What is a Car Lease?

Whether you sell or lease a vehicle, that vehicle still has the exact same selling price. The only difference is that, with a lease, the buyer is only paying for the part of the vehicle that they use. As a result, leasing can offer various benefits that won’t be available if the customer purchases a vehicle. Contrary to belief, leasing a car can be an extremely beneficial deal! The customer, the dealership, and the car salesperson can all benefit from a lease!

This blog will take a look into the various benefits of offering leasing options to car buyer!

Understanding Lease Terminology

Before getting started, it’s crucial to understand certain terminology related to leasing. Customers will likely have questions related to the definitions of leasing words. It's your responsibility to break these down to the buyer in an easy-to-understand way. When you understand the below lease terms, and are able to convert them into retail terms, the deal becomes a lot more understandable to the buyer. Here is common lease terminology and their meanings:

• Capitalization Cost (Cap Cost): The selling price of the vehicle.
• Capitalization Cost Reduction (Cap Cost Reduction): The down payment.
• Money Factor: A finance charge that often takes into consideration taxes and appreciation.
• Residual Value: The estimated future value of the vehicle. This value is guaranteed to the buyer at the time of lease agreement.

The Benefits of Leasing

The Benefits of a Lease: The Buyer

When looking at customer benefits, it’s important to remember that most modern buyers oftentimes want the newest, hottest item as soon as it comes out. This includes the latest vehicles fresh off the factory floor. Leasing allows buyers to get in newer cars quicker, which can make leasing seem more attractive to them. Leasing gives buyers a lot of choices with what to do when the lease is up as well! This includes purchasing their current vehicle at the guaranteed future value (residual value) or trading-up to the latest model.

Additionally, leasing tends to be a more appealing option for buyers due to lower monthly payments. When a buyer leases a vehicle, determining their monthly payments comes from difference in the vehicle’s net cap cost and its residual value when the lease ends. Since buyers aren’t paying back principal, they tend to have lower monthly payments. Overall, customers have a lot to gain from leasing a car. Buyers can get a new car faster, pay lower monthly payments, and then when the lease ends, they can decide whether or not to keep the car or trade-up!

The Benefits of a Lease: The Salesperson

Since leasing can be a highly attractive option for buyers, it’s naturally an attractive option for car sales professionals. By explaining the various benefits of leasing to the buyer, you create more possibilities to close a deal today. According to data provided by Edmunds, leasing has more than doubled in just five years making up 32% of all new retail vehicle sales. With this number continuing to increase over the years, leasing has become a great way to help you close the deal today and make more car deals each month! For instance, when you have a customer that is on the fence about the monthly payment for a vehicle purchase, pivoting to a lease is what will likely close the deal.

The Benefits of a Lease: The Dealership

Of course, the dealership loves leases because they open up the opportunity to sell more vehicles. With leasing becoming more and more popular, it is a great way for dealers to move more cars. Dealerships will still be able to make a nice profit off of a leased vehicle for a few different reasons. The profitability of a leased car deal comes from the agreed upon depreciation price, money factor, and any add-ons included in the deal, such as warranties.

Additionally, dealerships will benefit regardless of what buyer’s decide to do when their lease is up! If the buyer decides to purchase the vehicle, then your dealership sells another car. However, if the buyer decides the trade-in the vehicle, the dealership still benefits! A reliable car, serviced by your own Service Department, will be added back to the lot, and they likely gain a repeat customer. They can now sell or lease another new vehicle to this buyer.