Don't Park That Cash in Your Leased Vehicle

Leasing your next vehicle may be a more attractive option than it has ever been before. I have posted previously about the leasing. Driven by high residual values and low lease (interest) rates, lease payments currently allow you to drive more vehicle for the money than purchasing does.

Leasing also afford the car buyer to avoid a long-term commitment. When you sign a lease, you’re essentially financing the vehicle for a set period of time and when the lease is up, you return the vehicle to the lessor and move on. This can be an attractive option for anyone who isn't interested in keeping a vehicle for the long haul or those who want to trade up for a new model every few years.

I am often asked about down payments on a lease. Most manufacturer-advertised lease payments include a down payment. It is usually in the fine print at the bottom of the television screen and flashes up so fast you cannot read it. It may be at the bottom of the page in print so small you need a microscope to decipher it or speed read at the end of the radio commercial faster than you can listen!

In order to guarantee customers the lowest and most attractive payment possible, these ads include a sizable down payment up front. Typically, this money goes towards paying a portion of the vehicle lease up front. But ponying up all that cash early on doesn't always work in your favor.

While a down payment may lower your lease payment, there is some risk that comes with putting money down to lower your payments. Often this down payment money comes from the equity in the vehicle that you may be trading. While it seems logical to roll this money into the next vehicle, it is not necessarily the best thing to do.

If the leased vehicle is stolen or totaled in an accident during the first few months of the lease, the insurance company would reimburse the leasing company only for the value of the car. They will not reimburse you for the money you put down. Not only would you be short a vehicle but you’d also be out your down payment money.

Paying less up front or even nothing at all may make your monthly payment a little higher but you wouldn't have to worry about coming up short if something were to happen to your leased vehicle. If you have the discipline to do so, you can put your money in an investment account and benefit from it growing rather than spending it to reduce your payments. You always have that money to fall back on in case you have trouble making a payment some month.

Leasing is a very good option for most prospective vehicle buyers. But you must structure the lease in the manner that is most beneficial to your situation. Let me strongly caution against putting money down on your leased vehicle.