A SIMPLE PROBLEM The increased acquisition cost of new vehicles makes it necessary to come up with innovative ideas to make the cost of operating a car, van, or truck more affordable. In the past, if the monthly payments did not fit your budget, then a larger than normal down payment was necessary. Today, it is always necessary to apply the entire trade-in of your old vehicle against the new loan to make the payments lower. A new twist is to stretch out the payments to 60 months or more, or borrow against your house on a long-term payout. Leasing, in its simplest form, subtracts a future value (residual) of the vehicle from the math equation since the vehicle user pays only the remaining balance. AN UNKNOWN FUTURE In 1969 a new car cost $3,000. Today, that cost is almost $25,000. Prices today are actually leveling out, which is good news for new car purchasers, but bad news for used car disposers. In reality, everyone who purchases a new car must some day dispose of that car. One cannot know what the true cost of operating a purchased car is until that car is finally sold. THE LEASE ALTERNATIVE The answer is a closed end (walkaway) lease. This type of lease, which is predominant today, has the leasing company assume the risk for the used car value. If the lessee (you), really has a burning desire to keep the car for longer use, you can purchase the car from the lessor. With leasing, resale headaches are eliminated. LEASING IS NOT FOR EVERYONE! The average car is driven 15,000 miles per year. Most standard lease quotes are based on this number. If you drive 12,000 to 20,000 miles per year, then you are a candidate for leasing. If you drive fewer miles, and you don't mind driving the same car for five plus years, then buying a new or used car is the answer. If you drive more than 25,000 miles per year, then no one wants your problem. High mileage drivers should buy a low mileage used car and drive it into the ground. One of the drawbacks of leasing is a mileage limitation. Actually, the limitation is there if you lease or own. Don't kid yourself. If you think a high mileage used car is worth the same as an average mileage car, you're wrong. If you enter into a lease contract that limits the mileage to 15,000 miles per year, and you put on 20,000 miles, then you'll be expected to pay a mileage charge to the leasing company at the end, because the expected selling price of the car will be lower. The mileage charge lowers the end value of the used car to bring it into line with the expected used car value. HOW LONG SHOULD I RUN A CAR ? To get a return on the used car value and avoid the extra costs of added repairs, you should trade a car before reaching 60,000 miles. This is because maintenance and depreciation curves intersect at 60,000 miles. If you drive very little, then you should buy a nice used car. Purchasing a used car lets you buy it at its true value. Buying a new car costs rapid depreciation at first, then levels off in the third and fourth years. HOW LONG SHOULD I FINANCE A CAR ? The average car is traded every 33 months. People get tired of driving the same car for extended periods. You should finance a car for 36 to 48 months maximum. If you trade the car at 33 months, you'll want to have your loan meet the used car value. If you finance for 60 months, the chances are almost 100% that the car is worth less than the loan balance. This is called "Being Upside Down." One of the biggest problems facing new car dealers today is the customer being Upside Down. Financing your car with an equity loan on your house is one of the ways to have the interest tax deductible. But, beware that you will trade the car and still have the balance on the equity loan. That is a losing proposition. WHAT ARE THE GOOD POINTS OF LEASING ? Knowing that you can predict your true costs over a set period of time, simplified budgeting, no down payment, no upfront sales tax, simplified record keeping, no resale headaches, being able to drive more car for less money, not tying up your credit line, and the ability to call your leasing company when you have a problem, are the greatest reasons to lease a car. Leasing allows you to drive the car of your dreams for less money.