Lower Payments: With a lease, your monthly payments will almost always be lower than with conventional financing because you are paying for only a portion of the car's full value over the lease period. This gives you the option of driving a nicer car for the same monthly cost.
Manufacturer Incentives: In tough times or in a new model year, manufacturers may offer very attractive terms such as below market interest rates and high residuals that have the effect of lowering the monthly payment.
Lower Up-front Costs: Unless you decide to make a large cap reduction payment, initial costs for most leases will be limited to a refundable security deposit (typically one monthly payment rounded up to the nearest $25), sales tax depending on your state, title and registration fees, environmental fees (i.e., battery and tire disposal fees), and finally, your first monthly payment. As a result, leasing ties up less of your capital, freeing cash for more lucrative investments.
Taxes: With the phasing out of deductions for interest on car loans, leasing may now compare more favorably against conventional financing from a tax standpoint. Although most individuals will not save taxes with a lease, some businesses may enjoy certain advantages with leasing. Consult your tax advisor for more information.
Hassle-free Disposition: At the end of the lease you can simply give the car back to the dealer, satisfy your lease-end obligations, and walk away. No need to worry about selling the car or haggling over its trade-in value. If you decide to buy the car at the end of the lease, you'll have an idea how much the cost will be (no more than the residual value).
No major repairs: Mazda new vehicles are covered by a factory warranty for the duration of your lease contract. However, regular maintenance is your financial responsibility. Some leases allow you to add this to your monthly payment so you will not have to pay for it later and in larger amounts. It is also helpful to have your maintenance done at a Mazda dealership. They will keep a computer record of your visits, which is excellent proof of your maintenance for the recovery of your security deposit.
Disadvantages of Leasing
Early termination: Depending upon the contract, there might be penalties for terminating before the end of the lease. This is due to the term being the key factor in calculating the lease payments.
Mileage limitation: Leasing contracts have annual mileage limits. The mileage is one of the key factors used to determine the residual value. Therefore, the higher the mileage, the lower the residual value. Typically, there is a 2% point difference between 12,000 miles and 15,000 miles. If you plan to drive more than the mileage specified in the lease you can pay for the excess mileage up front, or at the lease termination. Typically, paying for up-front mileage is less expensive.
Higher insurance coverage requirements: Leases generally require higher insurance coverage limits for liability insurance and you must purchase comprehensive coverage.
Calculating The Monthly Lease Payment
Lease payments are based on the capitalized cost, which is the MSRP, including destination charge, acquisition fee, and security deposit (refunded at the end of the lease) minus any discounts from the vehicle’s residual value at the end of the lease, and any capitalized cost reduction (down payment). The monthly payment is determined by dividing the depreciation (net capitalized cost, less the residual) by the term of the lease, and adding the cost of the money (the money factor times the sum of the net capitalized cost and the residual). States vary on their charges for documentation fees, license plates and taxes and amounts must be added to the payment. Additionally, if you owe more on your trade than it is worth, this amount can be added to the net capitalized cost and paid down through the monthly lease payments.
The residual value is based on the vehicle's resale value at the end of the lease. This is influenced by its popularity as a used car. Residual values are set at the time of the lease (which make the lease a closed end lease as opposed to an open end lease where residual values are not set beforehand - open end leases are very rare today
Do's and Dont's of Leasing
Your Homework - Learn as much as you can about leasing. Be sure to understand how a lease works and the meaning of the terms.
Read the Lease Contract -especially the fine print - BEFORE you sign it. Be sure to understand your obligations and liabilities for early termination.
Make Sure All the Figures Add Up - Calculate the monthly payment yourself. If it doesn't match with the payment on the contract, ask questions until you understand why.
Know the MSRP for the vehicle you are leasing.
Be Prepared to Go the Distance on the lease - Early termination of any lease is almost always costly. Make sure that your personal situation will allow you to fulfill all of the obligations of the contract.
Maintain and Insure Your Leased Vehicle - The insurance is required, and taking care of the vehicle will save you dollars at termination.
Lease Without GAP Insurance - For just a few dollars a month, you protect yourself from a big loss in the event of forced termination such as a thief or accident where the vehicle is totaled.
Lease Without Full Disclosure of the money factor, residual value, and the capitalized cost.
Accept an Open-End Lease - Remember, in an open-end lease the payment is based on an estimated residual value. If the actual value is less at the end of the lease, you must pay the difference.