How Can I Reduce My Monthly Payment On My Current Lease?

If you are currently leasing a vehicle and your monthly payment is overwhelming

, regardless of the reason you are looking to reduce the payment by down sizing into a smaller vehicle. According to common sense, your payment should be lower if you purchase a smaller, more economical model but contrary to popular believe this may not be the case. Let's use Honda for an example! If you are currently driving a Honda Accord and you are one year into your four year lease, and you are making a monthly payment of $450 per month. You inquired about the monthly payment for a Civic and it is about $350, the idea of saving $100 per month seems attractive but can this scenario really happen in real life? Well before we get ahead of ourselves, let's look at the big picture first. If you are leasing a vehicle 99% of the time, you don't have any real equity build into the car. Since a vehicle is a depreciating asset right from the get goes, you are merely paying for the depreciation of your vehicle over four years period. If you are one year into the four year lease, you are still obligated to pay back the interest as well as the payments.

Your one year old Accord will worth a lot less compare to the day you purchased it, maybe the dealership is willing to offer you certain amount for the car according to the current wholesale market condition. But comparing with your outstanding lease balance, you maybe responsible for $4000 to $6000 in negative equity before you can walk away from your previous lease. If you have about 5000 km on your vehicle, it is practically brand new, but since all vehicles depreciate it may not be so attractive when you do the math. In a nut shell you will have to dish out thousands of dollars to break your current contract. Is the $100 monthly savings worth it in the long run? The answer is no, think about it this way, if your 48 month lease on the new Civic will save you $100, that is $4800 total saving you will accumulate over the entire life span of your next lease.

If you are only required $3000 to break your current lease, then you will be saving $1800 in the big picture. But if the cost exceeds $4800 then it makes absolutely no sense for you to make the switch. The best advice is to visit several dealerships, and get a good idea of your negative equity before making your decision. Believe it or not the number will fluctuate between dealer to dealer. Thank you for reading this article it is brought to you by No Credit No Problem Canada, the latest online credit processing center for city of Toronto.

by: Rick Li

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