Leasing Assets

1
Leasing Assets
2
What is a Lease?

• Legal agreement between 2 parties that specifies
  the terms of rental
• Can lease
• Cars, Trucks
• Buildings
• Equipment
• Livestock
• Land

3
Auto Equipment Leases

• Closed-End Lease
• Most common type
• Residual value of vehicle is pre-determined
• You can buy the vehicle for this price at end of
  lease, or you can turn it in and walk away
• Open-Ended Lease
• Residual value is estimated at beginning of lease
• At end, you pay difference from actual market
  value

4
Terms of Auto Leases

• MSRP - Mfgrs Suggested Retail Price
• Used to calculate the residual value
• Residual Value
• Value of car at end of lease
• Typically 35-65 of MSRP
• High residual lower monthly payments

5
More Terms

• Money Factor
• Interest rate on lease
• Money Factor x 2400 APR
• 0.00275 x 2400 6.6 APR (approx)
• Cap Cost (Capitalized Cost)
• Initial value of car
• High Cap Cost High Monthly Payments
• Cap Reduction Payment
• Down Payment used to lower capitalization cost
• Lowers monthly payments

6
Yet More Terms

• Excess Mileage Fee (about 0.15/mile)
• Flat fee paid by you for exceeding mileage limit
  at end of lease
• Origination Fee (typically 550)
• Paperwork Fee -- rip off!
• May be negotiated away
• Disposition Fee
• Another rip off fee!
• Paid at end of lease if you do not purchase the
  vehicle

7
Son of Leasing Terms

• Early Termination Fee
• Fee for breaking the lease
• GAP Insurance (waiver)
• GAP Good A Protection
• Covers you if the market value of the car is less
  than the balance you owe the leasing company
• Your insurance will cover up to market value
• GAP insurance covers the insurance gap

8
Advantages to Leasing

• Lower Payments
• Lower than loan payments
• You can drive a more expensive car for the same
  monthly payment
• Manufacturer Incentives
• Lower interest rates or high residuals
• Lower Up-front Costs
• Security deposit (1 month), title fees, sales tax
  (maybe), etc.
• Tax Deductible for businesses
• Not Consumers!

9
Disadvantages to Leasing

• Early Termination Hurts!
• Breaking lease, stolen or totaled car
• May have to pay remainder of lease
• Get gap insurance for a few dollars/month
• Auto Insurance Cost
• May be higher than if you own the car
• Higher Credit Requirements (usually)
• Mileage Limitation fees
• No ownership

10
Dos and Donts of Leasing

• Do your homework
• Do read the lease contract carefully
• Do know how all figures are calculated
• MSRP, money factor, residual value, etc.
• Dont use early termination
• Dont pay too much (look at Cap Cost)
• Dont lease without gap insurance
• Dont lease without full disclosure of the money
  factor, residual factor, capitalized cost
• Dont use an open-ended lease

11
Leasing Websites

• www.LeaseGuide.com
• Informational
• www.LeaseCompare.com
• Shop for actual lease terms

12
Bottom Line

• Leasing may be a good idea for a business
• May suit your cash flow better
• Can write off entire lease payment
• Can replace vehicles/equipment more often
• Seldom makes sense for a consumer to lease a
  vehicle
• Cant write off lease payment at all