What should I consider when leasing a car?
Should I consider a lease? And what are my options while in the lease?
Leasing a car can be very confusing and has had a bad reputation in the past due to non-disclosure. In fact, some people think that it’s better than ever to lease a car. Most leases these days are transparent and very consumer friendly. Leasing, in most cases, is a great way to get into the car you love with a smaller payment and, unlike purchasing, you have the option to give the car back at some point.
Most people think of leasing as being a more limited choice; however, I tend to view it as just an additional option for getting you in your dream car. Leasing isn’t for everyone, but it can be customized to fit a situation, price and term for most. The average minimum credit score required for a care lease is 640. In most cases, leasing does require good credit, but there can be exceptions with diligence on the part of the consumer, the finance manager, and the dealer you are working with.
What do I need to know before entering into a lease?
Negotiating a lease is the same as a purchase; you want to shop around for the best deal. Once you have negotiated the price you are willing to pay for the car, there are a few terms that you need to understand that are every bit as important as price negotiation.
- Capitalized Cost: This is the price you have agreed to pay for the car and may be called the “lease price” or “car value.” Capitalized price does affect payment and therefore getting a good deal is still important.
- Cap-cost reduction: This is the amount of money being subtracted from the principal capital cost. It comes from your down payment, rebates, coupons, or equity in a trade.
- Residual value or option: This is the price that you can expect to pay for the car at the end of the lease, plus any fees, taxes or registrations if applicable.
Do I have options in a lease?
Yes, you do! Quite a few.
- Give the car back at the end of term. If you are within the miles, you feel that the car is in good condition and you no longer wish to keep this car, then this might be a good option. This is a great option if the dealer or private party has not offered you equity in the car.
- Trade it in on a new car. This works great when you have equity or a small amount of negative equity due to mile overage, or minor wear and tear damage. If there is equity, this equity can be applied to your cap cost reduction. If there is negative equity, it is applied to your Capital Cost (not negotiated sales price) and can be handled with money down or within payments over the short period lease. You can do this at any time during the leased period; value and depreciation will vary.
- Sell your car. Not many know this, but you can sell your lease (anytime during the lease period), by simply calling the bank you are leasing through. They will give you a payoff balance and you can sell the car for that amount or more (make sure it is the full amount not just the remainder of lease). At the end of your lease, if you have equity and someone wants to buy the car, this is a situation you can take advantage of, while walking away with equity and apply that towards another car if you wish.
- Buy your lease. In most cases, you have the option to purchase your lease for the residual price set at the beginning of your lease. In most cases, this price is not negotiable; the price set as residual, plus fees is the purchase price. Many use this option, if they are over in miles or feel attached to the car.
What if none of these are a good fit at the time your lease comes due? Your lease due date came up and you just didn’t plan, or something happened as it does in life that took you off schedule. Another option most aren’t aware of is:
- Extending your lease: Most banks will allow an extension of time with the existing terms of the lease. So, if you find yourself at the end of your lease and you need another 3, 6, or 12 months to think about what you want to do, call your leasing institution and see if they are willing to extend the lease.
What if I go over on miles?
Mileage is always a concern. Many people run away from leasing because of this fear: the dreaded .15 to .20 cents or more per mile over the allotted mileage. To mitigate some concern, you can prepay some of the mileage down within the lease, you can opt for a high mile lease, 10, 15, 20 and more thousand miles per year, the manufacturer/bank will adjust your residual based on this mileage. My advice is to NOT prepay if you just think you may go a bit over, especially if you think you will probably re-lease the same kind of car or keep the car.
What options do I have if I don’t want to turn my lease in?
Again, you have a few options with a lease. You can either buy it or extend the lease in most cases.
Note: if you are thinking about purchasing your lease, think ahead and call your dealer prior to the factory warranty going out. Inquire about certifying the lease or purchasing an extension of the factory warranty if you have not already done so. Many of you reading this may say, “I’m not a person who buys warranties, and I haven’t had a problem with this car.” I’m not here to push you either way, but I will say that the car you have today is not the car of yesterday. It has electronics and computers and they were not made by the manufacturer. It does not hurt to do the research, and, lucky for you, I am here to do it for you with a little help from others.
Can I lease or get a subscription for a used car?
Yes, in some cases you can, some leasing companies will allow used cars to be leased. Many of these programs are called Subscriptions and a few companies have them. I am including a few links; these are not companies that I am affiliated with or advocate. I am simply giving you the information. Research on your part is recommended.
An affiliate discount program can get you a discount on rental cars while you are looking or while on vacation, offering up to 70% off and free cancelation.