The Leasing Advantage
"Equity" Myth or Reality?

The Elephant in the Room  That No One is Talking About

There is a popular assumption that when financing a car you will be creating equity.  In fact, when asking for financial advice from family, friends, or what has become extremely popular today, seeking advice from strangers on social media platforms, the debate between financing and leasing will revolve around one popular opinion.  Leasing is more expensive, since as everyone knows, you have no equity in a lease. 

Let's set aside our preconceived notions for a moment and take a look at the real numbers to see if this advice is correct.  Here are the variables we will use to compare the two financing options.

• 36-month lease option vs. 60-month finance option. The conventional 60-month (5 Year) contract has been the most popular choice since the 1980’s.
• The standard finance contract interest rate offered on new cars in Israel is (0.50%) plus prime.
• Standard down payment required by banks is 10%, but for the purposes of this comparison, let’s assume that the bank will agree to accept 7900 shekels down – same as many lease companies offer.
• For our demonstration we chose the KIA Stonic. It's not an expensive car or inexpensive; it’s in the middle  at 118,000 shekels.  Please click on the video below. 

So there's your "elephant in the room no one is talking about".  Of course you can't gain equity in a lease; you are paying a lot less, in this case 42% less. Making a higher payment for the same product and getting money back after selling is not equity, not by anybody’s definition!

Now let's take a look at what is happening at the bank with the interest they are charging you. It will not make you happy.  Please click on the next video below.

The Takeaway 

#1 It's a common misunderstanding to sell a car, pay off the remaining bank balance and mistake any monies left over as equity. True equity does not begin to appear until the 4th year of the finance contract when most car warranties have already expired.  The odds are you will fall in the national norm of (36-42) months ownership, therefore will not attain equity.  

#2 Is it good for you the client that the bank is collecting 83% of their profit in the first 36 months knowing that more than 50% will not go to full term? No it isn't, not when the national turnover rate on car ownership is 36 to 42 months.  The banks know exactly what they are doing, now you do too.

The Big Deal About Three Years

It's obvious that the first three years of a car's life is the best, which is why manufacturers are comfortable giving a warranty - the chances of these new cars needing repairs are slim.  During this time your car will be the most fuel efficient, powerful, safe, and tight in handling and noise reduction.  

With the money you saved in a 3-year closed end lease contract you can take another new car in 36 months and enjoy the continued factory protection against repairs. 

If you are ready to begin the process of acquiring a lease for your next vehicle click on the yellow apply icon.

Still have questions, contact us for 30-minute video or telephone consultation by clicking on the yellow contact button.

Options are great, if you prefer conventional financing because it is more familiar or you intend to keep the vehicle for 6 years or more then please visit this link. Back to main lease page.