When you visit any of Philadelphia’s auto dealerships to find your next vehicle, you may intend to own it after your final loan payment. You did not intend to “rent” the vehicle for a while and then return it to the dealership as would happen in an auto lease agreement.
You went through the process of choosing a vehicle, going back and forth on the price and negotiating financing terms before driving your new vehicle off the lot. However, at some point, you discovered that you did not actually purchase the vehicle, but instead entered into a lease agreement. How did that happen? After all, that’s not what you thought you agreed to and certainly isn’t what you wanted.
The difference between leasing and purchasing
When you lease a vehicle, you have annual mileage restrictions, regular maintenance obligations and certain insurance obligations. You usually rent the vehicle for anywhere from 12 to 48 months. At the end of that period, you can either pay off the remaining balance, also called the residual balance, to keep the vehicle, use it as a trade-in, or return it to the dealership and walk away. If you want to take any of these actions before the end of the lease period, you will most likely end up paying an early termination fee.
When you purchase a vehicle, you have no mileage restrictions, no insurance obligations to the dealership and no regular maintenance obligations. You usually finance the vehicle for anywhere from 12 to 72 months, and perhaps even longer. Once you make your final payment, you own the vehicle free from any further obligations.
How could you end up leasing instead of buying?
First, don’t believe the salesperson if he or she tells you that you will own the vehicle at the end of the lease term. The only way you will end up owning the vehicle is if you pay off the residual balance, which is usually quite large. Second, don’t believe the salesperson if he or she tells you that you build equity in the vehicle with each lease payment. This is not true since you are merely renting it.
When negotiating payments for your new vehicle, a lower payment may be possible for you. This option may seem quite attractive. After all, who wants a large payment? The problem is that you may now move from purchase payments to leasing payments. Before agreeing to anything, you should ask which types of payments the contract expects you to make. Unless you find leasing more attractive than buying, do not accept the lease payments. Insist that you want to purchase the vehicle and negotiate accordingly.