Leasing a Car

automobile leasingFirst, it is important to review what exactly a lease is, and reasons it may or may not be your best option.

A lease, in basic terms, is paying the difference between the price off the showroom and the price the dealer thinks they will get for the car when traded back in at the end of the lease plus the cost of wear on the vehicle. The price the dealer thinks they will get for the car when traded back in is termed the ‘residual value’ and is typically between 50-60% of the original showroom price on a 36 month lease.

While the benefits and advantages of having a brand new car every 36 months may seem appealing, you should review a few of the pros and cons of such a set-up first:

Pros:

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  • Lower down payment
  • Lower monthly payment
  • End of lease is easy (no negotiating trade in value, etc)

Cons:

  • At the end, you own nothing
  • There is always a payment as long as you drive a car
  • Early termination can have high charges
  • Extra mileage charges can be very high

Questions to ask when considering leasing a vehicle

1. Do you drive more than 15k miles a year?
Most leases allow for 12-15k miles per year. If you drive over this amount, the overage charges will make leasing a very expensive option.

2. Do you take good care of your car?
Leasing contracts call for cars to be maintained to high standards, excessive wear can prove very costly.

3. Do you plan on modifying the vehicle?
Leases generally do not allow for modifications without substantial payment to the dealership.

4. Do you anticipate any lifestyle changes soon?
Will you have kids in the next year or so and need a larger car? Or will you be moving to a new area where you will need a Sport Utility Vehicle (SUV)? Breaking a lease is very costly, so you must consider that you will need to stick it out with the car for the term of the lease, unless you’re okay with paying a ton of over costs.

Specific questions to ask regarding an auto lease agreement

  • What is the amount due on sign-up?
  • How long is the lease?
  • What happens at the end of the lease?
  • What is the mileage allotment, and what are charges for overages?
  • What is the residual value?
  • What happens if I must end the lease early?
  • Can the leasing period be extended?

Few people find the whole leasing process ‘straightforward’ and knowing a few of the common traps that dealers use to pad profits can greatly benefit the potential customer.

Common auto leasing ‘traps’:

Over mileage
Often dealers will advertise exceptionally low rates, however with a very low mileage allowance and high overage charges.

Early-termination
Dealers often claim they can end your current lease early and ‘roll-over’ into your new lease. This is very expensive.

Residual value
Dealers can sometimes vastly understate residual value, causing your price of the lease to increase.

Down payments
A low monthly payment is often advertised; however, the size-able down-payment is visibly absent from such advertising.

“Savings”
The dealer will show the difference in monthly payments between leasing and buying. However, you must remember, at the end of the lease you do not ‘own’ anything, so keep that in mind.

Fees
Document fees, disposition fees, purchase option fees, license fees.

Next we cover the pros and cons of purchasing an automobile

Posted on October 28, 2011 by in Automobiles

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