What to know about leasing a car
Things to Know about Leasing a car
10 Questions to Ask Before Leasing a New Car
Most of us aren’t experts in leasing cars, which is why it is important to ask questions. To ensure you're getting the best deal possible, you need to ask the dealer the right questions. Evaluating the offer the dealer gives you and putting in the time to discover the best deal pays off in the end. You can get a better idea of the lease deal if you ask the right questions.
Here are ten questions to ask that will get you moving in the right direction.
1. Are there currently any lease specials going on?
To boost sales, many carmakers will occasionally offer discounted leases that can grant you significant savings. It is always important to check the fine print of the lease ad to see if they slid any extra expenses in there. Most of the time, monthly payments don’t include sales tax or registration fees. It is vital to check the drive-off fees to ensure the price point isn’t above your range. Sometimes, lease deals are only available to current leaseholders, so you want to check that the lease deal is available for you.
2. What is the residual value of the car?
An estimate of how much the car will be worth at the end of a lease is the residual value. This is usually expressed as a percentage of the vehicle’s manufacturer’s suggested retail price (MSRP) and an important part of a good lease.
Residual value is important because your lease payment will be lower if the residual value is higher. Essentially, you are paying for the difference between the selling price and the residual amount when you lease a car. The difference will be smaller if the residual amount is higher.
For example, if you decided to lease a $25,000 car with a 50 percent residual rate, by the end of a 36-month lease, that vehicle would be worth $12,500. This means that your lease cost depends on the $12,500 difference between the $25,000 price and the $12,500 residual. When you divide $25,000 by 36 months, you get a $347 monthly payment. This is all before taxes, interest charges, and fees.
If the same car had a 60 percent residual ($15,000), your lease would be based on the difference between $25,000 and $15,000 which is $10,000. This brings your monthly payment down to $277.
Asking your dealer about the residual value of the car you are considering is always a good idea. They will most likely give you a percentage between 45 and 60 percent.
3. How much money is due upfront?
If you see a low monthly lease payment in a newspaper or TV ad, it is important to ask how much money is due upfront. It’s likely that the low monthly payment comes with a large upfront payment.
Your upfront out-of-pocket costs--which are also called drive-off fees--are a combination of fees and a down payment. Just like a traditional loan, lower monthly payments is the effect of a bigger down payment.
You will want to pay as little as possible upfront. When it comes to a lease, paying a large amount of cash upfront can actually hurt you in the long run. With traditional loans, this is the opposite. If your leased vehicle is stolen or totaled, you are not guaranteed that the downpayment you have made will go back to your insurance settlement.
Pros at car leasing often choose to pay the first month’s payment and registration to begin the lease. Other charges you may receive automatically go into the monthly payment. The monthly payment increases when the up-front payment is lowered because those costs spread throughout the rest of the lease period. The cost of the overall lease payment maintains the same whether you decide to pay it upfront or spread it throughout the lease term.
4. What is the money factor?
The money factor in leases is the same concept as an interest rate in loans. The lower the number the better, just like traditional interest rates. The money factor usually looks like 0.00125. Multiply the money factor by 2,400 to convert it back into the interest rate. Then it becomes 3 percent. It is crucial to ask what the money factor is that is being applied to your lease and convert it to an interest rate. This is a simple way to ensure you are receiving a rate that matches your needs depending on your credit score.
5. How many miles are included in this lease?
You may see a promising lease deal, but once you read in the fine print that the lease only includes 7,000 to 9,000 miles per year you should second guess the deal. If you don’t drive that much, limited miles may be fine for you, but if you drive a lot then you need to consider a different lease deal. Most people need a minimum of 12,000 per year depending on how much you drive. Some people require more than 12,000 miles though.
It is always important to allow yourself the number of miles you need when you are leasing a car. If you need more miles than the number offered, you will have to pay more than the original monthly payment.
6. What fees does the lease have?
When leasing a vehicle, customers might be more successful if they ask to have some fees reduced or removed from the lease contract. There are some fees like acquisition and disposition fees that can’t be negotiated, but fees like the security deposit usually have the ability to be negotiated.
The fee amounts usually differ depending on the brand and the bank. There might be nonnegotiable fees but it is better to know the amount you are paying than being surprised by disposition fees you weren’t expecting at the end of the lease. Overall, it is important to understand the options you have when it comes to negotiating.
7. Over the life of the lease, what will this vehicle cost me?
Multiply the number of months in your lease by the total amount of your monthly payment including taxes and fees. Add in your total drive-off costs to that number, and your total is the full amount you will spend on the lease.
A great part of leasing is the low monthly payments involved and the great deals available. Understanding that you are putting in these payments, and not being able to own the vehicle may turn you away from the idea of leasing. However, finding a low monthly payment is a part of the magic of lease dealing.
8. What does the lease contract say about lease transfers and ending a lease early?
Sometimes leasers may want to get out of their lease early or switch vehicles. This used to be much harder to do, but now there are many companies that offer lease transfers. Before leasing a vehicle and signing the contract, it is a good idea to ask if transfers or ending early is an option.
9. What are the charges for possible damage to the vehicle?
When you own a car, you get to make changes to it accordingly. But when you lease a car, you must be mindful of your responsibility to any damage or changes made to the vehicle. What is considered normal wear and tear is different in each lease deal so make sure to check what the contract says.
10. What maintenance expenses am I responsible for?
During your lease term, you are responsible for the costs of maintaining the vehicle as if you owned it. The responsibility of insurance costs, oil changes, regular upkeep, and other maintenance falls onto the shoulders of the current leaser. Potential taxes from your local government also become your responsibility.
