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After finishing graduate school, my dad took me to a leasing company to lease my first car. In those days, most lenders required a 20% down payment which I didn’t have due to being a poor college student. Dad probably also figured that since I had no credit history, I would not have qualified for a loan anyway. I leased a no-frills 1981 Datsun (now Nissan) 210 with neither air conditioning nor power windows. I signed a three-year lease agreement and was told where to send the monthly payment. The leasing company representative also stressed not to exceed 50,000 miles because something called the “residual value” would decline significantly and would leave me with a large balloon payment at the end of the lease.

DatsunI babied that car and made sure the oil was changed regularly and that there were no visible dents or paint chips. At the end of the lease, my trusted Datsun was fortunately just below the 50,000 mile mark. I drove to the same leasing company where two men looked over the car like the IRS would audit a tax return. I noticed the men shook their heads and thought to myself, “This can’t be good.” When they completed their “leased auto colonoscopy,” they gave me the bad news: I owed $5,000 more than the residual value and therefore had to pay to turn in the car. Not having $5,000, I joined my dad’s credit union and borrowed the amount owed. I lived without air conditioning and power windows for a few more years and was able to eventually trade up to a car with a few more amenities.

The moral of the story is that leasing is not a good deal for most people. In many cases, the lessee still has a down payment, although good old dad negotiated the down payment out of my agreement. The price of the car is not negotiable, but the terms of the lease are negotiable. The lessee is renting the car by making payments but never owning it and is responsible for very rigid maintenance, mileage, and insurance requirements. The residual value, which is the value at the end of the lease is a guess and is designed to benefit the dealer or lessor. So, as I found out, the lessee will most likely give the dealer/lessor more money to turn in the car. Additionally, if the lessee exceeds the mileage limit and has to pay a per mile charge, that balloon payment could be a nightmare.

Other than business owners who may get a tax deduction, leasing may not be a good deal for consumers. Leasing looks attractive because of the low monthly payment, but in the long term owning and financing a car will save money. If you’re not convinced, feel free to talk to any of our loan staff. I have many good memories about that old Datsun 210 but will never lease again.

David M. Green
(925) 335-3802