In keeping with the current major theme in our lives – I still have a variety of car-related issues on my mind. This time having to do with leasing a vehicle as opposed to purchasing one. More specifically, there is the issue of whether making a down payment while leasing a vehicle is a good idea.
Most people probably are already aware that when setting up a financing payment plan when purchasing a car, it is more often than not a good idea to put down a good sized down payment. Also, typical of this process – is the notion that the larger the down payment, the smaller your monthly payment plan and in turn your ability to pay off the loan at a faster pace because the overall loan size is less.
Essentially when you are leasing a car, you do not need to pay the full cost of the car overtime, what you are actually doing is paying a monthly rate to rent the car for a fixed time. Typically, this leasing term will last anywhere from 1 to 6 years. For this reason, leasing can be very appealing to many people. One consideration that comes up that many leasers will have on their minds, include whether to put down a downpayment or not.
While I was doing some research on this topic – I found the following relevant information that I wanted to share with you. With leasing a vehicle some people either choose to pay a down payment, while others forego this payment and basically drive the vehicle off the lot. Of course with leasing, there are payments that need to be made and these monthly payments typically cover the the value that the vehicle will depreciate in the first few months or years.
As well as lowering the total loan balance, by making a larger down payment, another reason that making a down payment on a car you are buying is a good idea is because it can help with the insurance payoff should your vehicle either be stolen or totaled. In this instance if your car is determined to be a loss – you will receive the insurance payments to cover these costs and offset your down payment.
It is also for this very reason that making a down payment on a leased vehicle could be a bad decision. This is because as a part of your leasing agreement, the vehicle actually belongs to the bank and they will be the ones to receive the insurance money, not you. As a result you will lose out on the money you have already paid into the car – aka the down payment and this can be a substantial amount.
Overall, since the benefit of leasing as opposed to buying is that you can avoid having to pay higher start up costs and will also be able to have lower payments to make each month – making a down payment can actually defeat the purpose. If you’re considering a new car and investigating car loans and leasing arrangements, you need to keep this all in mind. By choosing not to make a down payment on a vehicle you are leasing can in turn mean you have more available cash that can be put towards good use elsewhere. I also learned that the term for a leasing down payment is called a capitalized cost reduction – so you should watch for this wording when you are deciding which course of action is best for you.