[#AskBellco Theme Music Playing] [Jack] Hello and welcome to #AskBellco, the show that answers your financial questions. To have your questions answered on the show, just send them to us on social media using the hashtag #AskBellco. This month, we’ll be answering one of our most frequently asked questions: which makes more sense leasing or purchasing a vehicle? Here to Associate Director and Auto Loan Portfolio Manager. Dan, thank you for coming on the show! [Dan] Thank you for having me!
[Jack] You heard the question, should be pretty simple. right? Auto buy, auto lease, which one’s the right decision?
[Dan] Sure, well really it depends on the individual. A lot of people like to have that new vehicle every two to three years. It’s gonna make more sense for them to lease because, obviously, with today’s economy and the dropping values of vehicles, you don’t wanna have a lot of negative equity if you’re trading in every two to three years, whereas if you’re somebody that wants to own that vehicle and you know you’re gonna drive it into the ground, then of course you’re gonna buy it. The pros to buying, obviously, are gonna be the equity in the vehicle – you’re gonna have it paid off within a set period of time. You can do whatever you want to the vehicle and then you can obviously have unlimited mileage.
[Jack] So those sound like some great pros. Let’s talk about about some of those for a bit. For example, you said you can drive it as much as you want. Is that not the case with the lease? [Dan] Yeah, with leasing, you’re usually limited anywhere – most standard – is gonna be 12,000 miles per year. You can go up to 15,000 if you choose. [Jack] But that’s not a cross country trip, right? That’s town driving. [Dan] That’s town driving pretty much annually, yep. [Jack] Well then, what are the cons to buying? We’ve heard some of the pros and they sound like some pretty great pros, but there’s gotta be a downside, right? [Dan] The cons of buying would be if you’re gonna look to trade in that vehicle. Let’s say you buy it, you really love it, but two years down the road, now you find out you don’t like it. You’re gonna be stuck with a lot of negative equity when about that term “negative equity?” What do we mean there? [Dan] Sure, so negative equity is basically when you go to a dealership, they’re gonna tell you the price that they’ll give you for the vehicle. So for example, $5,000 dollars. You’re gonna have your lender that’s gonna say “Well wait a minute. You owe me $10,000 dollars.” So that’s the negative equity – the $10,000 minus the $5,000. [Jack] It’s when you owe more than what the car is worth. Okay. So leasing has to have some pros or people wouldn’t do it. What are the pros to leasing a vehicle? [Dan] So, the pros are you’ll have a lower payment. [Jack] Oh, well that’s nice! [Dan] Nicer vehicle, again. You’ve got the warranty already included, so you don’t have to worry about it breaking down. [Jack] That’s huge, really. Parts under warranty is a big deal. [Dan] Exactly, so those would be the three main things. [Jack] Those all sound awesome! So, I feel like I should lease. Why would I not lease? What are the downsides there? [Dan] Well, the downside to leasing, again, is the mileage. If you’re somebody that has that last minute trip and you gotta go to Florida, for example, you might not I wanna do it in your leased vehicle. You can’t make any upgrades to your vehicle, so if you wanna tint your windows… [Jack] I wanted those flashing LEDs under the car that like they’re gonna they’re gonna flash along to the rhythm of the sound system. I can’t do that in a leased vehicle? [Dan] Not at this time you can’t. [Jack] Maybe in the future. Alright, so we talked about with a lease there being lower monthly payments. What are the factors that go into a lower payment? [Dan] So there’s three things that impact the lease payment. The first one is gonna be your cap cost. The cap cost is similar to the purchase price of a vehicle so you can still go into a dealership and negotiate. [Jack] Oh, I was going to say – is a cap cost like an MSRP? [Dan] Yeah, so it’s an MSRP, but it also takes into consideration your down payment and then if you have any trade equity that you wanna put in. [Jack] Oh, but you said you can talk that “MSRP” down. [Dan] Yeah. [Jack] You called it a cap cost, is that right? You can talk that down? Really? I didn’t realize that you could go in and haggle on the base price. [Dan] Yes, you can negotiate price. [Jack] That’s convenient. You know, nowadays, we had we hear a lot about “the gig economy,” right? The idea of people who for example, do ride share with a company like Lyft or Uber. Somebody like that buying or leasing… If you’re gonna use your car for work, what’s the better option or is there a better option there? [Dan] Well, if you’re gonna be doing the Lyft and Uber stuff, my recommendation would probably be to buy. The mileage is going to kill you on the backend. And then the depreciation of the value. Yeah, you wanna get ownership of the vehicle if you’re gonna be a Lyft or Uber driver. [Jack] What if I’m just doing some Lyft or Uber like just on the weekends? Make a little, you know, weekend cash and I can drive people around in a nicer car. Would leasing be smarter there? [Dan] Well in terms of, yeah, having that nicer vehicle, cheaper monthly payment, but again it’s gonna depend on your situation in terms of the number of miles that you drive other than during that weekend. [Jack] Seems like it keeps coming back to that pinch point. [Dan] Yep. [Jack] We talked a little bit about Bellco and auto leasing. Is that is that something that Bellco does? Can I walk into a Bellco and do a lease through them? [Dan] Yeah, so we offer leases there. Now, we don’t close at a branch for leases so it’s a little different program, so what we want you to do is come into a Bellco branch. We’ll get you pre-approved for the vehicle. Then you’ll take that to a dealership that offers leases and then you can sign and drive right there at the dealership. [Jack] I love the idea of sign and drive, but let’s back up just a quick second and talk about “pre-approved.” So, you hear these horror stories all the time of people who go into a dealership to buy a car and they’re there for five hours, or seven hours, or you know, whatever and the mountains of paperwork and getting approved. You’re saying that I could go to Bellco before I even set foot on a lot and already have my my auto loan or my lease. [Dan] Exactly, so half of the battle’s right there. So usually you can negotiate on price of the vehicle and then financing on the back end. If you go in there already knowing that your pre-approved financing wise, now you can work with them on the pricing. [Jack] It kinda seems like you almost have more leverage in that negotiation. [Dan] You do. [Jack] Because you’re already pre-approved you know where the financing is coming from. You don’t have to fight that battle, as well. [Dan] Agreed 110% because you know what your rate is gonna be with Bellco, so you should know what your payment’s gonna be based on that rate and the purchase price of the vehicle. [Jack] I feel like that’s huge and then that more people should know about that, right? That this is a step you can take that will really streamline process. Now, we talked about what goes into monthly payments for a lease. Before we wrap up today, I know that if I’m buying a car, I can maybe pay less monthly if I make a larger down payment. What other factors are going into my auto loan, like monthly payment? [Dan] So the monthly payment – just like you said the down payment, obviously the purchase price of the vehicle, and then equity. You could have positive equity or negative trade equity. [Jack] We talked a little bit about that before. [Dan] Your interest rate and then obviously any add-on products which is gonna be like your GAP warranty, payment protection, and then obviously.. [Jack] Those are through the dealership, like once the auto warranty is expired, they’ll take care of the vehicle and add-ons like that. [Dan] Or if you’re buying a used vehicle, you’d just be buying a brand new warranty. [Jack] Oh, yeah. I guess that makes sense. I feel like I have learned a whole lot about leasing vs. buying and it seems like the option is, like you said in the beginning, really up to the individual. Any final thoughts that you wanna share with us about leasing vs. buying. [Dan] One other thing to talk about with leases is obviously the sales tax piece. So when we’re talking about buying a vehicle, you’re paying sales tax based on that full purchase price. Leasing is different. You’re just paying a monthly payment based on what that depreciation of the residual value that we talked about – cap cost? So that difference we factor in what a tax payment would be on that so you’re paying that sales tax every month. Whereas again, with purchasing the vehicle, you’re paying all that up front. With the lease, it’s month over month. [Jack] But that’s added into your monthly payment? [Dan] Right. Correct. [Jack] So, still, like you said, the vehicle is usually a lower payment, even with that factored in, right? [Dan] Oh, exactly. [Jack] So, it seems once again like there are reasons to do both. [Dan] Exactly. Depending again, if you choose to want to have that full ownership at the end or if you wanna be driving the latest and greatest and trade up every two years than leasing is right for you. [Jack} They both sound fantastic so I guess whichever sounds fantastic to you, swing into Bellco and talk to Dan or any of the auto finance specialists and it seems like you’ll be able to help them out. [Dan] We will! Thank you! [Jack] Thank you so much for coming on the show. We appreciate you coming on. And thank you for tuning in! Next month, we’ll be discussing home equity loans and lines of credit, so send us your questions using that hashtag #AskBellco on social media and tune in next month for your answer.