I know auto companies historically leased to car rental companies and to businesses.
I think they leased to cab companies and police departments; is that correct?
When did leasing to average consumers start, and what conditions enabled it? Did laws change, or was this caused by
[ul]
[li]changes in the economy, ie consumers not spending enough[/li][li]oversupply/undersupply of autos [/li][li]longer usable lives for cars[/li][li]marketing campaigns[/li][li]other?[/li][/ul]
I have never leased, but I believe that it makes more money for the dealer/manufacturer, gives the lessor more car for less money per month and a predictable monthly payment. Of course, the dealer also gets a hefty ETF if you drop the lease early.
So, I guess leasing is popular because of greed.
Leasing has it’s upsides though. I can get a car I couldn’t afford if I were to purchase it and I can get rid of it (without the hassle of selling) before there’s any major problems with it. Also, when you lease though Honda you get gap insurance and you can return it with up to $1500 worth of damage and not have to pay for it.
As I recall, leasing started to catch on in the second half of the 1970s. That was when the Japanese imports started cutting into sales of American cars, and the Big 3 (actually, it 4 back then) tried to fight back with all sorts of weird financing and payment structures, so you could get the monthly payment for, say, a Buick Riviera, down to the same level as a Honda Accord.
There may also have been some changes in the tax code that either reduced the tax breaks for buying a car or improved the breaks for leasing.
Is that when they started loading the interest into the front end too? Sure, the payment is only $150, but $147 (at the beginning) of it is interest and even though you were two years into a 4 your purchase you’ve only paid down 15% of the car.
I doubt it. That probably started the day someone loaned someone else money with interest.
You pay interest on the outstanding balance of the loan. Most people want their loans amortized so that their payments remain constant. You could just as easily structure the loan so that your principal payments remained constant; however, your total payment would be higher in the beginning.
Leasing is normally a bad idea
[ul]
[li]The lessor is usually a 3rd party arranged by the dealer. The lessor is in business to make money. If he makes money on the deal, you’re the one that’s paying for it.[/li][li]Unless you can stick to the exact terms of the lease, don’t. If you contract for xxx miles per year for three years, you are charged for xxx miles. If you use less than xxx, you paid for miles you didn’t use. If you use more, there’s a hefty overage charge.[/li][li]You are expected to return the car with only normal wear. A co-worker had his engine seize 3 months before the lease expired. He had to install a new engine. When the lease was up, the lessor had a 3 year old car with a 3-month old engine.[/li][li]When one buys a car, one has a used car when the payments end. If one leases, one has nothing.[/li][/ul]
Kunilou,
Thank you for that. I was trying to find out what conditions led to the popularity of leasing, and you’ve provided the best explanation.
In a nutshell, the leasing company makes more than if the lessee bought the car new, but the lessee is paying much less per month than if they bought the car new.
No, those are generally called “Rule of 78” loans, and they’re set up that way to ensure that even if you pay the loan early (or default and lose the property) the lender collects all the interest. Wiki says they date back to at least 1935.
True, they did lease to businesses. As far as rentals, maybe some car rental companies leased, but Avis and Hertz, the big ones that had most of the market, bought their cars. When Hertz and Avis were ready to sell, buying a used car from Hertz or Avis was the cheapest place to buy an “almost new” car…except that it was also driven hard or worn out.
Maybe, I cant speak for all police departments, but the police departments that I knew, either purchased their cars, or the cars were donated/free.
Other. It was Jimmy Carter that caused the auto leasing phemonenon. It was the CArter inflation of the 1970’s carrying into the early 1980’s that increased the price of cars so much that lots of people could no longer afford to buy them…so they had to, in effect: rent(lease) cars. In the 1950’s, 1960’s, 1970’s, most new cars were only $2000 or $3000 - we did not need to rent/lease our cars, we just bought them.
…and BTW, if we did take out a loan to buy a new car, car loans were never more than 24 months prior to the late 1970’s.