Car Lease Rates
Car lease rates can differ from one leasing company to another, but usually not by much when you’re looking at comparable cars. However, you will find that if you’re comparing leasing to purchasing and you’re given the same cost and interest rate it will always be cheaper to lease the vehicle. With a typical $30,000 five year loan, principal repayment is $500 per month, while with a leased vehicle principal repayment would be about $350 per month, although most leases are three or four years, rather than five. This is because with a loan the consumer pays off all the principal, while with a lease the consumer only repays the portion of the purchase price that represents the vehicle’s decline in value, or depreciation, over the term of the lease.
When it comes to car lease rates, it is important to note that monthly interest charges are always more on a lease than on a loan, but not enough to offset the lower principal repayment. Interest is charged on the declining balance of the lease or loan, in both situations. However, because the balance on a lease declines more slowly than on a loan, the interest payments are higher. Think of the last monthly payment where, on a loan, interest is negligible in the last month, but on a lease, the consumer pays interest on half to two-thirds of the original cost of the vehicle.
It’s also important to look at the depreciation car lease rates of the vehicles you are doing price comparisons on. For example, if you were to consider two different cars, both costing $20,000 when new, where one is worth $15,000 after two years and the other worth only $12,000, the first car will cost less to lease because of its smaller depreciation amount. Different makes and models of vehicles can have dramatically different depreciation rates and it’s important to remember that those vehicles having the lowest depreciation make the best lease deals. European and Japanese makes of vehicles tend to have lower depreciation rates than American brand vehicles. Honda, Toyota, and Volkswagen have consistently held low depreciation ratings, as well as Mercedes, Lexus, and other luxury brands. The wholesale worth of a car at the end of its lease term, after it has depreciated, is called its residual value and the higher the residual value, the more the car is worth at the end of the lease and the lower your lease payments will be. Residuals are only educated guesses based on historical resale-value data for specific automobile makes and models because no one can really predict the future so it is important to research car lease rates.
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