Leasing has become a popular option for consumers in the car buying market and for good reason. Lower monthly payments, more flexibility, access to newer models on a more regular basis, and included maintenance are just a few of the perks that are exclusive to lessees.
But if this is your first time ever considering it, how are you supposed to know that you are getting a good deal?
Follow these four simple steps and you'll be a car lease expert in the time it takes to drink a cup of coffee.
1. Understand the Vehicle's Residual Value
One of the first thing you need to know as a consumer is that all vehicles are depreciating assets. Regardless if you purchase or lease, cars lose value over time so you are never going to be in the green on the investment.
By choosing to lease, you are essentially paying the amount the vehicle is worth for the amount of time you are driving it (typically 36 months) along with its residual value.
When you elect to lease a car, you will make an agreement with the dealership and the leasing financial company who will determine what the vehicle will be worth at the end of your leasing term. This figure is based on a number of factors including year, brand, model, features, number of miles driven over the course of the lease, and normal wear and tear. Some cars do better over time but a general rule of thumb is that the better condition you keep the car, the more money you will save on the lease.
2. Break Down the Numbers
Now that you know how residual value works, it's in your best interest to break down the numbers even further. If you did your homework and discovered that the car you want will have a high value at the end of your lease term (highly recommend finding these options), the lower your monthly payment will be. The remainder of the financial burden will fall on the next person the vehicle is passed to while you are responsible for the following:
- Principal loan and interest on depreciation
- Interest on residual value
- Taxes
3. Know the "Money Factor" of the Vehicle
Every dealership that leases cars include a cost that is often referred to as the money factor or lease factor. This number is the interest rate offered for the lease. Similar to APR, these numbers usually come in decimals and you need to multiple that number by 2.4 to get the real figure.
For example, a lease offer that comes with a money factor of 0.003 means that you are paying an annual percentage rate of 7.2%. These numbers are typically determined by the leasing financial company that is partnering with the dealership so there is little room for negotiation here.
However, if you are aware that the money factor is included as part of the lease, you can bring it up in conversation to convince the dealer to lower the principal amount if you feel like the money factor is too high.
4. Read Everything Before You Sign
We probably don't need to tell you that it is in your best interest to read the fine print before you sign a new lease. However, it is very important to really take the time to study everything that is included on the contract, especially for first-time lessees. Here is a list of what to expect. If you see anything outside the following list, that is a big red flag:
- Down payment or the amount due at signing
- Monthly payment with routine maintenance included
- Security deposit
- Disposition fee
- Acquisition fee
- Taxes
Every lease looks a little different and you might even find yourself in a situation where one or more of the above fees are waived. But if you see anything else outside of these numbers, it is cause for concern and you'd be glad you were diligent enough to catch it.
Contact
Napleton's Ellwood Chrysler Dodge Jeep Ram
1000 Lawrence Ave
Ellwood City, PA 16117-1852
- Sales: 8552649170
- Service: 8552651752
- Parts: 8004641332
Sales Hours
- Monday 09:00AM - 08:00PM
- Tuesday 09:00AM - 08:00PM
- Wednesday 09:00AM - 08:00PM
- Thursday 09:00AM - 08:00PM
- Friday 09:00AM - 06:00PM
- Saturday 09:00AM - 04:00PM
- Sunday Closed