Luxury-class transportation Featured

6:01am EDT October 29, 2006
Leasing a luxury vehicle puts you behind the wheel of a hot, top-drawer car right away. Before leasing, however, a customer needs to know about what is involved in getting into the driver’s seat.

“Leasing is not for everyone,” says Carlos Dague, new care sales manager at Ganley BMW in Middleburg Heights. “Drivers who do not properly maintain their cars technically and/or cosmetically can experience excess-wear-and-tear charges. Leasing is a commitment, and the driver must stay in the car for as close to end of lease as possible to avoid penalties.”

Smart Business asked Dague about the pros and cons of leasing versus buying luxury cars.

How important is total net cost?
Many consumers evaluate a lease by taking the total of the lease payments adding the lease end value (residual value) to the total. Since most drivers do not buy out their leases, the effect of the higher residual values that most manufacturers use in their leases is negated. The value of the lease is really how much vehicle you get for the payment, and whether it fits your needs.

What maintenance fees must lessees pay?
Maintenance (servicing the vehicle) is the same for both buyers and lessees. If the leased vehicle is not serviced according to the manufacturer’s recommendations, the lessee can be responsible for excess wear and tear.

How about the upfront costs?
The upfront costs of leasing are usually the first monthly payment; refundable security deposit; and license, title and registration fees. Upfront purchase costs (down payment) usually are 10 percent to 20 percent of the total price including tax and title fees.

How do monthly payments compare for buying versus leasing?
Monthly payments on a lease are usually much lower and for a shorter term than a purchase. For example, a $30,000 car purchase with 10 percent down will incur payments of $560 to $570 per month for 60 months. The same car leased will be under $500 per month with less than half the startup cost — about $1200 to $1300 — for only 36 months. The car will be under warranty for the entire lease term, assuming 12,000 miles per year, taking the uncertainty of repairs out of the picture.

What happens if you terminate a lease early?
Manufacturer’s leases usually are 24 to 36 months because most of us get the ‘new-car bug’ in this time frame.

Terminating a lease can be a challenge, since the lessee is responsible for the remainder of the payments plus the residual as a payoff, plus any penalties the lessor might want to collect. Unless the lessee is in the last 90 days of the lease, the payoff amount might be several hundred to several thousand dollars more than the trade market value of the car. The lessee is responsible for any difference in market value and payoff and may pay it or finance it on the next car.

When can a lessee opt to purchase the vehicle outright?
First, buying out a leased vehicle before lease maturity is not advisable, as the payoff is usually not negotiable and no interest is saved by purchasing it prior to lease end. It is better to wait until the last 90 days of the lease and see if the lessor might want to negotiate the residual value closer to market value, if market value is considerably lower. If the plan is to own the vehicle from the beginning of the lease, just purchase it then, and be done with it.

How about tax implications?
Tax implications on a lease are the same when it comes to sales or use tax, as the use tax rate in Ohio is the same as sales tax rate, based on the county where the lessee lives. The big advantage is that the tax is only on the payment, not the entire purchase price of the car. As to income tax deductibility, that is up to the driver’s accountant, although most business owners find leasing the best option for expensing vehicles.

What about the mileage at the end of a lease term?
Annual mileage factors a lot when the lessor determines residual value, and lessors get a break when adjusting for mileage increases above 12,000 miles per year, which is the most popular choice. Upfront mileage is usually 10 cents to 12 cents per mile, added to the lease payment. Waiting to pay at lease maturity can be twice as expensive at 20 cents to 25 cents per mile. It’s better to buy upfront than wait in most cases.

CARLOS DAGUE is the new car sales manager at Ganley BMW, Middleburg Heights. He has been selling BMWs since 1982. Reach him at (440) 843-3552 or xfive44@aol.com.