You don’t have to be a millionaire to drive a luxury car. In today’s time, one can own a luxury car without it being a financial burden. And that’s because of car leasing. Even though car leasing is easier and cheaper, many people hesitate because of the terms involved. Car leasing has not only made driving a luxury car affordable, but has also made cars such as Electric Vehicles, hybrids, SUVs, sedans, convertibles, and other cars accessible to consumers.
When you lease a car, you essentially rent a car. You don’t own the car, rather make monthly payments to drive the car. The lessee gets the car for a specified period, normally 3-4 years.
Car leasing terminology
To get the best car lease deals, you must understand the terms associated with car leasing.
- Residual value is the value of the car at the end of a lease period. A car’s value depreciates over time. Hence, the residual value of the car is lower than the original value of the car. The dealership provides the residual value at the time when you lease the car.
- The acquisition fee (also called bank fees) is what you pay to the leasing company. You can’t negotiate this fee.
- Capitalized cost is what you pay as the monthly payments throughout the lease term. You can and should negotiate this price. The lower this price, the lower will be your monthly payments!
- A down payment is what you pay when you lease a car.
- The money factor is the term used for the interest rate on monthly payments.
- Disposition fees are the fees you pay at the end of the lease term. It covers the cost of a car’s maintenance so that the dealership can prepare the car for leasing or selling.
- Gap insurance is for emergencies when your car is stolen or in an accident. In this case, the leasing company considers it as an early termination of the lease; however, the insurance company settles the claim made by the leasing company. Gap refers to the difference in the value of the car and the remaining payments to the leasing company.
Things to consider before leasing a car
Car leasing sounds like a good option from the outset. However, there are a few things that you should consider before applying for a car lease program.
Your Credit Score
Your current credit score is a major factor in deciding the conditions of the lease agreement. Since a good credit score (680 and above) shows that you are a responsible borrower, your lease request is most likely to get accepted. Missing monthly payments leads to a poor credit score. Hence, if you plan on obtaining a car lease, you should check your credit history and request a credit statement a couple of months in advance.
Determine your annual mileage before leasing. It gives an idea about how much you drive throughout the year. You can drive a leased car for a specific number of miles. The leasing company charges you on each mile if you exceed the mileage. Typically, a lease agreement allows the lessee to drive the car for 10,000 to 15,000 miles a year. If you drive 500 miles over the limit, at a rate of 30 cents per mile, you will have to pay $150 at the end of the lease agreement. So before you lease a car, work out your annual mileage so you don’t end up paying more than you should at the end of a lease period.
If you are planning to lease a car, you should consider investing in gap insurance. In case of theft or other circumstances where you lose your car, not having a gap insurance you will end you up with paying to the leasing company. Before applying for a car lease, ask the leasing company whether the agreement includes gap insurance or not.
The lease agreement specifies who pays for the car’s maintenance while the lessee has the car. Most dealerships fine the lessee for the wear and tear of the car. Ensure that the car comes with a warranty from the manufacturer. The warranty must cover the duration of the lease agreement.
Leasing a car
Now that you have done preliminary research about the terminology and requirements, you are ready to lease a car. If you follow the steps given below, you can lease a car very easily.
- Consider the car that you want to lease. If you go online, you will find plenty of new as well as used cars that are ready to be leased. Moreover, you can also find cars ranging from luxury to economical and family-sized cars. Be clear on the car that you want to lease.
- Plan a budget. You want to ensure that the car lease payments fall within your monthly budget. Calculate the total value and the monthly lease payments that you are willing to pay to lease a car.
- List down the cars that fall within your budget. You can reduce the cost by looking for lease deals with low mileage, and low insurance.
- You now need to research each car for the specifications that you consider essential. Safety features are a must and ask the dealer about features such as anti-lock brake systems, stability control, automatic emergency braking, etc. Also, take each car for a test drive.
- Make a comparison of each car based on features and the lease deals. Take the capitalized cost, the residual value, money factor, and the lease agreements into account. Choose the car lease that you can afford and offers you comfort.
- Negotiate the capitalized cost with the dealer. Ensure that the lease agreement offers gap insurance.
- When the lease agreement is final, make the down payment. The more down payment you make; the low monthly lease payments are.
Take over a car lease—An alternate option
Buying a car lease from the dealership involves a down payment, which you can avoid if you take over a lease. In taking over a lease, you only make monthly payments. It is a cheaper option when leasing a car. Believe it or not, many people prefer taking over a car lease. Because of digitization and the internet, buyers can easily find car leases to takeover within their area.
If you want to get rid of a car lease, quitting a car lease is not the smartest choice. Instead, websites like Quitalease finds prospective buyers within your area for you. This way, you don’t have to ask around for people to take over a lease. Transferring a lease has never been this easier before!
Returning the leased car
After the lease period ends, which typically lasts about 2-4 years, the lessee returns the car to the dealership. The folks at the dealership inspect the car for any wear and tear, exceeded mileage, and charge the lessee accordingly. So after you return the car to the dealership, you may have to make additional payments in fees. A lessee may have to pay the following fees at the end of the lease period:
- As mentioned above, a car’s mileage at the end of the lease period adds to the cost if it exceeds. If you drive the car for less mileage than specified, the dealership will not compensate.
- Dealerships are very particular about the condition of the returned car. Hence, if the car is not in good condition and has undergone excessive wear and tear, the dealership will charge you for any damage to the vehicle. If you return the car with worn-out tires, the dealership will charge you for new tires.
- If you return the car after the termination date of the agreement, charges apply. So if you want to avoid this, return the car on or before the specified date.
- You need to pay the disposition at the end of the lease period. However, some dealerships waive this fees if you lease another car with them.
Electric vehicles are popular cars for leasing. The depreciation of an electric vehicle is greater than a conventional car. Moreover, as technology advances with each passing day, better EVs hit the market. Because car leasing is on the rise, dealerships are flooded with used cars as well. It allows prospective buyers to invest in a used car lease. The advantage is that the monthly lease payments are cheap. Since a car depreciates the most in the first couple of years, a used car’s depreciation is lower for the subsequent years. Hence, the monthly payments are low.
Car leasing is an attractive option for buyers. The monthly payments are cheaper, and you have the advantage of changing your car every couple of years. If you are a car enthusiast, car leasing is the right option for you!