When you look in the Sunday newspaper at the car dealership ads you see lots of prices for leases, and boy, don't they look cheap.
You can lease a vehicle for only 99.00 a month? How can they afford to give cars away like that?
Hmm...are they really giving those cars away? Are leased cars a "steal" for the customer?
Or is there a huge down payment involved with those cheap monthly car payments?
Let's take a deeper look into leasing a vehicle.
Why Do People Lease Cars?
Many people like to get a new car every couple of years. Leasing makes this very possible for them.
Lease payments are usually less than car buying payments so you are able to afford "more car".
You can get a luxury model vehicle and pay less for a lease than for an outright purchase. This is because your not paying for the entire vehicle, your just going to use it for awhile.
When your lease is up the car dealership will turn around and sell the car and make more money on it.
When your leasing a vehicle you should negotiate the cost of the car with the salesman. The price of a car is never set in stone, whether your buying or leasing the car, so deal as though you were buying the car and get the best price you can, and then your financing will be based on that negotiated price not the sticker price.
That seems easy enough, but lots of people don't know you can do that.
Lease Factors to Think About
There are several factors that determine the cost of your lease.
The value of the vehicle, the lease rate and the residual value (what the car is worth when the lease is up). You will determine the cost of the vehicle...it depends upon which make and model you want.
The lease rate is the interest rate, and you can try several different ways to finance the lease to get the best interest you can. The third part of the equation is the residual value.
If your going to lease a car worth 30,000.00 for two years, how much will that vehicle be worth at that time? The difference between it's value now and then is the amount you are paying for.
Make sure you find out what rebates and discounts are available on the car your choosing. You can apply them to the price of the leased car to lower it
Don't sign anything that says an open-end lease. This means the end value of the car is not determined until you hand it back to the dealer. In other words, you don't know how much the car is valued at by the end of the lease. This could mean unexpected payments when you turn your car in.
Make sure your lease contract is very clear in terms of:
Your Monthly Payments
Taxes
Security Deposit (and how much of that is refundable)
Yearly Mileage Allowance
Origination Fee
Lease Term (how many months your leasing it for)
The Vehicle Selling Price
The Vehicle Residual Value
The Lease Rate
Car dealers like to omit some of these, and guess who pays for them in the end! Make sure you know exactly how much money you will owe at the end of your lease. Hopefully it will be ZERO.
There are some charges the dealership will try to hit you with when your turning in your lease.
The first is the residual value on an open-end lease...which you know not to get!
Another tricky fee they may try to stick in is a fee for cleaning the vehicle once it is returned. It is called a disposition fee. Make sure there is nothing about that in your fine print.
Why Do Dealerships Lease Vehicles?
Dealerships love leasing cars. Why? Because they make a lot of money. They make money from the interest on your lease financing which is usually higher than car purchase financing.
They sell your car for its full value when you return it.
Most people lease a more valuable car that is more car than they could afford to buy, so the dealership makes a higher priced sale.
The dealership will help you lease another car when you return this one, so they have a nice sized supply of repeat customers. They also have a nice supply of used vehicles, with low mileage, to offer to new customers looking for a newer used car.
When you are looking into a lease make sure its a win-win situation for you and the car dealership. You don't want to pay more than you have to in order to have a newer vehicle.
