, is $20,000 – the sum of the two divided by two -.

Using this sum works because the money factor is the annual interest rate

devided by 24, rather than 12. Continuing with our example and assuming an

interest rate of 6% APR:

$30,000 X (6 per cent / 24) = $75

(Capitalized cost + residual value) X (interest rate / 24) = Monthly

finance charge

This finance charge is added to the depreciation charge to calculate the

monthly payments on your lease.