Are Monthly Payments Necessary?
Unless you are in a position to pay cash for a new or pre-owned vehicle, you will need to establish a payment plan to obtain that vehicle. Two options exist-taking out a loan or leasing.
How Do Loans and Leases Differ?
When you take out a loan, all of the money used to pay it off applies to your eventual ownership of the vehicle. The initial down payment and principal on the loan cover the total cost of the purchase. Lease payments, however, apply only to the use of the vehicle. The total sum of payments covers the vehicle's depreciation over the time you drive it and is usually less than the outright price of the vehicle.
When is Ownership Transferred?
When paid in full, a loan terminates and you assume ownership. The bank sends you the title that had been held while the loan maintained an outstanding balance. At the end of a lease, you have options: return the vehicle and walk away; complete the purchase; trade for equity; or sell for a profit.
How are Monthly Lease Rates Determined?
In formulating a monthly payment structure, a lessor is primarily concerned with the extent to which the vehicle will depreciate throughout the lease and cost of borrowing money to finance the car during that period.
Three Key Elements- The cost is determined. This figure represents the real purchase price after elements such as the down payment, incentive discount, and trade-in credit are deducted from the capitalized (actual) cost, and any fees or charges (like a doc fee) are added.
- The residual value (the estimated value of the vehicle at the end of the lease) is determined. That then gets subtracted from the total figured out in step one. This is the depreciation figure. The residual value depends on the length of the agreement, expected mileage and make/model of the vehicle. This value is set by the bank.
- Finally, a lessor (bank) assesses the money factor, a number that correlates with the cost of borrowing money during the lease period. Put it all together, and divide that by the number of months in the lease, and there you go!
What Factors Determine the Purchase Price at the end of a Lease?
Most leases rely exclusively on the residual value in determining the end of term purchase price. These closed-end deals require you to pay the fixed residual amount, regardless of the actual market price.
How are Loan Rates Determined?
The size of monthly loan payments depends on the amount borrowed, the length of the loan, the interest rate, and other factors such as your credit history. Paying more money initially lowers the principal of the loan, and in turn reduces individual payments. At any period during the loan, you may choose to pay off the principal in its entirety, at which point the title of the vehicle is transferred to you.
General Loan Specifications
Down payment amounts generally range between 10-20 percent of the vehicle's total cost, although some purchases require no down payment. A typical loan period is 5 years with an annual percentage rate around 6%. Subaru does offer lower incentive rates to qualified buyers. See our Incentives page for current Subaru Incentives. See our specials for our Stanley Subaru finance offers.
Are Loans Available for Used Vehicles?
Yes, although they function somewhat differently from new car loans. A down payment of 20 percent or more is often required and the interest rate can be a point or more higher than for a new vehicle.
Can Extra Fees and Charges be Financed?
Yes. Registration, taxes, extended service plans, and other supplemental charges may be included in the financing plan.
What are the Restrictions of Driving a Leased Vehicle?
Annual mileage restrictions are a limitation for customers who choose to lease. Lessors want their vehicles returned in sale-able low mileage conditions, so they place mileage caps on them. A typical yearly figure is between 10,000 to 15,000 miles, and can include up to 25,000 miles. However, if you expect to put more mileage than a typical lease agreement, you can roll those into your lease at a cheaper rate that gets distributed in your monthly payments. If you do go over the miles in your lease term, fees accrue on a per-mileage basis, usually in the range of $0.10 to $0.15 per mile. So if most of your driving is local, leasing makes sense. However, if you consistently tack on 500 or more miles a week, you probably want to look into a loan.
Stanley Subaru Tip
Lease agreements usually limit mileage from 10,000 -15,000 miles annually. Beyond these figures, fees in the range of $0.10 to $0.15 per mile begin to accumulate. It is also possible to pre-buy extra mileage into your lease agreement. Ask our Finance Department for more information!
- Emily from Machias
