You’ve heard that leasing a car is a good option, but you may not know exactly what it means or if it’s the right choice for you.
We think it could be the best option for you in 2022 rather than buying new or used!
Leasing a car can be an excellent option for many people, but there are a few things to consider before signing up.
It’s no secret that buying a car can be expensive and stressful. You have to save money each month for a down payment, find the right car, and then deal with the stress of monthly payments.
Leasing is one way to avoid some of these headaches and more problems. This article will teach you what you need to know before signing on the dotted line for your next set of wheels.
Table of Contents
Key Takeaways
- Leasing a car can be an excellent option for those who want a new car but don’t have the money to buy a car outright.
- You need to know things like monthly payments and your credit score before settling on a car, but leasing may be cheaper than financing a purchase right now.
- Used car prices are soaring- leasing and buying when the lease ends could be the savvy option for you!
- More care is needed for leased vehicles than an owned car. If you don’t take care of it, you may pay more money at the end of the lease.
Leasing A Car Vs. Buying A Car
Leasing a car is an excellent way to get a new vehicle. But what is the difference between leasing compared to buying a new or used car?
Leasing A New Car
When you lease a car, you are essentially borrowing it from the dealership or leasing company for a specific period of time.
You will usually have to pay some money down and then make a monthly lease payment until the car is returned.
Sometimes that monthly payment is even lower than it would be if you financed buying the same car!
Leasing a vehicle can be a great way to get behind the wheel of a shiny new vehicle without breaking the bank.
You can choose from various models and even upgrade to a different car every few years if you’d like. And since you’re only borrowing the car, you won’t have to worry about selling your car later on.
Buying A New Car
When you buy a new car, you’re purchasing the car outright. You’re responsible for some repairs and maintenance, which affect the car’s depreciation and residual value upon resale.
One of the benefits of buying a newer car is that you can usually get a warranty from the dealer. This warranty will cover any repairs or maintenance that needs to be done on the car for a certain amount of time.
The biggest downside to buying a newer car is that it can be expensive, whether you pay upfront entirely or have monthly loan payments.
You need to have a good credit score to get a car loan, and you need to have the money to pay for the car upfront.
Buying A Used Car
Used cars are cars that have already been owned and driven, all of which change how much you pay or how long you’ll have the car for.
One of the benefits of buying a used car is that you can often get a better deal than buying a newer car. This is because the residual value of the car lowers over time.
The downside of buying a used car is that you don’t have the same warranty as you would if you were to buy a newer car, so you’ll have to pay for the repairs yourself.
Remember, a used car may not have the latest features and technologies. This can be a problem if you need a car that comes with all the bells and whistles.
How To Lease A Car
What are some things you need to keep in mind when leasing?
It’s many of the same steps you take when buying a car, in addition to learning about your specific lease options.
1. Set Your Budget
First, you need to set your budget. Can you afford to add a car payment to your monthly expenses?
Don’t stretch your budget too thin, be realistic about how much you can afford. . There are plenty of other great cars out there that are more affordable.
Having your budget set up on a personal finance tool like Personal Capital can show you quickly whether there is room in the budget for a car lease.
Don’t forget to save up! Capital One Shopping and Honey can help you save money toward your car lease.
2. Do Your Research
After you’ve budgeted for your car, it’s time to do some research to learn what cars are available to lease, estimated lease payments, and the monthly cost of running the vehicle.
Be sure to check out the car’s specs, such as horsepower, fuel efficiency, and cargo space. You’ll also want to know the insurance and whether there will be maintenance costs.
Before you sign the lease, you want to know:
- the lease terms, like interest rate and mileage limits
- what the down payment is
- what the mileage allowance
- what the length of the agreement is (when the end of the lease is)
3. Check Out Multiple Dealers
It’s essential to check out multiple dealers for lease deals when leasing a vehicle. This way, you can compare prices and terms and possibly save money.
Be sure to ask the dealers about any hidden fees or costs. You don’t want to be surprised by anything after you’ve already signed the agreement.
Another thing to keep in mind is that dealers can offer different incentives. This means that you may be able to get a lower monthly payment or a longer lease term at one dealer than at another.
4. Negotiate Your Terms
Don’t be afraid to ask for lower monthly payments or longer terms to help you stay within your budget. You can also negotiate the lease terms, like mileage, interest rate, and cost of the vehicle, before signing on the dotted line of the lease agreement.
Knowing your credit score and what lease payments you can afford will help you negotiate the best possible terms for your lease. An easy way to know your credit score is with Credit Karma, a free credit monitoring service.
And definitely ask questions if you don’t understand something in the agreement. The last thing you want is to get stuck with a car you don’t like or can’t afford.
5. Take It Home & Take Care Of It!
Once you have negotiated and leased the car, it’s time to take it home and enjoy your new wheels.
Be sure to take care of your car as outlined in the lease agreement– this will ensure you don’t incur any unexpected fees down the road.
If you just leased a car, there are some things you should do to take care of it.
- Be sure to read your lease agreement to know what is expected of you.
- Take care of it like it is a rental car.
- Keep It Clean.
- Please don’t smoke in it.
- Set up service appointments.
- Try not to run up the mileage.
Understanding Your Lease & Monthly Payments
Make sure you understand the lease terminology involved in the process. Here are a few key terms to know:
- Down Payment – This is the amount of money you pay upfront to the leasing company when you lease a car. This amount varies, but US News and World Report reported the amount is anywhere from $0 to $3,000.
- Money factor – The money factor is how to measure the interest rate on a car lease. This number is expressed as a decimal (e.g., 0.0025). To convert it to an annual percentage rate, multiply it by 2400.
- Purchase Option – The option at the end of your lease agreement to buy the leased vehicle at a pre-determined price, usually the fair market value in a used-car book such as Kelley Blue Book.
- Open-end lease – An open-end lease is a type of lease where you have the option to purchase the vehicle at the end of the lease contract. This is different from a closed-end lease, which doesn’t allow for purchase.
- Gap coverage – Gap coverage is gap insurance that helps protect you if something happens to your car and your comprehensive or collision car insurance doesn’t cover the amount you owe on the lease.
- Capitalized cost – The capitalized cost is the total amount you will pay to lease a car, including the down payment, monthly payment, acquisition fee, and other fees.
- Residual value – The residual value is the car’s estimated value at the end of the lease term.
- MSRP – Manufacturer’s Suggested Retail Price. It is the price that the car manufacturer recommends that dealers charge for a new car.
- Disposition Fee– some contracts have a disposition fee for resale, which covers car cleaning, admin costs, storing fees, and more when the lease is up, and you don’t purchase the vehicle.
Pros & Cons Of Leasing A Car
Pros
- The monthly payment amount may be lower on leased cars.
- You can get a new, nicer car every 2 to 4 years.
- If a leased car gets damaged or stolen during the lease term, you might only have to pay the deductible on your insurance policy instead of the entire cost of the vehicle in cash.
- If lease rates change before your lease expires, you might be able to renegotiate terms or enter into a new agreement with different monthly lease payments.
- You don’t have to worry about selling the car when the lease period is over.
Cons
- Your ownership rights end when the lease expires unless you buy the car at the end of your lease.
- If you drive more than the allowable mileage limit each year, you could incur significant excess mileage charges when your lease is up.
- Leasing a vehicle usually requires good credit.
- A down payment may be required to lease the car.
- There may be a hefty fee if you want to turn your car in early.
Frequently Asked Questions
Is there a fee if I want to end my lease early?
Yes, there is usually a fee if you want to end your lease early. This fee is known as the lease termination fee, and it’s generally based on how much of the lease you have left.
For example, if you have six months before your lease expires and decide to terminate it, you may be charged a percentage of the total cost of the lease agreement.
Are maintenance and insurance included in my monthly payment?
Most leases include routine maintenance, such as oil changes and tire rotations, and some may even include collision insurance, comprehensive insurance, or gap insurance.
Be sure to ask your leasing company about what’s included in your payments before you sign on the dotted line.
Who is responsible for damage above normal wear and tear?
You’re responsible for any damage above normal wear and tear when you lease a car like if your car gets a scratch or dent, you’ll have to pay to have it fixed.
Take care of your car and avoid any unnecessary damage.
What happens if I go over the number of miles allowed in my lease?
If you go over the number of miles allowed in your lease, you may have to pay a fee.
This fee is generally based on how many extra miles you drove and how much the leasing companies estimate it will cost to cover that distance.
Keep track of the number of miles you’re driving if you travel a lot and find ways to avoid going over your limit.
Our Thoughts
Keep in mind that leasing a car can be a great way to get into a new vehicle without breaking the bank and save you money in the long run.
Leasing a car may not be the obvious option for everyone, but it’s worth considering if you’re in the market for a car just to get all your options lined up.
Who doesn’t want to find the best option at the lowest cost? The monthly lease payment may be lower than if you were to buy the car outright.
Plus, you can upgrade your car every two to four years, which is a great way to stay up-to-date with the latest trends.
So if you’re in the market for a new set of wheels, consider leasing your next vehicle.
