Leasing my First Car

The last vehicle I owned, a 2002 Ford Focus SVT was sold at a loss because the monthly payments were more than I could bear. When I sold my car, I was nearly bankrupt and cut every expense that I could to repay outstanding credit card debt. Living in Philadelphia; a walkable city with an effective public transit system, allowed me to free myself from the taxing cots of vehicle ownership. But a recent relocation to the sprawling suburbs of South Florida has prompted me to acquire my first car in four years.

I used to love cars, customizing little tidbits to make them mine. As a teenager I tore apart the dashboard and door panels of my aging Ford Taurus to build the best stereo systems a limited budget could buy. After that car’s untimely death on the backroads of suburban Maryland, I acquired a Ford Contour which quickly gained a new stereo system with kickin’ bass. Throw in money wasted on a pointless exhaust system and an air intake to increase the car’s meager 125 hp engine and I was in heaven. When the transmission on that car gave out, the cost outweighed the value of the rapidly depreciated american car and I traded it in for the Ford Focus. This car too received a music makeover with satellite radio and a tasteful subwoofer install courtesy of my friend Dave.

But as I have aged my view on cars has changed from them being an asset worth monetary investment to a liability of which the cost should be reduced to a minimum. Instead of driving a car until the wheels fall off, I like the flexibility of switching to a new vehicle at a relatively often pace. I would rather spend less on a vehicle; monthly payments, cash at purchase, and maintenance, and accumulate the savings as a downpayment on a house. When making my decision on whether to lease or buy, I contemplated four scenarios. Purchasing a new car, purchasing a slightly used car, purchasing a heavily used car, or leasing a new car.

I immediately ruled out purchasing a new car, because I would owe more on my note than the car was worth as soon as I drove it off the lot. I ruled out purchasing slightly used because without a substantial down payment, my car payments would be high. My friends suggested to put more money down on the car to reduce my monthly payments, but that would be counterintuitive to saving for a house. I ruled out a heavily used car because of high maintenance costs and social pressures to drive a nicer vehicle. Despite downsides including mileage overages (should they occur) and costs to repair wear and tear on the car when it is returned, I felt leasing was the best option for me. It allows me to drive a new car, pay only my cost to use it, and save an extra few hundred dollars per month towards my house.

Leasing a car is a complex financial transaction that goes beyond the monthly payment and cash due at signing typically advertised on manufacturers websites. After reviewing countless websites on automobile leasing, the two most helpful have been LeaseGuide and RIDE with G. On top of refreshing my basic knowledge of leasing, these websites taught me that sales tax laws on leases vary by state, that the sales price of the vehicle should be negotiated before payments are discussed, and why to get a breakout of where cash due at signing goes.

Tax Laws
Understanding tax laws is important, because some dealerships may list the taxes inappropriately. Through my research I learned that the State of Florida taxes the actual lease payment, however certain dealerships attempted to tax me for the entire vehicle and wrap that into the lease payment. The difference could save between $25 to $30 per month on my lease payment.

Sales Price
Like purchasing, the sales price of the vehicle should be negotiated prior to any discussion on your monthly payment. A $2,000 to $3,000 deduction in the sales price, will immediately translate in my favor as a $60 to $90 improvement on my monthly lease payment. In addition, sales price negotiation should exclude any incentives by the manufacturer.

Cash at Signing
There is a difference between inception costs and vehicle price reduction. Inception costs include a first month’s lease payment, dealer fees, DMV fees, tire fees, and other miscellaneous costs. Inception costs should be paid out of pocket, as not to be paying interest on menial fees. However, I learned to double check inception costs because one dealer tried to charge me a $500 premium on a lease acquisition fee charged by the manufacturer. Vehicle price reduction is similar to making a down payment on purchasing a vehicle. But because leasing is a way to rent the vehicle, that down payment will not translate into tangible value. For instance, if the car is totalled in an accident you will not get that money back.

Armed with this knowledge, I am confident I will get the lease payment I want on a new Acura TL.

Posted on July 1st, 2009 | By: bootstrap economist | Filed under Personal Finance

One Response to “Leasing my First Car”

1. bootstrap | economist » Blog Archive » Culminating a Deal Says:
   July 9th, 2009 at 11:39 pm

   [...] TL with Ebony interior, and I almost received the exact deal that I expected. In my last two posts Leasing my First Car and Leasing an Acura TL I discussed what I learned about the leasing process through the abundance [...]

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