CAR LEASING 101
In basic terms leasing is a type of financing that allows you to own a car, van, SUV or truck for a certain period of time in return for regular payments. Now, even though this is the same concept as renting there are a few very significant differences. You probably rented a car at least once in your life and know that you can rent a car for only a couple days or even hours. Leasing is a long-term commitment that generally starts at 24 months and it is often difficult to terminate the contract or switch a vehicle if you suddenly changed your mind.
As mentioned previously leasing has been around for a long time and has become an increasingly popular means of financing. We will go over all the advantage, disadvantages and peculiarities to make sure you can make the most educated thought through decision.
Where to Start
Negotiation is a very important part of getting a fair deal. There is almost always room for a better price than first advertised by the dealer. In this regard it is not that different from purchasing a car, unless it is a special manufacturer-sponsored deal lease price does not always have to be the sticker price.
Once again do your research! There are many online tools that help you price out a fair lease, it doesn’t really matter if you negotiate the price or find it online as long as it is the lowest one to take advantage of it.
Websites like TrueCar.com or Edmunds.com will be of great assistance to see what kind of deals are there and what other people pay for a similar car. Ask for a quote and local dealers will get in touch with you with their offers. These services are perfect for people that dislike negotiating; you get the most affordable option without leaving the comfort of your house or office. Once you have agreed on the price and terms you sign the contract and are ready to enjoy your brand new set of wheels.
The Leasing Company
What actually happens behind the scenes is the dealer sells the car to the leasing company and that company leases it to you. Now you see why it’s important to negotiate the price in the first place, your monthly payments will be dependent on it. The lower the price the lower will be your monthly lease bill.
The car dealer is an intermediary between the manufacturer and the leasing company. They are interested in negotiating a high price for the vehicle and as a result you face higher monthly payments. As soon as the contract is signed and the car is in your procession the car dealer is out of the picture and you do business directly with the leasing company.
So we have gone over the first two steps of the leasing process:
- You choose the car that you would like to lease
- You negotiate the best price with the dealer or find the most fitting option online.
Be aware that your payments will also include various taxes, fees, finance rates, security deposits and add-ons, based on where you live, your credit rating and the terms of your lease. Some dealers offer various cash down-payment options. Typically this is a way to lower your monthly bill by putting down cash in advance. Security deposits (if applicable) are returned at the end of the lease.
What Comes Next
Now that the contract is signed you are legally obligated to make monthly payments, maintain your vehicle according to the manufacturer’s standards, pay all the local and state fees and comply with regulations such as insurance, and emission and safety inspections. The typical lease is for 24 or 36 months and as mentioned previously it is not that easy to get out of the contract. We will later discuss possible options to swap leases and terminate contracts.
Just like any new car you will have a standard manufacturer’s warranty. The typical warranty is 3 years, however some manufacturers have extended warranty for up to 10 years or warranty based on mileage (generally up to 100,000 miles). This is yet another advantage of leasing: try to have a lease that will be no longer than the warranty coverage period. A lot of break downs and malfunctions are covered by the warranty. Some parts can very expensive to purchase and replace if not covered by warranty.
Now another distinctive particularity of a lease is that you will have to return the car at the end of the lease. Of course after 3 or so years of driving there will be normal wear and tear and minor scratches or dents, but you will have to pay for any excessive damage or mileage over the limits you have negotiated when signing the contract. So take good care of your vehicle and pay attention to the maintenance schedule to avoid major damage and break downs.
Some companies offer the option to purchase the vehicle at lease-end or exchange it for a different lease or use it as a trade-in. Even though it might seem like a good deal to buy the vehicle, find out the value of the vehicle, if you want to purchase it and then sell it, make sure you know market and will be able to sell it, take into account the warranty status.
To recap –
- weigh all the pros and cons of leasing and make sure you understand the process,
- negotiate (find) the best price and take into account all additional expenses,
- take good care of your vehicle and maintain it according to the requirements,
- analyze the possible options at the end of the lease (buy or trade in the vehicle, get a new lease, or simply walk away).
Next we will dive into the specifics of leasing and explain in detail how leasing works and how to take advantage of it.