We talked, last year about the downside of leasing for the vast majority of individuals. A lease is like renting a vehicle in that you’re paying for only three quarters or so of the price and at the end have an option, or residual, to buy the left-over balance out.
In credit and consumer tips jargon it’s called a fleece. At the end of the lease it is most likely that you will owe more than the vehicle is worth and will just need to walk away after having made all those payments.
For those people leasing an SUV or large truck, they did just dodge a big bullet – sort of.
With the high gas prices, resale values of SUVs dropped between 13 and 20 percent just between March and May, according to the largest vehicle wholesaler in the U.S.
So if own an SUV, the value has plummeted. At the end of the lease, the balance will be massively higher than the value of the vehicle and you’ll be walking away after all those payments.
And it’s getting worse, which is why GMAC just announced the end of last week they’ll no longer be offering any cool rate deals on leases in Canada, period. They just aren’t interested in promoting more leasing so they can take a huge bath three or four years from now – and that’s a real blessing, if the truth were known.
Why? When you drop back your vehicle, the manufacturer has to eat the loss and that’ll go on for years with all those leased vehicles out there. CNW Research estimates this year, the loss will be almost $5 billion, and more than $10 billion over the next few years.
But you also need two important heads-up:
If you’re returning a lease, there’ll be a lot more detailed inspection to see if they can get you to pay some repairs, etc. to avoid a bigger loss on the disposal. Please! Take some digital camera pictures of the lease you’re returning and do not turn over the keys without a written and signed inspection form from the dealer.
And: If you want some good deals and you absolutely have to finance, these lease returns have to be sold: So there’s already 2.9% or 3.9% finance deals on used 2 to 3 year old vehicles. Right now it’s already happening with BMW and Volkswagen, and they’re legit deals, since they can’t melt these lease return units down.