First Time Buyer - Lease & Downpayment
08-06-2002, 08:29 AM
#1
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First Time Buyer - Lease & Downpayment
OK Everyone, please help, about to finalize the lease of my C230K and want some last minute opinions.
Downpayments are considered bad on a lease, why are they bad? Here's some of the things I've found out:
1. You can invest the downpayment yourself and make money on your money instead of using it as a downpayment. In reality, if I am paying 7-8% interest on a lease, even a $10K downpayment would only make 2-3% in a bank, 3-4% in a GIC, 5-10% in a mutual fund (over a long time!), or you can win/lose on the stock market.
Without going to the stock market, it'd be a wiser choice to pay down as much of the "leased value" upfront to avoid interest charges???
2. Any downpayment is like pre-paying part of your montly lease, aka "rent", payments.
Your downpayment goes towards reducing the current value of the car. If the car was stolen, written-off, the insurance pays the book value of the car, and gap protection pays the difference.
Thus if the car was a total loss during the lease you have pre-paid parts of lease payments you'll never make... what happens to that money?
For instance, a 4 year lease with $8K down. After 2 years the car is totalled, realistically you've only used up $4K of the original downpayment, what happens to the other $4K?
I am forced to leave a $8K deposit due to my lack of credit history inorder to lease a C230K. I would like to know as much as possible before the day I sign the lease about what may happen to that $8K.
Downpayments are considered bad on a lease, why are they bad? Here's some of the things I've found out:
1. You can invest the downpayment yourself and make money on your money instead of using it as a downpayment. In reality, if I am paying 7-8% interest on a lease, even a $10K downpayment would only make 2-3% in a bank, 3-4% in a GIC, 5-10% in a mutual fund (over a long time!), or you can win/lose on the stock market.
Without going to the stock market, it'd be a wiser choice to pay down as much of the "leased value" upfront to avoid interest charges???
2. Any downpayment is like pre-paying part of your montly lease, aka "rent", payments.
Your downpayment goes towards reducing the current value of the car. If the car was stolen, written-off, the insurance pays the book value of the car, and gap protection pays the difference.
Thus if the car was a total loss during the lease you have pre-paid parts of lease payments you'll never make... what happens to that money?
For instance, a 4 year lease with $8K down. After 2 years the car is totalled, realistically you've only used up $4K of the original downpayment, what happens to the other $4K?
I am forced to leave a $8K deposit due to my lack of credit history inorder to lease a C230K. I would like to know as much as possible before the day I sign the lease about what may happen to that $8K.
08-06-2002, 09:28 AM
#2
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E500
Re: First Time Buyer - Lease & Downpayment
Originally posted by taylor192
2. Any downpayment is like pre-paying part of your montly lease, aka "rent", payments.
Your downpayment goes towards reducing the current value of the car. If the car was stolen, written-off, the insurance pays the book value of the car, and gap protection pays the difference.
Thus if the car was a total loss during the lease you have pre-paid parts of lease payments you'll never make... what happens to that money?
For instance, a 4 year lease with $8K down. After 2 years the car is totalled, realistically you've only used up $4K of the original downpayment, what happens to the other $4K?
2. Any downpayment is like pre-paying part of your montly lease, aka "rent", payments.
Your downpayment goes towards reducing the current value of the car. If the car was stolen, written-off, the insurance pays the book value of the car, and gap protection pays the difference.
Thus if the car was a total loss during the lease you have pre-paid parts of lease payments you'll never make... what happens to that money?
For instance, a 4 year lease with $8K down. After 2 years the car is totalled, realistically you've only used up $4K of the original downpayment, what happens to the other $4K?
But, if you have to put that much money down, then you have to.
On the other hand, if you are going to put 8K down, why not go ahead and purchase the vehicle?
08-06-2002, 09:46 AM
#3
Out Of Control!!
I guess the other question would be - do you need gap insurance if you're putting $8k down? At that point, I would say that the security of gap insurance, if there is a gap, isn't worth it, and I'd roll the dice. I've never leased, so I don't know if gap insurance is an option or not.
As eOe said, if you've got crappy credit, you really don't have an option, do you? At least you can take heart that you won't really have any opportunity cost on the investment that you don't make with that $8k, thanks to our wonderful stock market (unless there's a dramatic increase, and in that case, I'll be a happy camper).
As eOe said, if you've got crappy credit, you really don't have an option, do you? At least you can take heart that you won't really have any opportunity cost on the investment that you don't make with that $8k, thanks to our wonderful stock market (unless there's a dramatic increase, and in that case, I'll be a happy camper).
08-06-2002, 11:14 AM
#4
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Re: Re: First Time Buyer - Lease & Downpayment
Originally posted by everyONEelse
This is the main reason why not to put money down on a lease. If the car is totalled, GAP insurance will pay the difference between what you owe to the bank, and what the car's market value is. Your downpayment is not covered. So, basically you would not be getting it back.
But, if you have to put that much money down, then you have to.
On the other hand, if you are going to put 8K down, why not go ahead and purchase the vehicle?
This is the main reason why not to put money down on a lease. If the car is totalled, GAP insurance will pay the difference between what you owe to the bank, and what the car's market value is. Your downpayment is not covered. So, basically you would not be getting it back.
But, if you have to put that much money down, then you have to.
On the other hand, if you are going to put 8K down, why not go ahead and purchase the vehicle?
I guess I was just looking for confirmation that my deposit will be completely lost and they don't pro-rate it over the duration of the lease.
08-06-2002, 11:29 AM
#5
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Originally posted by tommy
I guess the other question would be - do you need gap insurance if you're putting $8k down? At that point, I would say that the security of gap insurance, if there is a gap, isn't worth it, and I'd roll the dice. I've never leased, so I don't know if gap insurance is an option or not.
I guess the other question would be - do you need gap insurance if you're putting $8k down? At that point, I would say that the security of gap insurance, if there is a gap, isn't worth it, and I'd roll the dice. I've never leased, so I don't know if gap insurance is an option or not.
Even if I financed, leaving $12K on a $46K loan, I owe $34K, the vehicle gets written off, market value is lets say $30K and I'm still out $12K and even owe $4K.
You lose every which way if the vehicle gets written off, or can you buy additional insurance to protect you from this?
I'm thinking about "rolling the dice" just because its a gamble whether its a lease or not.
