How does leasing really work?
Leasing your next car could be the right thing for you or it could be the worst mistake of your life, causing you to despise every car dealer who suggests it.
Leasing may be right for you if:
You usually trade in your car before it’s paid for.
They are stable at work and home and do not plan to change their normal commute and annual mileage.
Realize that cars are among the worst “investments” you can make.
Have good credit.
You’re worried about the future resale value of the vehicle you’re buying, that is, “a large SUV in the face of rising gas prices.”
Most of us know someone who has had a bad experience with a lease and goes out of their way to tell everyone what a scam it is; the truth is that they probably didn’t ask enough questions or didn’t know what they were doing.
Don’t sign anything you don’t understand!! This applies to any contract you are asked to sign.
Lease 101
Leasing is best related to renting an apartment; You are paying a monthly usage fee that covers the depreciation of the car over a period of time, say 3 years. During the term of the lease, you are expected to perform any required maintenance, any damage due to accidents must be professionally repaired, and use the car “normally”. Excessive wear and tear will be billed to you upon delivery; Just like an apartment, you can’t rip the walls off and throw wild parties every night without getting penalized.
Lower your monthly payment. Because you’re only paying for the car’s depreciation and not trying to pay it off in full, your payments are generally lower on a lease than on a rental. purchase. Never enter into a lease based solely on payment; or any other financing for that matter, is a sure way to be taken. Sales prices for leases are negotiable just like purchases, so don’t be a “paying buyer” or you’ll get caught.
Lease terms you need to know. Residual value is the amount you can buy the car for at the end of the lease term; it is a percentage of the car’s MSRP and is part of what determines the payment. You should always calculate your own lease before you sign, and the residual is one of the figures you’ll need to do this. Gross Capitalized Cost is the grand total of the loan before any down payment and Net or Adjusted Capitalized Cost is the amount of your loan after any down payment or business capital. The monetary factor is used to calculate the rental charge and is usually a decimal, such as 00312; A simple way to roughly derive an interest rate from the money factor is to multiply it by 2,400, ie (0.00312 x 2,400 = 7.49). Leases are not calculated in the same way as a retail loan, so be sure to use a “lease calculator” to make sure nothing extra is included in your agreement.
“But I drive a lot of miles.” Leases vary from lender to lender, but most will offer annual mileage limits from 7,500 to 30,000…yes, 30,000 miles per year! Most leasing companies cap total mileage at 100,000 over the course of a lease, so the term should be short enough that you don’t exceed that. Many times, especially when looking at high-end cars, the residual value on a high-mileage lease is much better than what you could expect to sell the same car for if you owned it. The bottom line here is to do your own comparison; luxury cars will depreciate a lot when you’re talking “high miles” and a lease can limit your loss.
Never, never lease from a bank. Personally, I’ll only do a “factory sponsored” lease and here’s why. The factory has a vested interest in your satisfaction with the leasing program, if you end up being hit with a bunch of bogus charges, attrition fees, etc., you’ll be less likely to get another one; banks, on the other hand, have nothing to lose and tend to be much stricter in accessing damages at the end of the lease. “Factory” lease rates are often enhanced to help lower payments and when it comes to interest, less is better.
Match your lease term with your warranty. As a general rule, you never want to lease beyond the factory warranty on cars; he wants the car during the “best part of his life”. Think about it, the only additional expenses you will have are your maintenance costs. If you need a longer term to keep the payment affordable, you’re probably looking for too much of a car!
