Alpha Leasing Company
Debunking Common Arguments About Leasing
A lot of people dismiss leasing as being worse than buying in all cases.  The fact that leasing has a significant market share should be an indication that leasing serves a purpose in the marketplace. The anti-leasing forces use various arguments to show that leasing is "bad."  In this section we are going to evaluate these arguments and show why they are bogus.

Bogus Arguments

If I Buy a vehicle, at the end of 4 years I have an asset, if I lease I have nothing.

I drive a lot of miles so I can't lease because the mileage charges will kill me.

I put too much wear and tear on a vehicle and the lease turn-in charges will kill me.

I don't want to lease because it is so expensive to get out of a lease early.

When I purchase a vehicle I keep it forever.  Leasing would be twice as expensive.
I put too much wear and tear on a vehicle and the lease turn-in charges will kill me.

Lease contracts specify that you must return the vehicle at lease-end with no more than "normal" wear and tear.  Most new contracts do a pretty good job of spelling out exactly what "normal" means.  This is the part of the leasing contract that is most responsible for "Leasing Phobia" with many first-time leasers, and causes many people to decide not to lease.  These people have an unfounded fear that when they return the vehicle, the leasing company will examine the vehicle with a fine toothed comb and penalize them thousands of dollars for minor dings and scrapes.

This simply is not accurate.  As we pointed out in the mileage penalty article, leasing companies charge for extra mileage because it reduces the value of the vehicle.  The mileage charges are not out of line with the actual reductions in value.  If you owned the vehicle and sold it, you would experience a similar reduction in value. 

Excessive wear and tear also reduces the value of the vehicle.  The leasing company is charging you for the excessive wear and tear because it will reduce the value of the vehicle when they resell it, usually at auction.  If you had purchased the vehicle, when you went to sell it, you would get less for it, based on its condition.

Look at table 1 for some examples using the same vehicles that were used in the excess mileage example.  Let's assume that you purchase the vehicles and have 60,000 miles on them which is similar to what you may have on them if you lease them for 4 years with a 15,000 per year mileage allowance.  The source of this information is Kelley Blue Book (www.kbb.com) recognized as

Table 1: Private Party Value of Various Vehicles Based on Condition
Source: Kelly Blue Book, Oct 17, 2005

Vehicle Excellent Good Fair
2002 Honda Accord $12,555 $11,660 $10,550
2002 Ford F150 $  8,990 $  8,315 $  7,460
2002 Dodge Caravan $  9,760 $  9,035 $  8,125
2002 Lexus ES300 $19,075 $17,825 $16,225
2002 Ford Explorer $12,440 $11,580 $10,460
the expert in valuing used vehicles.  We have chosen Private Party Value as the appropriate number since you will most likely not get retail for your vehicle and should get more than the auction amount.  They rate cars in four categories:
 
  1. Excellent - The vehicle looks great, is in excellent mechanical condition and needs no reconditioning.
  2. Good - The vehicle is free of any major defects.  The paint, body and interior have only minor blemishes, and there are no major mechanical problems.
  3. Fair - The vehicle probably has some mechanical or cosmetic defects, but is still in safe running condition.  The paint, body and/or interior need work to be performed by a professional in order to be sold.
  4. Poor - The vehicle has severe mechanical and/or cosmetic defects and may be in questionable running condition.  The vehicle may have problems that cannot be readily fixed such as a damaged frame or a rusted-through body.

Kelley does not give average prices for vehicles in Poor condition because the value of vehicles in this category varies greatly, so we have included only categories 1 to 3 in our table.  Going from Excellent Condition to Good Condition will cost you from $675 on the F150 to $1,250 on the Lexus ES300.  Going from Good to Fair will cost you from $855 on the F150 to $1,600 on the Lexus ES300.  We can only assume that going to poor will probably cost you several thousand extra dollars.

To quote Milton Friedman, "There is no Free Lunch."  If you lease a car you will pay a fee for excess wear and tear, but if you purchase a vehicle, you will also pay a fee for excess wear and tear when you go to sell it.  The lessor will likely charge you an excess wear and tear charge that is similar to the reduction in value you would receive if you sold the vehicle. 

If you do have excess wear and tear on a leased vehicle, there are some strategies that you can use to minimize your fees.  In most cases you can go to the lessor a couple of weeks before the turn-in date and they will tell you what specific charges you will incur in excessive wear and tear.  This will give you the opportunity to fix them yourself.  For example, if you need new tires, go to Pep Boys and buy a decent set rather than being charged retail by the lessor.  We suggest that you always find out in advance what you are going to be charged for before you fix anything on the vehicle.  In many cases you will find out that you will not be charged for items that you thought you would be dinged for, and in other cases you will find that the charge is less than what it will cost you to fix it.  So, if you do not totally trash out the vehicle, and plan your turn-in strategies, the turn-in charges for excessive wear and tear should not be excessive.

Minimizing lease turn-in charges is one of the services that we offer to our customers.  If you have any questions or concerns in this area, please call us at 1-800-800-5327 or shoot off an email.

215 S HURSTBOURNE PKWY, SUITE 103  •  Louisville, KY 40222  •  PHONE: 800-800-5327 • fax: (502) 426-2793 •  email: Info@alphaleasing.com